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

                                  Form 10-K

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

                 For the fiscal year ended December 31, 2003
                        Commission File Number 0-11997

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

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

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

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

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

         Title of each class    Name of exchange on which registered
         -------------------    ------------------------------------
                 None

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

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

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

      Indicate by check mark if disclosure  of delinquent filers pursuant  to
 Item 405  of Regulation  S-K (S229.405  of this  chapter) is  not  contained
 herein, and  will  not  be  contained,  to  the  best  of  the  Registrant's
 knowledge,  in  definitive  proxy  or  information  statements  incorporated
 by  reference  in  Part  III of this Form 10-K or any amendment to this Form
 10-K.  [   ]

      Indicate by check mark whether the  registrant is an accelerated  filer
 (as defined in Rule 12b-2 of the Act).    Yes  [   ]   No  [ X ]

      The aggregate market value of the  voting and non-voting common  equity
 held by non-affiliates  of the Registrant  (treating all executive  officers
 and directors  of  the Registrant  and  holders of  10%  or more  of  shares
 outstanding, for  this  purpose,  as  if  they  may  be  affiliates  of  the
 Registrant) was $42,016,000,  computed by reference  to the  price at  which
 common equity was sold on March 11, 2004.

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

 10,451,816  shares  of  Common  Stock,  par  value  $.01  per  share,   were
 outstanding on March 11, 2004.


                     DOCUMENTS INCORPORATED BY REFERENCE

 Portions of the Registrant's proxy statement for its annual meeting of
 shareholders to be held on May 20, 2004 are incorporated by reference into
 Part III hereof, to the extent indicated herein.

<PAGE>

                                    PART I

 ITEM 1.   BUSINESS.
           --------
                                   General
                                   -------

 Incorporated in Texas in  1973, Carrington Laboratories, Inc.  ("Carrington"
 or the "Company") is a research-based biopharmaceutical, medical device, raw
 materials  and   nutraceutical   company   engaged   in   the   development,
 manufacturing and marketing of  naturally-derived complex carbohydrates  and
 other  natural  product  therapeutics  for the treatment of major illnesses,
 the  dressing  and  management  of  wounds and nutritional supplements.  The
 Company is  comprised  of  two business  segments.  See Note Thirteen to the
 consolidated financial  statements  in  this  Annual  Report  for  financial
 information about these business divisions.  The Company sells  prescription
 and nonprescription  human  and  veterinary  products  through  its  Medical
 Services Division.  Through Caraloe, Inc., its consumer products subsidiary,
 the Company sells consumer and bulk raw material products and also  provides
 product development and manufacturing services to customers in the cosmetic,
 nutraceutical  and  medical  markets.  The  Company's research  and  product
 portfolios are based primarily on  complex carbohydrates  isolated from  the
 Aloe vera L. plant.

 In 2001, the  Company incorporated a  wholly-owned subsidiary named  DelSite
 Biotechnologies, Inc. ("DelSite").  DelSite operates independently from  the
 Company's research  and  development  program and  is  responsible  for  the
 research, development and marketing of the Company's proprietary GelSite[TM]
 technology for controlled release  and delivery of bioactive  pharmaceutical
 ingredients.

                          Medical Services Division
                          -------------------------

 Carrington's Medical Services Division offers a comprehensive line of  wound
 management products.  Carrington products are used in a wide range of  acute
 and chronic wounds, for skin conditions and incontinence care.  The  primary
 marketing emphasis for Carrington's wound and skin care products is directed
 toward hospitals, nursing homes, alternate care facilities, cancer  centers,
 home health care providers  and managed  care organizations.  The  wound and
 skin care  product lines  are being  promoted  primarily to  physicians  and
 specialty nurses, for example, enterostomal therapists.

 In response  to changing  market conditions  and  to improve  the  Company's
 competitive position,  the  Company  decided during  2000  to  redirect  the
 distribution of its Medical Services products from multiple distributors  to
 a  single,  sole-source distributor.  As  a  result  of this  decision,  the
 Company  entered  into  an  exclusive  Distributor  and  License   Agreement
 effective December 1, 2000 with Medline  Industries, Inc.  ("Medline").  The
 agreement provides that Carrington will continue to manufacture its existing
 line of products and sell them to Medline at specified prices.  The  prices,
 which were generally firm for the first  two years of the contract term, are
 thereafter subject to  adjustment not more  than once each  year to  reflect
 increases in manufacturing cost.  The agreement requires Medline to pay  the
 Company a base royalty totaling  $12,500,000 in quarterly installments  that
 began on December  1, 2000.  In addition  to  the base  royalty, if  Medline
 elects to  market any  of the  Other  Products under  any of  the  Company's
 trademarks, Medline must pay  the Company a royalty  of between one  percent
 and five percent of Medline's aggregate annual net sales of the Products and
 the Other Products, depending  on the amount of  the net sales, except  that
 the royalty on certain high volume commodity products will be two percent.

 The Company maintains control of  certain national pricing agreements  which
 cover hospitals, alternate  care facilities, home  health care agencies  and
 cancer centers.   These  agreements allow  Medline representatives  to  make
 presentations in  member facilities  throughout the  country.   In order  to
 promote continued  brand-name recognition,  the Company  engages in  limited
 marketing and advertising to bolster Medline's efforts in these areas.

 The  Company  has  several  distribution  and  licensing  agreements for the
 sale of  its products  into  international markets.  The  Company also sells
 wound  care products into international markets  on a non-contract, purchase
 order  basis.   Opportunities  in  the  growing  Internet  market  are  also
 addressed  through  the  Company's  websites,  www.carringtonlabs.com.   and
 www.woundcare.com.

 The  Company also produces Acemannan Immunostimulant[TM], a  Biologic  fully
 licensed  by  the  United States Department of Agriculture  ("USDA")  as  an
 adjuvant therapy for certain cancers  in  dogs  and cats.   This product, in
 addition to several wound and skin care products developed specifically  for
 the veterinary market,  are marketed  and distributed  through an  exclusive
 distribution arrangement with Farnam  Companies, Inc., a leading  veterinary
 marketing company.

 Carrington is actively involved in developing and promoting the SaliCept[TM]
 line of products, which includes an oral rinse, patches for oral wounds  and
 extraction sites, and other products.  The SaliCept line[TM] is supported by
 a dedicated sales  representative  and the  Company is  actively  seeking  a
 strategic sales/distribution partner for this line.

                                Caraloe, Inc.
                                -------------

 Caraloe, Inc., a  subsidiary of the  Company, markets  or licenses  consumer
 products and bulk  raw materials  utilizing the  Company's patented  complex
 carbohydrate technology into  the consumer health  and nutritional  products
 markets.  Caraloe's  premier  product  is  Manapol[R]  powder,  a  bulk  raw
 material rich  in  complex  carbohydrates.  Manapol[R]  powder  is  marketed
 to  manufacturers  of  nutritional  products   who  desire  quality  complex
 carbohydrate ingredients for their finished products.  Caraloe  also markets
 finished  products  containing Manapol[R]  powder into  domestic health  and
 nutritional  products  markets through health food stores,  through internet
 marketing services at www.aloevera.com, and to the international marketplace
 on a  non-contract,  purchase order basis.  In the  fourth quarter  of 2000,
 Caraloe  introduced a  new  raw material, Hydrapol[TM],  for use by cosmetic
 manufacturers.

 In 1997, Caraloe  signed a  non-exclusive supply  agreement with  Mannatech,
 Inc.  to  supply Manapol[R]  powder.  This  agreement  was  renewed  through
 December 2004  and  contains monthly minimum  purchase requirements.  During
 2001, 2002, and 2003 sales of Manapol[R] powder to this customer represented
 30%, 35%, and 35% respectively, of the Company's total revenues.  Due to the
 nature of the product and the Company's relationship with this customer, the
 Company expects this supply agreement will be renewed at the end of December
 2004.  However,  the Company  is continually seeking  to expand its customer
 base in this area.

 Caraloe, Inc. also provides  product development and manufacturing  services
 to customers in the  cosmetic, nutraceutical and medical  markets.  In  June
 2001 a  development group  was formed  to concentrate  efforts on  providing
 these services. The scope of services provided by this group includes taking
 projects from formulation  design through  manufacturing, manufacturing  and
 filling according  to  customer-provided  formulations  and  specifications,
 filling customer-provided packaging  components and  assembling custom  kits
 for customers.

 In December 2002 the  Company entered into an  agreement to acquire  certain
 assets of the Custom Division of Creative Beauty Innovations, Inc.  ("CBI"),
 including  specialized  manufacturing  customer  information,   intellectual
 property, equipment  and selected  inventories.  CBI  is  a  privately  held
 manufacturer of skin  and cosmetic products  with operations in  Carrollton,
 Texas.

 Under the  agreement, the  Company paid  CBI  $1.6 million,  including  $0.6
 million for related inventory.  In addition, for the five-year period ending
 in December 2007,  the Company agreed to pay CBI an amount equal  to 9.0909%
 of Carrington's net sales of CBI products to CBI's transferring customers up
 to $6.6 million per year, and 8.5% of Carrington's net sales of CBI products
 to CBI's  transferring customers over  $6.6 million  per year.  The acquired
 assets include equipment  and  other physical  property  previously used  by
 CBI's Custom Division  to  compound  and  package  cosmetic  formulations of
 liquids,  creams,  gels  and lotions into bottles,  tubes  or cosmetic jars.
 Carrington uses these assets in a substantially similar manner.  The Company
 provides  services  to  these  customers  through  Caraloe's development and
 manufacturing services group.

 To finance  the acquisition,  the Company  entered  into an  agreement  with
 Medline for accelerated payment of $2.0  million of the royalties due  under
 the  Distributor and License Agreement.  The royalty acceleration  agreement
 provides for each of the remaining quarterly royalty payments due to be paid
 to the Company by Medline to be reduced  by equal amounts, the sum of  which
 offsets the royalty  advance.  In  addition,  the Company  will pay  Medline
 interest on the  advance at the  rate of 6.5%  per year  on the  outstanding
 balance of the advance.

                        DelSite Biotechnologies, Inc.
                        -----------------------------
 In 2001 the  Company incorporated  a wholly-owned  subsidiary named  DelSite
 Biotechnologies, Inc.  DelSite  operates  independently  from the  Company's
 research and development program,  which supports the activities  associated
 with the Company's  Medical Services and  Caraloe, Inc.  divisions, and  was
 formed to commercialize innovations discovered by scientists at  Carrington.
 Delsite is responsible for  the research, development  and marketing of  the
 Company's proprietary drug delivery technology based on GelSite[TM] polymer,
 a new and unique complex carbohydrate, which was isolated in 1998 from  Aloe
 vera L.  DelSite  commenced operations  in  January 2002  and  is  currently
 developing new technologies  for controlled delivery  of bioactive  proteins
 and peptides as therapeutics and vaccines.

 DelSite's business plan is to partner with biotechnology and  pharmaceutical
 companies to provide novel delivery solutions for their drugs and  vaccines.
 Together with its collaborators and  contractors, DelSite has the  following
 capabilities:

 *  Formulation development

 *  Feasibility studies

 *  Preclinical development

 *  Clinical supply production

 *  Product scale-up

 *  Technology transfer

 In January  2002  DelSite formed  a  strategic collaboration  with  Southern
 Research Institute,  Inc. of  Birmingham, Alabama,  ("Southern  Research")to
 assist in the development of an injectable drug delivery system based on the
 GelSite[TM] polymer.  Southern Research  is an  independent,  not-for-profit
 center for scientific research affiliated with the University of Alabama  at
 Birmingham.  Under the three-year  collaborative agreement, DelSite  retains
 all product  rights  plus  intellectual  property  rights  to  its  existing
 technology as well as any discoveries made by DelSite or Southern  Research,
 either jointly or  individually, as a  result of any  project undertaken  as
 part of the agreement.  Southern  Research will  receive fees and  royalties
 when  undertaking  certain  specified projects  on  behalf  of  DelSite.  In
 addition,  a second five-year collaborative agreement with Southern Research
 was  signed  in  April 2003.  Under  this  agreement the  two companies will
 jointly  develop  an  injectable  long-term  delivery  system  for  proteins
 and peptides.  The  companies  will  jointly own intellectual property  that
 originates from this relationship.

                           Research and Development
                           ------------------------
                                   General
                                   -------

 Carrington has developed proprietary processes for obtaining materials  from
 Aloe vera L.  The  Company  intends to seek  approval of the  Food and  Drug
 Administration (the "FDA")  and other regulatory  agencies to sell  products
 containing materials obtained from Aloe vera L. in the United States and  in
 foreign countries.  For a more comprehensive listing of the type, indication
 and status  of products  currently under  development  by the  Company,  see
 "Research  and  Development  --  Summary"  below.  The  regulatory  approval
 process, both  domestically  and  internationally,  can  be  protracted  and
 expensive, and there is no assurance  that the Company will obtain  approval
 to sell its produc ts for any treatment or use (see "Governmental Regulation"
 below).

 The Company expended approximately $2,442,000, $3,580,000 and $3,660,000  on
 research  and  development in  fiscal 2001,  2002  and  2003,  respectively.
 Research activities associated with  DelSite accounted for  51% of the  2002
 and 75% of the 2003 research and development expenditures.

                       DelSite Research and Development
                       --------------------------------

 The  Company  believes   that  DelSite's   products'  functionality   and/or
 pharmacological  activity  make  them   potential  candidates  for   further
 development as  pharmaceutical  or  therapeutic agents.   In  2004,  DelSite
 intends to focus its activities in drug delivery through developing proof of
 concept data for potential pharmaceutical and vaccine partners.  There is no
 assurance, however, that DelSite will be successful in its efforts.

 The Company  sponsors a  research and  development laboratory  at Texas  A&M
 University in association with the College of Veterinary Medicine to support
 research activities of the Company and its DelSite subsidiary.  Pursuant  to
 this arrangement, the Company has access to leading authorities in the  life
 sciences, as well as facilities and equipment to help further the  Company's
 research  programs.  DelSite  also  has  a research  relationship  with  the
 University of Southern Mississippi and sponsors research in the University's
 School of Polymer Science.

 DelSite is developing  a new platform  technology based  on its  proprietary
 GelSite[TM] polymer  for  controlled  delivery  of  bioactive  proteins  and
 peptides as therapeutics and vaccines.  Basic  proof of concept research  is
 continuing on  this material,  which includes  both injectable  delivery  of
 therapeutic proteins  and  peptides  and delivery  of  protein  antigens  as
 vaccines using its proprietary GelVac[TM] intranasal powder vaccine delivery
 system.  Selected studies have been completed through sponsored research  at
 Texas A&M and Southern Research Institute.  Pilot scale production has  been
 accomplished and studies to refine the process are ongoing.  The  technology
 has varied utility,  but the primary  focus of research  is in  the area  of
 injectable  and  intranasal  drug  delivery.  Three  patents  covering  this
 invention have  been  issued  to  DelSite  with  two  patents  pending.  The
 composition and process patent was issued in 1999.

                     Specialized Research and Development
                     ------------------------------------

 The Company  also  has a  separate,  specialized research  team  to  support
 research and  in-house development  for Carrington  products as  well as  to
 provide services to  customers in  the medical,  nutraceutical and  cosmetic
 markets.  These  services  typically  include  research  and  development of
 a  formulation  from  the  customer's  initial  concept and  specifications.
 Development efforts also include packaging  design, label design and,  where
 required by regulations, production validation.

 During  2003,  the Specialized Research  and  Development  group contributed
 to   the   successful   transfer  and  start-up  of   the  technologies  and
 products acquired  from CBI.  These activities included proof of formulation
 capabilities and technology  transfer services  to assist  in production  of
 initial quantities of products in the manufacturing facility.  Research  and
 Development provides the necessary  technology support to successfully  meet
 requirements for new customers of new cosmetic and nutraceutical products.

 In 2003, several wound care projects were also initiated in the general area
 of wound  infection  control,  which Carrington's  marketing  partners  have
 identified as a potentially significant addition  to its wound care  product
 line.

                            Human Clinical Studies
                            ----------------------
 The Company's  new  product programs  for  its operating  divisions  do  not
 require clinical  trials  for  clearance or  approval  prior  to  commercial
 distribution.  However, the Company intends to support its existing products
 and new products with clinical studies that will support the product  claims
 and indications for use and thereby  demonstrate the product's features  and
 benefits.  The  Company intends to  initiate several  such clinical  studies
 during 2004.

                       Research and Development Summary
                       --------------------------------
 The following  table  outlines the  status  of the  products  and  potential
 indications  of  the   Company's  products  developed,   planned  or   under
 development.  There is no assurance of successful development, completion or
 regulatory approval of any product not yet on the market.


                PRODUCTS AND POTENTIAL INDICATIONS DEVELOPED,
                         PLANNED OR UNDER DEVELOPMENT

 PRODUCT OR                      POTENTIAL
 POTENTIAL INDICATION            MARKET APPLICATIONS                STATUS
 --------------------            -------------------                ------
 Topical
 -------
   Dressings                     Pressure and Vascular Ulcers       Marketed
   Dressings                     Diabetic Ulcers, Surgical Wounds   Marketed
   Cleansers                     Wounds                             Marketed
   Anti-fungal                   Cutaneous Fungal Infection         Marketed
   Hydrocolloids                 Wounds                             Marketed
   Alginates                     Wounds                             Marketed
   Anti-infective                Wounds                             Development
   Sunscreens                    Skin                               Development

 Oral
 ----
   Human
     Pain Reduction              Mucositis                          Marketed

   Dental
     Pain Reduction              Aphthous Ulcers, Oral Wounds       Marketed
     Post Extraction Wounds      Oral Surgery                       Marketed

 Injectable
 ----------
   Human
     Neutropenia                 Neutropenia associated with        Discovery
                                 cancer

   GelSite[TM] polymer (CR1013)  Drug delivery                      Preclinical

 Intranasal
 ----------
   GelSite[TM] polymer (CR1013)  Vaccine delivery                   Preclinical
   Veterinary
   Adjunct for cancer            Fibrosarcoma                       Marketed

 Nutraceuticals
 --------------
   Immune Enhancing Product      Manapol[R]/Maitake Gold 4047       Marketed
   Immune Enhancing Product      Manapol[R]/Calcium Enriched        Clinical
                                                                    Evaluation


                              Licensing Strategy
                              ------------------

 The Company  expects that  prescription pharmaceutical  products  containing
 certain defined  drug  substances  will  require  a  substantial  degree  of
 developmental effort and  expense.  Before  governmental approval to  market
 any such product  is obtained, the  Company may license  these products  for
 certain indications to other pharmaceutical  companies in the United  States
 or foreign  countries and  require such  licensees  to undertake  the  steps
 necessary to  obtain  marketing approval  in  a particular  country  or  for
 specific indications.

 Similarly, the Company intends to license  third parties to market  products
 containing defined chemical entities for  certain human indications when  it
 lacks  the  expertise  or  financial  resources  to  market  such   products
 effectively.  If the Company is unable to enter into such agreements, it may
 undertake marketing the products itself for such indications.  The Company's
 ability to  market  these  products for  specific  indications  will  depend
 largely on its financial  condition at the time  and the results of  related
 clinical trials.  There  is no assurance  that the Company  will be able  to
 enter into  any license  agreements  with third  parties  or that,  if  such
 license agreements  are concluded,  they will  contribute to  the  Company's
 overall profits.

                        Raw Materials and Processing
                        ----------------------------

 The principal raw material used by the Company in its operations is the leaf
 of the plant known as Aloe vera L.  Through patented processes, the  Company
 obtains  several  bulk  freeze-dried  extracts  from  the central portion of
 the Aloe vera L. leaf known  as  the gel.  A basic  bulk  mannan,  Acemannan
 Hydrogel[TM],  is  used  as  an  ingredient  in  certain  of  the  Company's
 proprietary wound and skin care products.

 The Company owns  a 405-acre farm  in the Guanacaste  province of  northwest
 Costa Rica which currently has approximately 82 acres planted with Aloe vera
 L.  The Company  is currently performing a  land reclamation project on  the
 farm to  increase productive  acreage.  Currently,  the  Company's need  for
 leaves exceeds the  supply of harvestable  leaves from  the Company's  farm,
 requiring the purchase of leaves from other sources in Costa Rica at  prices
 comparable to the  cost of acquiring  leaves from the  Company's  farm.  The
 Company has entered into several supply agreements with local suppliers near
 the Company's factory to provide leaves.  From time to time the Company also
 imports leaves from other Latin American  countries at prices comparable  to
 those in the local  market.  The Company  anticipates that  the suppliers it
 currently uses will be able  to meet all of  its requirements for leaves  in
 2004.

 The Company has a  23% ownership interest in  Aloe and Herbs  International,
 Inc., ("Aloe & Herbs", a Panamanian  corporation formed for the purpose  of
 establishing an Aloe  vera L.  farm in Costa  Rica.   The Company  purchases
 leaves from Rancho Aloe, S.A., ("Rancho Aloe") a wholly-owned subsidiary  of
 Aloe &  Herbs,  which  has a  5,000-acre  farm  in close  proximity  to  the
 Company's farm, at a market price per kilogram of leaves supplied, with  the
 final price  payable  to Rancho  Aloe  based upon  the  yield of  the  final
 product.

 As of December 31, 2003, Rancho Aloe was providing an average of 78% of  the
 Company's  monthly requirement of leaves.  See  "Management's Discussion and
 Analysis of Financial Condition and Results  of Operations -- Liquidity  and
 Capital  Resources"  for   further  information   regarding  the   Company's
 relationship with Aloe & Herbs.

                                Manufacturing
                                -------------
 Since 1995, the  Company's manufacturing facility  has been  located in  the
 Company's  headquarters in  Irving, Texas.  The Company  believes that  this
 manufacturing facility has  sufficient capacity to  provide for the  present
 line of products and  to accommodate new products  and sales growth.   Final
 packaging of certain of  the Company's wound care  products is completed  by
 outside vendors.   The  Company's calcium  alginates, films,  hydrocolloids,
 foam dressings, gel sheets, tablets, capsules, and freeze-dried products are
 being provided by third parties.

 All of the  Company's proprietary bulk  pharmaceutical products and  freeze-
 dried Aloe vera L.  extracts are produced in  its processing plant in  Costa
 Rica. This  facility has the ability  to supply the bulk aloe raw  materials
 requirements of  the  Company's  current product  lines  and  bulk  material
 contracts for the foreseeable future. Certain liquid nutraceutical  products
 which the Company provides to customers on a custom manufacturing basis  are
 also produced at the  Costa Rica facility.  In addition,  production of  the
 Salicept[TM] Patch has been transferred to the plant in Costa Rica to better
 meet anticipated market demands for the  product for post-extraction  wounds
 and aphthous ulcers.

                                 Competition
                                 -----------

 Research and  Development.   The  biopharmaceutical  field  is  expected  to
 continue to undergo rapid and  significant  technological change.  Potential
 competitors in the  United States are  numerous and include  pharmaceutical,
 chemical  and  biotechnology  companies.   Many  of  these  companies   have
 substantially greater capital  resources, research  and development  staffs,
 facilities  and expertise  (in  areas including  research  and  development,
 manufacturing, testing, obtaining regulatory  approvals and marketing)  than
 the Company.  This  competition can  be expected to  become more intense  as
 commercial  applications  for  biotechnology  and  pharmaceutical   products
 increase.  Some of these  companies may be better  able than the Company  to
 develop, refine, manufacture and market  products which have application  to
 the same indications as the Company  is exploring.  The Company  understands
 that certain of  these competitors are  in the process  of conducting  human
 clinical trials of, or have filed applications with government agencies  for
 approval to market  certain products that  will compete  with the  Company's
 products, both in its  present wound care market  and in markets  associated
 with products the Company currently has under development.

 Medical Services Division and  Caraloe, Inc.   The Company competes  against
 many companies that sell products which  are competitive with the  Company's
 products, with  many  of its  competitors  using very  aggressive  marketing
 efforts.  Many of  the Company's competitors  are substantially larger  than
 the  Company  in  terms  of  sales   and  distribution  networks  and   have
 substantially greater financial and other resources.  The Company's  ability
 to compete against these companies will  depend in part on the expansion  of
 the marketing  network for  its products.   The  Company believes  that  the
 principal competitive factors  in the marketing  of its  products are  their
 quality, and that they are naturally based and competitively priced.

                           Governmental Regulation
                           -----------------------

 The production and marketing  of the Company's  products, and the  Company's
 research and development activities, are  subject to regulation for  safety,
 efficacy and  quality by  numerous governmental  authorities in  the  United
 States and other countries.  In  the United  States, drug devices for  human
 use are subject  to rigorous  FDA  regulation.  The Federal  Food, Drug  and
 Cosmetic Act,  as  amended (the  "FFDC  Act"), the  regulations  promulgated
 thereunder, and other  federal and  state statutes  and regulations  govern,
 among  other  things,  the  testing,  manufacture,  safety,   effectiveness,
 labeling, storage, record  keeping, approval, advertising  and promotion  of
 the  Company's  products.  For  marketing  outside the  United  States,  the
 Company  is  subject  to foreign  regulatory  requirements  governing  human
 clinical  trials  and  marketing  approval   for  drugs  and  devices.   The
 requirements governing the  conduct of clinical  trials, product  licensing,
 pricing and reimbursement may vary widely from country to country.

 Food and Drug  Administration.  The  contents, labeling  and advertising  of
 many of the Company's  products are regulated  by the FDA.   The Company  is
 required to obtain FDA approval before  it can study or market any  proposed
 prescription drugs and may be required to obtain such approval for  proposed
 nonprescription   products.   This  procedure  involves  extensive  clinical
 research, and  separate FDA approvals  are  required  at various  stages  of
 product  development.  The approval  process requires,  among other  things,
 presentation of substantial evidence to the FDA, based on clinical  studies,
 as to the safety and efficacy of the proposed product.

 After approval, manufacturers must continue to expend time, money and effort
 in production and quality  control to assure  continual compliance with  the
 current  Good  Manufacturing  Practices  regulations.  Also, under  the  new
 program for  harmonization  between  Europe and  the  U.S.,  the Company  is
 required  to  meet  the  requirements  of  the  International  Committee  on
 Harmonization and  the ISO  13485 regulations,  for  OTC drugs  and  medical
 devices,  respectively.  A company  can, under  certain circumstances  after
 application,   have  a  new  drug  approved   under  a   process  known   as
 centralization  rather  than  having  to  go  through  a  country-by-country
 approval in the European Union.

 Certain of the Company's  wound and skin care  products are registered  with
 the FDA as medical devices pursuant to the regulations under Section  510(k)
 of the FFDC Act (known  as Premarket Notification).  A medical  device is  a
 product whose primary intended medical purpose, such as to cover a wound, is
 accomplished without a chemical or pharmacological action.  A medical device
 which is substantially equivalent to a predicate product will be reviewed by
 the FDA and if clearance to market is  granted, then the device can be  sold
 in the United States  without additional developmental  studies.  A  medical
 device which is not substantially equivalent  is subject to an FDA  approval
 process similar  to  that  required  for  a  new  drug,  beginning  with  an
 Investigational Device Exemption  and culminating  in  a Premarket Approval.
 The Company has sought and obtained  all its device approvals under  Section
 510(k).  The Company  currently markets seven (7)  products which require  a
 prescription as medical devices.

 Other Regulatory Authorities.  The Company's advertising and sales practices
 are subject to regulation by the  Federal Trade Commission (the "FTC"),  the
 FDA and state agencies.  The  Company's processing and manufacturing  plants
 are subject to  federal, state  and foreign laws  and to  regulation by  the
 Bureau of Alcohol, Tobacco  and Firearms of the  Department of the  Treasury
 and by the Environmental Protection Agency  (the "EPA"), as well as the  FDA
 and USDA.

 The  Company  believes  that  it  is  in  substantial  compliance  with  all
 applicable laws and regulations relating to its operations, but there is  no
 assurance that such  laws and  regulations will not  be changed.   Any  such
 change may have a material adverse effect on the Company's operations.

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

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

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

 Advertising and label claims for dietary supplements and conventional  foods
 have been  regulated by  state and  federal authorities  under a  number  of
 disparate regulatory schemes.  There can  be no assurance that a state  will
 not interpret claims presumptively valid under federal law as illegal  under
 that state's regulations, or  that future FDA  regulations or FTC  decisions
 will not restrict the permissible scope of such claims.

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

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

 Compliance with the  provisions of national,  state and local  environmental
 laws and regulations has not had a material adverse effect upon the  capital
 expenditures,  earnings,  financial   position,  liquidity  or   competitive
 position of the Company.

                        Patents and Proprietary Rights
                        ------------------------------

 As is  industry  practice,  the  Company has  a  policy  of  using  patents,
 trademarks and trade  secrets to  protect the  results of  its research  and
 development activities and, to the extent it may be necessary or  advisable,
 to  exclude  others from appropriating the Company's proprietary technology.
 The Company's policy is to  protect aggressively its proprietary  technology
 by seeking and enforcing patents in a worldwide program.

 The Company has obtained patents or filed patent applications in the  United
 States and approximately 26  other countries in  three series regarding  the
 compositions  of acetylated mannan derivatives, the processes  by which they
 are  produced and  the methods  of their  use.  The first  series of  patent
 applications, relating to the compositions of acetylated mannan  derivatives
 and certain basic  processes of their  production, was filed  in a chain  of
 United States  patent applications  and its  counterparts  in the  other  26
 countries.  The first United States patent application in this first series,
 covering the composition  claims of acetylated  mannan derivatives,  matured
 into United States Patent No. 4,735,935 (the "935 Patent"), which was issued
 on April 5, 1988.  United States Patent No. 4,917,890 (the "890 Patent") was
 issued  on  April 17, 1990 from a  divisional application to the 935 Patent.
 This divisional application pertains to most of the remaining claims in  the
 original  application  not  covered  by  the  935  Patent.  The  890  Patent
 generally relates  to the  basic processes  of producing  acetylated  mannan
 derivatives, to certain specific examples of  such processes and to  certain
 formulations  of  acetylated  mannan  derivatives.   Two  other   divisional
 applications covering the  remaining claims not  covered by  the 890  Patent
 matured into patents,  the first  on September  25, 1990,  as  United States
 Patent No. 4,959,214, and the second on  October 30, 1990, as United  States
 Patent  No.  4,966,892.   Foreign  patents  that  are  counterparts  to  the
 foregoing United States  patents have  been granted  in some  of the  member
 states of the European Economic Community and several other countries.

 The second series of patent applications related to preferred processes  for
 the production  of acetylated mannan derivatives.  One of them matured  into
 United States Patent No. 4,851,224, which was issued on July 25, 1989.  This
 patent is  the  subject  of a  Patent  Cooperation  Treaty  application  and
 national foreign applications  in several countries.  An  additional  United
 States patent based on the second  series was issued on September 18,  1990,
 as United States Patent No. 4,957,907.

 The third series of patent applications, relating to the uses of  acetylated
 mannan derivatives, was  filed subsequent to  the second series.   Three  of
 them matured into United States Patent  Nos. 5,106,616, issued on April  21,
 1992; 5,118,673, issued  on June 2, 1992,  and 5,308,838,  issued on  May 3,
 1994.  The Company  has filed a number  of divisional applications to  these
 patents,  each dealing with specific uses  of acetylated mannan derivatives.
 Patent Cooperation Treaty  applications based  on the  parent United  States
 applications have been filed designating a number of foreign countries where
 the applications are pending.  In addition, the Company has also obtained  a
 patent in  the United  States  relating to  a  wound cleanser,  U.S.  Patent
 No. 5,284,833, issued on February 8, 1994.

 The Company  has  obtained a  patent  in the  United  States relating  to  a
 therapeutic device  made  from freeze-dried  complex  carbohydrate  hydrogel
 (U.S. Patent No. 5,409,703, issued on April 25, 1995).  A Patent Cooperation
 Treaty application based on  the parent United  States application has  been
 filed designating a number of foreign  countries where the applications  are
 pending.

 The Company  has obtained  patents in  the United  States (U.S.  Patent  No.
 5,760,102, issued on  June 2,  1998) and  Taiwan (Taiwan  Patent No.  89390,
 issued on August 21,  1997) related to  the uses of  a denture adhesive  and
 also a patent in  the United States relating  to methods for the  prevention
 and treatment of infections in animals (U.S. Patent No. 5,703,060, issued on
 December 30, 1997).

 The  Company  obtained  a   patent  in  the   United  States  (U.S.   Patent
 No.5,902,796, issued on May 11, 1999)  related to the process for  obtaining
 bioactive material  from  Aloe vera L.  The Company obtained  an  additional
 patent in the United States (U.S.  Patent No. 5,929,051, issued on July  27,
 1999) related to the composition and process for a new complex  carbohydrate
 (pectin)  isolated from  Aloe  vera L.  Also  obtained was  a United  States
 patent (U.S. Patent No. 5,925,357, issued  on July 20, 1999) related to  the
 process  for  a  new  Aloe  vera  L.  product  that  maintains  the  complex
 carbohydrates with the  addition of  other substances  normally provided  by
 "Whole Leaf Aloe."

 Additionally, the  Company obtained  a Japanese  letters-patent (Patent  No.
 2888249, having a Patent Registration Date of February 19, 1999) for the use
 of acemannan (a) in  a vaccine product; (b)  in enhancing natural kill  cell
 activity and in enhancing  specific tumor cell lysis  by white cells  and/or
 antibodies; (c)  in correcting  malabsorption  and mucosal  cell  maturation
 syndromes in man or  animals; and (d) in  reducing symptoms associated  with
 multiple sclerosis.

 The Company also received the grant of European Patent Application under No.
 0611304, having the  date of  publication and mention  of the  grant of  the
 patent of September 15, 1999.   This European Letters Patent claims the  use
 of acetylated mannan for the regulation of blood cholesterol levels and  for
 the removal of plaque  in blood vessels.  A patent was also issued in  South
 Korea.  Applications are pending in Canada and Japan.

 In addition, the Company obtained an  Australian Patent (Patent No.  718631,
 having an  Accepted Journal  Date of  April  20, 2000)  on Uses  of  Denture
 Adhesive Containing Aloe Extract.  On June 20, 2000,  Singapore granted  the
 Company a patent on Bioactive Factors of Aloe Vera Plants (P-No. 51748).

 The Company received  the grant of  two U.S. patents  (Patent No.  6,274,548
 issued August 14, 2001,  and Patent No. 6,313,103  issued November 6,  2001)
 associated with  the  use of  pectins  for purification,  stabilization  and
 delivery of certain  growth factors.   Other U.S. PCT  applications on  Aloe
 Pectin are pending.  A U.S. patent application on growth factor and protease
 enzyme is also pending.

 The Company obtained on  September 25, 2002, a  European Patent (Patent  No.
 0884994) which was  validated in  Great Britain,  Germany (No.  69715827.6),
 France, Italy  and Portugal  associated with  the uses  of denture  adhesive
 containing Aloe Vera L. extract.

 In addition, the Company was issued  on October 13, 2002, a Canadian  Patent
 (No.  2,122,604)  associated  with  the  process  for  preparation  of  Aloe
 Products.

 The Company also obtained on June 24, 2002, a Korean Patent (No. 343293) and
 on June 5, 2002, European Patent (No. 0705113) which was validated in  Great
 Britain, France, Germany (No.  69430746.7-08), Italy and Austria  associated
 with dried Hydrogel from Hydrophilic Hygroscopic Polymer.

 Further, on September 25, 2002, the Company obtained a European Patent  (No.
 884994) which was validated  in France, Great  Britain, Italy, Portugal  and
 Germany (No. 69715827.6) associated with Denture Adhesive.

 The Company also obtained, on May 28, 2003, a European Patent (No.  966294),
 which was validated  in Great Britain,  France, Italy,  Sweden, and  Germany
 (No. 69815071.6) associated with the Bifurcated Method to Process Aloe Whole
 Leaf.

 Also, the  Company was  issued, on  July  23, 2003  a European  Patent  (No.
 965346), which was validated  in France, Great  Britain, Italy, and  Germany
 (No. 09133298.3), associated with Uses  of Acetylated Mannan Derivatives  in
 Treating Chronic Respiratory Disease.

 The Company has filed and intends  to file patent applications with  respect
 to subsequent developments and improvements when it believes such protection
 is in the  best interest  of the  Company.   The scope  of protection  which
 ultimately may be  afforded by the  patents and patent  applications of  the
 Company is difficult to quantify.   There can be  no assurance that (i)  any
 additional patents will be issued to  the Company in any or all  appropriate
 jurisdictions, (ii) litigation  will not be  commenced seeking to  challenge
 the Company's patent protection or such  challenges will not be  successful,
 (iii) processes or products of the Company do not or will not infringe  upon
 the patents of  third parties or  (iv) the scope  of patents  issued to  the
 Company  will  successfully  prevent  third  parties from developing similar
 and competitive products.  It  is not possible to  predict  how  any  patent
 litigation will  affect the  Company's efforts  to develop,  manufacture  or
 market its products.

 The Company also relies  upon, and intends to  continue to rely upon,  trade
 secrets,  unpatented  proprietary  know-how  and  continuing   technological
 innovation to develop and  maintain its competitive  position.  The  Company
 typically  enters  into  confidentiality  agreements  with  its   scientific
 consultants, and the  Company's key employees  have entered into  agreements
 with the Company  requiring that they  forbear from disclosing  confidential
 information of  the Company  and assign  to the  Company all  rights in  any
 inventions made  while in  the Company's  employ relating  to the  Company's
 activities.

 The technology applicable to the Company's products  is developing  rapidly.
 A substantial number of patents have been issued to other  biopharmaceutical
 companies.  In addition,  competitors have filed  applications for, or  have
 been issued,  patents  and may  obtain  additional patents  and  proprietary
 rights relating  to products  or processes  competitive  with those  of  the
 Company.  To the Company's knowledge,  acetylated mannan derivatives do  not
 infringe any valid, enforceable United States patents.  A number of  patents
 have been issued to others with respect to various extracts of the Aloe vera
 L. plant and their  uses and formulations, particularly  in respect to  skin
 care and cosmetic  uses.  While  the Company is  not aware  of any  existing
 patents which conflict  with its  current and  planned business  activities,
 there can be  no assurance  that holders of  such other  Aloe vera  L.-based
 patents will not claim that particular  formulations and uses of  acetylated
 mannan derivatives  in  combination  with  other  ingredients  or  compounds
 infringe, in some respect, on these other patents.  In addition, others  may
 have filed patent applications and may have been issued patents relating  to
 products and technologies potentially useful to the Company or necessary  to
 commercialize its products  or achieve their  business goals.   There is  no
 assurance that the Company will be  able to obtain licenses of such  patents
 on acceptable terms.

 The Company has given  the trade name Carrasyn[R] to certain of its products
 containing acetylated mannans.  The Company  has filed a selected series  of
 domestic and foreign trademark applications for the marks Manapol[R] powder,
 Carrisyn[R],  Carrasyn[R]  and  CarraGauze[R].   Further,  the  Company  has
 registered the trademark AVMP[TM] Powder and the trade name Carrington[R] in
 the United States.  In 1999, the Company obtained four additional registered
 trademarks in Brazil.

 In June 2000 the Company obtained  registration in the United States of  its
 mark AloeCeuticals[R] for its skin care and nutritional supplement products.
 In September 2002 the Company obtained registration in the United States  of
 its mark CaraKlenz[R] for its proprietary  wound cleanser product with  that
 name.

 In  addition,  applications  for  the  registration  of  the  marks ISG[TM],
 GelVac[TM], GelSite[TM], OraPatch[TM],  and SaliCept[TM]  are pending in the
 United States.  Applications for the registration of the mark GelVac[TM] are
 also pending in Japan, South Korea, and Europe.

 In November 2003, the Company obtained registration in the United States  of
 its mark  "Delsite and design[TM]" for  its Research  and Development of Dry
 Stabilization  and  Delivery   Systems  for  Customers   in  the  field   of
 Pharmaceuticals and Diagnostic Reagents.

                                  Employees
                                  ---------

 As of February 27, 2004, the Company  employed 262 persons, of whom 44  were
 engaged in the  operation and maintenance  of its  Irving, Texas  processing
 plant,  139 were employed at the  Company's facility in  Costa Rica and  the
 remainder  were  executive,  research,  quality  assurance,   manufacturing,
 administrative,  sales,  and clerical  personnel.  Of  the total  number  of
 employees, 121 were located in Texas, 139 in Costa Rica, one in Puerto  Rico
 and one in Europe. The Company considers relations with its employees to  be
 good.  The employees are not represented by a labor union.


 ITEM 2.   PROPERTIES.
           ----------

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

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

 Laboratory and Warehouse Facility.  The  Company has leased a 51,200  square
 foot building in close proximity to the Walnut Hill facility for a  ten-year
 term to house its  Research and Development,  Quality Assurance and  Quality
 Control Departments.  Laboratories and offices for DelSite are also  located
 in  this  facility.  In addition,  the  Company utilizes  a portion  of  the
 building as warehouse space.  The Company relocated those functions to  this
 facility in the third quarter of 2001.

 Warehouse and Distribution Facility.  In February 2003, the Company leased a
 58,130 square  foot  building  for  a term  of  five  years  for  additional
 warehouse  space.  In  addition,  the  Company  relocated  its  distribution
 operations to this new facility.

 Costa Rica Facility.   The Company owns approximately  405 acres of land  in
 the Guanacaste province of  northwest Costa Rica.  This  land is being  used
 for the farming of Aloe vera L. plants and for a processing plant to produce
 bulk pharmaceutical and  injectable mannans and  freeze-dried extracts  from
 Aloe vera L. used in the Company's operations.  The processing plant  became
 operational in 1993.


 ITEM 3.   LEGAL PROCEEDINGS.
           -----------------

 On April  3, 2001,  Arthur Singer,  a former  employee of  the  Company (the
 "Plaintiff"),  filed  a  lawsuit  entitled  Arthur   Singer  vs.  Carrington
 Laboratories, Inc.  and  Carlton Turner,  CV-01-2084  in  the United  States
 District Court for the Eastern  District of New York,  Long Island Division,
 alleging multiple  causes  of  action  against  the company  and  its  chief
 executive officer (the "Defendants")  and seeking damages in  excess of $4.0
 million, plus  legal fees  and  expenses.  The  Plaintiff, who  was formerly
 employed by the Company as a sales representative, alleged in substance that
 the Company failed to pay the  full amount of commissions owed  to him; that
 the Defendants breached an alleged contract of employment with him; that the
 Company deprived  him  of  the opportunity  to  exercise  some vested  stock
 options, prevented  some  of his  unvested  stock options  from  vesting and
 caused all of his options to expire earlier  than they otherwise would have;
 and that the Defendants  misrepresented that the Company  intended to retain
 him as an  employee, fraudulently induced  him to  remain in its  employ and
 breached alleged covenants of fair dealing.

 On May 31, 2001, the Defendants filed a motion seeking to have the complaint
 dismissed or to have the case transferred to Texas.  On August 28, 2001, the
 Defendants' motion to transfer was granted, and  the case was transferred to
 the United States District Court for the  Northern District of Texas, Dallas
 Division, as Case No. 01-CV-1776.

 The  Defendants  and Plaintiff then both filed motions for summary judgment.
 On October  3, 2003,  the court  denied the  Plaintiffs motion  for  summary
 judgment  and  granted  Defendants  motion  for  summary  judgment  for  all
 complaints except three, the alleged  damages for which total  approximately
 $56,000.

 On January 5, 2004, a  jury trial was held  to settle the remaining  claims,
 with the jury finding for the Plaintiff on one claim, awarding $28,162, plus
 interest, for unpaid commissions, and finding for the Defendants on a second
 claim.  The judge dismissed the third claim at the end of testimony,  citing
 lack of sufficient  evidence to  support the  Plaintiff's claim.  The  court
 awarded no legal fees or expenses to the Plaintiff.  Total judgment was  for
 approximately $35,000,  which  has  been accrued  as  of  the  period  ended
 December 31, 2003.  The Company has received notice of Plaintiff's intention
 to appeal the courts ruling on legal fees.

 On June 22, 2001, a lawsuit styled Swiss-American Products, Inc. v. G. Scott
 Vogel and Carrington  Laboratories Inc., Cause  No. 01-5163-A, was  filed in
 the 193rd Judicial  District Court  of Dallas  County, Texas.   On  June 25,
 2001, the  Company  was served  with  this lawsuit,  an  Ex Parte  Temporary
 Restraining Order, and  an Order  Appointing Independent Third  Party Expert
 Pursuant to  Temporary Restraining  Order.   The suit  alleges,  among other
 things, that  Mr. Vogel  (the Company's  former Vice  President, Operations)
 improperly obtained proprietary information of Swiss-American Products, Inc.
 ("Plaintiff") from  a  former  employer  that  manufactured  products  under
 contract for Plaintiff, and used that information  on behalf of the Company,
 in breach  of  certain common  law  duties and  a  confidentiality agreement
 between  his former  employer and Plaintiff.  The suit  further alleges that
 Mr. Vogel and the  Company ("Defendants") conspired  to unlawfully disclose,
 convert and misappropriate Plaintiff's trade secrets.

 The suit seeks permanent injunctive relief, including a permanent injunction
 prohibiting Defendants from disclosing or using  to Plaintiff's disadvantage
 any confidential proprietary  information belonging  to Plaintiff  which Mr.
 Vogel allegedly obtained  from his  former employer,  or from  developing or
 marketing products  based  on  Plaintiff's  formulas  or  other  information
 allegedly  taken from Mr. Vogel's former employer.   The suit  also seeks to
 recover damages in an unspecified amount from Defendants.

 Following a  hearing on  July 30,  2001, the  trial court  entered  an order
 setting the  case  for  trial on  July  30,  2002  and  granted a  temporary
 injunction that prohibits  Defendants from  (i) disclosing  or using  any of
 Plaintiff's confidential,  proprietary  or  trade  secret information;  (ii)
 developing or  marketing  a  wound cleanser  product  that  is  the same  or
 substantially the same  as reflected in  a formula that  is at issue  in the
 lawsuit (although  this prohibition  expressly  does not  apply  to products
 actively manufactured and sold by  the Company before January  1, 2001 using
 the exact same  formula then in  effect); and (iii)  destroying, concealing,
 altering, removing or  disposing of any  documents, files, computer  data or
 other things  relating  to  Plaintiff or  Mr.  Vogel's  former employer,  or
 containing or  referring to  trade  secrets or  confidential  or proprietary
 information of Plaintiff or Mr. Vogel's former employer.

 A trial was  held on  October 7,  2003.   Three days  into the  proceeding a
 mistrial was declared due to juror misconduct.   The trial judge ordered the
 two parties to mediate the suit  and in the event mediation  efforts are not
 successful, the court has set a new trial date of June 1, 2004.

 The Company believes that  Plaintiff's claims are without  merit and intends
 to vigorously defend against those claims.


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

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


                                   PART II
                                   -------

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

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


            Fiscal 2002                 High           Low
            -----------                 ----           ----
            First Quarter              $3.25          $1.07
            Second Quarter              1.98           1.20
            Third Quarter               1.33           0.95
            Fourth Quarter              1.11           0.71

            Fiscal 2003                 High           Low
            -----------                 ----           ----
            First Quarter              $1.08          $0.91
            Second Quarter              2.80           0.95
            Third Quarter               6.20           2.18
            Fourth Quarter              4.68           3.35


 At March 11,  2004, there were  908 holders of  record (including  brokerage
 firms) of Common Stock.

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

 In March 2001,  the Board of  Directors authorized the  repurchase of up  to
 1,000,000 shares, or approximately 9.9%, of the Company's outstanding Common
 Stock, dependent on market conditions.   Under the authorization,  purchases
 of Common  Stock  may  be made  on  the  open market  or  through  privately
 negotiated transactions at such times and  prices as are determined  jointly
 by the Chairman of the Board  and the President of  the Company.  The  Board
 authorized the repurchase  program based on  its belief  that the  Company's
 stock is undervalued in light of the Company's future prospects and that  it
 would be  in  the best  interest  of the  Company  and its  shareholders  to
 repurchase some of its outstanding shares. As of March 11, 2004, the Company
 had repurchased 2,400 of its outstanding Common Stock under the program.


 ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA.
           ------------------------------------

 The selected consolidated financial data below should be read in conjunction
 with the consolidated financial statements of the Company and notes  thereto
 and "Item 7. Management's Discussion and Analysis of Financial Condition and
 Results of Operations."  The selected consolidated financial information for
 the five years  ended December 31,  2003, is derived  from the  consolidated
 financial statements of the Company, of  which the Statements for the  years
 ended December 31,  1999 through 2002,  have been audited  by Ernst &  Young
 LLP, independent public accountants and for the year ended December 31, 2003
 have been audited by Grant Thornton LLP, independent public accountants.



                                                Years ended December 31,
 (Dollars and numbers of shares in    -----------------------------------------
 thousands except per share amounts)  1999     2000     2001     2002     2003
 ------------------------------------------------------------------------------

 OPERATIONS STATEMENT INFORMATION:

 Revenues:
   Net product sales                $28,128  $22,833  $15,115  $15,571  $26,636
   Royalty income                         -      270    2,479    2,470    2,467
                                     ------   ------   ------   ------   ------
  Total revenues                     28,128   23,103   17,594   18,041   29,103
  Cost of sales                      13,640   12,782    9,803   11,739   18,806
                                     ------   ------   ------   ------   ------
  Gross margin                       14,488   10,321    7,791    6,302   10,297
  Expenses:
   Selling, general and
    administrative                   10,346   10,162    5,016    6,040    8,017
   Research and development           2,434    2,979    2,442    1,701      899
   Research and development, DelSite      -       -         -    1,879    2,761
   Research and development,
    Aliminase[TM] clinical trial
    expenses                          2,866      623        -        -        -
   Charges related to Oregon
    Freeze Dry, Inc.                  1,042      223        -        -        -
   Interest expense (income), net      (105)     (80)     (32)      19      249
   Other expense (income), net          (62)    (110)     (13)      41     (123)
                                     ------   ------   ------   ------   ------
  Income (loss) before income taxes  (2,033)  (3,476)     378   (3,378)  (1,506)
    Provision for income taxes            -        -        -        -        -
                                     ------   ------   ------   ------   ------
  Net income (loss)                 $(2,033) $(3,476) $   378  $(3,378) $(1,506)
                                     ======   ======   ======   ======   ======
  Net income (loss) per common share
   - basic and diluted(1)           $ (0.22) $ (0.36) $  0.04  $ (0.34) $ (0.15)
                                     ======   ======   ======   ======   ======
  Weighted average shares used in
   per share computations             9,376    9,545    9,743    9,889   10,120


 BALANCE SHEET INFORMATION (as of December 31):

  Working capital                   $ 7,911  $ 6,275  $ 6,315  $ 3,989  $ 3,019
  Total assets                       23,493   20,702   21,217   22,159   22,784
  Total shareholders' equity         19,504   16,440   16,929   13,689   12,619

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


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

                               Company Overview
                               ----------------

 The Company  is  a  research-based biopharmaceutical,  medical  device,  raw
 materials  and   nutraceutical   company   engaged   in   the   development,
 manufacturing and marketing of  naturally-derived complex carbohydrates  and
 other natural product therapeutics for the treatment of major illnesses, the
 dressing and management of wounds and nutritional supplements.  The  Company
 is comprised  of two  business  segments.  The  Company  generates  revenues
 through the sales of prescription and non-prescription human and  veterinary
 medical products through its Medical Services  Division.  It also  generates
 revenues through the  sales of consumer  and bulk  raw material  nutritional
 products and  sales of  specialized  product development  and  manufacturing
 services to customers  in the  cosmetic, nutraceutical  and medical  markets
 through its Caraloe, Inc.  subsidiary.  Additional  revenues to the  Company
 arise through licensing arrangements for distribution of products and,  from
 time to time, through research grants.

 Products sold through the Medical Services Division include hydrogels, wound
 cleansers, hydrocolloids,  advanced wound  covering products,  incontinence-
 care products and two lines of  condition-specific products.  Many  products
 sold through this division contain the Company's proprietary,  medical-grade
 raw  material,  Acemannan  Hydrogel[TM].  The Company regularly  engages  in
 development  projects  to create  line extensions  and  other  new  products
 for this  category.  Products sold through  Caraloe, Inc. include Manapol[R]
 and   other   proprietary   and   non-proprietary  raw  materials   sold  to
 nutraceutical  and cosmetic customers; nutritional  products  sold under the
 AloeCeuticals[TM] brand; skin care products sold under the Snow and  Sun[TM]
 brand and private-labeled products manufactured to customer  specifications,
 including powders,  creams,  liquids,  gels, lotions,  drinks,  tablets  and
 capsules for various customers.

 Prior to 1996, the Company generated most of its revenues from product sales
 in its Medical Services Division.  In 1996, the Company launched its line of
 raw materials, including Manapol[R] powder, through Caraloe, Inc.  In  2001,
 the Company created its specialty manufacturing group to provide services to
 cosmetic, nutraceutical and medical markets.  In December 2002, the  Company
 acquired the  assets of  the custom  division  of CBI,  which  substantially
 increased  revenues  for Caraloe,  Inc.  In 2003  approximately 29%  of  the
 Company's revenues were generated through product sales and royalties in its
 Medical Services Division and 71% through sales of products and services  in
 its Caraloe, Inc. subsidiary.

 Revenues
 --------                                         Year-over-   Year-over-
                                                     Year         Year
                                 2002     2003      Growth       Growth
                                                     ($)           (%)
 -----------------------------------------------------------------------
 Net product sales             $15,571  $26,636    $11,065        71.1
 Royalty income                  2,470    2,467         (3)       (0.1)
                                ------   ------     ------        ----
 Total revenues                $18,041  $29,103    $11,062        61.3


 The Company  utilizes the  cash flow  generated from  its  manufacturing and
 sales  operations  to  fund  additional  capital  projects  in  support   of
 manufacturing operations and to fund the research activities of its  DelSite
 subsidiary.

 Cash Flow
 ---------                                        Year-over-   Year-over-
                                                     Year         Year
                                 2002     2003      Growth       Growth
                                                     ($)           (%)
 -----------------------------------------------------------------------
 Net cash used in
   operating activities        $(1,365) $(1,288)   $    77         5.6
 Net cash used in
   investing activities         (1,379)  (1,472)       (93)       (6.7)
 Net cash provided by
   financing activities          2,926    1,044     (1,882)      (64.3)


 The decrease in net cash used in operating activities was primarily  related
 to the decrease in the net loss,  which was partially offset by an  increase
 in inventory  and accounts  receivable. The  increase in  net cash  used  in
 investing activities resulted from an increased investment in facilities and
 equipment to support  the Company's operations.  Cash provided by  financing
 activities in 2003 was adversely affected by increased principal payments on
 debt and capital lease obligations.

 The Company's operating expenses generally fall into three broad categories;
 sales  and  distribution  expenses  in  support  of  product sales;  product
 support  and  DelSite  research  and  development expenses;  and general and
 administrative expenses.  In recent years, the Company has seen moderate but
 steady  increases  in  its sales and distribution expenses and has shifted a
 greater percentage of  its  overall research and development expenses to its
 DelSite subsidiary.  General and administrative expenses represent corporate
 infrastructure costs,  such as accounting,  human resources  and information
 systems,  and  executive management expenses.  In addition  to its operating
 expenses, the Company also incurs interest  expense  arising  from the  debt
 portion  of  its  capital structure.  In  2003,  the  Company experienced  a
 substantial increase  in  interest  expense,  due  to  increased  borrowings
 in  2003.  The  proceeds of  these borrowings  were  used  in  the Company's
 operations.

 Expenses
 --------                                         Year-over-   Year-over-
                                                     Year         Year
                                 2002     2003      Growth       Growth
                                                     ($)           (%)
 -----------------------------------------------------------------------
 Selling, general and
   administrative              $ 6,040  $ 8,017    $ 1,977        32.7
 Research and development        1,701      899       (802)      (47.1)
 Research and development,
   DelSite                       1,879    2,761        882        46.9
 Other expenses (income)            19     (123)      (142)     (747.4)
 Interest expense (income), net     41      249        208       507.3


 The Company  utilizes the  cash flow  generated from  its manufacturing  and
 sales  operations  to  fund  additional  capital  projects  in  support   of
 manufacturing operations and to fund the research activities of its  wholly-
 owned  subsidiary,  DelSite.   DelSite,  which  was  incorporated  in  2001,
 operates  separately  from  the   Company's  product-support  research   and
 development program and  is responsible  for the  research, development  and
 marketing of the Company's proprietary GelSite[TM] technology for controlled
 release  and  delivery  of  bioactive  pharmaceutical ingredients.  DelSite,
 together with  its  collaborators and  contractors,  has the  capability  to
 provide formulation development, feasibility study, preclinical development,
 clinical supply  production,  production scale-up  and  technology  transfer
 services.  DelSite's business plan is to  develop its data in support of  it
 technologies  and  then  partner   with  biotechnology  and   pharmaceutical
 companies to provide novel delivery solutions for their drugs and vaccines.

                       Liquidity and Capital Resources
                       -------------------------------

 The following  table summarizes  the  Company's contractual  obligations  at
 December 31, 2003 (amounts in thousands):
                                              Payments Due by Period
                                      ---------------------------------------
                                      Less than   One to  Four to   More than
                                         One      Three     Five      Five
                               Total     Year     Years     Years     Years
 ----------------------------------------------------------------------------
 Contractual Obligations
 Notes Payable
  Line of Credit with        $ 1,587   $ 1,587   $     -   $     -   $     -
   Comerica Bank (4% at
   December 31, 2003)
  Comerica Bank note payable     917       200       400       317         -
   (4% at December 31,2003)
  Medline note payable (6.5%   1,316       734       582         -         -
   at December 31, 2003)
  Bancredito note payable        463        52       114       130       167
   (U.S. prime plus 2% at
   December 31, 2003)
  Other                           17         3         8         6         -
 Capital leases                  345       115       181        32        17
 Operating leases              5,500       860     1,693     1,442     1,505
                              ------    ------    ------    ------    ------
 Total contractual
   obligations               $10,145   $ 3,461   $ 2,978   $ 1,927   $ 1,689
                              ======    ======    ======    ======    ======

 The  Company  has  historically  depended  on  operating  cash  flows,  bank
 financing and equity financing to fund its operations, capital projects  and
 research and development projects, with the majority of funds generated from
 operating cash flows. The  Company also has available to it various  leasing
 arrangements for  financing equipment  purchases, and  is seeking  potential
 grant awards for funding DelSite projects, other potential collaborative  or
 sponsorship funding for  DelSite projects and  potential licensing  revenues
 for product lines or DelSite projects.

 At December 31, 2003 and 2002, the Company held cash and cash equivalents of
 $1,920,000  and  $3,636,000,  respectively, a  decrease of  $1,716,000.  The
 decrease in  cash was  primarily due  to  increases in  accounts  receivable
 balances  arising  from  the  increase in sales, additional inventory needed
 to  support  the  increased  level  of  operations  and  operating  results.
 Significant cash outflows  during  2003  included  a  $1,393,000  investment
 in  property  plant  and  equipment.  Customers  with  significant  accounts
 receivable balances at the end of 2003 included Mannatech, Inc. ($1,540,000)
 and Medline Industries ($935,000), and of these amounts, $2,346,000 has been
 collected as of February 29, 2004.

 In July 2003, the Company received a loan of $1,000,000 from Comerica  under
 a variable rate installment note with interest and principal to be repaid in
 monthly installments over five years.  The interest rate on the loan is  the
 U.S. Prime  Rate plus  0.5%.  The loan  is collateralized  by the  Company's
 accounts receivable  and inventory  and by  a first  lien on  the  Company's
 production facility in Irving,  Texas.  The proceeds  of the loan are  being
 used  in  the  Company's  operations.  As  of  December 31, 2003,  there was
 $917,000 outstanding on the loan.

 In March 2003  the Company received  a loan of  $500,000 from Bancredito,  a
 Costa Rica  bank,  with interest  and  principal  to be  repaid  in  monthly
 installments  over eight years.  The interest rate on  the loan is the  U.S.
 Prime Rate plus 2.0%.  The loan is secured by a mortgage on an unused,  164-
 acre parcel  of land  owned by  the Company  in Costa  Rica plus  a lien  on
 specified oral patch production  equipment.  The proceeds  of the loan  were
 used  in  the Company's  operations.  As  of December  31, 2003,  there  was
 $463,000 outstanding on the loan.

 The Company had no additional material  capital commitments as of that  date
 other than its leases and agreements with suppliers.

 In December 2002,  the Company entered  into an agreement  with Medline  for
 accelerated  payment  of  $2.0  million  of  the  royalties  due  under  the
 Distributor  and  License  Agreement.  The  royalty  acceleration  agreement
 provides for each of the remaining quarterly royalty payments due to be paid
 to the Company by Medline to be reduced  by equal amounts, the sum of  which
 offsets the royalty advance.  The Company has accounted for this transaction
 in its financial statements as a loan, which bears interest at 6.5%.  As  of
 December 31, 2003, there was $1,316,000 outstanding on the advance.

 In July 1998 the  Company provided a $187,000  cash advance to Rancho  Aloe,
 which is evidenced by a note receivable, due in installments, with  payments
 being made  monthly based  upon farm production.  The Company also  advanced
 $300,000 to  Aloe  &  Herbs in  November  1998  for the  acquisition  of  an
 irrigation system to improve production on the farm and allow harvesting  of
 leaves  year-round.  In  the  fourth  quarter  of 1998,  the  Company  fully
 reserved all amounts  owed to it  by Aloe &  Herbs, in the  total amount  of
 $487,000, due to the start-up nature of the business.  In 2003, the  Company
 received payments totaling  $149,500 from Aloe  & Herbs  against the  amount
 due.

 The Company has a line of credit with Comerica Bank-Texas ("Comerica")  that
 provides for borrowings of up to $3 million based on the level of  qualified
 accounts receivable and inventory.  The line of credit is collateralized  by
 accounts receivable and inventory.  Borrowings under the line of credit bear
 interest at the  bank's prime  rate (4.0% at December  31, 2003) plus  0.5%.
 The credit  facility  with  Comerica includes  covenants  that  require  the
 Company  to maintain  certain  financial ratios.  The  Company  was  not  in
 compliance  with  two  of  the  covenant  ratios as  of  December 31,  2003.
 Comerica has  waived  the events  of  non-compliance for  the  period  ended
 December 31, 2003.  The Company and Comerica may amend the covenants in  the
 future.  As of  December 31, 2003, there  was $1,587,000 outstanding  on the
 credit  line  with  $713,000  credit   available  for  operations,  net   of
 outstanding letters of credit of $700,000.

 In December 2002, the Company acquired the assets of the custom division  of
 Cosmetic Beauty Innovations  (CBI) for $1.0  million plus a  royalty on  the
 Company's sales to custom division customers for five years and $583,000 for
 useable inventories.  The CBI  custom division provided product  development
 and manufacturing  services  to customers  in  the cosmetic  and  skin  care
 markets.  Included  in  the  purchase  were intellectual  property,  certain
 inventories  and  specified  pieces  of  equipment.   The  Company  provides
 services to  these  customers  through the  Caraloe,  Inc.  development  and
 manufacturing services group. The Company  began producing products for  the
 transferring CBI customers in February 2003 at its Irving, Texas facility.

 The Company anticipates capital expenditures  in 2004 of approximately  $1.2
 million.  The  expenditures will primarily  be comprised  of production  and
 laboratory equipment and facility modifications.

 Presently, the  Company's debt/equity  ratio is  0.8  to 1.   Based  on  its
 current estimates, management believes that the Company has the capacity  to
 incur additional debt, and, in 2004, the Company intends to seek  additional
 financing to be used as working capital.  The Company anticipates that  such
 borrowings, together  with  the  expected cash  flows  from  operations  and
 licensing agreements and expected  revenues from government grant  programs,
 will  provide  the  funds  necessary  to  finance  its  current  operations,
 including expected levels of research and development.  However, the Company
 does not  expect that  its  current cash  resources  will be  sufficient  to
 finance  future  major  clinical  studies  and  costs  of  filing  new  drug
 applications necessary  to develop  its products  to their  full  commercial
 potential.   Additional funds,  therefore, may  need  to be  raised  through
 equity   offerings,  borrowings,  licensing  arrangements  or  other  means.
 Management believes  that  each  of  the  enumerated  financing  avenues  is
 presently available to the Company.  However, there is no assurance that the
 Company will be able  to obtain such funds  on satisfactory terms when  they
 are needed.

 In March 2001, the Board of  Directors authorized the Company to  repurchase
 up to one million shares of its  outstanding Common Stock.  See "Market  for
 Registrant's  Common  Equity and  Related Stockholder  Matters"  above.  The
 Company believes  it has  the financial  resources necessary  to  repurchase
 shares from time to time pursuant to the Board's repurchase authorization.

 The Company is subject to regulation by numerous governmental authorities in
 the United States and  other countries.  Certain  of the Company's  proposed
 products will require governmental  approval prior to  commercial  use.  The
 approval process  applicable  to  pharmaceutical  products  and  therapeutic
 agents usually  takes  several  years  and  typically  requires  substantial
 expenditures.  The  Company  and  any  licensees may  encounter  significant
 delays or excessive costs  in their respective  efforts to secure  necessary
 approvals.  Future  United States or  foreign legislative or  administrative
 acts could also prevent or delay regulatory approval of the Company's or any
 licensee's products.  Failure to obtain requisite governmental approvals  or
 failure to obtain approvals of the  scope requested could delay or  preclude
 the Company or any licensees from  marketing their products, or could  limit
 the commercial use  of the  products, and  thereby have  a material  adverse
 effect on the Company's liquidity and financial condition.

                            Results of Operations
                            ---------------------

 Fiscal 2003 Compared to Fiscal 2002
 -----------------------------------
 Total revenues were $29,103,000 in 2003, compared with $18,041,000 in  2002.
 Total sales  in the Company's Medical  Services Division were $8,453,000  in
 2003 as compared  to $8,394,000  in 2002, and  total sales in the  Company's
 Caraloe, Inc. subsidiary were $20,650,000  in 2003 as compared to $9,647,000
 in 2002.

 Total sales  of the  Company's wound  and skin  care products  in 2003  were
 $5,985,000 as compared with $5,855,000 in 2002.  The increase in wound  care
 revenue was  primarily  due to  an  increase  in orders  from  Medline,  the
 Company's exclusive domestic distributor.  The Company's products are facing
 increasing competitive pressure from low-end, commodity-type products  which
 is  eroding  its market share.  Educational efforts are underway  to support
 the  distributor's  sales  efforts  in  product differentiation, performance
 and net cost  of therapy  to the customer.  The Company  has  also initiated
 selective advertisements to support its brand.

 Partially offsetting  the  increase  in domestic  wound  care  sales  was  a
 decrease  in sales to international customers.  The Company sells its  wound
 care products to international distributors, primarily in Europe and Central
 and  South  America.  Total  international wound  care  sales in  2003  were
 $448,000 as compared to $534,000 in 2002, with the decrease primarily due to
 decreased South America sales.

 Sales of the Company's  oral technology products  increased from $56,000  in
 2002 to  $78,000 in  2003  due primarily  to  the increased  product  demand
 internationally.

 The Company recorded royalty revenue in  2003 of $2,467,000 relating to  the
 exclusive Licensing and Distribution Agreement with Medline, as compared  to
 $2,470,000 in 2002.

 Of  the  total  Caraloe, Inc.  sales  in  2003,  $11,456,000  was related to
 the sale  of  bulk  Manapol[R] powder  as compared  to  $6,493,000  in 2002.
 Caraloe currently sells  bulk  Manapol[R]  powder to a major  customer under
 a  one-year,  non-exclusive  supply  and  licensing  agreement.  The current
 agreement expires in December 2004.  Sales to  this  customer increased from
 $6,366,000 in 2002 to $10,357,000 in 2003.

 Caraloe also  sells  its AloeCeuticals[R] line  of immune-enhancing  dietary
 supplements containing Manapol[R],  which are available  in  liquid, capsule
 and tablet forms.  These products are sold directly to health and  nutrition
 stores and broker/distributors.  They are also  sold  through the  Company's
 Internet sites.  Sales of these products in 2002  and 2003 totaled  $532,000
 and $519,000, respectively.

 Caraloe continued  to develop  its  contract manufacturing  business  during
 2003.  Caraloe manufactures a variety  of products that can be filled  using
 the Company's current equipment including gels, creams, lotions and  drinks.
 Total  contract manufacturing  sales in 2003  were $8,675,000 compared  with
 $2,622,000 in 2002.  Of the $6,053,000 increase, $4,111,000 was attributable
 to products  the Company  produced for  former customers  of CBI  that  were
 acquired in December  2002.  Additionally, $1,278,000  was  attributable  to
 products the Company produced for Medline  under a supply agreement  entered
 into in  December  2000,  whereby the  Company  manufactures  Medline's  own
 branded skin care products on a contract basis.

 Cost of goods  sold increased  from $11,739,000  in 2002  to $18,806,000  in
 2003,  or 60.2%.  As a  percentage of sales,  cost of  sales decreased  from
 65.1% to 64.6%.  The  slight decrease in the  cost of goods sold  percentage
 was  attributable  to  a decrease  in  unfavorable  manufacturing variances.
 The Company experienced  significant unfavorable  variances associated  with
 its manufacturing processes in its Irving, Texas facility.  These  variances
 are expected  to improve as volumes  increase and efficiencies improve.  The
 Company experienced  significant  favorable variances  associated  with  its
 manufacturing  processes  in  its  Costa  Rica  facility  due  to  increased
 production of the Manapol[R] powder through much of the year.

 Selling,  general  and administrative expenses  increased to $8,017,000 from
 $6,040,000, or 32.7%.  The Company  recorded additional distribution related
 expenses  in  2003  of  $1,094,000,  which  was  primarily  related  to  the
 increased  shipping volume  and increased facility costs associated with the
 growing business volume.  The Company  recorded additional selling  expenses
 in  2003 of $403,000, primarily  related to support of the business acquired
 from CBI.  The  Company also recorded additional administrative  expenses in
 2003 of $480,000 primarily  in  the areas of  salary,  professional fees and
 information  systems  expenses  to support the increased level of operations
 and to improve the infrastructure of the Company.

 Specialized research and  development expenses in  support of the  Company's
 ongoing operations decreased to $899,000 in 2003 from $1,701,000 in 2002, or
 52.8%.  This  decrease resulted from  the Company's efforts  to refocus  the
 activities of  this  group  toward services  in  support  of  manufacturing,
 including formulation design, formulation modifications and  re-engineering,
 technology  transfer  to  the manufacturing  suite  and  stability  studies.
 DelSite operates independently from  the Company's specialized research  and
 development program and  is responsible  for the  research, development  and
 marketing of the Company's proprietary Gelsite[TM] technology for controlled
 release and delivery of bioactive pharmaceutical ingredients.  DelSite began
 operations in  January 2002  and its  expenses in  support of  this  mission
 totaled  $2,761,000  in 2003.  Combined  research and  development  expenses
 totaled $3,660,000 in 2003, an increase of 2.2% over 2002.

 Net interest expense of  $249,000 was recorded in  2003 versus net  interest
 expense of $41,000  in 2002, with  the variance primarily  due to  increased
 Company borrowings in 2003.

 There was no benefit for income taxes in  2003 due to fact that the  Company
 has provided a valuation allowance against  all deferred tax asset  balances
 at December 31, 2003  and 2002 due to  uncertainty regarding realization  of
 the asset.

 The Company's  net  loss for  2003  was $1,506,000,  versus  a net  loss  of
 $3,378,000  for 2002.  The 2003  net loss was  primarily due to  unfavorable
 plant operating variances  at the Irving,  Texas manufacturing facility,  as
 well as  additional operating  expenses incurred  in support  of  additional
 sales volume and in improving the infrastructure of the company.  Results in
 2002 were affected by reduced gross  margins resulting from  mix of products
 sold and from unfavorable  plant operating variances  in both Irving,  Texas
 and Costa Rica  manufacturing facilities.   The loss per  share in 2003  was
 $0.15, compared to loss per share of $0.34 in 2002.

 Fiscal 2002 Compared to Fiscal 2001
 -----------------------------------
 Total revenues were $18,041,000 in 2002, compared with $17,594,000 in  2001.
 Total sales  in the Company's Medical  Services Division were $8,394,000  in
 2002 as compared  to $10,400,000 in  2001 and total  sales in the  Company's
 Caraloe, Inc. subsidiary were $9,647,000  in 2002 as compared to  $7,194,000
 in 2001.

 Total sales  of the  Company's wound  and skin  care products  in 2002  were
 $5,855,000 as compared with $7,921,000 in 2001.  The decrease in wound  care
 revenue was primarily due to a $2.2 million decrease in orders from Medline,
 the Company's exclusive domestic distributor.  A portion of the decrease can
 be attributed to initial stocking orders  made by Medline in early 2001,  as
 the  distribution  agreement was  implemented.  Additionally, the  Company's
 products are facing increasing competitive pressure from low-end, commodity-
 type products which is  eroding its market share.   Educational efforts  are
 underway  to   support   the   distributor's  sales   efforts   in   product
 differentiation, performance and net cost of  therapy to the customer.   The
 Company has also initiated selective advertisements to support its brand.

 Partially offsetting  the  decrease in  domestic  wound care  sales  was  an
 increase in sales to international customers.  The  Company sells its  wound
 care products to international distributors, primarily in Europe and Central
 and South  America.   Total  international wound  care  sales in  2002  were
 $534,000 as compared to $386,000 in 2001, with the increase primarily due to
 increased sales in Latin America.

 Sales of the Company's oral technology  products decreased from $129,000  in
 2001 to $56,000  in 2002  due primarily  to the  loading of  inventory by  a
 significant international customer in 2001.

 The Company recorded royalty revenue in  2002 of $2,470,000 relating to  the
 exclusive Licensing and Distribution agreement  with Medline as compared  to
 $2,479,000 in 2001.

 Of the total Caraloe, Inc. sales in 2002, $6,493,000 was related to the sale
 of bulk Manapol[R] powder.  Caraloe  currently sells bulk Manapol[R]  powder
 to a major customer under a  non-exclusive supply and  licensing  agreement.
 Sales  to  this customer increased  from $5,192,000 in 2001 to $6,366,000 in
 2002.

 Caraloe also  sells its  AloeCeuticals[R] line  of immune-enhancing  dietary
 supplements containing Manapol[R],  which are available  in  liquid, capsule
 and tablet forms.  These products are sold directly to health and  nutrition
 stores and broker/distributors.  They  are also  sold through the  Company's
 Internet sites.  Sales  of these products in 2001 and 2002  totaled $538,000
 and $532,000, respectively.

 Caraloe continued  to develop  its  contract manufacturing  business  during
 2002.  Caraloe manufactures a variety  of products that can be filled  using
 the Company's current equipment including gels, creams, lotions and  drinks.
 Total  contract manufacturing  sales in 2002  were $2,622,000 compared  with
 $1,144,000 in 2001.  Of the  $1,478,000 increase, $845,000 was  attributable
 to products  the  Company produced  for  Medline under  a  supply  agreement
 entered into in  December 2000, whereby  the Company manufactures  Medline's
 own branded skin care products on a contract basis.

 Cost of goods sold increased from $9,803,000 in 2001 to $11,739,000 in 2002,
 or 19.7%.  As a percentage of sales,  cost of sales increased from 55.7%  to
 65.1%.   The increase  in the  cost  of goods  sold percentage  was  largely
 attributable to  a  significant  shift in  sales  mix  toward  lower  margin
 contract  manufactured  products.   The   Company  experienced   significant
 unfavorable variances  associated with its  manufacturing  processes in  its
 Irving, Texas facility  due to lower  manufacturing volumes associated  with
 the  decrease  in  its  wound  care  sales.  The  Company  also  experienced
 significant  unfavorable   variances  associated   with  its   manufacturing
 processes in its Costa Rica facility due to lower manufacturing volumes  for
 Manapol[R] powder through much of the year.  Increased sales of   Manapol[R]
 powder in the fourth  quarter of 2002 prompted  the Company to increase  its
 production of Manapol[R]  at the end  of the year,  thereby eliminating  the
 unfavorable variances through the first quarter of 2003.

 Selling,  general and administrative  expenses  increased to $6,040,000 from
 $5,016,000,  or  20.4%.  The  2001  balance included  a  one-time  favorable
 adjustment  of  $211,000 to  reduce  the Company's  franchise tax liability.
 The  Company recorded additional distribution expenses in 2002 of  $285,000,
 which was primarily due to increased shipping volume  and increased facility
 costs  associated  with the  distribution facility leased  in  October 2001.
 The  Company  recorded  additional selling  expense  in  2002  of  $201,000,
 primarily in the areas of salaries,  travel, literature and advertising,  in
 support  of  efforts  to  grow  total  sales.   The  Company  also  recorded
 additional administrative expenses  in 2002  of $327,000,  primarily  in the
 areas of information systems, training, professional fees and travel as part
 of  an effort to  improve  the infrastructure of the Company and position it
 for future growth.

 Research and  development   expenses in  support  of  the  Company's ongoing
 operations  decreased  to $1,701,000  in 2002  from $2,442,000 in  2001,  or
 30.3%.  This decrease resulted  from the  Company's efforts  to refocus  the
 activities of  this  group  toward services  in  support  of  manufacturing,
 including formulation design, formulation modifications and  re-engineering,
 technology  transfer  to  the  manufacturing  suite  and stability  studies.
 DelSite operates independently from  the Company's research and  development
 program and is responsible  for the research,  development and marketing  of
 the Company's proprietary Gelsite[TM] technology for controlled release  and
 delivery of bioactive pharmaceutical ingredients.  DelSite  began operations
 in  January  2002  and  its  expenses  in  support of  this mission  totaled
 $1,879,000  in  2002.  Combined  research  and  development expenses totaled
 $3,580,000 in 2002, an increase of 46.6% over 2001.

 Net interest expense  of $41,000 was  recorded in 2002  versus net  interest
 income of $32,000 in 2001, with the variance primarily due to lower interest
 rates earned on investments in 2002 and increased Company borrowings.

 There was  no  provision for  income  taxes in  2002  due to  the  Company's
 utilization of net operating loss carryforwards.  The Company has provided a
 valuation allowance against all deferred tax asset balances at December  31,
 2002 and 2001 due to uncertainty regarding realization of the asset.

 The Company's  net loss  for 2002  was $3,378,000,  versus a  net income  of
 $378,000 for 2001.  The  2002  net  loss was  due to  reduced gross  margins
 resulting from the mix of products sold and from plant operating  variances,
 as well as additional operating expenses  incurred in defense of  litigation
 and in support of positioning business  for future growth.  Results in  2001
 benefited from  higher  unit volume  sales  of wound  care  products,  lower
 production costs  and  a one  time  gain  of $211,000  from  adjustments  to
 franchise tax liabilities booked  in prior periods.  The  loss per share  in
 2002 was $0.34, compared to earnings per share of $0.04 in 2001.

 Impact of Inflation
 -------------------
 The Company does not believe that inflation has had a material impact on its
 results of operations.

                         Critical Accounting Policies
                         ----------------------------

 Management has identified the following accounting policies as critical. The
 Company's accounting policies are  more fully described in  Note Two of  the
 Financial Statements.  The preparation of consolidated financial  statements
 requires the  Company  to  make estimates  and  judgments  that  affect  the
 reported amounts of assets, liabilities, revenues and expenses, and  related
 disclosure of contingent assets  and liabilities. On  an ongoing basis,  the
 Company evaluates its estimates,  including those related  to bad debts  and
 inventories. The Company bases its estimates on historical experience and on
 various other  assumptions that  are believed  to  be reasonable  under  the
 circumstances, the  results of  which form  the basis  for making  judgments
 about the carrying  values of assets  and liabilities that  are not  readily
 apparent from other sources.  Actual results may differ from these estimates
 under different assumptions or conditions.

 The Company records estimated reductions to revenue for incentive  offerings
 including promotions and other volume-based incentives as well as  estimates
 for returns based upon recent history.  If market conditions were to decline
 or inventory was in danger of expiring or becoming obsolete, the Company may
 take actions to increase customer incentive offerings possibly resulting  in
 an incremental reduction of  revenue at the time  the incentive is  offered.
 Additionally, if  demand  for  the  Company's  product  were  to  drop,  the
 Company's distributors may request  return of product  for credit causing  a
 need to re-evaluate and possibly increase  the reserve for product  returns.
 The Company maintains allowances for doubtful accounts for estimated  losses
 resulting from the inability of its customers to make required payments.  If
 the financial  condition of  the Company's  customers were  to  deteriorate,
 resulting in an  impairment of their  ability to  make payments,  additional
 allowances may  be  required. The  Company  writes down  its  inventory  for
 estimated obsolescence  or unmarketable  inventory equal  to the  difference
 between the cost  of inventory  and the  estimated market  value based  upon
 assumptions about future  demand and market  conditions.   If actual  market
 conditions are less favorable than those projected by management, additional
 inventory write-downs may be required.


                          Forward Looking Statements
                          --------------------------

 All statements other than  statements of historical  fact contained in  this
 report, including  but  not  limited  to  statements  in  this  Management's
 Discussion and Analysis  of Financial  Condition and  Results of  Operations
 (and similar statements  contained in  the Notes  to Consolidated  Financial
 Statements) concerning the Company's financial position, liquidity,  capital
 resources and results of operations, its prospects for the future and  other
 matters, are forward-looking statements.  Forward-looking statements in this
 report generally include or are accompanied  by words such as  "anticipate",
 "believe", "estimate",  "expect",  "intend", "will",  "would",  "should"  or
 words of similar import.  Such  forward-looking statements include, but  are
 not limited to, statements regarding the ability of local suppliers of  Aloe
 vera L. leaves in Costa  Rica to supply the  Company's need  for leaves; the
 condition,  capacity  and  adequacy  of  the  Company's  manufacturing   and
 laboratory facilities and equipment; the adequacy of the protection that the
 Company's patents provide  to the conduct  of its  business operations;  the
 adequacy of the  Company's protection of  its trade  secrets and  unpatented
 proprietary know-how; the Company's belief that the claims of the Plaintiffs
 identified under Item  3 of Part  I of this  report are  without merit;  the
 adequacy of the Company's  cash resources and cash  flow from operations  to
 finance its current operations; and the Company's intention, plan or ability
 to repurchase shares of its outstanding Common Stock, to initiate,  continue
 or complete clinical and other research  programs, to obtain financing  when
 it is needed, to fund its  operations from revenue and other available  cash
 resources, to enter  into licensing agreements,  to develop  and market  new
 products and  increase  sales of  existing  products, to  obtain  government
 approval to market new products, to file additional patent applications,  to
 rely on  trade secrets,  unpatented proprietary  know-how and  technological
 innovation, to reach  satisfactory resolutions  of its  disputes with  third
 parties,  to acquire sufficient quantities of Aloe vera L. leaves from local
 suppliers at significant savings, to collect  the amounts owed to it by  its
 distributors, customers and  other third parties,  and to use  its tax  loss
 carryforwards before they expire, as well as various other matters.

 Although the  Company  believes  that  the  expectations  reflected  in  its
 forward-looking statements are  reasonable, no assurance  can be given  that
 such  expectations  will  prove  correct.   Factors  that  could  cause  the
 Company's results to differ  materially from the  results discussed in  such
 forward-looking statements include but are not limited to the  possibilities
 that the Company may be unable to obtain the funds needed to carry out large
 scale clinical trials and other research and development projects, that  the
 results of the Company's clinical trials may not be sufficiently positive to
 warrant continued development and marketing of the products tested, that new
 products may not  receive required approvals  by the appropriate  government
 agencies or may not meet with adequate customer acceptance, that the Company
 may not be able to obtain financing when needed, that the Company may not be
 able to obtain appropriate licensing agreements for products that it  wishes
 to market  or products  that it  needs assistance  in developing,  that  the
 Company's efforts  to improve  its sales  and reduce  its costs  may not  be
 sufficient to  enable it  to  fund its  operating  costs from  revenues  and
 available cash resources, that one or more of the customers that the Company
 expects to purchase significant quantities of  products from the Company  or
 Caraloe may  fail to  do  so, that  competitive  pressures may  require  the
 Company to lower the  prices of or increase  the discounts on its  products,
 that the  Company's  sales of  products  it is  contractually  obligated  to
 purchase from suppliers  may not  be sufficient  to enable  and justify  its
 fulfillment of those  contractual purchase obligations,  that other  parties
 who owe the Company substantial amounts of  money may be unable to pay  what
 they owe the Company, that the Company's patents may not provide the Company
 with adequate protection, that the Company's manufacturing facilities may be
 inadequate to meet demand, that the Company's distributors may be unable  to
 market  the  Company's  products  successfully,  that the Company may not be
 able  to resolve its disputes  with third parties in  a satisfactory manner,
 that the Company  may  be  unable  to  reach  a satisfactory  agreement with
 important suppliers,  that the Company may not be  able to use its  tax loss
 carryforwards before they expire, that the Company may not  have  sufficient
 financial resources necessary to repurchase shares of its outstanding Common
 Stock, and that the Company may be unable  to produce or obtain, or may have
 to pay excessive prices for, the raw materials or products it needs.

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


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

                               Foreign Currency
                               ----------------

 The  Company's  manufacturing  operation  in Costa  Rica accounted for 29.6%
 of cost of  sales  for  the  year  ended December 31,  2003.  The  Company's
 functional currency in  Costa Rica is  the U.S. Dollar.  As  a  result,  the
 Company's financial results could be significantly affected by factors  such
 as changes  in foreign  currency exchange  rates or  economic conditions  in
 Costa Rica.  When the U.S. Dollar strengthens against the Costa Rica  ColEn,
 the  cost  of sales  decreases.  During 2003,  the exchange  rate from  U.S.
 Dollar to Costa Rica ColEn increased  by 22.9% to 418  at December 31, 2003.
 The effect  of an  additional 10%  strengthening in  the value  of the  U.S.
 Dollar relative to the Costa  Rica ColEn in 2003  would have resulted in  an
 increase of $81,588 in gross profit.  The Company's sensitivity analysis  of
 the effects  of changes  in foreign  currency  rates does  not factor  in  a
 potential change in sales levels or local currency prices.

 Sales of products  to foreign  markets comprised 4.0%  of  sales  for  2003.
 These sales are generally denominated in U.S. Dollars.  The Company does not
 believe that changes  in foreign currency  exchange rates  or weak  economic
 conditions in foreign markets in which the Company distributes its  products
 would have a significant effect on  operating results.  If sales  to foreign
 markets increase in future periods, the effects could become significant.

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


 ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
           -------------------------------------------

 The response to Item 8 is submitted as a separate section of this Form 10-K.
 See Item 15.


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

 On August 18, 2003, the Audit  Committee of the Board of Directors  resolved
 to change the Company's independent accountants.  Accordingly, on that  date
 the Company dismissed Ernst & Young LLP and appointed Grant Thornton LLP  to
 serve as  its independent  public accountants  for  the fiscal  year  ending
 December 31, 2003. This  change followed the  Audit Committee's decision  to
 seek proposals  from  other  independent auditors  to  audit  the  Company's
 consolidated financial statements  for the  fiscal year  ended December  31,
 2003.  During 2001, 2002 and the period from January 1, 2003 through  August
 18, 2003, there were no disagreements with  Ernst & Young LLP on any  matter
 of accounting  principle  or  practice, financial  statement  disclosure  or
 auditing scope or procedures or any reportable events.  Having completed its
 standard client acceptance procedure with respect  to its engagement by  the
 Company, Grant Thornton LLP accepted its appointment as of August 18, 2003.


 ITEM 9A.  CONTROLS AND PROCEDURES.
           -----------------------

 Management of  the Company  with the  participation of  its Chief  Executive
 Officer and  Chief Financial  Officer, evaluated  the effectiveness  of  the
 Company's disclosure controls and procedures.  Based on their evaluation, as
 of the end  of the period  covered by this  Form 10-K,  the Company's  Chief
 Executive Officer  and  Chief  Financial Officer  have  concluded  that  the
 Company's disclosure controls and procedures (as defined in Rules  13a-15(e)
 and 15d-15(e) under  the Securities Exchange  Act of 1934,  as amended)  are
 effective.

 There have been no  significant changes in  internal control over  financial
 reporting, for  the period  covered by  this  report, that  have  materially
 affected or  are  reasonably  likely to  materially  affect,  the  Company's
 internal control reporting.


                                   PART III
                                   --------

 ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
           --------------------------------------------------

 The information required by Item 10  of Form 10-K is hereby incorporated  by
 reference from the  information appearing  under the  captions "Election  of
 Directors," "Executive  Officers" and  "Section 16(a)  Beneficial  Ownership
 Reporting Compliance" in the  Company's definitive Proxy Statement  relating
 to its 2004 annual meeting of shareholders, which will be filed pursuant  to
 Regulation 14A  within  120  days after  the  Company's  fiscal  year  ended
 December 31, 2003.


 ITEM 11.  EXECUTIVE COMPENSATION.
           ----------------------

 The information required by Item 11  of Form 10-K is hereby incorporated  by
 reference from  the  information  appearing  under  the  caption  "Executive
 Compensation" in the  Company's definitive Proxy  Statement relating to  its
 2004 annual  meeting  of  shareholders, which  will  be  filed  pursuant  to
 Regulation 14A  within  120  days after  the  Company's  fiscal  year  ended
 December 31, 2003.


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

 The information required by Item 12  of Form 10-K is hereby incorporated  by
 reference from  the  information  appearing  under  the  captions  "Security
 Ownership of  Management"  and  "Principal Shareholders"  in  the  Company's
 definitive  Proxy  Statement  relating  to   its  2004  annual  meeting   of
 shareholders, which will be filed pursuant to Regulation 14A within 120 days
 after the Company's fiscal year ended December 31, 2003.


 ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
           ----------------------------------------------

 The information,  if  any,  required by  Item  13  of Form  10-K  is  hereby
 incorporated by reference from the  information appearing under the  caption
 "Certain Transactions", if any, in the Company's definitive Proxy  Statement
 relating to its  2004 annual meeting  of shareholders, which  will be  filed
 pursuant to Regulation 14A within 120  days after the Company's fiscal  year
 ended December 31, 2003.


 ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.
           --------------------------------------

 The information required by Item 14  of Form 10-K is hereby incorporated  by
 reference from  the  information  appearing under  the  captions  "Principal
 Accountant Fees and  Services" in the  Company's definitive Proxy  Statement
 relating to its  2004 annual meeting  of shareholders, which  will be  filed
 pursuant to Regulation 14A within 120  days after the Company's fiscal  year
 ended December 31, 2003.


                                   PART IV
                                   -------

 ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
           ---------------------------------------------------------------

 (a)(1)    Financial Statements.

           Reference is made to the index on page F-1 for a list of all
           financial statements filed as a part of this Annual Report.

    (2)    Financial Statement Schedules.

           Reference is made to the index on page F-1 for a list of one
           financial statement schedule filed as a part of this Annual
           Report.

    (3)    Exhibits.

           Reference is made to the Index to Exhibits on pages E-1 through
           E-8 for a list of all exhibits to this report.

 (b)       Reports on Form 8-K.

           The Company filed a Form 8-K and Form 8-A/A Report on December 18,
           2003 to report Amendment No. 1 to the Original Rights Agreement
           amending the Original Rights Agreement in certain respects.

<PAGE>

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


 Consolidated Financial Statements of the Company:

      Consolidated Balance Sheets --
           December 31, 2002 and 2003                             F-2

      Consolidated Statements of Operations -- years ended
           December 31, 2001, 2002 and 2003                       F-3

      Consolidated Statements of Shareholders' Equity --
           years ended December 31, 2001, 2002 and 2003           F-4

      Consolidated Statements of Cash Flows -- years ended
           December 31, 2001, 2002 and 2003                       F-5

      Notes to Consolidated Financial Statements                  F-6

      Financial Statement Schedule
           Valuation and Qualifying Accounts                      F-18

      Report of Grant Thornton LLP                                F-19

      Report of Ernst & Young LLP                                 F-20

<PAGE>

 Consolidated Balance Sheets
 (Amounts in thousands, except share and per share amounts)


                                                           December 31,
                                                        2002          2003
                                                      --------      --------
 Assets:
 Current Assets:
   Cash and cash equivalents                         $   3,636      $  1,920
   Accounts receivable, net of allowance
    for doubtful accounts of $110 and $181
    December 31, 2002 and 2003, respectively             2,370         3,098
   Inventories, net                                      4,333         5,960
   Prepaid expenses                                        603           253
                                                      --------      --------
 Total current assets                                $  10,942     $  11,231

 Property, plant and equipment, net                     10,065        10,538
 Customer relationships, net                               893           777
 Other assets, net                                         259           238
                                                      --------      --------
 Total assets                                        $  22,159     $  22,784
                                                      ========      ========
 Liabilities and Shareholder's Equity:
 Current Liabilities:
   Line of credit                                    $   1,587     $   1,587
   Accounts payable                                      1,458         2,037
   Accrued liabilities                                   1,256         1,604
   Current portion of long-term debt and
    capital lease obligations                              730         1,104
   Deferred revenue                                      1,922         1,880
                                                      --------      --------
 Total current liabilities:                              6,953         8,212

 Long-term debt and capital lease obligations            1,517         1,953

 SHAREHOLDERS' EQUITY:
   Common stock, $.01 par value, 30,000,000 shares
    authorized, 9,967,938 and 10,384,669 shares
    issued at December 31, 2002 and 2003,
    respectively                                           100           104
   Capital in excess of par value                       52,568        53,000
   Accumulated Deficit                                 (38,976)      (40,482)
   Treasury stock at cost, 2,400 shares
    at December 31, 2002 and 2003                           (3)           (3)
                                                      --------      --------
 Total shareholders' equity                             13,689        12,619
                                                      --------      --------
 Total liabilities and shareholders' equity          $  22,159     $  22,784
                                                      ========      ========

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

<PAGE>

 Consolidated Statements of Operations
 (Amounts in thousands, except per share amounts)


                                                 Years Ended December 31,
                                               ----------------------------
                                                2001       2002       2003
                                               ------     ------     ------
 Revenues:
   Net product sales                          $15,115    $15,571    $26,636
   Royalty income                               2,479      2,470      2,467
                                               ------     ------     ------
 Total revenues                                17,594     18,041     29,103
 Cost of sales                                  9,803     11,739     18,806
                                               ------     ------     ------
 Gross margin                                   7,791      6,302     10,297

 Expenses:
   Selling, general and administrative          5,016      6,040      8,017
   Research and development                     2,442      1,701        899
   Research and development, DelSite                -      1,879      2,761
   Other expense (income)                         (13)        19       (123)
   Interest expense (income), net                 (32)        41        249

                                               ------     ------     ------
 Net income (loss) before income taxes            378     (3,378)    (1,506)
 Provision for income taxes                         -          -          -
                                               ------     ------     ------
 Net income (loss)                            $   378    $(3,378)   $(1,506)
                                               ======     ======     ======

 Basic and diluted earnings (loss)
   per share                                  $  0.04    $ (0.34)   $ (0.15)
                                               ======     ======     ======
 Basic and diluted average shares
   outstanding                                  9,743      9,889     10,120
                                               ======     ======     ======

       The accompanying notes are an integral part of these statements.

<PAGE>
<TABLE>

 Consolidated Statements of Shareholders' Equity
 For the Years Ended December 31, 2001, 2002 and 2003
 (Amounts in thousands)

                       Common Stock    Capital in                Treasury Stock
                      --------------   Excess of   Accumulated   --------------
                      Shares  Amount   Par Value     Deficit     Shares  Amount   Total
                      ------   -----     ------      -------     ------   -----   ------
 <S>                   <C>    <C>       <C>         <C>          <C>     <C>     <C>
 January 1, 2001       9,659  $   97    $52,319     $(35,976)         -  $    -  $16,440
 Issuance of common
  stock for employee
  stock purchase plan    150       1        110            -          -       -      111
 Net income                -       -          -          378          -       -      378
                      ------   -----     ------      -------     ------   -----   ------
 December 31, 2001     9,809      98     52,429      (35,598)         -       -   16,929
 Issuance of common
  stock for employee
  stock purchase plan    149       2        126            -          -       -      128
 Issuance of common
  stock for stock
  option plan             10       -         13            -          -       -       13
 Treasury stock
  purchase                 -       -          -            -          2      (3)      (3)
 Net loss                  -       -          -       (3,378)         -       -   (3,378)
                      ------   -----     ------      -------     ------   -----   ------
 December 31, 2002     9,968     100     52,568      (38,976)         2      (3)  13,689
 Issuance of common
  stock for employee
  stock purchase plan    246       2        197            -          -       -      199
 Issuance of common
  stock for stock
  option plan            171       2        235            -          -       -      237
 Net loss                  -       -          -       (1,506)         -       -   (1,506)
                      ------   -----     ------      -------     ------   -----   ------
 December 31, 2003    10,385  $  104    $53,000     $(40,482)         2  $   (3) $12,619
                      ======   =====     ======      =======      =====   =====   ======

           The accompanying notes are an integral part of these statements.

</TABLE>
<PAGE>

 Consolidated Statements of Cash Flows
 (Amounts in thousands)
                                                    Years Ended December 31,
                                                   ---------------------------
                                                    2001       2002      2003
                                                   ------     ------    ------
 Operating activities:
 Net income (loss)                                $   378    $(3,378)  $(1,506)
 Adjustments to reconcile net income (loss)
  to net cash provided by (used in)
  operating activities:
   Provision for bad debts                             55         38       150
   Provision for inventory obsolescence                91        135       200
   Depreciation and amortization                    1,050      1,087     1,309
   Loss on disposal of assets                           -         21         8
   Changes in operating assets and liabilities:
     Accounts receivable                              504       (786)     (878)
     Inventories                                     (706)       870    (1,827)
     Prepaid expenses                                  (6)      (414)      350
     Other assets                                    (117)       (49)       21
     Accounts payable and accrued liabilities        (849)       731       927
     Deferred revenue                                 875        380       (42)
                                                   ------     ------    ------
  Net cash provided by (used in) operating
   activities                                       1,275     (1,365)   (1,288)

 Investing activities:
  Cash paid in purchase of business, net of
   cash acquired                                        -     (1,001)      (79)
  Purchases of property, plant and equipment       (1,132)      (378)   (1,393)
                                                   ------     ------    ------
 Net cash used in investing activities             (1,132)    (1,379)   (1,472)

 Financing activities:
  Borrowings on line of credit                          -        824         -
  Proceeds from debt issuances                          -      2,000     1,500
  Principal payments on debt and capital
   lease obligations                                    -        (36)     (892)
  Issuances of common stock                           111        141       436
  Treasury stock purchased                              -         (3)        -
                                                   ------     ------    ------
 Net cash provided by financing activities            111      2,926     1,044
                                                   ------     ------    ------
 Net increase (decrease) in cash and cash
   equivalents                                        254        182    (1,716)
 Cash and cash equivalents at beginning of year     3,200      3,454     3,636
                                                   ------     ------    ------
 Cash and cash equivalents at end of year         $ 3,454    $ 3,636   $ 1,920
                                                   ======     ======    ======
 Supplemental Disclosure of Cash Flow
  Information

  Cash paid during the year for interest          $    58    $    61   $   259


        The accompanying notes are an integral part of these statements.

<PAGE>

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


 NOTE ONE.  BUSINESS

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

 The Company's Medical Services Division offers a comprehensive line of wound
 management  products  to  hospitals,  alternative  care  facilities,  cancer
 centers  and  the  home  health  care   market.  The   Company  and  Medline
 Industries,  Inc.  ("Medline")  entered  into  a  Distributor  and   License
 Agreement dated November 3, 2000, under which the Company granted to Medline
 the exclusive right,  subject to certain  limited exceptions, to  distribute
 all of the Company's  wound and skin care  products (the "Products") in  the
 United States,  Canada,  Puerto Rico  and the U.S. Virgin Islands for a term
 of  five  years  that  began December 1, 2000.  The  agreement provides that
 Carrington  will continue  to manufacture  its existing line of Products and
 sell them  to Medline at specified prices.  The prices, which were generally
 firm  for the first two years  of the contract term, are thereafter  subject
 to  adjustment  not  more  than  once  each  year  to  reflect  increases in
 manufacturing cost.

 The agreement also grants Medline a  nonexclusive license to use certain  of
 the Company's trademarks in connection with  the marketing  of the Products.
 In addition, it permits Medline, if it so elects, to use those trademarks in
 connection with the marketing of various Medline products and other products
 not manufactured by the Company (collectively, "Other Products").

 The agreement requires Medline  to pay the Company  a base royalty  totaling
 $12,500,000 in quarterly installments  that began  on  December 1, 2000.  In
 addition to the base royalty, if Medline  elects to market any of the  Other
 Products under any of the Company's trademarks, Medline must pay the Company
 a royalty of  between one percent  and five percent  of Medline's  aggregate
 annual net sales of  the Products and the  Other Products, depending on  the
 amount of the  net sales,  except that the  royalty on  certain high  volume
 commodity products will be two percent.

 Caraloe, Inc., a subsidiary, markets or licenses consumer products and  bulk
 raw  material  products.  Principal sales  of Caraloe,  Inc., are  bulk  raw
 material products which are sold to United States manufacturers who  include
 the  high  quality  extracts from Aloe  vera L. in  their finished products.
 Caraloe also  provides product  development  and manufacturing  services  to
 customers in the cosmetic, nutraceutical and medical markets.

 The Company formed a subsidiary,  DelSite Biotechnologies, Inc., in  October
 2001 as a vehicle  to further the development  and commercialization of  its
 new proprietary complex carbohydrate (Gelsite[TM] polymer)  that the Company
 is developing for use as a drug and vaccine delivery system.

 In December 2002 the  Company entered into an  agreement to acquire  certain
 assets of the Custom Division of Creative Beauty Innovations, Inc.  ("CBI"),
 including  specialized  manufacturing  customer  information,   intellectual
 property and  equipment.  CBI is a privately  held manufacturer of skin  and
 cosmetic products with operations in Carrollton, Texas.

 Under the  agreement, the  Company paid  CBI  $1.6 million,  including  $0.6
 million for inventory of CBI.  In addition, for the five-year period  ending
 in December 2007 the Company agreed to pay CBI an amount equal to 9.0909% of
 Carrington's net sales up to $6.6 million per year and 8.5% of  Carrington's
 net sales over $6.6 million per year of  CBI products  to CBI's transferring
 customers.  The   acquired  assets  include  equipment  and  other  physical
 property previously used by  CBI's Custom Division  to compound and  package
 cosmetic formulations of  liquids, creams,  gels and  lotions into  bottles,
 tubes  or cosmetic jars.  Carrington  uses these assets  in  a substantially
 similar  manner.  The  Company provides services  to these customers through
 the Caraloe, Inc. development and manufacturing services group.  The Company
 recorded  $100,000  for  the purchase  of  equipment  and  $901,000 for  the
 purchase  of  customer  relationship  intangibles  in  connection  with  the
 acquisition.

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


 NOTE TWO.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 PRINCIPLES OF CONSOLIDATION.  The consolidated financial statements  include
 the accounts of Carrington Laboratories, Inc., and its subsidiaries, all  of
 which  are wholly-owned.  All  intercompany accounts  and transactions  have
 been eliminated in consolidation.

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

 INVENTORY.  Inventories are recorded at the lower of cost (first-in,  first-
 out) or market.  The Company records  a  reserve for inventory  obsolescence
 based on an analysis of slow moving and expired products.

 PROPERTY, PLANT AND EQUIPMENT.  Property,  plant and equipment are  recorded
 at cost less  accumulated depreciation.   Land  improvements, buildings  and
 improvements,  furniture  and  fixtures  and  machinery  and  equipment  are
 depreciated  on the straight-line method over their  estimated useful lives.
 Leasehold improvements and equipment under capital leases are amortized over
 the terms of  the respective leases  or the estimated  lives of the  assets,
 whichever is less.

 LONG-LIVED ASSETS.  The Company reviews long-lived assets, including finite-
 lived intangible  assets  for  impairment  whenever  events  or  changes  in
 circumstances indicate that the carrying amount may not be recoverable.   If
 the sum of  the expected  future undiscounted cash  flows is  less than  the
 carrying amount  of the  asset,  a loss  is  recognized for  the  difference
 between the fair value and carrying value of the asset.  There have been  no
 impairment charges recorded in the years presented.

 CUSTOMER RELATIONSHIPS.  In connection with the CBI acquisition described in
 Note One, the Company recorded a  finite-lived intangible asset of  $901,000
 for  customer  relationships  acquired.  The  Company  is  amortizing   this
 intangible asset over five  years, which is based  on the estimated life  of
 the customer relationships.  Future amounts  paid to the sellers based on  a
 percentage of  sales  of CBI  products  as described  in  Note One  will  be
 recorded as  an expense  in  the same  period  the corresponding  sales  are
 recorded.  The Company recorded expenses  of $383,000 in 2003 for  royalties
 due under  the agreement.   The  Company  recorded amortization  expense  of
 $195,000 in 2003.

 DEFERRED REVENUE.  Deferred  revenue is primarily  related to the  licensing
 and  royalty  agreement  with  Medline  Industries  and  represents  amounts
 received in excess of amounts amortized to royalty income.

 TRANSLATION  OF   FOREIGN  CURRENCIES.    The   functional   currency    for
 international operations (Costa Rica) is the U.S. Dollar.  Accordingly, such
 foreign entities  translate  monetary  assets and  liabilities  at  year-end
 exchange rates, while non-monetary items are translated at historical rates.
 Revenue and expense accounts  are translated at the average rates in  effect
 during the  year,  except  for  depreciation  and  amortization,  which  are
 translated at  historical rates.   Translation  adjustments and  transaction
 gains or losses are recognized in the consolidated statement of operations.

 REVENUE RECOGNITION.  The  Company recognizes revenue  for product sales  at
 the time of shipment when title to the goods transfers and collectibility is
 reasonably assured.   Royalty income is  recognized over the  period of  the
 licensing and royalty agreement.

 FEDERAL INCOME TAXES. The  Company uses the  liability method of  accounting
 for income taxes.  Under this method, deferred income taxes are recorded  to
 reflect the tax consequences of differences between the tax basis of  assets
 and liabilities and the financial reporting basis.  Valuation allowances are
 provided against net deferred  tax assets when it  is more likely than  not,
 based on available evidence, that assets may not be realized.

 RESEARCH AND DEVELOPMENT.   Research  and  development  costs  are  expensed
 as incurred.  Certain  laboratory  and  test  equipment determined  to  have
 alternative future uses  in other  research and  development activities  has
 been capitalized and is depreciated as research and development expense over
 the life of the equipment.

 FREIGHT COSTS.  Shipping costs incurred  by the Company are included in  the
 consolidated statement of operations in selling, general and  administrative
 expenses for the years ended December 31, 2001, 2002 and 2003.

 STOCK-BASED COMPENSATION.  The Company  accounts for employee stock  options
 in accordance  with Accounting  Principles Board  Opinion No.  25 (APB  25),
 Accounting for Stock Issued to Employees  and Financial Accounting Standards
 Board Interpretation No. 44,  Accounting for Certain Transactions  involving
 Stock Compensation, an interpretation of APB Opinion No. 25.  Under APB  25,
 the Company  recognizes  no  compensation expense  related  to  employee  or
 director stock options when options are granted with exercise prices at  the
 quoted market price of the stock on the date of grant.

 The Company  has  adopted the  disclosure-only  provisions of  Statement  of
 Financial Accounting Standards  No. 123  (FAS1 123),  Accounting for  Stock-
 Based Compensation  and Statement of Financial Accounting Standards No.  148
 (FAS  148),  Accounting  for  Stock-Based  Compensation  -  Transition   and
 Disclosure - An Amendment of FASB  Statement No. 123.  Under the  provisions
 of FAS 123,  pro forma  compensation expense  related to  options issued  to
 employees is disclosed based on the fair value of options on the grant date.

 The following  table (in  thousands) illustrates  the effect  on net  income
 (loss) if the Company  had applied the fair  value recognition provision  of
 FAS 123 to stock based compensation:

 ---------------------------------------------------------------------------
                                              2001        2002        2003
 ---------------------------------------------------------------------------
 Net income (loss) (in thousands):
      As reported                            $   378     $(3,378)    $(1,506)
      Less:  Stock-based compensation
       expense determined under fair
       value-based method                       (461)       (331)       (583)
                                              ------      ------      ------
      Pro forma net loss                     $   (83)    $(3,709)    $(2,089)
                                              ======      ======      ======
 Net income (loss)
   per share:
      As reported                           $   0.04     $ (0.34)    $ (0.15)
      Pro forma                             $  (0.01)    $ (0.38)    $ (0.21)
 ---------------------------------------------------------------------------

 Because options vest over  a period of several  years and additional  awards
 are generally made each year, the  pro forma information presented above  is
 not necessarily  indicative of  the effects  on reported  or pro  forma  net
 earnings or losses for future years.

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

 USE OF ESTIMATES.   The preparation  of financial  statements in  conformity
 with accounting  principles  generally  accepted in  the  United  States  of
 America requires management  to make estimates  and assumptions that  affect
 the reported amounts of assets and liabilities at the date of the  financial
 statements and  the reported  amounts of  revenues and  expenses during  the
 reporting period.  These estimates include accounts receivable bad debt  and
 inventory obsolescence reserves.   Actual  results could  differ from  those
 estimates.

 FAIR VALUE OF  FINANCIAL INSTRUMENTS.   The Company's financial  instruments
 include cash and  cash equivalents, accounts  receivable, accounts  payable,
 accrued liabilities and debt.  The  carrying value of financial  instruments
 approximates fair value at December 31, 2003 and 2002.

 RECLASSIFICATIONS.  Certain  prior year  amounts have  been reclassified  to
 conform to the current year presentation.

 NEW  PRONOUNCEMENTS.    The  FASB   has   issued   Interpretation  No.   46,
 "Consolidation  of  Variable  Interest  Entities".   FIN  46  addresses  the
 consolidation by business  enterprises of variable  interest entities  whose
 equity holders have not  provided sufficient equity to  allow the entity  to
 finance its  own  activities or  whose  equity holders  lack  the  essential
 characteristics  of  a  controlling  financial interest.  FIN 46 requires  a
 variable interest entity to be consolidated by a company if that company  is
 subject to a majority of  the risk of loss  from the entity's activities  or
 entitled  to  receive a majority of  the entity's residual returns, or both.
 The provisions of FIN  46 are effective March  31, 2004 for entities  formed
 before February 2003.  The Company  anticipates no material effect from  the
 adoption of FIN 46.


 NOTE THREE.  INVENTORIES

 The following summarizes the components of inventory at December 31, 2002
 and 2003, in thousands:

                                                 2002          2003
 ---------------------------------------------------------------------------
 Raw materials and supplies                    $1,776        $3,009
 Work-in-process                                  624           638
 Finished goods                                 2,565         3,048
 Less obsolescence reserve                       (632)         (735)
 ---------------------------------------------------------------------------
 Total                                         $4,333        $5,960
 ---------------------------------------------------------------------------


 NOTE FOUR.  PROPERTY, PLANT AND EQUIPMENT

 Property, plant and  equipment consisted of  the following  at December  31,
 2002 and 2003, in thousands:
                                                        Estimated
                                  2002        2003      Useful Lives
 ---------------------------------------------------------------------------
 Land and improvements          $ 1,391     $ 1,391
 Buildings and improvements       8,984       9,286     7 to 25 years
 Furniture and fixtures             593         620     4 to  8 years
 Machinery and equipment          8,094       8,831     3 to 10 years
 Leasehold improvements             782         846     1 to  3 years
 Equipment under capital leases     197         379           4 years
 ---------------------------------------------------------------------------
 Total                           20,041      21,353
 Less accumulated depreciation
   and amortization               9,976      10,815
 ---------------------------------------------------------------------------
 Property, plant and
   equipment, net               $10,065     $10,538
 ---------------------------------------------------------------------------

 The net book value of property, plant and equipment in Costa Rica at
 December 31, 2002 and 2003 was $3,716,000 and $3,593,000, respectively.


 NOTE FIVE.  ACCRUED LIABILITIES

 The following summarizes significant components of accrued liabilities at
 December 31, 2002 and 2003, in thousands:

                                             2002           2003
 ---------------------------------------------------------------------------
 Accrued payroll                           $  343         $  550
 Accrued insurance                             81            227
 Accrued taxes                                278            181
 Accrued professional fees                    247            197
 Other                                        307            449
 ---------------------------------------------------------------------------
 Total                                     $1,256         $1,604
 ---------------------------------------------------------------------------


 NOTE SIX.  LINE OF CREDIT

 The Company  has a  line of  credit  with Comerica  Bank that  provides  for
 borrowings of up  to $3  million based on  the level  of qualified  accounts
 receivable and inventory.  The line of credit is collateralized by  accounts
 receivable and inventory.  Borrowings under the line of credit bear interest
 at the bank's prime rate (4.0% at December 31, 2003) plus 0.5%.  The  credit
 facility with  Comerica  includes  covenants that  require  the  Company  to
 maintain certain financial ratios.  The Company was  not in compliance  with
 two of the covenant ratios as of December 31, 2003.  Comerica has waived the
 events  of  noncompliance  for  the period ended December 31, 2003.  If  the
 financial covenants are violated in future periods,  Comerica may choose not
 to waive the violation and require the debt to be due and payable.  However,
 given  the Company's  good relationship with Comerica and the ability of the
 Company  to obtain waivers currently,  and in the  past, management believes
 waivers can be obtained  in the future.  The Company and Comerica  may  also
 amend  the  covenants  in  the  future.  As  of  December 31, 2003 there was
 $1,587,000 outstanding on the credit line with $713,000  of credit available
 for operations, net of outstanding letter of credits of $700,000.


 NOTE SEVEN.  LONG-TERM DEBT

 Medline advanced the Company  $2,000,000 on December 16,  2002.  The  amount
 bears interest  at 6.5%  and  is being  repaid  by reducing  each  quarterly
 royalty payment due  from Medline  through September  2005 by  approximately
 $200,000.  As of December 31, 2003, there was $1,316,000 outstanding on  the
 advance.

 In March 2003, the  Company received a loan  of $500,000 from Bancredito,  a
 Costa Rica  bank,  with interest  and  principal  to be  repaid  in  monthly
 installments over eight years.   The interest rate on  the loan is the  U.S.
 Prime Rate plus 2.0%.  The loan is secured by a mortgage on an unused,  164-
 acre parcel  of land  owned by  the Company  in Costa  Rica plus  a lien  on
 specified oral patch production  equipment.  The proceeds  of the loan  were
 used in  the Company's  operations.   As  of December  31, 2003,  there  was
 $463,000 outstanding on the loan.

 In July 2003, the Company received a loan of $1,000,000 from Comerica  Bank-
 Texas ("Comerica") under a variable rate  installment note with interest and
 principal  to  be  repaid  in  monthly  installments  over five  years.  The
 interest rate on the  loan is the U.S.  Prime Rate plus 0.5%.   The loan  is
 collateralized by the Company's accounts receivable  and inventory and  by a
 lien on the Company's  production facility in Irving,  TX.  The proceeds  of
 the loan are being  used in the  Company's operations.   As of December  31,
 2003 there was $917,000 outstanding on the loan.

 The following summarizes annual maturities at December 31, 2003, in
 thousands:

                 2004                         $  989
                 2005                            840
                 2006                            263
                 2007                            267
                 2008                            186
                 Thereafter                      167
                                               -----
                 Total                        $2,712
 ---------------------------------------------------------------------------


 NOTE EIGHT.  COMMON STOCK

 SHARE PURCHASE RIGHTS  PLAN  The  Company has a  share purchase rights  plan
 which provides, among  other rights,  for the  purchase  of  common stock by
 existing common  stockholders at  significantly  discounted amounts  in  the
 event a person or group acquires or  announces the intent to acquire 15%  or
 more  of the Company's common stock.  The rights expire  in 2011  and may be
 redeemed at any time at the option  of the Board of Directors for $.001  per
 right.

 EMPLOYEE STOCK PURCHASE PLAN.   The Company has  an Employee Stock  Purchase
 Plan under which employees may purchase common stock at a price equal to the
 lesser of 85% of the market price of the Company's common stock on the  last
 business day preceding the enrollment date  (defined as January 1, April  1,
 July 1 or October 1 of any plan year) or 85% of the market price on the last
 business day of each month.  A  maximum of 1,000,000 shares of common  stock
 was reserved for purchase under this Plan.  As of December 31, 2003, a total
 of 871,000 shares  had been purchased  by employees at  prices ranging  from
 $0.77 to $29.54 per share.

 STOCK OPTIONS.   The Company has  an incentive stock  option plan which  was
 approved by the shareholders in 1995 under which incentive stock options and
 nonqualified stock options may be granted to employees, consultants and non-
 employee directors.  Options are granted at a price no less than the  market
 value of the shares on the date  of the grant, except for incentive  options
 to employees  who  own more  than  10% of  the  total voting  power  of  the
 Company's common stock, which must be granted  at a price no less than  110%
 of the market value.  Employee options are normally granted for terms of  10
 years.  Options granted prior to  December 1998 normally vested at the  rate
 of  25% per  year  beginning  on the  first anniversary  of the  grant date.
 Options granted from December 1998 through March 2001 normally vested at the
 rate of 33-1/3%  per year beginning  on the first  anniversary of the  grant
 date, but certain options granted in December 1998, 1999 and 2001 were  25%,
 50% or 100%  vested on the  grant date, with  the remainder  of each  option
 vesting in equal installments on the  first, second and third  anniversaries
 of the grant date.  Options  granted subsequent to March 2001 normally  vest
 at the rate of 50% per year beginning on the first anniversary of the  grant
 date. Options to non-employee directors have terms of ten years and are 100%
 vested on the  grant  date.  The Company  has reserved  2,250,000 shares  of
 common stock for issuance under this plan.  As of December 31, 2003, options
 to purchase 332,000 shares were available for future grants under the plan.

 The following summarizes stock option activity  for each of the three  years
 in the period ended December 31, 2003 (shares in thousands):

                                                             Weighted
                                                             Average
                                                             Exercise
                               Shares    Price Per Share      Price
 ---------------------------------------------------------------------------
 Balance, January 1, 2001       1,243    $ 1.31 to $28.75      $3.78
    Granted                       345    $ 1.05 to $ 1.37      $1.17
    Lapsed or canceled           (215)   $ 1.25 to $27.00      $3.94
 ---------------------------------------------------------------------------
 Balance, December 31, 2001     1,373    $ 1.05 to $28.75      $3.11
    Granted                       375    $ 1.05 to $ 1.50      $1.28
    Lapsed or canceled           (227)   $ 1.05 to $12.75      $3.62
    Exercised                     (10)   $ 1.31 to $ 2.06      $1.38
 ---------------------------------------------------------------------------
 Balance, December 31, 2002     1,511    $ 1.05 to $28.75      $2.58
    Granted                       358    $ 1.58 to $ 4.26      $2.94
    Lapsed or canceled            (73)   $ 1.05 to $10.25      $1.68
    Exercised                    (171)   $ 1.05 to $ 4.81      $1.41
 ---------------------------------------------------------------------------
 Balance, December 31, 2003     1,625    $ 1.05 to $28.75      $2.82
                               ======
 Options exercisable at
    December 31, 2001             902    $ 1.31 to $28.75      $3.78
 Options exercisable at
    December 31, 2002           1,092    $ 1.05 to $28.75      $3.12
 Options exercisable at
    December 31, 2003           1,326    $ 1.05 to $28.75      $2.81


 The following table summarizes information about stock options outstanding
 at December 31, 2003:

                          Options Outstanding       Options Exercisable
                    ------------------------------  -------------------
                             Weighted
                             Average     Weighted            Weighted
                   Shares   Remaining    Average    Shares   Average
    Range of        (In     Contractual  Exercise    (In     Exercise
 Exercise Prices thousands)    Life       Price   thousands)  Price
 ---------------------------------------------------------------------
 $27.00 to $28.75      8    2.2 years    $28.64        8     $28.64
 $10.25 to $12.75      4     .5 years    $11.77        4     $11.77
 $ 6.00 to $ 8.25     94    2.9 years    $ 6.74       94     $ 6.74
 $ 4.26 to $ 4.81    406    8.7 years    $ 4.58      244     $ 4.79
 $ 2.03 to $ 3.00    312    5.0 years    $ 2.35      312     $ 2.35
 $ 1.05 to $ 1.80    801    8.9 years    $ 1.37      664     $ 1.39
                   -----                           -----
                   1,625    7.3 years    $ 2.82    1,326     $ 2.81
                   =====                           =====

 The fair value of each option granted was estimated on the date of the grant
 using the Black-Scholes  option pricing model  with the following  weighted-
 average assumptions used for  grants to employees in  2001, 2002, and  2003,
 respectively: risk-free interest rates of  5.09%, 3.00% and 4.27%;  expected
 dividend yields of 0%;  expected volatility of 89.7%,  105.2% and 89.7%  and
 expected lives of  10 years for  2001 and 5  years for 2002  and  2003.  The
 weighted average fair values of options granted were $0.84, $1.00  and $2.20
 in 2001, 2002, and 2003, respectively.

 STOCK WARRANTS.   From time  to time, the  Company has  granted warrants  to
 purchase common  stock  to  the Company's  research  consultants  and  other
 persons rendering  services to  the Company.   The  exercise price  of  such
 warrants was normally the market price or  in excess of the market price  of
 the common stock  at date of issuance.  At December 31, 2002 and 2003  there
 were 50,000 warrants exercisable at $3.50  per share.  Warrants  outstanding
 at December 31, 2003  had a weighted average  remaining contractual life  of
 0.6 years.

 COMMON STOCK RESERVED.   At December 31, 2003,  the Company  had reserved  a
 total of  2,136,000  common  shares for  future  issuance  relating  to  the
 employee stock purchase plan, stock option plan and stock warrants disclosed
 above.


 NOTE NINE.  COMMITMENTS AND CONTINGENCIES

 The Company  conducts  a significant  portion  of its  operations  from  two
 office/warehouse/distribution   facilities   under   operating  leases.   In
 addition, the Company leases certain office equipment under operating leases
 and certain manufacturing and transportation equipment under capital leases.
 Future minimum lease payments under  noncancelable operating leases  and the
 present value of future minimum  capital lease payments  as of  December 31,
 2003 were as follows, in thousands:

                                                   Capital   Operating
                                                   Leases      Leases
 ---------------------------------------------------------------------
 2004                                             $  136     $  860
 2005                                                136        862
 2006                                                 70        831
 2007                                                 21        775
 2008                                                 18        667
 Thereafter                                           19      1,505
 ---------------------------------------------------------------------
 Total minimum lease payments                        400     $5,500
                                                              =====
 Amounts representing interest                       (55)
                                                   -----
 Present value of capital lease obligations          345
 Less current portion of capital lease obligations  (115)
                                                   -----
 Obligations under capital lease agreements,
  excluding the current portion                   $  230
                                                   =====

 Total rental  expense under  operating leases  was $666,000,  $667,000,  and
 $774,000 for the years ended December 31, 2001, 2002 and 2003, respectively.

 From  time  to  time  in the normal course of business, the Company is party
 to various matters  involving  claims  or  possible  litigation.  Management
 believes the ultimate resolution of these  matters will not have a  material
 adverse effect on the Company's financial position or results of operations.

 The Company has  outstanding a letter  of credit in  the amount of  $600,000
 which is used  as security  on the lease  for the  Company's laboratory  and
 warehouse facility.  The Company has  outstanding a letter of credit  in the
 amount of  $100,000  which  is used  as  security  on a  capital  lease  for
 equipment.


 NOTE TEN.  INCOME TAXES

 The tax effects  of temporary  differences that  gave rise  to deferred  tax
 assets and deferred tax  liabilities at December 31,  2002 and 2003 were  as
 follows, in thousands:

                                             2002          2003
 ---------------------------------------------------------------------
 Net operating loss carryforward          $14,282       $14,849
 Research and development
    and other credits                         254           131
 Property, plant and equipment                333           302
 Inventory                                    399           324
 Other, net                                    92           103
 Bad debt reserve                             448           218
 Deferred income                              653           639
 ACI Stock Valuation                          204           204
 Accrued liability                             93            36
 Less - Valuation allowance               (16,758)      (16,806)
                                           ------        ------
                                          $     0       $     0
                                           ======        ======

 The Company  has  provided a  valuation  allowance against  the  entire  net
 deferred tax asset at December 31, 2002  and 2003 due to the uncertainty  as
 to the realization of the asset.

 The provision (benefit) for income taxes  for the three years in the  period
 ended December 31, 2003 was offset by changes in the valuation reserve.

 At December 31, 2003,  the Company had net  operating loss carryforwards  of
 approximately $43.6 million for federal income tax purposes,  which begin to
 expire in 2004,  and research and  development tax  credit carryforwards  of
 approximately $386,000, which  begin to  expire in  2004,  all  of which are
 available  to  offset  federal income  taxes  due  in future  periods.   Net
 operating loss carryforwards of $2.2 million  expired during the year  ended
 December 31, 2003, $1.5 million will expire in the year ending  December 31,
 2004 and $5.3 million will expire in the year ending December 31, 2005.  All
 other  net  operating  loss  carryforwards will expire between the year 2009
 and  the year 2023.  The  Company  has approximately  $28,000 in alternative
 minimum tax credits which do not expire.


 NOTE ELEVEN.  CONCENTRATIONS OF CREDIT RISK

 Financial instruments that potentially expose the Company to  concentrations
 of  credit  risk  consist  primarily  of  trade  accounts  receivable.   The
 Company's customers are not concentrated  in any specific geographic  region
 but are concentrated in  the health care industry.   Significant sales  were
 made to three customers.  Owens & Minor, a customer in the Medical  Services
 segment, accounted for  10% of  the Company's net  sales in  2001. Sales  to
 Mannatech, Inc., a  customer in the  Caraloe, Inc.,  segment, accounted  for
 30%, 35%,  and 36%  of the  Company's  net sales  in  2001, 2002  and  2003,
 respectively.  Accounts receivable from Mannatech represented 53% and 47% of
 gross accounts receivable at December 31,  2002 and 2003.  Sales to  Medline
 Industries, Inc., a customer in the Medical Services segment, accounted  for
 35%, 34%  and  26%  of the  Company's  sales  during 2001,  2002  and  2003,
 respectively.  Accounts receivable from Medline  represented 25% and 29%  of
 the Company's gross accounts receivable at December 31, 2002 and 2003.   The
 Company performs  ongoing credit  evaluations  of its  customers'  financial
 condition and  establishes  an  allowance for  doubtful  accounts  based  on
 factors surrounding the  credit risk  of specific  customers and  historical
 trends and other information.

 Accounts are considered past due after  contractual terms (net 30 days)  and
 are written-off  after extensive  collection efforts  and  nine months time.
 The following table summarizes the allowance for doubtful accounts  activity
 for the period ended December 31, 2003.

            Balance at Beginning    Charges to                Balance at End
                of Period           Expenses      Deductions    of Period
 ---------------------------------------------------------------------------
 A/R Reserve      $110                $150           $79           $181


 NOTE TWELVE.  NET INCOME (LOSS) PER SHARE

 Basic net income (loss) per share was computed by dividing net income (loss)
 by the weighted average number of common shares outstanding.  In calculating
 the diluted net income (loss) per share for  each of the three years in  the
 period ended December 31, 2003, no effect was given to options or  warrants,
 because  the  effect   of  including  these   securities  would  have   been
 antidilutive.  In 2001  all options and warrants  had exercise prices  which
 exceed the average market price of the common stock during the year.


 NOTE THIRTEEN.  REPORTABLE SEGMENTS

 The Company  operates  in  two reportable  segments:  human  and  veterinary
 products sold through  its Medical Services  Division and  Caraloe, Inc.,  a
 consumer products  subsidiary,  which  sells bulk  raw  materials,  consumer
 beverages and nutritional  and skin care  products.   Caraloe also  provides
 product development and manufacturing services to Customers in the cosmetic,
 nutraceutical and medical markets.

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

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

 Reportable Segments (in thousands)

                            Medical      Caraloe,
                            Services       Inc.      Corporate      Total
 ---------------------------------------------------------------------------
 2001
 ---------------------------------------------------------------------------
 Sales to unaffiliated
   customers               $ 10,400      $ 7,194      $    -       $17,594
 Income (loss) before
   income taxes               1,333        1,121      (2,076)          378
 Identifiable assets         12,481        1,420       7,316        21,217
 Capital expenditures             -            -       1,132         1,132
 Depreciation and
   amortization                 586            -         464         1,050

 ---------------------------------------------------------------------------
 2002
 ---------------------------------------------------------------------------
 Sales to unaffiliated
   customers                $ 8,394      $ 9,647      $    -       $18,041
 Income (loss) before
   income taxes                 955       (2,413)     (1,920)       (3,378)
 Identifiable assets         15,006        1,960       5,193        22,159
 Capital expenditures             -            -         378           378
 Depreciation and
   amortization                 634            -         453         1,087
 ---------------------------------------------------------------------------
 2003
 ---------------------------------------------------------------------------
 Sales to unaffiliated
   customers                $ 8,453      $20,650      $    -       $29,103
 Income (loss) before
   income taxes                 863          641      (3,010)       (1,506)
 Identifiable assets          6,364        8,017       8,403        22,784
 Capital expenditures             -            -       1,393         1,393
 Depreciation and
   amortization                 366          548         395         1,309


 NOTE FOURTEEN.  RELATED PARTY TRANSACTIONS

 At December 31, 2003, the Company had a 23% interest in a company which  was
 formed in 1998 to acquire and  develop a 5,000-acre tract  of land in  Costa
 Rica to be used  for the production  of Aloe vera  L. leaves, the  Company's
 primary raw material.  The Company's  initial investment was written off  in
 1998 and no  additional investments  have been made  or are  expected to  be
 made.  The Company has no  influence on the business or operating  decisions
 of  this company.  Additionally, $149,500  was collected in  2003 from  this
 company against  fully reserved  note receivable  balances.  The Company  is
 accounting for its investment on the cost basis.  The Company purchases Aloe
 vera L.  leaves  from  this  company at  prices  the  Company  believes  are
 competitive with other sources.   Such purchases totaled $450,000,  $468,000
 and $1,229,000 in 2001, 2002 and 2003, respectively.


 NOTE FIFTEEN.  SUBSEQUENT EVENT

 On January 5, 2004, a jury trial was held to settle the remaining claims  in
 the legal action entitled Arthur Singer vs Carrington Laboratories, Inc. and
 Carlton Turner  with  the jury  finding  for  the Plaintiff  on  one  claim,
 awarding $28,162, plus interest for unpaid  commissions and finding for  the
 Defendants  on a second claim.  The judge dismissed  the third claim at  the
 end of testimony, citing lack of  sufficient evidence to support  plaintiffs
 claim.  No  legal fees or  expenses were awarded  to  the  Plaintiff.  Total
 judgment was for  approximately $35,000, which  has been accrued  as of  the
 period ended December 31, 2003.


 NOTE SIXTEEN.  UNAUDITED SELECTED QUARTERLY FINANCIAL DATA

 The unaudited selected  quarterly financial  data below  reflect the  fiscal
 years ended December 31, 2002 and 2003, respectively.

 (Amounts in thousands, except shares and per share amounts)
 ---------------------------------------------------------------------------
 2002                    1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
 ---------------------------------------------------------------------------
 Revenue                   $3,736       $4,346       $5,093       $4,866
 Gross margin               1,145        1,472        2,042        1,643
 Net loss                  (1,042)        (858)        (541)        (937)
 Basic and diluted loss
   per share               $(0.11)      $(0.09)      $(0.05)      $(0.09)

 ---------------------------------------------------------------------------
 2003                    1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
 ---------------------------------------------------------------------------
 Revenue                   $6,904       $7,962       $7,532       $6,705
 Gross margin               2,567        3,079        2,497        2,154
 Net income (loss)           (298)         339         (466)      (1,081)
 Basic and diluted income
   (loss) per share        $(0.03)      $ 0.03       $(0.05)      $(0.10)


 NOTE SEVENTEEN.  OTHER

 Commodities or components used in  the Company's production processes  which
 can be only be obtained from a single supplier could potentially expose  the
 Company to risk of production interruption should the supplier be unable  to
 deliver the necessary materials  in a timely manner.   The Company  utilizes
 alcohol as a key part of its production process in Costa Rica.  The  Company
 engages the services of an alcohol refinery company, located adjacent to its
 facility,  to repurify  the alcohol  used  in  its  production  utilizing  a
 distillation  process.   The  purified  alcohol  is  then  returned  to  the
 Company's inventory for further  use.  The Company  is unaware of any  other
 providers of this service in Costa Rica.  Senior managers from the Company's
 Costa Rica  operations  meet  regularly with  owners  and  managers  of  the
 refinery company to discuss operational issues.

<PAGE>

 Financial Statement Schedule
 Valuation and Qualifying Accounts
 (In thousands)

  Description                         Additions
                                   ----------------
                         Balance   Charged  Charged
                           at         to      to                   Balance
                        Beginning  Cost and  Other                 at End
                        of Period  Expenses Accounts  Deductions  of Period
 ---------------------------------------------------------------------------
 2001
 ---------------------------------------------------------------------------
 Bad debt reserve         $   98    $   55   $   -     $   53      $   100
 Inventory reserve           441        91       -         16          516
 Rebates                     272         -       -        272            -
 Reserve Aloe & Herbs
   non-current notes and
   investments included
   in other assets           433         -       -         37          396

 ---------------------------------------------------------------------------
 2002
 ---------------------------------------------------------------------------
 Bad debt reserve         $  100    $   38   $   -    $    28      $   110
 Inventory reserve           516       135       -         19          632
 Reserve for Aloe & Herbs
   non-current notes and
   investments included
   in other assets           396         -       -         19          377

 ---------------------------------------------------------------------------
 2003
 ---------------------------------------------------------------------------
 Bad debt reserve         $  110    $  150   $   -     $   79      $   181
 Inventory reserve           632       200       -         97          735
 Reserve for Aloe & Herbs
   non-current notes and
   investments included
   in other assets           377         -       -        150          227

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



 Shareholders and Board of Directors
   Carrington Laboratories, Inc.


 We have audited  the accompanying consolidated  balance sheet of  Carrington
 Laboratories, Inc. and subsidiaries as of December 31, 2003 and the  related
 consolidated statements of operations,  shareholders' equity and cash  flows
 for the year ended December 31, 2003.  Our audit also included the financial
 statement  schedule  listed in the Index at  Item 15(a) for the same period.
 These financial  statements  and  schedule are  the  responsibility  of  the
 Company's management.  Our responsibility is to express an opinion on  these
 financial statements and schedule based on our audit.

 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
 that our audit provides a reasonable basis for our opinion.

 In our  opinion, the  consolidated financial  statements referred  to  above
 present  fairly,  in  all  material  respects,  the  consolidated  financial
 position of Carrington  Laboratories, Inc. and  subsidiaries as of  December
 31, 2003, and the  consolidated results of their  operations and their  cash
 flows for the  year ended December  31, 2003 in  conformity with  accounting
 principles generally accepted in the United States of America.  Also, in our
 opinion, the  related  financial  statement  schedule,  when  considered  in
 relation to the basic financial statements taken as a whole, presents fairly
 in all material respects the information set forth therein.


                                         /s/ Grant Thornton LLP


 Dallas, Texas
 February 20, 2004

<PAGE>

                        REPORT OF INDEPENDENT AUDITORS



 Shareholders and Board of Directors
   Carrington Laboratories, Inc.


 We have audited  the accompanying consolidated  balance sheet of  Carrington
 Laboratories, Inc. and subsidiaries as of December 31, 2002 and the  related
 consolidated statements of operations,  shareholders' equity and cash  flows
 for each of the two years in the period ended December 31, 2002.  Our audits
 also included the financial statement schedule  listed in the Index at  Item
 15(a) for the same periods.  These financial statements and schedule are the
 responsibility of  the  Company's  management.   Our  responsibility  is  to
 express an opinion on these financial  statements and schedule based on  our
 audits.

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

 In our  opinion, the  consolidated financial  statements referred  to  above
 present  fairly,  in  all  material  respects,  the  consolidated  financial
 position of Carrington  Laboratories, Inc. and  subsidiaries as of  December
 31, 2002, and the  consolidated results of their  operations and their  cash
 flows for each of  the two years in  the period ended  December 31, 2002  in
 conformity with  accounting  principles  generally accepted  in  the  United
 States.  Also,  in our opinion,  the related  financial statement  schedule,
 when considered in  relation to the  basic financial statements  taken as  a
 whole, presents fairly in  all material respects  the information set  forth
 therein.

                                         /s/ Ernst & Young LLP


 Dallas, Texas
 February 28, 2003, except for Note Seven
 as to which the date is March 10, 2003.

<PAGE>

                                  SIGNATURES


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

                                    Carrington Laboratories, Inc.


 Date:  March 18, 2004              By:  /s/ Carlton E. Turner
                                    ----------------------------------
                                    Carlton E. Turner, Ph.D., D.Sc.
                                    President, Chief Executive
                                    Officer and Director

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


 /s/ Carlton E. Turner         President, Chief Executive      March 18, 2004
 -------------------------        Officer and Director
 Carlton E. Turner, Ph.D.     (principal executive officer)
 D.Sc.

 /s/ Robert W. Schnitzius       Vice President and Chief       March 18, 2004
 -------------------------          Financial Officer
 Robert W. Schnitzius           (principal financial and
                                   accounting officer)


 /s/ Ronald R. Blanck                    Director              March 18, 2004
 -------------------------
 Ronald R. Blanck, D.O.


 /s/ R. Dale Bowerman                    Director              March 18, 2004
 -------------------------
 R. Dale Bowerman


 /s/ George DeMott                       Director              March 18, 2004
 -------------------------
 George DeMott


 /s/ Thomas J. Marquez                   Director              March 18, 2004
 -------------------------
 Thomas J. Marquez


 /s/ Edwin Meese, III                    Director              March 18, 2004
 -------------------------
 Edwin Meese, III


 /s/ Selvi Vescovi                       Director              March 18, 2004
 -------------------------
 Selvi Vescovi

<PAGE>

                             INDEX TO EXHIBITS
                             -----------------

                                                                 Sequentially
 Exhibit                                                           Numbered
 Number                            Exhibit                           Page
 ------      ---------------------------------------------------     ----
  3.1        Restated Articles of Incorporation of Carrington
             Laboratories, Inc. (incorporated by reference to
             Exhibit 3.1 to Carrington's 1999 Annual Report on
             Form 10-K).

  3.2        Statement of Change of Registered Office and
             Registered Agent of Carrington Laboratories, Inc.
             (incorporated by reference to Exhibit 3.2 to
             Carrington's 1999 Annual Report on Form 10-K).

  3.3        Statement of Resolution Establishing Series D
             Preferred Stock of Carrington Laboratories, Inc.
             (incorporated by reference to Exhibit 3.3 to
             Carrington's 1999 Annual Report on Form 10-K).

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

  4.1        Form of certificate for Common Stock of
             Carrington Laboratories, Inc. (incorporated
             herein by reference to Exhibit 4.5 to
             Carrington's Registration Statement on Form S-3
             (No. 33-57360) filed with the Securities and
             Exchange Commission on January 25, 1993).

  4.2        Rights Agreement dated as of September 19, 1991
             between Carrington Laboratories, Inc. and
             Ameritrust Company National Association
             (incorporated by reference to Exhibit 4.2 to
             Carrington's 1999 Annual Report on Form 10-K).

  4.3        Amendment No. 1 to Rights Agreement dated October
             21, 1998 (incorporated herein by reference to
             Exhibit 4 to the Company's Form 8-A/A Post-
             Effective Amendment No. 1).

  10.1 +     Retirement and Consulting Agreement dated August
             14, 1997 between Carrington Laboratories, Inc.
             and David Shand (incorporated herein by reference
             to Exhibit 4.1 to Carrington's quarterly report
             on Form 10-Q for the quarter ended September 30,
             1997).

  10.2 +     First Amendment to Retirement and Consulting
             Agreement dated September 30, 1997 between
             Carrington Laboratories, Inc. and David G. Shand
             (incorporated herein by reference to Exhibit 4.2
             to Carrington's quarterly report on Form 10-Q for
             the quarter ended September 30, 1997).

  10.3       Contract Research Agreement dated as of August 8,
             1991 between Carrington Laboratories, Inc. and
             Texas Agriculture Experimental Station, as agent
             for the Texas A&M University System (incorporated
             herein by reference to Exhibit 10.55 to
             Carrington's 1991 Annual Report on Form 10-K).

  10.4 +     Employee Stock Purchase Plan of Carrington
             Laboratories, Inc., as amended through June 15,
             1995 (incorporated by reference to Exhibit 10.9
             to Carrington's 1999 Annual Report on Form 10-K).

  10.5       Common Stock Purchase Warrant dated September 14,
             1993 issued by Carrington Laboratories, Inc. to
             E. Don Lovelace (incorporated by reference to
             Exhibit 10.10 to Carrington's 1999 Annual Report
             on Form 10-K).

  10.6       Common Stock Purchase Warrant dated September 14,
             1993, issued by Carrington Laboratories, Inc., to
             Jerry L. Lovelace (incorporated by reference to
             Exhibit 10.11 to Carrington's 1999 Annual Report
             on Form 10-K).

  10.7       Lease Agreement dated June 15, 1994 between DFW
             Nine, a California limited partnership, and
             Carrington Laboratories, Inc. (incorporated by
             reference to Exhibit 10.12 to Carrington's 1999
             Annual Report on Form 10-K).

  10.8       Lease Amendment dated August 23, 1994 amending
             Lease Agreement listed as Exhibit 10.12
             (incorporated by reference to Exhibit 10.13 to
             Carrington's 1999 Annual Report on Form 10-K).

  10.9       Production Contract dated February 13, 1995
             between Carrington Laboratories, Inc. and Oregon
             Freeze Dry, Inc. (incorporated by reference to
             Exhibit 10.14 to Carrington's 1999 Annual Report
             on Form 10-K).

  10.10      Modification Number One dated February 19, 1996
             to the Production Contract dated February 13,
             1995 between Carrington Laboratories, Inc. and
             Oregon Freeze Dry, Inc. (incorporated by
             reference to Exhibit 10.15 to Carrington's 1999
             Annual Report on Form 10-K).

  10.11      Modification Number Two dated November 11, 1996
             to the Production Contract dated February 13,
             1995 between Carrington Laboratories, Inc. and
             Oregon Freeze Dry, Inc. (incorporated by
             reference to Exhibit 10.16 to Carrington's 1999
             Annual Report on Form 10-K).

  10.12      Modification Number Three to the Production
             Contract dated February 13, 1995 between
             Carrington Laboratories, Inc. and Oregon Freeze
             Dry, Inc.  (incorporated herein by reference to
             Exhibit 10.89 to Carrington's 1998 Annual Report
             on Form 10-K).

  10.13 +    1995 Management Compensation Plan (incorporated
             herein by reference to Exhibit 4.1 to Form S-8
             Registration Statement No. 33-64403 filed with the
             Commission on November 17, 1995).

  10.14      Trademark License Agreement dated August 14, 1997
             between Caraloe, Inc. and Mannatech, Inc.
             (incorporated herein by reference to Exhibit 10.2
             to Carrington's quarterly report on Form 10-Q for
             the quarter ended September 30, 1997).

  10.15      Supply Agreement dated August 14, 1997 between
             Caraloe, Inc. and Mannatech, Inc.(incorporated
             herein by reference to Exhibit 10.3 to
             Carrington's quarterly report on Form 10-Q for the
             quarter ended September 30, 1997).

  10.16      Letter of Agreement dated January 12, 2000
             extending Trademark License Agreement and Supply
             Agreement between Caraloe, Inc. and Mannatech,
             Inc. (incorporated by reference to Exhibit 10.21
             to Carrington's 1999 Annual Report on Form 10-K).

  10.17      Trademark License and Product Supply Agreement
             dated July 22, 1997 between Caraloe, Inc., and Nu
             Skin International, Inc. (incorporated herein by
             reference to Exhibit 10.1 to Carrington's
             quarterly report on Form 10-Q for the quarter
             ended September 30, 1997).

  10.18      Non-exclusive Sales and Distribution Agreement
             dated August 22, 1995 between Innovative
             Technologies Limited and Carrington Laboratories,
             Inc. (incorporated herein by reference to Exhibit
             10.6 to Carrington's Third Quarter 1995 Report on
             Form 10-Q).

  10.19      Supplemental Agreement dated October 16, 1995 to
             Non-exclusive Sales and Distribution Agreement
             between Innovative Technologies Limited and
             Carrington Laboratories, Inc.(incorporated herein
             by reference to Exhibit 10.7 to Carrington's Third
             Quarter 1995 Report on Form 10-Q).

  10.20      Product Development and Exclusive Distribution
             Agreement dated November 10, 1995 between
             Innovative Technologies Limited and Carrington
             Laboratories, Inc.(incorporated herein by
             reference to Exhibit 10.8 to Carrington's Third
             Quarter 1995 Report on Form 10-Q).

  10.21      Form of Stock Purchase Agreement dated April 5,
             1995 between Carrington Laboratories, Inc. and
             persons named in Annex I thereto (incorporated
             herein by reference to Exhibit 2.1 to Carrington's
             Registration Statement 33-60833 on Form S-3).

  10.22      Form of Registration Rights Agreement dated June
             20, 1995 between Carrington Laboratories, Inc. and
             persons named in Annex I thereto (incorporated
             herein by reference to Exhibit 2.2 to Carrington's
             Registration Statement 33-60833 on Form S-3).

  10.23      Supply and Distribution Agreement dated March 22,
             1996 between Farnam Companies, Inc. and Carrington
             Laboratories, Inc. (incorporated herein by
             reference to Exhibit 10.76 to Carrington's 1995
             Annual Report on Form 10-K).

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

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

  10.26 +    Form of Incentive Stock Option Agreement for
             Employees (incorporated herein by reference to
             Exhibit 4.4 to Carrington's Second Quarter 1996
             Report on Form 10-Q).

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

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

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

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

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

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

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

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

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

  10.36      Letter Agreement dated February 4, 1999 between
             Aloe Commodities International, Inc. and the
             Registrant amending due date of Promissory Note
             dated June 17, 1998 from Aloe Commodities
             International, Inc. to the Registrant (incorporated
             herein by reference to Exhibit 10.98 to
             Carrington's 1998 Annual Report on Form 10-K).

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

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

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

  10.40      Promissory Note of Aloe & Herbs International, Inc.
             dated November 23, 1998 payable to the order of the
             Registrant in the principal amount of $300,000
             (incorporated herein by reference to Exhibit 10.92
             to Carrington's 1998 Annual Report on Form 10-K).

  10.41      Clinical Services Agreement dated January 25, 1999
             between Carrington Laboratories, Inc. and PPD
             Pharmaco, Inc. (incorporated herein by reference to
             Exhibit 10.96 to Carrington's 1998 Annual Report on
             Form 10-K).

  10.42      Common Stock Purchase Warrant dated November 23,
             1998, issued by Aloe and Herbs International, Inc.
             to Carrington Laboratories, Inc.  (incorporated
             herein by reference to Exhibit 10.99 to
             Carrington's 1998 Annual Report on Form 10-K).

  10.43      Letter dated February 25, 1999 from Aloe
             Commodities, Inc. to  Carrington Laboratories, Inc.
             (incorporated herein by reference to Exhibit 10.1
             to Carrington's Quarterly Report on Form 10-Q for
             the quarter ended March 31, 1999).

  10.44      Exclusive Sales Representative Agreement dated
             April 13, 1999, between Caraloe, Inc. and Classic
             Distributing Company (incorporated herein by
             reference to Exhibit 10.1 to Carrington's Quarterly
             Report on Form 10-Q for the quarter ended June 30,
             1999).

  10.45      Terms Sheet for Lease of Rancho Aloe Farm Land to
             Sabila Industrial dated April 20, 1999
             (incorporated herein by reference to Exhibit 10.1
             to Carrington's Quarterly Report on Form 10-Q for
             the quarter ended June 30, 1999).

  10.46      Terms Sheet for Maintenance of Sabila Industrial
             Plants on Leased Land dated April 20, 1999
             (incorporated herein by reference to Exhibit 10.1
             to Carrington's Quarterly Report on Form 10-Q for
             the quarter ended June 30, 1999).

  10.47      Exclusive Sales and Trademark Agreement dated June
             11, 1999, between Caraloe, Inc. and Nutra Vine
             (incorporated herein by reference to Exhibit 10.1
             to Carrington's Quarterly Report on Form 10-Q for
             the quarter ended September 30, 1999).

  10.48      Lease Agreement dated September 23, 1999 between
             Rancho Aloe and Sabila Industrial, S.A.
             (incorporated herein by reference to Exhibit 10.1
             to Carrington's Quarterly Report on Form 10-Q for
             the quarter ended September 30, 1999).

  10.49      Letter Agreement dated September 29, 1999 between
             Aloe Commodities International, Inc. and Carrington
             Laboratories, Inc. (incorporated herein by
             reference to Exhibit 10.1 to Carrington's Quarterly
             Report on Form 10-Q for the quarter ended September
             30, 1999).

  10.50      Sales Distribution Agreement dated October 26,
             1999. between Carrington Laboratories, Inc. and E-
             Wha International, Inc. (incorporated by reference
             to Exhibit 10.78 to Carrington's 1999 Annual Report
             on Form 10-K).

  10.51      Supplier Agreement dated August 6, 1999 between
             Novation, LLC and Carrington Laboratories, Inc. MS
             91022 (incorporated by reference to Exhibit 10.80
             to Carrington's 1999 Annual Report on Form 10-K).

  10.52      Supplier Agreement dated August 6, 1999 between
             Novation, LLC and Carrington Laboratories, Inc. MS
             91032 (incorporated by reference to Exhibit 10.81
             to Carrington's 1999 Annual Report on Form 10-K).

  10.53      Distributor and License Agreement dated November 3,
             2000 between Carrington Laboratories, Inc. and
             Medline Industries, Inc.  (Exhibits A, B and C to
             this agreement have been excluded pursuant to a
             request for confidential treatment submitted by the
             registrant to the Securities and Exchange
             Commission)(incorporated by reference to Exhibit
             10.82 to Carrington's 1999 Annual Report on Form
             10-K).

  10.54      Supply Agreement dated November 3, 2000 between
             Carrington Laboratories, Inc. and Medline
             Industries, Inc.  (Exhibit A to this agreement has
             been excluded pursuant to a request for
             confidential treatment submitted by the registrant
             to the Securities and Exchange Commission,
             (incorporated by reference to Exhibit 10.83 to
             Carrington's 1999 Annual Report on Form 10-K).

  10.55      Lease Agreement dated January 22, 2001 between
             Plazamerica, Inc and Carrington Laboratories, Inc.

  10.56 +    Employee Stock Purchase Plan of Carrington
             Laboratories, Inc., as amended through May 17, 2001
             (incorporated by reference to Exhibit 10.1 to
             Carrington's Quarterly Report on Form 10-Q for the
             quarter ended June 30, 2001).

  10.57 +    1995 Stock Option Plan of Carrington Laboratories,
             Inc., As Amended and Restated Effective January 15,
             1998 and further amended through May 17, 2001
             (incorporated by reference to Exhibit 10.2 to
             Carrington's Quarterly Report on Form 10-Q for the
             quarter ended June 30, 2001).

  10.58 +    Employee Stock Purchase Plan of Carrington
             Laboratories, Inc., as amended through November 15,
             2001 (incorporated by reference to Exhibit 10.87,
             filed on Carrington's Form 8-K on March 20, 2002).

  10.59      Lease Agreement dated February 28, 2003 between
             Maintenance Warehouse/America Corp and Carrington
             Laboratories, Inc. (incorporated by reference to
             Exhibit 10.59, filed on Carrington's Form 10-K on
             March 31, 2003).

  21.1 *     Subsidiaries of Carrington

  23.1 *     Consent of Grant Thornton, LLP

  23.2 *     Consent of Ernst & Young, LLP

  31.1 *     Certification of Chief Executive Officer Required
             by Rule 13a-14(a)(17 CFR 240.13a-14(a).

  31.2 *     Certification of Chief Financial Officer Required
             by Rule 13a-14(a)(17 CFR 240.13a-14(a).

  32.1 *     Certification of Chief Executive Officer Pursuant
             to 18 U.S.C. Section 1350, as adopted pursuant to
             Section 906 of the Sarbanes-Oxley Act of 2002.

  32.2 *     Certification of Chief Financial Officer Pursuant
             to 18 U.S.C. Section 1350, as adopted pursuant to
             Section 906 of the Sarbanes-Oxley Act of 2002.


  *    Filed herewith.
  +    Management contract or compensatory plan.