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

                                  Form 10-K

 [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the fiscal year ended December 31, 2004

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

     For the transition period from ____________ to _____________

                        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 $42,399,538,  computed by reference  to the  price at  which
 common equity was sold on June 30, 2004 of $4.45 per share.

      Indicate the number of shares outstanding  of each of the  Registrant's
 classes of common  stock,  as  of the  latest practicable  date:  10,727,977
 shares of Common Stock, par value $.01 per share, were outstanding on  March
 21, 2005.

                     DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant's proxy statement for its annual meeting of
 shareholders to be held on May 19, 2005 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's research and proprietary product portfolios are based primarily on
 complex carbohydrates isolated from the Aloe vera L. plant.  The Company  is
 comprised of three business segments.  See Note Thirteen to the consolidated
 financial statements in this Annual  Report for financial information  about
 these business segments:  the Medical Services  Division, Consumer  Services
 Division and DelSite Biotechnologies Inc.,  ("DelSite").  The Company  sells
 prescription  and  nonprescription  medical  products  through  its  Medical
 Services Division  and  provides  manufacturing  services  to  customers  in
 medical markets.  Through its Consumer Services Division, formerly  referred
 to as  Caraloe, Inc.,  the  Company sells  consumer  and bulk  raw  material
 products  and  also provides product  development and manufacturing services
 to  customers  in  the  cosmetic  and  nutraceutical  markets.  DelSite  was
 incorporated  in  2001  as  a  wholly-owned  subsidiary.   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[R]  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  the  Company  will  continue  to  manufacture  its
 existing line of products and sell them to Medline at specified prices.  The
 prices are 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 other products  under any of the Company's  trademarks,
 Medline must  pay the  Company a  royalty of  between one  percent and  five
 percent of the annual  sales of the trademarked  products, depending on  the
 aggregate amount of  the net  sales under this  agreement to  Medline.   The
 Company and Medline amended the Distributor  and License Agreement in  April
 2004 to extend  the term  of the agreement  through November  30, 2008.  The
 amended agreement  specified an  advance payment  of $1,250,000,  which  the
 Company has received.

 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 entered into a Supply Agreement with Medline effective  December
 1,  2000,  which  among  other  things,  provides  that  the  Company   will
 manufacture Medline brand dermal management products.  The Supply  Agreement
 is co-terminus with the amended Distributor and License Agreement.

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

 The Medical Services Division 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.

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

                          Consumer Services Division
                          --------------------------

 The Consumer  Services  Division, formerly  referred  to as  Caraloe,  Inc.,
 markets or licenses consumer products and  bulk raw materials utilizing  the
 Company's patented complex carbohydrate technology into the consumer  health
 and beauty care product markets.  The premier product is Manapol[R]  powder,
 a bulk raw material rich in polymeric acetylated mannans.  Manapo1[R] powder
 is marketed to  manufacturers of food  and nutritional  products who  desire
 quality, clinically-proven  ingredients  for  their  finished  products  for
 immune system  enhancement.  In  addition, the  Consumer  Services  Division
 markets the bulk raw material Hydrapol[TM] powder to manufacturers of  bath,
 beauty and skin care products.

 The Consumer  Services Division  also markets  finished products  containing
 Manapol[R] powder  into domestic  health  and nutritional  products  markets
 through health food stores, internet marketing services at www.aloevera.com,
 direct consumer  sales,  and to  the  international marketplace  on  a  non-
 contract, purchase order basis.

 In  1997,  the  Company  signed  a  non-exclusive   supply   agreement  with
 Mannatech, Inc. to supply Manapol[R]  powder.  In 2003, Natural Alternatives
 International, Inc. ("Natural  Alternatives") was added  as a  party to  the
 supply agreement as a manufacturing supplier for Mannatech and purchaser  of
 the Manapol[R] powder from the Company.  This agreement was renewed  through
 November 2005 and  contains monthly minimum  purchase requirements.   During
 2004, 2003,  and  2002  sales of  Manapol[R]  powder  under  this  agreement
 represented 47%, 39%, 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 November 2005.  However, due to the fact that the non-renewal of this
 contract would have a  substantial impact on the  Company and its  revenues,
 the Company is continually seeking to expand its customer base in this area.

 The  Consumer  Services  Division  also  provides  product  development  and
 manufacturing services  to  customers  in  the  cosmetic  and  nutraceutical
 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 acquired 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 Fort Worth, 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 its net sales of CBI products to CBI's
 transferring customers over  $6.6 million per  year.   The Company  recorded
 expenses of  $271,000  and $383,000  in  2004 and  2003,  respectively,  for
 royalties due under the agreement. 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.  The  Company  uses  these assets  in  a
 substantially  similar  manner.  The  Company  provides  services  to  these
 customers through its specialty manufacturing group of the Consumer Services
 Division. Specialty  manufacturing sales  through  both acquired  and  other
 customers represented 15.1% and 21.8% of  total company revenue in 2004  and
 2003.

 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 $2.0 million 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 Consumer Services 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[R]  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 vaccines as well  as
 bioactive protein and peptide therapeutics.

 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 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[R] 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.   In  January  2005,  the   three-year
 collaborative agreement was extended through  January 26, 2006 and  Southern
 Research  transferred   both   agreements  to   its   affiliate,   Brookwood
 Pharmaceuticals, Inc.

 In March 2004,  the National Institute  of Allergy  and Infectious  Diseases
 ("NIAID") awarded a Small  Business Innovation Research ("SBIR")  Biodefense
 Grant to DelSite  of up to  $888,000 over two  years, based on  satisfactory
 progress of the project. The grant proposal will fund additional development
 of  the  GelVac[TM]  intranasal powder vaccine delivery platform technology.

 In July 2004, DelSite  leased over 5,000 square  feet of new laboratory  and
 office space in the Texas A&M  University Research Park in College  Station,
 Texas.  DelSite  also  completed  a  3,000  square  foot  expansion  of  its
 facilities in Irving, Texas.

 In October 2004,  NIAID awarded  DelSite a $6  million grant  to develop  an
 inactivated influenza nasal powder vaccine against the H5N1 strain  commonly
 known as avian or  bird flu. The  grant was awarded  under a biodefense  and
 SARS product development initiative and  will fund a three-year  preclinical
 program utilizing the Company's proprietary GelVac[TM] nasal powder delivery
 system.

                           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 products for any treatment or use (see "Governmental Regulation"
 below).

 The Company expended approximately $4,737,000, $3,660,000 and $3,580,000  on
 research  and  development  in  fiscal 2004,  2003  and 2002,  respectively.
 Research activities associated with DelSite accounted  for 81% of the  2004,
 75% of the 2003 and 52% of the 2002 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  2005,  DelSite
 intends to focus its research and development activities on its  preclinical
 development program for an intranasal  powder delivery system for  influenza
 vaccine as  well as  developing further  basic research  data for  potential
 pharmaceutical and vaccine  partners. There is  no assurance, however,  that
 DelSite will be successful in its efforts.

 The Company  sponsors  research  and development  activities  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  where  it  sponsors  research  in  the
 university's School of Polymer Science. In July 2004, DelSite entered into a
 master research  agreement  with  The Texas  A&M  University  System  Health
 Science Center College of Medicine through the Texas A&M Research Foundation
 that allows DelSite  to conduct  multiple research  projects in  association
 with the  Center in  the  areas of  virology  and bacteriology  for  vaccine
 delivery.

 DelSite is developing  a new platform  technology based  on its  proprietary
 GelSite[R] polymer for controlled delivery of vaccines as well as  bioactive
 protein and  peptide therapeutics.   Basic  research is  continuing on  this
 material, which includes  both injectable delivery  of therapeutic  proteins
 and peptides and delivery of protein and particle 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  scale-up studies  are in  progress.   The  technology  has
 varied  utility,  but  the  primary focus  of  research is in  the  area  of
 injectable  and  intranasal  delivery  of  bioactive  agents.  Four  patents
 covering this invention have been issued to DelSite with one patent pending.
 The first 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.  The
 specialized research and development group provides the necessary technology
 support to  successfully meet  the requirements  of  new customers  for  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.

 In 2004, several wound care projects  were initiated in the general area  of
 chronic wound  care.   Carrington's  marketing  partners have  continued  to
 develop a marketing presence for products designed to help treat complex and
 chronic dermal wounds.

                            Human Clinical Studies
                            ----------------------

 The Company's new product programs for its operating segments 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 initiated several such studies in 2004 and intends to
 initiate several such clinical studies  during 2005.  DelSite's  development
 program may require human  clinical trials prior  to further development  of
 its novel drug delivery  systems for potential partners.  DelSite intends to
 initiate such a clinical study for its GelVac[TM] vaccine delivery system in
 2005.

                       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                               Marketed

 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[R] polymer (CR1013)   Drug delivery                      Preclinical

   Veterinary
   Adjunct for cancer            Fibrosarcoma                       Marketed

 Intranasal
 ----------
   GelSite[R] polymer (CR1013)   Vaccine delivery                   Clinical

 Nutraceuticals
 --------------
   Immune Enhancing Product      Manapol[R]/Maitake Gold 404[R]     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[R],  is  used  as  an  ingredient  in  certain  of  the   Company's
 proprietary wound and skin care products.

 The Company owns  a 410-acre farm  in the Guanacaste  province of  northwest
 Costa Rica which currently has approximately 33 acres planted with Aloe vera
 L.  The Company  is currently performing a  land reclamation project on  the
 farm to increase productive acreage.  The Company's current 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  Central  and  South  America  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
 2005.

 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.

 As of December 31, 2004, Rancho Aloe was providing an average of 87%  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[R] 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.

 On January 21,  2005, the Company's  wholly-owned subsidiary  in Costa  Rica
 entered into a Manufacturing Agreement with Miradent Products of Costs  Rica
 ("Miradent"). Under the terms of the agreement, the Company will manufacture
 proprietary dental products for  Miradent for a period  of five years.   The
 Company expects revenues in the first twelve months of this agreement to  be
 approximately $200,000 to $500,000.

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

 DelSite and  Research  and  Development.   The  biopharmaceutical  field  is
 expected to continue to undergo rapid and significant technological  change.
 Potential  competitors  in the  United States  and abroad  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 Consumer  Services  Division.   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 U.S.,  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 United States, 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 an existing 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 eight (8)  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 Consumer  Services Division,  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
 the Company's products are distributed and  in which the Company'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  the  Consumer  Services  Division  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  the Consumer  Services
 Division 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  the  Consumer Services  Division's  products.
 Compliance with  such  foreign  governmental regulations  is  generally  the
 responsibility of  the Consumer  Service Division's  distributors for  those
 countries.  These  distributors are independent  contractors over which  the
 Consumer Services Division has limited control.

 As a result of efforts to  comply with applicable statutes and  regulations,
 the  Consumer  Services  Division  has  from  time  to  time   reformulated,
 eliminated  or  relabeled  certain  of  its  products  and  revised  certain
 provisions of  its  sales and  marketing  program.   The  Consumer  Services
 Division  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  aggressively protect 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
 U.S.  patent applications  and  its counterparts in the  other 26 countries.
 The first  U.S.  patent  application in  this  first  series,  covering  the
 composition claims  of  acetylated  mannan derivatives,  matured  into  U.S.
 Patent No. 4,735,935 (the "935 Patent"), which was issued on April 5,  1988.
 U.S.  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 U.S. Patent No. 4,959,214, and the second on
 October 30, 1990, as  U.S. Patent No. 4,966,892.   Foreign patents that  are
 counterparts to the foregoing U.S. patents have been granted in some of  the
 member states of the European Union 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
 U.S. 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 U.S. patent  based
 on the second series was  issued on September 18,  1990, as U.S. 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  U.S. 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 U.S. applications  have
 been filed designating a number of foreign countries where the  applications
 are pending.

 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  U.S.  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 U.S. 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 and Canada.

 In addition, the Company obtained an  Australian Patent (Patent No.  718631,
 having an Accepted Journal Date of April 20, 2000) and a South Korean Patent
 (No.  463469),  issued  December  16,  2004  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)  and  on
 February 6, 2004, under Patent No.  419354, South Korea issued a patent  for
 the same.

 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 August  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.

 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. 69133298.3), associated with uses  of acetylated mannan derivatives  in
 treating chronic respiratory disease.

 The Company also received, on August 17, 2004, a U.S. patent (No. 6,777,000)
 relating to the use of pectin in-situ gelling formulations for the  delivery
 and sustained release  of physiologically active  agents such  as drugs  and
 vaccines.

 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 U.S. 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.

 On December 15, 2004, DelSite filed an Opposition proceeding in the European
 Patent Office against EP Patent EP  0 975 367.   This EP patent was  granted
 March 31, 2004 and assigned to West Pharmaceutical Services Drug Delivery  &
 Clinical Research  Centre  Limited  ("West").  A  similar  U.S.  Patent  No.
 6,432,440 issued to West on August  13, 2002, and similar West patents  have
 been granted or applications are pending in several non-European  countries,
 such as Australia, Japan, New Zealand, and South Africa.

 The claims of the West patents  are directed to aqueous liquid  compositions
 for delivering drugs which  contain therapeutic agents  and pectins and  can
 form  therapeutic  agent-containing  gels when applied  to mucosal surfaces.
 The West patents also  claim methods of using  and manufacturing the  liquid
 pharmaceutical compositions, and the pharmaceutical gel compositions  formed
 by "in-situ" gellation processes.

 DelSite also  desires  to clear  a  legal  path so  that  potential  DelSite
 products  can be sold for administration  in liquid form in the future.  The
 objective of the DelSite opposition to the West EP patent is to force  legal
 revocation of the West patent in  Europe, or a significant narrowing of  the
 West claims,  by  legally demonstrating  that,  in  view of  prior  art  not
 considered by the  patent examiners,  the current  claims of  the EP  patent
 should not  have been  granted and/or  are invalid.   Completion  of the  EP
 opposition proceedings is anticipated to take as long as three to six years.

 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  GelVac[TM]
 and OraPatch[TM]  are pending  in  the  United States.  Application for  the
 registration of the mark GelVac[TM] and SaliCept[R] are pending in 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.

 In September 2004 the Company obtained registrations in the United States of
 its marks GelSite[R] and Salicept[R].

 In August 2004 the Company obtained  registrations in Japan and in  November
 2004, South Korea of its mark GelVac[TM].

                                  Employees
                                  ---------

 As of February 28, 2005, the Company  employed 324 persons, of whom 59  were
 engaged in the  operation and maintenance  of its  Irving, Texas  processing
 plant, 206 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, 116 were located in Texas, 206 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.

                            Available Information
                            ---------------------

 The Company's Annual Reports on Form  10-K, Quarterly Reports on Form  10-Q,
 Current Reports  on Form  8-K and  other reports,  and amendments  to  these
 reports, that the  Company files  with or  furnishes to  the Securities  and
 Exchange Commission ("SEC") are  available free of  charge at the  Company's
 website www.carringtonlabs.com, as soon as reasonably practicable, after the
 Company electronically files  such reports with,  or furnishes such  reports
 to, the SEC.  The posting of these reports on the Company's website does not
 constitute incorporation by reference of the other information contained  on
 the website, and such other information on the Company's website should  not
 be considered part of such reports unless the Company expressly incorporates
 such other information by reference. The Company will also furnish copies of
 such reports free of charge upon  written request to the Company's  Investor
 Relations department.

 Additionally, the Company's  corporate governance code  of business  conduct
 and ethics and the charters of the Company's Board Committees, including the
 Audit, Board Governance, Compensation and Executive Committees are available
 on the  Company's website.  The Company  will also  furnish copies  of  such
 information free of charge  upon written request  to the Company's  Investor
 Relations  department.  Individuals  can  contact  the  Company's   Investor
 Relations department at:

 Carrington Laboratories,  Inc., 2001  Walnut Hill  Lane, Irving,  TX  75038,
 Attention:  Maria Mitchell.


 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 41,400 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  17,300  square feet  of  the
 facility, administrative offices occupy approximately 16,100 square feet and
 with an additional 8,000 square feet undeveloped.

 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.  During 2004, the Company completed a
 3,000 square feet expansion of the DelSite facilities at this location.

 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.

 Texas A & M University Research Park Facility.  In July 2004, DelSite leased
 over 5,000 square feet of new laboratory  and office space in the Texas  A&M
 University Research Park in College Station, Texas for a term of 24  months.
 DelSite  will use this facility primarily for vaccine delivery research  and
 development.

 Costa Rica Facility.   The Company owns approximately  410 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  as the site for a 30,700  square
 foot 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.  The  Company
 also produces liquid nutraceutical products and proprietary dental  products
 at this facility.


 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 totaled 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 was  recorded as of  the period ended  December
 31, 2003 and paid during 2004.

 On June 23, 2004,  the United States District  Court denied the  Plaintiff's
 appeal for reasonable legal fees.   On  July 7, 2004, the Plaintiff filed  a
 motion of  appeal  with the  Fifth  Circuit Court  regarding  all  judgments
 entered by the District Court.  Oral arguments on the motion to appeal  were
 heard by the Court on March 8, 2005.   On March 10, 2005, the Fifth  Circuit
 Court affirmed the ruling of the District Court.

 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 subsequently
 ordered the two parties to mediate  the suit and such mediation  was held on
 May 17, 2004.  Despite the efforts of the  mediator, the parties were unable
 to reach a settlement.  Although a trial date had been set for June 1, 2004,
 the court later moved the trial start date to September 21, 2004.

 Due to the  Court's striking of  the economic  damage model provided  by the
 Plaintiff's expert witness, a motion for  continuance was filed and accepted
 by the Court, with the trial start date subsequently moved to June 21, 2005.

 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 2004                 High           Low
            -----------                 ----           ----
            First Quarter              $5.48          $3.72
            Second Quarter              5.41           3.52
            Third Quarter               4.55           3.02
            Fourth Quarter              6.90           3.73

            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 21, 2005,  there were 870 holders  of record (including  brokerage
 firms) of Common Stock and the closing price of the  Company's Common  Stock
 was $5.05.

 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.


 ITEM 6. SELECTED 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, 2004, is derived from the consolidated
 financial statements of the Company, of  which the Statements for the  years
 ended December 31,  2000 through 2002,  have been audited  by Ernst &  Young
 LLP, and for the years ended December 31, 2003 and 2004 have been audited by
 Grant Thornton LLP.

                                                  Years ended December 31,
 (Dollars and numbers of shares in    -----------------------------------------
 thousands except per share amounts)  2004     2003     2002     2001     2000
 ------------------------------------------------------------------------------

 OPERATIONS STATEMENT INFORMATION:

 Revenues:
   Net product sales                $27,584  $26,636  $15,571 $15,115   $22,833
   Royalty income                     2,470    2,467    2,470   2,479       270
   Grant income                         767        -        -       -         -
                                     ------   ------   ------   ------   ------
 Total revenues                      30,821   29,103   18,041   17,594   23,103

 Costs and expenses:
   Cost of product sales             18,250   18,806   11,739    9,803   12,782
   Selling, general and
    administrative                    7,560    8,017    6,040    5,016   10,162
   Research and development             911      899    1,701    2,442    2,979
   Research and development,
     DelSite                          3,826    2,761    1,879        -        -
   Research and development,
     Aliminase[TM] clinical
     trial expenses                       -        -        -        -      623
   Charges related to Oregon
     Freeze Dry, Inc.                     -        -        -        -      223
   Other expense (income), net          (92)    (123)      19      (13)    (110)
   Interest expense (income), net       205      249       41      (32)    (80)
                                     ------   ------   ------   ------   ------
  Income (loss) before income taxes     161   (1,506)  (3,378)     378   (3,476)
     Provision for income taxes         125        -        -        -       -
                                     ------   ------   ------   ------   ------
 Net income (loss)                  $    36  $(1,506) $(3,378) $   378  $(3,476)
                                     ======   ======   ======   ======   ======
 Net income (loss) per common share
   - basic and diluted(1)           $  0.00  $ (0.15) $ (0.34) $  0.04  $ (0.36)
                                     ======   ======   ======   ======   ======

 BALANCE SHEET INFORMATION (as of December 31):

  Working capital                   $ 2,244  $ 3,019  $ 3,989 $ 6,315  $ 6,275
  Total assets                       23,017   22,784   22,159  21,217   20,702
  Total shareholders' equity         13,371   12,619   13,689  16,929   16,440

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


<PAGE>


 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  three business segments.  The  Company generates  revenues
 through the  sales of  prescription  and non-prescription  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 and  nutraceutical markets  through its  Consumer  Services
 Division, formerly referred to  as Caraloe, Inc.   In addition, the  Company
 generates revenues from research grant awards through its DelSite subsidiary
 that is engaged in the research, development and marketing of the  Company's
 proprietary GelSite[R]  technology for  controlled release  and delivery  of
 bioactive pharmaceutical ingredients.

 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 the Consumer Services Division include
 Manapol[R] and other proprietary and  non-proprietary raw materials sold  to
 nutraceutical and cosmetic  customers; nutritional products  sold under  the
 AloeCeuticals[R] brand; skin care  products sold under  the Snow or  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  its Consumer  Services
 Division.  In 2001, the Company created its specialty manufacturing group to
 provide services to cosmetic and nutraceutical  markets.  In December  2002,
 the Company  acquired  the assets  of  the  custom division  of  CBI,  which
 substantially increased revenues  for the  Consumer  Services  Division.  In
 2004 approximately  34% of  the Company's  revenues were  generated  through
 product sales, services and royalties in its Medical Services Division,  64%
 through sales of products and services in its Consumer Services Division and
 2% through U.S. Federal grant income in its DelSite research and development
 subsidiary.

 Revenues
 --------                                         Year-over-   Year-over-
                                                     Year         Year
                                 2004     2003      Growth       Growth
                                                     ($)           (%)
 -----------------------------------------------------------------------
 Net product sales             $27,584  $26,636    $   948         3.6%
 Royalty income                  2,470    2,467          3         0.1%
 Grant income                      767        0        767         100%
                                ------   ------     ------        ----
 Total revenues                $30,821  $29,103    $ 1,718         5.9%
                                ======   ======     ======        ====

 Grant Awards
 ------------
 In March 2004 DelSite received a SBIR grant  award of up to $888,000 over  a
 two-year period.  The grant will fund additional development of  GelVac[TM],
 DelSite's intranasal vaccine delivery platform technology.  In October  2004
 DelSite received notification of a $6 million grant over a three-year period
 from  the National  Institute of  Allergy and  Infectious Diseases.  The  $6
 million grant is to fund the  development of an inactivated influenza  nasal
 powder vaccine  against  the  H5N1  strain,  commonly  known  as  bird  flu,
 utilizing the Company's proprietary GelVac[TM]  delivery system.  The  grant
 was awarded under a biodefense and  SARS product development initiative  and
 will fund a three-year preclinical program.

 Cash Flow
 ---------                                        Year-over-   Year-over-
                                                     Year         Year
                                 2004     2003      Growth       Growth
                                                     ($)           (%)
 -----------------------------------------------------------------------
 Net cash provided by (used
   in) operating activities    $ 2,412  $(1,288)   $3,700        287.3%
 Net cash used in investing
   Activities                   (2,172)  (1,472)     (700)       (47.6%)
 Net cash provided by financing
   Activities                      270    1,044      (774)       (74.1%)

 The increase  in net  cash provided  by operating  activities was  primarily
 related to  a $1.1  million decrease  in inventory  levels in  2004, as  the
 Company initiated programs to reduce  inventory levels to improve  inventory
 months on hand.  The 2004 decrease is compared to a $1.8 million increase in
 inventory during 2003.  Additionally, net income increased by $1.54 million,
 with net income of $36,000 in 2004 as compared to a net loss of $1.5 million
 in 2003.  The Company also received  an additional $1.2 million in the  form
 of advanced royalty payments from Medline.   See Note 15 "Deferred  Revenue"
 in the Consolidated Financial  Statements for further information  regarding
 Medline. These items were partially offset by a decrease in accounts payable
 and accrued  liabilities of  $639,000  in 2004  as  compared to  a  $927,000
 increase in 2003.   The increase  in net cash  used in investing  activities
 resulted from an increased investment in facilities and equipment  primarily
 to  support the  Company's DelSite subsidiary.  Cash  provided by  financing
 activities in 2004 reflects increased principal payments on debt and capital
 lease obligations and only $650,000 of new debt incurred as compared to $1.5
 million of new debt in 2003.

 The Company's costs and expenses generally fall into four broad  categories:
 cost of product sales; sales and distribution expenses in support of product
 sales; general  and administrative  expenses;  product support  and  DelSite
 research and development expenses.  In recent years, the Company 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.

 Costs and Expenses
 ------------------                               Year-over-   Year-over-
                                                     Year         Year
                                 2004     2003      Growth       Growth
                                                     ($)           (%)
 -----------------------------------------------------------------------
 Cost of product sales         $18,250  $18,806    $  (556)       (3.0%)
 Selling, general and
   administrative                7,560    8,017       (457)       (5.7%)
 Research and development          911      899         12         1.3%
 Research and development,
   DelSite                       3,826    2,761      1,065        38.6%
 Other expenses (income)           (92)    (123)        31        25.2%
 Interest expense (income), net    205      249        (44)      (17.7%)


 The Company  utilizes the  cash flow  generated from  its  manufacturing and
 sales operations  and  borrowings 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[R] technology for  controlled
 release and  delivery of  bioactive pharmaceutical  ingredients.   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.

 Key Performance Indicators
 --------------------------
 The following  table illustrates  the key  performance indicators  that  the
 Company uses to measure the performance and manage the business.

                                                   FISCAL YEARS ENDED
                                                   ------------------
                                                    2004        2003
                                                   ------      ------
 Days Sales Outstanding:
   Accounts Receivable                            $ 3,325     $ 3,098
   Fourth Quarter Sales                             7,761       6,705
   Divided by 90 days equals
     Average Daily Sales                             86.2        74.5
                                                   ------      ------
   Accounts Receivable divided by
     Average Daily Sales equals
       Days Sales Outstanding                        38.6        41.6
                                                   ======      ======
 Months Inventory on Hand:
   Inventory                                      $ 4,614     $ 5,960
   Fourth Quarter Cost of Product Sales             4,473       4,551
   Divided by 3 equals
     Average Monthly Cost of Product Sales          1,491       1,517
                                                   ------      ------
   Inventory divided by Average
     Monthly Cost of Product Sales equals
       Months Inventory on Hand                       3.1         3.9
                                                   ======      ======
 Current Ratio:
   Current Assets                                 $10,566     $11,231
   Divided by
     Current Liabilities                            8,322       8,212
                                                   ------      ------
   Equals Current Ratio                              1.27        1.37
                                                   ======      ======
 Quick Ratio:
   Quick Assets                                   $ 5,755     $ 5,018
   Divided by
     Current Liabilities                            8,322       8,212
                                                   ------      ------
   Equals Quick Ratio                                0.69        0.61
                                                   ======      ======
 Debt to Equity:
   Current Liabilities                            $ 8,322     $ 8,212
   Long Term Debt                                   1,324       1,953
                                                   ------      ------
   Total Debt                                     $ 9,646     $10,165
   Divided by Equity                               13,371      12,619
                                                   ------      ------
   Equals Debt to Equity                             0.72        0.80
                                                   ======      ======
 Long-term Debt to Equity:
   Long Term Debt                                 $ 1,324     $ 1,953
   Divided by Equity                               13,371      12,619
                                                   ------      ------
   Equals Long-term Debt to
     Equity                                          0.10        0.15
                                                   ======      ======
 Working Capital:
   Current Assets                                 $10,566     $11,231
   Less Current Liabilities                         8,322       8,212
                                                   ------      ------
   Equals Working Capital                         $ 2,244     $ 3,019
                                                   ======      ======

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

 The following  table summarizes  the  Company's contractual  obligations  at
 December 31, 2004 (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
   Comerica Bank (5.75% at
   December 31, 2004)        $ 1,887   $ 1,887   $     -   $     -   $     -
  Comerica Bank note payable
   (5.75% at December 31,2004)   717       200       400       117         -
  Medline note payable
   (6.5% at December 31, 2004)   582       582         -         -         -
  Bancredito notes payable
   (U.S. prime plus 2.5% at
   December 31, 2004)            754        90       199       227       238
 Other
  Capital leases                 250       127        86        34         3
  Operating leases             4,852       986     1,688     1,274       904
                              ------    ------    ------    ------    ------
  Total contractual
   obligations               $ 9,042   $ 3,872   $ 2,373   $ 1,652   $ 1,145
                              ======    ======    ======    ======    ======

 The  Company  has  historically  depended  on  operating  cash  flows,  bank
 financing, advances  on  royalty  payments under  certain  of  its  existing
 contracts 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  additional
 grant awards and  other potential collaborative  or sponsorship funding  for
 DelSite projects  and  potential licensing  revenues  for product  lines  or
 DelSite projects.

 At December 31, 2004 and 2003, the Company held cash and cash equivalents of
 $2,430,000  and  $1,920,000,  respectively, an  increase  of  $510,000.  The
 increase was primarily due  to a $1.1 million  decrease in inventory as  the
 Company implemented programs to reduce inventory levels, the receipt of $1.2
 million from  Medline as  an  advance payment  of  royalties; (See  Note  15
 "Deferred Revenue"  in the  Consolidated  Financial Statements  for  further
 information regarding Medline), the receipt of $650,000 in loan proceeds and
 $716,000 in proceeds from stock option  exercises and employee purchases  of
 shares.  These  cash  receipts  were  partially  offset  by  the   Company's
 investment  in  property  plant  and  equipment  of  $2.2  million  and debt
 and  capital  lease  obligation payments  of  $1.1 million.  Customers  with
 significant accounts receivable balances at the end of 2004 include  Natural
 Alternatives ($2,205,000)  and  Medline  ($688,000), and  of  these  amounts
 $2,814,000 has been collected as of February 28, 2005.

 The Company  has a  line  of credit  with  Comerica Bank  ("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 (5.25%  at December 31, 2004) plus 0.5%.
 As of December 31, 2004 there was $1,887,000 outstanding on the credit  line
 with $563,000 of credit available for operations, net of outstanding letters
 of credit of $550,000.

 Effective July 1, 2004, the Company and Comerica negotiated an amendment  to
 the Company's credit  facilities, which, among  other things, redefined  the
 covenants that require the Company to maintain certain financial ratios.  As
 of December 31, 2004 the Company is  in compliance with all of the  covenant
 provisions.  The new  covenants and the Company's  position at December  31,
 2004 are as follows:

 Covenant                   Covenant Requirement   Company's Position
 ---------                  --------------------   ------------------
 Total Net Worth                $12,200,000            $12,744,000
 Current Ratio                      1.60                   1.76
 Liquidity Ratio                    1.75                   2.21

 The Total Net Worth, Current Ratio and Liquidity Ratio covenant  amounts and
 the  Company's position  are calculated  as defined  in the  amendment.  The
 definition of  the current  ratio in  the amendment  is different  from  the
 definition used in the Company's key  performance indicators.  The  covenant
 amounts for  these ratios  will remain  at these  same fixed  amounts  until
 maturity of the loan.

 In September 2004, the Company received a loan of $350,000 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  (5.25%)  plus  2.5%.  The  loan is  secured  by certain  of  the
 Company's equipment.  The  proceeds of the loan  were used in the  Company's
 operations.  As of December 31, 2004, there was $343,000 outstanding on  the
 loan.

 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 were used in
 the Company's  operations.   As of  December 31,  2004, there  was  $717,000
 outstanding on the loan. Both the line of credit and loan with Comerica  are
 cross-collateralized and cross-defaulted.

 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, 2004,  there  was
 $410,000 outstanding on the loan.

 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%.   The
 proceeds  of the loan were used to fund  the acquisition  of the CBI assets.
 As of December 31, 2004, there was $582,000 outstanding on the advance.

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

 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  Rancho  Aloe  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  Rancho Aloe,  in the  total amount  of
 $487,000, due to the start-up nature of the business.  In 2004, the  Company
 received payments totaling $92,250 from Rancho Aloe against the amount due.

 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 $0.6 million
 for  useable  inventories.   The  royalty amount  is  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  Company
 recorded expenses of $271,000 and $383,000  in 2004 and 2003,  respectively,
 for royalties due  under the agreement.  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  Consumer  Services   Division
 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 2005 of approximately  $1.0
 million.  The  expenditures will primarily  be comprised  of production  and
 laboratory equipment and facility modifications.

 Presently, the  Company's debt/equity  ratio is  0.72 to  1.   Based on  its
 current estimates, management believes that the Company has the capacity  to
 incur additional  debt,  and,  in 2005,  the  Company  may  seek  additional
 financing to be  used as  working capital  to fund  additional research  and
 development projects.   The Company  anticipates that  any 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
 additional 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
 which may be  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  repurchase of up  to
 1,000,000 shares, or approximately 9.3% 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 Company and its shareholders to  repurchase
 some  of  its  outstanding  shares.  As  of  March  2005,  the  Company  had
 repurchased 2,400 of its outstanding Common Stock under the program.

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

 2004 was the third consecutive year of revenue growth and second consecutive
 year of earnings  growth for  the Company.  Revenues, product-related  gross
 margin and  net income  in 2004  increased  from 2003  by 5.9%,  14.6%,  and
 102.4%, respectively. There were  several key drivers  for the increases  in
 revenue, product-related  gross  margin,  and  net  income,  including:  (1)
 increased sales  of bulk  raw material  products  by the  Consumer  Services
 Division, (2) grant income  from two NIAID awards  received by DelSite,  and
 (3) cost reduction initiatives implemented  to reduce freight costs,  reduce
 costs for raw material, packing materials  and shipping supplies and  reduce
 administrative expenses.

 The information  presented  in  this financial  review  should  be  read  in
 conjunction with other financial  information provided throughout this  2004
 Annual Report. The following discussion of operating results focuses on  the
 Company's three  reportable business  segments: Medical  Services  Division,
 Consumer Services Division and DelSite.

 Net Revenue
 -----------
 Net revenues in 2004 were $30.8 million, a 5.9% increase from $29.1  million
 in 2003. The 2004 revenue increase was the third consecutive year of revenue
 growth for the Company. Included in  the revenue growth of $1.7 million  for
 2004 was approximately $767,000 related to  grant awards that were  received
 during 2004. Approximately $3.1 million in additional revenue resulted  from
 sales of the Company's bulk Manapol[R] powder in 2004.  These were partially
 offset by a  decrease of $391,000  in medical services  related revenue  and
 $1.69 million in specialty manufacturing sales.

 Comparative net  revenue  information  related to  the  Company's  operating
 segments is shown in the following tables.

                                                          2004 vs. 2003
                                                             Change
                                                        ----------------
 Net Revenue                     2004      Total           $         %
 -----------                    ------     -----        ------     -----
 Medical Services Division     $10,391      33.7%      $  (391)     (3.6%)
 Consumer Services Division     19,663      63.8%        1,342       7.3%
 DelSite                           767       2.5%          767     100.0%
                                ------     -----        ------     -----
   Total                       $30,821     100.0%      $ 1,718       5.9%
                                ======     =====        ======     =====

                                                          2003 vs. 2002
                                                             Change
                                                        ----------------
 Net Revenue                     2003      Total           $         %
 -----------                    ------     -----        ------     -----
 Medical Services Division     $10,782      37.0%      $ 1,312     13.8%
 Consumer Services Division     18,321      63.0%        9,750    113.8%
 DelSite                             0       0.0%            0      0.0%
                                ------     -----        ------     -----
   Total                       $29,103     100.0%      $11,062     61.3%
                                ======     =====        ======     =====

 The Medical Services Division revenues decreased $391,000, or 3.6%, in  2004
 from 2003, primarily  due to decreased  demand of wound  care products  from
 Medline, the Company's exclusive domestic distributor.   Total sales of  the
 division's domestic wound care products decreased by $1.44 million to  $4.10
 million in  2004  from $5.54  million  in  2003, as  Medline  decreased  its
 inventory stock levels.   Additionally, the  Division's products are  facing
 increasing competitive pressure from low-end, commodity-type products  which
 are  eroding  their  market  share.  Educational  efforts  are  underway  to
 support  Medline'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. Total sales of the Division's
 international wound care  products increased  $396,000 to  $844,000 in  2004
 from $448,000 in  2003, with the  sales increase due  to increased  European
 sales.  Additionally,  sales of  $2.97 million  in 2004,  compared to  $2.33
 million in  2003, were  generated from  products the  Division produced  for
 Medline under a supply agreement entered into in December 2000, whereby  the
 company manufactures Medline's own branded  dermal management products on  a
 non-exclusive basis.  The  Division also recorded  royalty revenue of  $2.47
 million in each of 2004, 2003  and 2002 relating to the exclusive  Licensing
 and Distribution Agreement with Medline.

 The Medical Services Division's revenues increased 13.8% in 2003 from  2002.
 This sales growth resulted primarily from additional products being added to
 the Supply Agreement including the production of Medline's dermal management
 products, sales of which increased by $1.28 million to $2.33 million in 2003
 from $1.05 million in 2002.

 The Company's Consumer Services Division recorded an increase in revenues of
 $1.34 million, or 7.3%,  to $19.66 million in  2004 over revenues of  $18.32
 million in 2003.   Sales  of bulk Manapol[R]  powder grew  $3.11 million  to
 $14.56 million in 2004 from $11.46 million in 2003.  The Division  currently
 sells bulk Manapol[R] powder to Natural Alternatives under a one-year,  non-
 exclusive supply  and  licensing  agreement with  Natural  Alternatives  and
 Mannatech, Inc., that commenced in 1997 and extends to November 2005.  Total
 sales to this customer were $14.41 million, $11.35 million and $6.37 million
 for the years 2004, 2003 and 2002, respectively.   Sales for the  Division's
 specialty manufacturing business, which develops and manufactures a  variety
 of gels, creams, lotions and drinks for customers in the cosmetic, skin care
 and nutraceutical industries,  decreased $1.69 million  to $4.66 million  in
 2004  from  $6.35 million  in 2003,  due in part to intensifying competition
 in the  specialty  manufacturing  market.  Of  this  decrease,  $529,000 was
 attributable to  the cancellation  of a  single product  manufactured for  a
 major customer, and $171,000 was due to a decrease in international sales of
 drinks manufactured for Japan, Taiwan and Korea.  Additionally, sales of the
 Division's Aloeceuticals[R]  line  of immune-enhancing  dietary  supplements
 decreased by $77,000 to $442,000 in 2004 from $519,000 in 2003.

 The Consumer  Services Division's  revenues increased  113.8% in  2003  from
 2002.  The 2003 revenue growth  of $9.75 million was primarily  attributable
 to sales of the Division's bulk Manapol[R] powder, which increased by  $4.95
 million to $11.46 million in 2003 from  $6.51 million in 2002, and to  $4.11
 million of sales of  products  the Company produced for former customers  of
 CBI in the  first year  after the  acquisition.   Additionally, an  $846,000
 increase was attributable to the addition  of a single product  manufactured
 for  a  major  customer.   These  increases  were  partially  offset  by  an
 international sales decrease of $137,000  for drinks manufactured for Japan,
 Taiwan and Korea.

 Revenues from the Company's  DelSite subsidiary were  $767,000 in 2004,  the
 first year that DelSite has recorded revenues. These revenues represent  two
 grant awards received from  NIAID.  In March  2004 DelSite received a  Small
 Business Innovation Research grant award of  up to $888,000 over a  two-year
 period.  Revenue of  $447,000 was recognized  in 2004 from  this grant.   In
 October 2004 DelSite received  a $6 million grant  award from NIAID under  a
 biodefense and SARS product development initiative  that will fund a  three-
 year preclinical program.  Revenue of  $320,000 was recognized in 2004  from
 this grant.

 Product Related Gross Margin
 ----------------------------
 The product-related gross margins of $11.80 million in 2004 reflect a  $1.51
 million,  or  14.6%, increase  over 2003.  The  increase in  product-related
 gross margins  reflects  the  increased  revenue  levels  for  the  Consumer
 Services Division plus cost reduction programs  that led to improvements  in
 capacity utilization  and production  efficiencies.   Product-related  gross
 margins of $10.30 million in 2003  were 63.4% higher than the $6.30  million
 received in 2002.  This increase was primarily the result of increased sales
 levels and improved capacity utilization.

 Comparative  product-related  gross  margin   information  related  to   the
 Company's business segments is shown in the following table.

                                                           2004 vs. 2003
                                                              Change
                                                         ----------------
 Product Related Gross Margin     2004      Total           $         %
 ----------------------------    ------     -----        ------     -----
 Medical Services Division      $ 2,550     21.6%       $  (465)    (15.4%)
 Consumer Services Division       9,254     78.4%         1,971      27.1%
                                 ------     -----        ------     -----
   Total                        $11,804    100.0%       $ 1,506      14.6%
                                 ======     =====        ======     =====

                                                           2003 vs. 2002
                                                              Change
                                                         ----------------
 Product Related Gross Margin     2003      Total           $         %
 ----------------------------    ------     -----        ------     -----
 Medical Services Division      $ 3,014      29.3%      $     5       0.2%
 Consumer Services Division       7,283      70.7%        3,990     121.1%
                                 ------     -----        ------     -----
   Total                        $10,297     100.0%      $ 3,995      63.4%
                                 ======     =====        ======     =====

 Product-related gross  margin  for  the  Medical  Services  Division,  which
 includes $2.47 million of royalty revenue for each year presented, decreased
 15.4% to $2.55 million in 2004 from $3.01 million in 2003. The reduction  in
 product-related gross margin in 2004 was  primarily the result of  increased
 sales of Medline-branded dermal management products which have  dramatically
 lower product-related gross margins  than the Carrington-branded wound  care
 products the Company produces.  The  increased production of these  products
 improved the capacity utilization and thereby helped to reduce manufacturing
 variances  in  the  Irving  manufacturing  facility.  Product-related  gross
 margins in 2003 increased 0.2% from 2002.

 The Consumer Services  Division reported an  increase of  $1.97 million,  or
 27.1%, in  product-related  gross margins  in  2004 compared  to  2003.  The
 increase  was  primarily  due to  the  increase in  sales  noted  above.  In
 addition,  the  Division  experienced  reductions  in  the  direct  cost  of
 packaging components and a shift in product mix toward higher margin product
 sales.  The  segment's 2003  product-related gross  margin increased  121.1%
 over 2002 primarily  as a  result of  increased sales  of cosmetic  products
 manufactured from the  CBI acquisition, increased  sales of bulk  Manapol[R]
 powder, and ongoing discretionary cost reduction programs.

 DelSite's 2004 revenues were $767,000.  DelSite has no direct cost of  goods
 sold, only research and development cost.

 Selling, General and Administrative Expenses
 --------------------------------------------
 The  Company  experienced  a  decrease  of  5.7%  in  selling,  general  and
 administrative expenses during 2004.   These expenses totaled $7.56  million
 in 2004, a decrease  of $457,000 from  $8.02 million in  2003.  The  Company
 recorded a decrease  in distribution-related expenses  of $254,000 to  $2.03
 million in 2004  from $2.29 million  in 2003.   The reduction was  primarily
 related to consolidated shipping programs and reduced freight rates achieved
 through improved  negotiations with  freight  carriers.   Additionally,  the
 Company  experienced  a  $74,000  decrease  in  selling  expenses  to  $2.06
 million in  2004  from $2.13  million  in 2003.  This decrease was primarily
 attributable  to headcount reductions  in Aloeceuticals[R]  sales personnel.
 The Company also recorded a decrease of $128,000 in administrative  expenses
 to $3.47 million  in 2004 from  $3.60 million in  2003 as  the Company  more
 efficiently managed these expenses.

 In 2003,  the Company  experienced a  $1.98 million,  or 32.8%  increase  in
 selling, general  and administrative  expenses from $6.04  million  in 2002.
 Distribution-related expenses  increased by  $1.09 million  in 2003  due  to
 increased shipping volume and increased  facility costs associated with  the
 growing business.  Selling expenses increased by $403,000 and administrative
 costs increased by $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.

 Research and Development
 ------------------------
 Specialized research and  development expenses in  support of the  Company's
 ongoing  operations rose  by  1.3%, increasing  to  $911,000  in  2004  from
 $899,000  in  2003. These  expenses decreased by  52.8% in  2003 from  $1.70
 million  in 2002.  The  significant decrease  in 2003  was a  result of  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[R] technology for  controlled
 release and delivery of bioactive pharmaceutical ingredients.  DelSite began
 operations in January 2002  and  its expenses totaled $3.83 million in 2004.
 The 2004 expenditures were  a 38.6% increase over  the 2003 expenditures  of
 $2.76 million.  The  2003 expenditures were a  47.7% increase over the  2002
 expenditures of $1.87 million.

 Combined research  and development  expenses  totaled $4.74  million,  $3.66
 million and $3.58 million for the years 2004, 2003 and 2002, respectively.

 Other Expense (Income)
 ----------------------
 Other expense or income  primarily consists of  collections the Company  has
 received from Rancho Aloe against a fully reserved note receivable balance.

 Interest Expense
 ----------------
 Net interest expense of  $205,000 was recorded in  2004 versus net  interest
 expense of  $249,000 in  2003, with  the decrease  of $44,000  due to  lower
 outstanding debt balances throughout 2004.   Net interest expense  increased
 by $208,000 in 2003, rising from $41,000 in 2002 to $249,000.  The  increase
 was due to increased Company borrowings in 2003.

 Income Taxes
 ------------
 The Company incurred $125,000 of foreign  income tax expense related to  the
 Company's operations in Costa Rica  in 2004.  This  was the first year  that
 these activities  were  subject to  income  taxes.   The  Company  commenced
 operations in Costa Rica in July 1992  and was granted a 100% exemption  for
 the first twelve years  of operation and  a 50% exemption  for the next  six
 years of operation.  The Company's current tax rate in Costa Rica is 15% and
 will increase to 30% effective July 1, 2010.

 There was no benefit or expense for U.S. income taxes in 2004, 2003 or  2002
 as the Company has provided a valuation allowance against all U.S.  deferred
 tax asset  balances at  December 31  of  each year  due to  the  uncertainty
 regarding realization of the asset.

 Net Earnings and Earnings Per Share
 -----------------------------------
 Net earnings of $36,000, or basic  and diluted earnings per share of  $0.00,
 were at a three-year high in  2004. Net loss was  $1.50 million in 2003,  or
 basic and diluted loss  per share of  $(0.15), compared to  a loss of  $3.38
 million, or basic and diluted loss per share of $(0.34) in 2002.  Basic  and
 diluted average shares outstanding for 2004 were 10,590,062 and  11,171,305,
 respectively, compared to basic and  diluted average shares outstanding  for
 2003 of 10,120,147. Basic  and diluted average  shares outstanding for  2002
 were 9,888,759. The increase in basic and diluted average shares outstanding
 was primarily due to additional stock option grants that are in-the-money at
 year end and employee share purchases.

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

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

 The Company 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 reductions to revenue  for estimated returns based  upon
 recent history.  Historical returns have  been $2,000, $105,000 and  $74,000
 for  the  years ending  December 31, 2004,  2003,  and  2002,  respectively.
 Accordingly, the Company has a $35,000 reserve recorded for customer returns
 at December 31, 2004.  If market conditions were to decline or inventory was
 in danger of expiring or becoming  obsolete, the Company may be required  to
 implement customer incentive offerings,  such as price discounts,  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 permission  from the  Company to  return
 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.
 The Company has provided a valuation allowance against the net deferred  tax
 assets, based on available evidence that the assets may not be realized.

                          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  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  other  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, that  the  Company  may be  unable  to  maintain  effective  internal
 controls over financial  reporting, 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 33.5%
 of cost  of  sales  for  the  year  ended December 31, 2004.  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  Colon
 the cost  of sales  decreases.   During 2004,  the exchange  rate from  U.S.
 Dollar  to Costa Rica Colon  increased by 9.6%  to 458 at December 31, 2004.
 The effect  of an  additional 10%  strengthening in  the value  of the  U.S.
 Dollar relative to the Costa  Rica Colon in 2004  would have resulted in  an
 increase of $556,130 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 4.6%  of sales  for 2004.
 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.

 Changes in short-term interest rates on debt balances with variable interest
 rates could have an affect on the Company's earnings.  At December 31, 2004,
 a hypothetical one  percent increase in  interest rates would  result in  an
 increase in interest expense of $40,000 on an annual basis.

 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.
           --------------------

 None.


 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 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  over
 financial reporting.


 ITEM 9B.  OTHER INFORMATION.
           -----------------

 None.

                                   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",  "Corporate   Governance  and   Board  Committees",   "Executive
 Officers" and "Section 16(a)  Beneficial Ownership Reporting Compliance"  in
 the Company's definitive Proxy Statement relating to its 2005 annual meeting
 of shareholders, which will be filed  pursuant to Regulation 14A within  120
 days after the Company's fiscal year ended December 31, 2004.


 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
 2005 annual  meeting  of  shareholders, which  will  be  filed  pursuant  to
 Regulation 14A  within  120  days after  the  Company's  fiscal  year  ended
 December 31, 2004.


 ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND
           ---------------------------------------------------------------
           RELATED STOCKHOLDERS MATTERS.
           ----------------------------

 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  2005  annual  meeting   of
 shareholders, which will be filed pursuant to Regulation 14A within 120 days
 after the Company's fiscal year ended December 31, 2004.


 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  2005 annual meeting  of shareholders, which  will be  filed
 pursuant to Regulation 14A within 120  days after the Company's fiscal  year
 ended December 31, 2004.


 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  2005 annual meeting  of shareholders, which  will be  filed
 pursuant to Regulation 14A within 120  days after the Company's fiscal  year
 ended December 31, 2004.


                                   PART IV
                                   -------

 ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
           ------------------------------------------

    (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-5 for a list of all exhibits to this report.

<PAGE>

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


 Consolidated Financial Statements of the Company:

      Consolidated Balance Sheets --
           December 31, 2004 and 2003                             F-2

      Consolidated Statements of Operations -- years ended
           December 31, 2004, 2003 and 2002                       F-3

      Consolidated Statements of Shareholders' Equity --
           years ended December 31, 2004, 2003 and 2002           F-4

      Consolidated Statements of Cash Flows -- years ended
           December 31, 2004, 2003 and 2002                       F-5

      Notes to Consolidated Financial Statements                  F-6

      Financial Statement Schedule
           Valuation and Qualifying Accounts                      F-21

      Report of Grant Thornton LLP                                F-22

      Report of Ernst & Young LLP                                 F-23

<PAGE>

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


                                                           December 31,
                                                      ----------------------
                                                        2004          2003
                                                      --------      --------
 ASSETS:
 Current Assets:
   Cash and cash equivalents                         $   2,430     $   1,920
   Accounts receivable, net of allowance for
    doubtful accounts of $162 and $181 at
    December 31, 2004 and 2003, respectively             3,325         3,098
   Inventories, net                                      4,614         5,960
   Prepaid expenses                                        197           253
                                                      --------      --------
 Total current assets                                   10,566        11,231

 Property, plant and equipment, net                     11,674        10,538
 Customer relationships, net                               585           777
 Other assets, net                                         192           238
                                                      --------      --------
 Total assets                                        $  23,017     $  22,784
                                                      ========      ========
 LIABILITIES AND SHAREHOLDERS' EQUITY:
 Current Liabilities:
   Line of credit                                    $   1,887      $  1,587
   Accounts payable                                      1,674         2,037
   Accrued liabilities                                   1,328         1,604
   Current portion of long-term debt and
    capital lease obligations                            1,000         1,104
   Deferred revenue                                      2,433         1,880
                                                      --------      --------
 Total current liabilities                               8,322         8,212

 Long-term debt and capital lease obligations            1,324         1,953

 Commitments and contingencies

 SHAREHOLDERS' EQUITY:
   Common stock, $.01 par value, 30,000,000 shares
    authorized, 10,722,364 and 10,384,669 shares
    issued at December 31, 2004 and 2003,
    respectively                                           107           104
   Capital in excess of par value                       53,713        53,000
   Accumulated deficit                                 (40,446)      (40,482)
   Treasury stock at cost, 2,400 shares
    at December 31, 2004 and 2003                           (3)           (3)
                                                      --------      --------
 Total shareholders' equity                             13,371        12,619
                                                      --------      --------
 Total liabilities and shareholders' equity          $  23,017     $  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,
                                               ----------------------------
                                                2004       2003       2002
                                               ------     ------     ------
 Revenues:
   Net product sales                          $27,584    $26,636    $15,571
   Royalty income                               2,470      2,467      2,470
   Grant income                                   767          -          -
                                               ------     ------     ------
 Total revenues                                30,821     29,103     18,041

 Cost and expenses:
   Cost of product sales                       18,250     18,806     11,739
   Selling, general and administrative          7,560      8,017      6,040
   Research and development                       911        899      1,701
   Research and development, DelSite            3,826      2,761      1,879
   Other expense (income)                         (92)      (123)        19
   Interest expense (income), net                 205        249         41
                                               ------     ------     ------
 Net income (loss) before income taxes            161     (1,506)    (3,378)
 Provision for income taxes                       125          -          -
                                               ------     ------     ------
 Net income (loss)                            $    36    $(1,506)   $(3,378)
                                               ======     ======     ======

 Basic and diluted earnings (loss) per
   share                                      $  0.00    $ (0.15)   $ (0.34)
                                               ======     ======     ======
 Basic shares outstanding                      10,590     10,120      9,889

 Diluted shares outstanding                    11,171     10,120      9,889


       The accompanying notes are an integral part of these statements.

<PAGE>
<TABLE>

 Consolidated Statements of Shareholders' Equity
 For the Years Ended December 31, 2004, 2003 and 2002
 (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, 2002       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
 Issuance of common
  stock for employee
  stock purchase plan     56       -        163            -          -       -      163
 Issuance of common
  stock for stock
  option plan            281       3        550            -          -       -      553
 Net income                -       -          -           36          -       -       36
                      ------   -----     ------      -------     ------   -----   ------
 December 31, 2004    10,722  $  107    $53,713     $(40,446)         2  $   (3) $13,371
                      ======   =====     ======      =======      =====   =====   ======

           The accompanying notes are an integral part of these statements.

</TABLE>
<PAGE>

 Consolidated Statements of Cash Flows
 (Amounts in thousands)

                                                     Years Ended December 31,
                                                    --------------------------
                                                     2004      2003      2002
                                                    ------    ------    ------
 Operating activities:
  Net income (loss)                                $    36   $(1,506)  $(3,378)
    Adjustments to reconcile net income (loss)
     to net cash provided by (used in)
     operating activities:
    Provision for bad debts                             48       150        38
    Provision for inventory obsolescence               205       200       135
    Depreciation and amortization                    1,241     1,309     1,087
    Loss on disposal of assets                           -         8        21
  Changes in operating assets and liabilities:
    Accounts receivable                               (275)     (878)     (786)
    Inventories                                      1,141    (1,827)      870
    Prepaid expenses                                    56       350      (414)
    Other assets                                        46        21       (49)
    Accounts payable and accrued liabilities          (639)      927       731
    Deferred revenue                                   553       (42)      380
                                                    ------    ------    ------
 Net cash provided by (used in) operating
  activities                                         2,412    (1,288)   (1,365)

 Investing activities:
  Cash paid in purchase of business, net of
   cash acquired                                         -       (79)   (1,001)
  Purchases of property, plant and equipment        (2,172)   (1,393)     (378)
                                                    ------    ------    ------
 Net cash used in investing activities              (2,172)   (1,472)   (1,379)

 Financing activities:
  Borrowings on line of credit                         300         -       824
  Proceeds from debt issuances                         350     1,500     2,000
  Principal payments on debt and capital
   lease obligations                                (1,096)     (892)      (36)
  Issuances of common stock                            716       436       141
  Treasury stock purchased                               -         -        (3)
                                                    ------    ------    ------
 Net cash provided by financing activities             270     1,044     2,926
                                                    ------    ------    ------
 Net increase (decrease) in cash and cash
  equivalents                                          510    (1,716)      182
                                                    ------    ------    ------
 Cash and cash equivalents at beginning of year      1,920     3,636     3,454
                                                    ------    ------    ------
 Cash and cash equivalents at end of year          $ 2,430   $ 1,920   $ 3,636
                                                    ======    ======    ======
 Supplemental disclosure of cash flow information
  Cash paid during the year for interest           $   225   $   259   $    61


        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,   nursing  homes,   alternative   care
 facilities, cancer  centers, home  health care  providers  and managed  care
 organizations.  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.  The Company  and Medline amended the  Distributor
 and License Agreement  in April  2004 to extend  the term  of the  agreement
 through November  30, 2008.   The  amended  agreement specified  an  advance
 payment of $1,250,000, which the Company has received.

 The  Company  entered  into  a  Supply  Agreement  with  Medline   effective
 December 1, 2000,  which among other things,  provides that the Company will
 manufacture Medline brand dermal management products.  The  Supply Agreement
 is  co-terminus with the amended Distributor and License Agreement.

 The Consumer  Services  Division, formerly  referred  to as  Caraloe,  Inc.,
 markets  or  licenses consumer  products  and  bulk  raw material  products.
 Principal sales of  the Division are  bulk raw  material products which  are
 sold to U.S. manufacturers who include  the high quality extracts  from Aloe
 vera L. in  their  finished products.  The  Consumer Services Division  also
 provides product development and manufacturing services to customers  in the
 cosmetic and nutraceutical 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[R] 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 Fort Worth, 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 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  the  Consumer   Services
 Division's  development  and  manufacturing  services  group.   The  Company
 recorded  $100,000  for the  purchase  of equipment  and  $980,000  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  Central and  South
 America.


 NOTE TWO. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 PRINCIPLES OF CONSOLIDATION.  The consolidated financial  statements include
 the  accounts  of  Carrington  Laboratories,  Inc.,  and   its  wholly-owned
 subsidiaries.   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.   None of  the cash  equivalents are  restricted  for any  years
 presented.

 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.   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.  Expenditures for  maintenance and repairs are  charged to expense  as
 incurred.

 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 $980,000
 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 $271,000  and $383,000 in  2004
 and 2003, respectively, for royalties due under  the agreement.  The Company
 recorded expense for amortization  of the intangible  asset of $193,000  and
 $195,000  in  2004  and  2003,  respectively,  and  accumulated amortization
 of $388,000  and  $195,000  at  December 31, 2004  and  2003,  respectively.
 Amortization expenses over each of the  next three years are expected  to be
 approximately $200,000 per year.

 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, net of a reserve for estimated returns.   Royalty income
 is recognized over the period of the licensing and royalty agreement.  Grant
 income is  recognized  ratably as  the  grant budget-approved  expenses  are
 incurred.

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

 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 and  were $914,000,  $1,230,000 and  $500,000 for  the years  ended
 December 31, 2004, 2003 and 2002, respectively.

 ADVERTISING COSTS.   Advertising  costs, included  in  selling, general  and
 administrative, are expensed  as incurred  and were  $240,000, $190,000  and
 $191,000 for the years ended 2004, 2003 and 2002, respectively.

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

 ---------------------------------------------------------------------------
                                              2004        2003        2002
 ---------------------------------------------------------------------------
 Net income (loss) (in thousands):
      As reported                            $    36     $(1,506)    $(3,378)
      Less:  Stock-based compensation
       expense determined under fair
       value-based method                     (1,496)       (583)       (331)
                                              ------      ------      ------
      Pro forma net loss                     $(1,460)    $(2,089)    $(3,709)
                                              ======      ======      ======

      Basic and diluted shares outstanding    10,590      10,120       9,889

 Net income (loss) per share:
      Basic and diluted as reported         $   0.00     $ (0.15)    $ (0.34)
      Basic and diluted pro forma              (0.14)      (0.21)      (0.38)
 ---------------------------------------------------------------------------

 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.  The
 Company uses its weighted-average close price of its stock for the reporting
 period to determine the dilution of  its stock options and  warrants related
 to its EPS calculation.

 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,
 inventory obsolescence and  return reserves.   Actual  results could  differ
 from those estimates.

 FAIR VALUE OF FINANCIAL  INSTRUMENTS.  The carrying  value of the  Company's
 cash and cash equivalents, accounts receivable, accounts payable and accrued
 liabilities estimate fair value  due to their  relative  short-term  nature.
 The majority of the Company's debt approximates fair value due to the nature
 of the floating interest rates being charged.

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

 NEW PRONOUNCEMENTS.    In  November  2004,  the FASB  issued  SFAS  No.  151
 "Inventory Costs."   This Statement  amends the guidance  in ARB  No. 43  to
 clarify the  accounting  for  abnormal amounts  of  idle  facility  expense,
 freight, handling costs and wasted  material.  This Statement  requires that
 those items be recognized  as current period  charges regardless of  whether
 they meet  the criterion  of "so  abnormal."   In  addition, this  Statement
 requires that the allocation of fixed  production overheads to the  costs of
 conversion  be based  on  the normal capacity of  the production facilities.
 The provisions of SFAS  No. 151 are effective  for inventory costs  incurred
 during fiscal years beginning after June 15, 2005.  The  Company anticipates
 no material effect from the adoption of SFAS No. 151.

 In December 2004, the FASB  issued SFAS No. 123(R),  "Share-Based Payments",
 which replaces SFAS No. 123  "Accounting for Stock Based  Compensation", and
 supersedes APB Opinion No.  25, "Accounting for  Stock Issued to  Employees"
 and amends SFAS No. 95, "Statement of Cash Flows."  SFAS No. 123(R) requires
 all share-based payments  to employees, including  grants of employee  stock
 options, to  be recognized  in  the income  statement  based on  their  fair
 values.  As such, pro forma disclosure in lieu of expensing is  no longer an
 alternative.  The new standard is  effective in the first interim  or annual
 reporting period beginning after  June 15, 2005.   The Company is  currently
 assessing  the  impact  that  the  statement  may  have  on   its  financial
 statements.


 NOTE THREE.  INVENTORIES

 The following summarizes the  components of inventory  at December 31,  2004
 and 2003, in thousands:
                                                 2004          2003
 ---------------------------------------------------------------------------
 Raw materials and supplies                    $2,306        $3,009
 Work-in-process                                  514           638
 Finished goods                                 2,613         3,048
 Less obsolescence reserve                       (819)         (735)
 ---------------------------------------------------------------------------
 Total                                         $4,614        $5,960
 ---------------------------------------------------------------------------


 NOTE FOUR.  PROPERTY, PLANT AND EQUIPMENT

 Property, plant and  equipment consisted  of the following  at December  31,
 2004 and 2003, in thousands:
                                                         Estimated
                                  2004        2003      Useful Lives
 ---------------------------------------------------------------------------
 Land                           $ 1,391     $ 1,391
 Buildings and improvements      10,297       9,286     7 to 25 years
 Furniture and fixtures             638         620     4 to  8 years
 Machinery and equipment          9,488       8,831     3 to 10 years
 Leasehold improvements           1,332         846     3 to 10 years
 Equipment under capital leases     392         379           5 years
 ---------------------------------------------------------------------------
 Total                           23,538      21,353
 Less accumulated depreciation
   and amortization              11,864      10,815
 ---------------------------------------------------------------------------
 Property, plant and
   equipment, net               $11,674     $10,538
 ---------------------------------------------------------------------------

 The net  book  value of  property,  plant and  equipment  in Costa  Rica  at
 December 31, 2004 and 2003 was $4,241,000 and $3,593,000, respectively.


 NOTE FIVE.  ACCRUED LIABILITIES

 The following summarizes  significant components  of accrued liabilities  at
 December 31, 2004 and 2003, in thousands:

                                             2004           2003
 ---------------------------------------------------------------------------
 Accrued payroll                           $  267         $  550
 Accrued insurance                            194            227
 Accrued taxes                                290            181
 Accrued professional fees                    145            197
 Other                                        432            449
 ---------------------------------------------------------------------------
 Total                                     $1,328         $1,604
 ---------------------------------------------------------------------------

 NOTE SIX.  LINE OF CREDIT

 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  (5.25% at December 31, 2004) plus  0.5%.
 As of December 31, 2004 there was $1,887,000 outstanding on the  credit line
 with $563,000 of credit available for operations, net of outstanding letters
 of credit of  $550,000. The line  of credit  has no  expiration date and  is
 payable on demand.

 Effective July 1, 2004, the Company and Comerica negotiated an  amendment to
 the Company's credit  facilities, which, among  other things, redefined  the
 covenants that require the Company to maintain certain financial ratios.  As
 of December 31, 2004 the Company  is in compliance with all of  the covenant
 provisions.  The new  covenants and the Company's  position at December  31,
 2004 are as follows:

 Covenant                   Covenant Requirement   Company's Position
 ---------                  --------------------   ------------------
 Total net worth                $12,200,000            $12,744,000
 Current ratio                      1.60                   1.76
 Liquidity ratio                    1.75                   2.21

 The total net worth, current ratio and liquidity ratio covenant  amounts and
 the Company's  position are  calculated as  defined  in the  amendment.  The
 covenant amounts for these  ratios will remain at  these same fixed  amounts
 until maturity.


 NOTE SEVEN.  LONG-TERM DEBT

 In December 2002,  Medline advanced  the Company  $2,000,000 against  future
 royalty  payments  due under  the Distributor  and  License  Agreement.  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, 2004, there  was $582,000 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 (5.25%) plus 2.0%.   As of December 31, 2004, there  was $410,000
 outstanding on the loan.

 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 ($5.25%)  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 (with a carrying value of  $4,089,000). As
 of December 31, 2004 there was $717,000 outstanding on the loan.

 Both the line of credit and loan with Comerica are  cross-collateralized and
 cross-defaulted.

 In September 2004, the Company received a loan of $350,000  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 (5.25%) plus 2.5%.  As  of December 31, 2004, there  was $343,000
 outstanding on the loan.

 Both the loans through Bancredito are secured by land and equipment in Costa
 Rica (with a carrying value of approximately $700,000).

 The following summarizes annual maturities at December 31, 2004, in
 thousands:

                 2005                         $  873
                 2006                            310
                 2007                            307
                 2008                            229
                 2009                            117
                 Thereafter                      238
                                               -----
                 Total                        $2,074
 ---------------------------------------------------------------------------


 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 1,250,000 shares of  common  stock
 was reserved for purchase under this Plan.  As of December 31, 2004, a total
 of 927,420 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 2004 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 in 2004 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 500,000 shares  of Common Stock for  issuance under
 this plan.  As of December 31, 2004, options to purchase 340,050 shares were
 available for future grants under the plan.

 The Company  also  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 in  or subsequent to  December 1998  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 2001 vested 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, 2004, options to  purchase 66
 shares were available for future grants under the plan.  The Plan expires on
 April 1, 2005  after which no additional grants may be made under  the plan.
 In accordance with the provision of  the plan, all options issued  under the
 plan and  outstanding  on  the expiration  date  of  the plan  shall  remain
 outstanding until the earlier of their exercise, forfeiture or lapse.

 The following summarizes stock option activity  for each of the  three years
 in the period ended December 31, 2004 (shares in thousands):

                                                             Weighted
                                                             Average
                                                             Exercise
                                 Shares   Price Per Share     Price
 ---------------------------------------------------------------------------
 Balance, January 1, 2002       1,373     $ 1.05 to $28.75     $3.11
    Granted                       375     $ 1.05 to $ 1.50     $1.28
    Forfeited                    (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
    Forfeited                     (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
    Granted                       632     $ 3.90 to $ 5.30     $4.66
    Forfeited                    (204)    $ 1.05 to $28.75     $4.95
    Exercised                    (231)    $ 1.05 to $ 4.26     $1.62
 ---------------------------------------------------------------------------
 Balance December 31, 2004      1,822     $ 1.05 to $27.00     $3.38
                               ======
 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
 Options exercisable at
    December 31, 2004           1,440     $ 1.05 to $27.00     $3.13


 The following table summarizes  information about stock options  outstanding
 at December 31, 2004:

                          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 $27.00      1    0.92 years   $27.00        1     $27.00
 $11.13 to $12.75      2    0.01 years   $11.13        2     $11.13
 $ 6.00 to $ 7.50     28    2.08 years   $ 7.50       28     $ 7.50
 $ 3.90 to $ 5.30    988    8.76 years   $ 4.63      612     $ 4.78
 $ 2.03 to $ 3.00    228    4.57 years   $ 2.29      228     $ 2.29
 $ 1.05 to $ 1.80    575    7.38 years   $ 1.42      569     $ 1.41
                   -----                           -----
                   1,822    7.30 years   $ 3.38    1,440     $ 3.13
                   =====                           =====

 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  2004, 2003, and  2002,
 respectively: risk-free interest rates  of 3.51%, 4.27% and  3.00%; expected
 dividend yields of 0%;  expected volatility of 79.2%,  89.7% and 105.2%  and
 expected lives of 5 years for  all periods presented.  The  weighted average
 fair values of options granted were $3.11, $2.20 and $1.00 in 2004, 2003 and
 2002, 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, 2004 there  were no
 warrants outstanding.   At  December 31,  2003  there were  50,000  warrants
 exercisable at $3.50 per share.

 COMMITMENTS.   On May  3,  2004, the  Company  retained Redington,  Inc.  to
 provide certain investor relations services.   In addition to  cash payments
 for its  consulting services,  Redington was  also  granted a  non-qualified
 stock option to purchase 150,000 shares  of the Company's Common Stock  at a
 price of $4.15 per share, the closing  price on that date.  The  Options are
 exercisable based  upon  the attainment  of  certain sustained  share  price
 levels.  During the period it  becomes probable that the share  price levels
 would be achieved, a charge to the statement of operations will  be recorded
 based on the fair value of the options at that time.

 COMMON STOCK RESERVED.   At December  31, 2004, the  Company had reserved  a
 total of  2,485,173  common  shares  for future  issuance  relating  to  the
 employee stock purchase plan and stock option plan.


 NOTE NINE.  COMMITMENTS AND CONTINGENCIES

 The Company  conducts a  significant portion  of its  operations from  three
 office/ warehouse/distribution/laboratory 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, 2004 were as follows, in thousands:

                                                   Capital   Operating
                                                   Leases      Leases
 ---------------------------------------------------------------------
 2005                                             $  140     $  986
 2006                                                 74        885
 2007                                                 25        804
 2008                                                 21        672
 2009                                                 16        601
 Thereafter                                            3        904
 ---------------------------------------------------------------------
 Total minimum lease payments                        279     $4,852
                                                              =====
 Amounts representing interest                       (29)
                                                   -----
 Present value of capital lease obligations          250
 Less current portion of capital lease obligations  (127)
                                                   -----
 Obligations under capital lease agreements,
 excluding the current portion                    $  123
                                                   =====

 Total rental  expense under  operating leases  was  $881,000, $774,000,  and
 $667,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

 From time to time in the normal  course of business, the Company is  a 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  $450,000
 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 United States  tax effects of  temporary differences  that gave rise  to
 deferred tax assets and  deferred tax liabilities at  December 31, 2004  and
 2003 were as follows, in thousands:


                                             2004          2003
 ---------------------------------------------------------------------
 Net operating loss carryforward          $ 9,274       $14,849
 Research and development
    and other credits                         343           385
 Property, plant and equipment                210           302
 Inventory                                    341           324
 Foreign tax credits                          125             0
 Other, net                                    55           103
 Bad debt reserve                             198           218
 Deferred income                              827           639
 ACI Stock Valuation                          204           204
 Accrued liability                             16            36
 Less - Valuation allowance               (11,593)      (17,060)
                                           ------        ------
                                          $     0       $     0
                                           ======        ======

 The Company has provided a valuation  allowance against the entire  U.S. net
 deferred tax asset at December 31, 2004 and 2003, due to the  uncertainty as
 to the realization of the asset.

 The Company incurred $125,000 of foreign  income tax expense related  to the
 Company's operations in Costa  Rica in 2004.   This was the first  year that
 these activities were subject to income taxes.

 The provision (benefit) for income  taxes varies from the  federal statutory
 rate as follows (in thousands):

                                                       2004
                                                      ------
 Taxes at federal statutory rate                     $    55
 Permanent differences                                    13
 Unbenefited foreign income taxes                        125
 Expired and unbenefitted net
   operating loss carryforwards                       (5,575)
 Expired research and development credits                (42)
 Other                                                    82
 Change in valuation allowance                         5,467
                                                      ------
 Total tax provision                                 $   125
                                                      ======

 The benefit for income taxes for the years ended December 31, 2003  and 2002
 was offset by an increase in the valuation allowance.

 At December 31, 2004,  the Company had net  operating loss carryforwards  of
 approximately $27.3 million for federal income tax purposes, which  began to
 expire in 2004,  and research  and development tax  credit carryforwards  of
 approximately $343,000, which  begin to  expire in  2005, all  of which  are
 available to offset  federal income taxes  due in future  periods.  All  net
 operating loss carryforwards will expire between the year 2009 and  the year
 2023.  The  Company  has approximately  $20,000 in  alternative minimum  tax
 credits which do not expire.   During 2004, the Company had $5.6  million of
 net operating loss carryforwards that expired.  Also,  in 2004,  the Company
 had $11.4 million of net operating loss carryforwards that  were utilized to
 offset foreign dividends with no offsetting foreign tax benefit.


 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 two customers.   Sales to Natural Alternatives  International, Inc.,
 ("Natural Alternatives"),  a customer  in  the Consumer  Services  Division,
 accounted for  45%,  36%, and  35%  of the Company's net sales in 2004, 2003
 and  2002,  respectively.  Accounts  receivable  from  Natural  Alternatives
 represented 64% and 47%  of gross accounts receivable  at  December 31, 2004
 and 2003.  Sales to Medline Industries, Inc., ("Medline") a customer  in the
 Medical Services Division, accounted for 23%,  26% and 34% of  the Company's
 sales during 2004, 2003  and 2002, respectively.   Accounts receivable  from
 Medline represented 20% and 29%  of the Company's gross  accounts receivable
 at December  31,  2004  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, 2004 and 2003, in thousands.

            Balance at Beginning    Charges to                Balance at End
                of Period           Expenses      Deductions    of Period
 ---------------------------------------------------------------------------
 A/R Reserve-2004    $181             $ 48           $67           $162
 A/R Reserve-2003    $110             $150           $79           $181


 NOTE TWELVE.  NET INCOME (LOSS) PER SHARE

 The Company calculates basic earnings per share by dividing net  earnings by
 the weighted  average number  of shares  outstanding.  Diluted earnings  per
 share reflects the impact  of outstanding stock  options during the  periods
 presented using the treasury  stock method. The  following table provides  a
 reconciliation of the denominators utilized in the calculation of  basic and
 diluted  earnings  per  share  with  the  amounts  rounded  to  the  nearest
 thousands, except per share amounts:

                                              2004        2003        2002
                                             ------      ------      ------
 Net income (loss)                          $    36     $(1,506)    $(3,378)
 Basic earnings (loss) per share:
   Weighted average number of common shares
     outstanding                             10,590      10,120       9,889
     Basic per share amount                 $  0.00     $ (0.15)    $ (0.34)
                                             ======      ======      ======
 Diluted earnings (loss) per share:
   Weights average number of common shares
     outstanding                             10,590      10,120       9,889
   Dilutive effect of stock options             581           0           0
                                             ------      ------      ------
   Diluted weighted average number of
     common shares outstanding               11,171      10,120       9,889
   Diluted per share amount                 $  0.00     $ (0.15)    $ (0.34)
                                             ======      ======      ======

 At December 31, 2004,  691,787 common stock options  were excluded from  the
 diluted earnings per share calculation using a weight-average close price of
 $4.34 per share, as their effect was antidilutive.

 At December 31, 2003,  all of the Company's  1,625,185 common stock  options
 and 50,000  warrants  were excluded  from  its  diluted earnings  per  share
 calculation as their effect was antidilutive  due to the Company's  net loss
 for the year.

 At December 31, 2002,  all of the Company's  1,510,751 common stock  options
 and 50,000  warrants  were excluded  from  its  diluted earnings  per  share
 calculation as their effect was antidilutive  due to the Company's  net loss
 for the year.


 NOTE THIRTEEN.  REPORTABLE SEGMENTS

 Based on the economic characteristics of the Company's  business activities,
 the nature  of  its  products, customers  and  markets  it serves,  and  the
 performance evaluation by management  and the Company's Board  of Directors,
 the Company  has  identified  three reportable  segments:  Medical  Services
 Division, Consumer Services Division and DelSite.

 The Medical Services Division sells a  comprehensive line of wound  and skin
 care medical products  and provides manufacturing  services to customers  in
 medical products  markets.   These products  are  primarily sold  through  a
 domestic,  sole  source  distributor,  where  the  products  are  ultimately
 marketed to hospitals,  nursing homes,  alternative care facilities,  cancer
 centers,  home  health  care  providers  and  managed  care   organizations.
 International sales  of these  products account  for less  than  10% of  the
 Division's consolidated net  sales for  the years ended  December 31,  2004,
 2003, and 2002.

 The Consumer Services Division sells and licenses consumer products and bulk
 raw materials  that  utilize  the Company's  patented  complex  carbohydrate
 technology into the consumer health and  beauty care products markets.   The
 Division also  sells finished  products,  provides product  development  and
 manufacturing services  to  customers  in  the  cosmetic  and  nutraceutical
 markets.  These products are primarily sold domestically, with international
 sales accounting for less than 10% of the Division's consolidated  net sales
 for the years ended December 31, 2004, 2003, and 2002.

 DelSite is  a  research  and  development  subsidiary  responsible  for  the
 research, development and marketing of the Company's  proprietary GelSite[R]
 technology for controlled release  and delivery of bioactive  pharmaceutical
 ingredients.  Revenues  for DelSite  currently  consist  of  research  grant
 awards.

 Prior to January 1, 2004, the Company reported its results in  two segments:
 Medical Services Division  and Caraloe,  Inc.  The  Caraloe activities  have
 been  renamed  the Consumer  Services  Division.  In  addition, due  to  the
 growing significance  of DelSite's  operations, in  2004  the Company  began
 reporting DelSite as a separate segment.  DelSite was previously reported as
 part of the corporate operations category.

 The Company evaluates performance and allocates resources based on profit or
 loss from operations before income taxes.

 Net revenues represent revenues from  external customers.  Assets  which are
 used in  more  than  one segment  are  reported  in the  segment  where  the
 predominant use  occurs. Total  cash  for the  Company  is included  in  the
 Corporate Assets figure.

 The segment data for the years  ended December 31, 2004, 2003 and  2002 were
 as follows:

                                              2004        2003        2002
                                             ------      ------      ------
 Net revenues:
  Medical Services Division                 $10,391     $10,782     $ 9,470
  Consumer Services Division                 19,663      18,321       8,571
  DelSite                                       767           0           0
                                             ------      ------      ------
                                            $30,821     $29,103     $18,041
                                             ======      ======      ======
 Income (loss) before income taxes:
  Medical Services Division                 $(1,861)    $(1,335)    $(1,405)
  Consumer Services Division                  5,081       2,590        (104)
  DelSite                                    (3,059)     (2,761)     (1,869)
                                             ------      ------      ------
                                            $   161     $(1,506)    $(3,378)
                                             ======      ======      ======
 Identifiable assets:
  Medical Services Division                 $ 6,094     $ 7,248     $ 8,910
  Consumer Services Division                 12,129      12,813       8,530
  DelSite                                     1,978         324         161
  Corporate                                   2,816       2,399       4,558
                                             ------      ------      ------
                                            $23,017     $22,784     $22,159
                                             ======      ======      ======
 Capital expenditures:
  Medical Services Division                 $     0     $   291     $   348
  Consumer Services Division                    278         920           0
  DelSite                                     1,894         182          30
  Corporate                                       0           0           0
                                             ------      ------      ------
                                            $ 2,172     $ 1,393     $   378
                                             ======      ======      ======
 Depreciation and amortization:
  Medical Services Division                 $   244     $   357     $   259
  Consumer Services Division                    711         888         810
  DelSite                                       286          64          18
                                             ------      ------      ------
                                            $ 1,241     $ 1,309     $ 1,087
                                             ======      ======      ======


 NOTE FOURTEEN.  RELATED PARTY TRANSACTIONS

 At December 31, 2004, 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, $92,250  and $149,500 was collected  in 2004
 and 2003, respectively, from  this company against  the 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  $1,447,000, $1,229,000  and $468,000  in  2004, 2003  and
 2002, respectively.


 NOTE FIFTEEN.  DEFERRED REVENUE

 Pursuant to the Distributor and License Agreement with Medline,  the Company
 is to receive $12.5 million in base royalties over a five-year period ending
 November 30, 2005.  In  April  2004, the Company  entered into an  Amendment
 (the "Amendment") to the  Distributor and License  Agreement and the  Supply
 Agreement.   Among other  things, the  Amendment extended  the  term of  the
 Distributor and  License Agreement  and the  term  of the  Supply  Agreement
 through November  30,  2008, and,  subject  to  certain refund  rights  more
 specifically described in  the Amendment,  provided that  the Company  would
 receive an  additional $1.25  million  of royalties,  to  be paid  upon  the
 signing of  the Amendment,  in consideration  of the  extended  term of  the
 Distributor and License Agreement.  The Company received the funds  on April
 21, 2004.  The Company  continues to  recognize  royalty income  under  this
 agreement, as amended, on a straight-line basis.  At December 31,  2004, the
 Company had received $2.4 million more  in royalties than it  had recognized
 in income,  which is  recorded as  deferred revenue  on  the balance  sheet.
 Royalties to be received subsequent to December 31, 2004 total $1.1 million.


 NOTE SIXTEEN.  UNAUDITED SELECTED QUARTERLY FINANCIAL DATA

 The unaudited selected  quarterly financial  data below  reflect the  fiscal
 years ended December 31, 2004 and 2003, respectively.

 (Amounts in thousands, except shares and per share amounts)
 ---------------------------------------------------------------------------
 2004                    1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
 ---------------------------------------------------------------------------
 Net revenue               $7,340       $7,991       $7,729       $7,761
 Cost of product sales      4,573        4,813        4,391        4,473
 Net income (loss)           (245)         (36)         104          213
 Basic and diluted income
   (loss) per share        $(0.03)      $(0.00)      $ 0.01       $ 0.02
 ---------------------------------------------------------------------------
 2003                    1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
 ---------------------------------------------------------------------------
 Net revenue               $6,904       $7,962       $7,532       $6,705
 Cost of product sales      4,337        4,883        5,035        4,551
 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.  SUPPLY CONCENTRATION

 Commodities or components used  in the Company's production  processes which
 can  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.


 NOTE EIGHTEEN.  EMPLOYEE BENEFIT PLANS

 The Company  has  a  401(k)  Plan  to  provide  eligible  employees  with  a
 retirement savings plan.  All employees  are eligible to participate  in the
 plan if they are age 21 years or older.  Company matching  contributions are
 made dollar for dollar  up to 3%  of pay and  50% for contributions  greater
 than 3%  of pay  but not  in excess  of 5%  of pay.   The  Company may  make
 discretionary contributions upon direction of  the Board of Directors.   The
 Company's contribution expense for the  years ended December 31,  2004, 2003
 and 2002 was approximately $129,000, $134,000 and $144,000, respectively.


 NOTE NINETEEN.  SUBSEQUENT EVENTS

 On January 21,  2005, the  Company's wholly-owned subsidiary  in Costa  Rica
 entered into a Manufacturing Agreement with Miradent Products of  Costa Rica
 ("Miradent"). Under the terms of the agreement, the Company will manufacture
 proprietary dental products for Miradent for a period of five years.

<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
 ---------------------------------------------------------------------------
 2004
 ---------------------------------------------------------------------------
 Bad debt reserve         $  181    $   48   $   -     $   67      $   162
 Inventory reserve           735       205       -        121          819
 Reserve Aloe & Herbs
   non-current notes and
   investments included
   in other assets           227         -       -         92          135
 Reserve for returns          35         -       -          -           35
 ---------------------------------------------------------------------------
 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
 Reserve for returns         136         -       -        101           35
 ---------------------------------------------------------------------------
 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
 Reserve for returns         136         -       -          -          136
 ---------------------------------------------------------------------------

<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



 Shareholders and Board of Directors
   Carrington Laboratories, Inc.


 We have audited the  accompanying consolidated balance sheets  of Carrington
 Laboratories, Inc. and subsidiaries as of December 31, 2004 and 2003 and the
 related  consolidated  statements  of operations,  shareholders'  equity and
 cash flows for  the years  then ended.  These financial  statements are  the
 responsibility of the Company's management. Our responsibility is to express
 an opinion on these financial statements based on our audits.

 We conducted  our audits  in accordance  with the  standards  of the  Public
 Company Accounting Oversight Board (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.  The
 Company is not required  to have,  nor were we engaged  to perform an  audit
 of  its  internal  control  over financial  reporting.  Our  audit  included
 consideration of internal control  over financial reporting  as a basis  for
 designing audit procedures  that are appropriate  in the circumstances,  but
 not for the  purpose of expressing  an opinion on  the effectiveness of  the
 Company's  internal  control  over  financial  reporting.   Accordingly,  we
 express no such opinion.  An audit also includes examining, on a test basis,
 evidence supporting the amounts and disclosures in the financial statements,
 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, 2004 and  2003, and  the consolidated  results of  their operations  and
 their cash flows  for the years  then ended,  in conformity with  accounting
 principles generally accepted in the United States of America.

 Our audit was conducted for the  purpose of forming an opinion on  the basic
 consolidated financial statements  taken as a  whole. The related  financial
 statement Schedule II is presented  for purposes of additional  analysis and
 is not a required part of the basic consolidated financial statements.  This
 schedule has been subjected to the auditing procedures applied in  the audit
 of the  basic consolidated  financial statements  and,  in our  opinion,  is
 fairly stated in all material respects in relation to the basic consolidated
 financial statements taken as a whole.


 /s/Grant Thornton LLP

 Dallas, Texas
 March 3, 2005

<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


 Shareholders and Board of Directors
   Carrington Laboratories, Inc.


 We have audited  the accompanying  consolidated statement  of operations  of
 Carrington Laboratories, Inc. and subsidiaries and the  related consolidated
 statements of  shareholders'  equity  and  cash flows  for  the  year  ended
 December 31, 2002.  Our audit also includes 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  the  standards of  the  Public
 Company Accounting Oversight Board (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 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  results  of
 operations and cash flows of Carrington Laboratories, Inc.  and subsidiaries
 for the  year ended  December 31,  2002 in  conformity  with U.S.  generally
 accepted accounting principles.  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

<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 24, 2005              By:  /s/ Carlton E. Turner, Ph.D., D.Sc.
                                    ----------------------------------------
                                    Carlton E. Turner, 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 24, 2005
 -------------------------         Officer and Director
 Carlton E. Turner, Ph.D.     (principal executive officer)
 D.Sc.


 /s/ Robert W. Schnitzius      Vice President and Chief        March 24, 2005
 -------------------------        Financial Officer
 Robert W. Schnitzius          (principal financial and
                                 accounting officer)


 /s/ Ronald R. Blanck                 Director                 March 24, 2005
 -------------------------
 Ronald R. Blanck, D.O.


 /s/ R. Dale Bowerman                 Director                 March 24, 2005
 -------------------------
 R. Dale Bowerman


 /s/ George DeMott                    Director                 March 24, 2005
 -------------------------
 George DeMott


 /s/ Thomas J. Marquez                Director                 March 24, 2005
 -------------------------
 Thomas J. Marquez


 /s/ Edwin Meese, III                 Director                 March 24, 2005
 -------------------------
 Edwin Meese, III


 /s/ Selvi Vescovi                    Director                 March 24, 2005
 -------------------------
 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).

  4.4        Amended and Restated Rights Agreement dated
             October 15, 2001, between Carrington Laboratories,
             Inc. and American Stock Transfer & Trust Company,
             as successor Rights Agent (incorporated by reference
             to Exhibit 4.1 to the Company's Form 8-A/A
             Post-Effective Amendment No. 2).

  4.5        Amendment No. 1 to the Amended and Restated Rights
             Agreement, dated effective as of December 17, 2003,
             between Carrington Laboratories, Inc. and American
             Stock Transfer & Trust Company, as Rights Agent
             (incorporated by reference to Exhibit 4.1 to the
             Company's Form 8-A/A Post-Effective Amendment No. 3).

 10.1 +      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).

 10.2 +      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).

 10.3        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).

 10.4        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).

 10.5        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).

 10.6        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).

 10.7        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).

 10.8        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).

 10.9        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).

 10.10       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).

 10.11       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).

 10.12       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).

 10.13       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).

 10.14       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).

 10.15       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).

 10.16       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).

 10.17       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).

 10.18       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).

 10.19       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).

 10.20       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).

 10.21       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).

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

 10.23 +     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).

 10.24 +     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).

 10.25       Credit Agreement dated as of September 1,
             2002, between Carrington Laboratories, Inc.
             and Comerica Bank.

 10.26       Advance Formula Agreement dated as of
             September 1, 2002, between Carrington
             Laboratories, Inc., and Comerica Bank,
             Caraloe, Inc., and DelSite Biotechnologies,
             Inc.

 10.27       Amendment to Distributor and License
             Agreement and Supply Agreement between
             Carrington Laboratories, Inc., and Medline
             Industries, Inc. (incorporated by reference
             to Exhibit 10.1, filed on Carrington's Form
             8-K on April 22, 2004) .

 10.28       2004 Stock Option Plan of Carrington Laboratories,
             Inc. (incorporated by reference to Exhibit 4.1
             to Carrington's Form S-8 Registration Statement
             filed with the SEC on August 17, 2004).

 10.29       Employee Stock Purchase Plan as amended through
             May 20, 2004 of Carrington Laboratories, Inc.
             (incorporated by reference to Exhibit 4.1 to
             Carrington's Form S-8 Registration Statement
             filed with the SEC on August 17, 2004).

 10.30       Certificate of Pledge between Sabila
             Industrial, S.A., a Costa Rica Corporation
             and wholly-owned subsidiary of Carrington
             Laboratories, Inc., and Banco Credito
             Agricola de Cartage dated August 6, 2004
             (incorporated by reference to Exhibit 10.1
             to Carrington's Quarterly Report on Form 10-Q
             for the quarter ended September 30, 2004).

 10.31       Amendment dated October 15, 2004 and
             effective as of July 1, 2004, to Credit
             agreement and Advanced Formula Agreement
             dated September 1, 2002, between Carrington
             Laboratories, Inc., and Comerica Bank,
             Caraloe, Inc., and DelSite Biotechnologies,
             Inc. (incorporated by reference to Exhibit
             10.1, filed on Carrington's Form 8-K on
             October 21, 2004).

 10.32 *     Supply Agreement dated December 17, 2004
             between Carrington Laboratoreis, Inc.,
             Mannatech, Inc., and Natural Alternatives,
             Inc. (portions of this exhibit have been
             excluded pursuant to a request for
             confidential treatment).

 10.33 *     Trademark License Agreement dated
             December 17, 2004 between Carrington
             Laboratories, Inc. and Mannatech, Inc.

 10.34 *     Manufacturing Agreement between Sabila
             Industrial, S.A., a Costa Rica Corporation
             and wholly-owned subsidiary of Carrington
             Laboratories, Inc., and Miradent Products
             of Costa Rica, S.A., dated January 21, 2005,
             (portions of this exhibit have been excluded
             pursuant to a request for confidential
             treatment).

 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 0.13a-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.