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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2003



OR



| ̈ | 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: 33-20323



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Royal BodyCare, Inc.

(Exact name of registrant as specified in its charter)



|Nevada                                   |  | 91-2015186           
|---------------------------------------- |  | ---------------------
|(State of Incorporation)                 |  | (IRS Employer ID No.)
|                                         | 
|2301 Crown Court, Irving, Texas          |  | 75038                
|(Address of principal executive offices) |  | (Zip code)           



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



---



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 Act of 1934 during the past 12 months and (2) has been subject to such filing requirements for the past 90 days.    x  YES ̈NO



Shares of common stock, par value $0.001, outstanding at November 1, 2003: 19,956,294



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##### Table of Contents

TABLE OF CONTENTS



|                               |  |                                                                                                                   |  | Page Number
|------------------------------ |  | ----------------------------------------------------------------------------------------------------------------- |  | -----------
|PART I  FINANCIAL INFORMATION |  |                                                                                                                  
|                               |  |                                                                                                                  
|Item 1.                        |  | Financial Statements                                                                                              |  |            
|                               |  | Condensed Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002                  |  | 3          
|                               |  | Condensed Consolidated Statements of Operations for the quarters ended September 30, 2003 and 2002 (unaudited)    |  | 4          
|                               |  | Condensed Consolidated Statements of Operations for the nine months ended September 30, 2003 and 2002 (unaudited) |  | 5          
|                               |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 (unaudited) |  | 6          
|                               |  | Notes to Condensed Consolidated Financial Statements                                                              |  | 7          
|                               |  |                                                                                                                  
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                             |  | 17         
|Item 3.                        |  | Quantitative and Qualitative Disclosure about Market Risk                                                         |  | 25         
|Item 4.                        |  | Controls and Procedures                                                                                           |  | 25         
|                               | 
|PART II  OTHER INFORMATION    |  |                                                                                                                  
|                               |  |                                                                                                                  
|Item 1.                        |  | Legal Proceedings                                                                                                 |  | 26         
|Item 2.                        |  | Changes in Securities                                                                                             |  | 26         
|Item 3.                        |  | Defaults Upon Senior Securities                                                                                   |  | 26         
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                               |  | 26         
|Item 5.                        |  | Other Information                                                                                                 |  | 26         
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                                  |  | 26         
|                               |  |                                                                                                                  
|Signatures                     |  |                                                                                                                   |  | 27         
|                               |  |                                                                                                                  
|Exhibit Index                  |  |                                                                                                                   |  | 28         



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##### Table of Contents

|Item 1. | FINANCIAL STATEMENTS
|------- | --------------------



ROYAL BODYCARE, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                                                                                                |  | September 30,2003 |            |   | December 31,2002 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ---------------- | -
|                                                                                                                                                                                |  | (unaudited)       |            |   |                  |  
|ASSETS                                                                                                                                                                          |  |                   |            |   |                  |  
|Current assets:                                                                                                                                                                 |  |                   |            |   |                  |  
|Cash and cash equivalents                                                                                                                                                       |  | $                 | 613,753    |   |                  | $
|Accounts receivable                                                                                                                                                             |  |                   | 113,210    |   |                  |  
|Inventories                                                                                                                                                                     |  |                   | 1,891,653  |   |                  |  
|Deferred income tax assets                                                                                                                                                      |  |                   | 15,548     |   |                  |  
|Prepaid expenses and other                                                                                                                                                      |  |                   | 219,002    |   |                  |  
|                                                                                                                                                                                |  |                   |            |   |                  |  
|Total current assets                                                                                                                                                            |  |                   | 2,853,166  |   |                  |  
|                                                                                                                                                                                |  |                  
|Property & equipment, net                                                                                                                                                       |  |                   | 5,045,321  |   |                  |  
|                                                                                                                                                                                |  |                  
|Intangible assets, net                                                                                                                                                          |  |                   | 2,427,049  |   |                  |  
|                                                                                                                                                                                |  |                  
|Other assets                                                                                                                                                                    |  |                   | 322,425    |   |                  |  
|                                                                                                                                                                                |  |                   |            |   |                  |  
|                                                                                                                                                                                |  | $                 | 10,647,961 |   |                  | $
|                                                                                                                                                                                |  |                   |            |   |                  |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                            |  |                   |            |   |                  |  
|Current liabilities:                                                                                                                                                            |  |                   |            |   |                  |  
|Accounts payable, trade                                                                                                                                                         |  | $                 | 959,476    |   |                  | $
|Accrued liabilities                                                                                                                                                             |  |                   | 1,800,163  |   |                  |  
|Current maturities of long-term debt                                                                                                                                            |  |                   | 634,123    |   |                  |  
|Lines of credit                                                                                                                                                                 |  |                   | 131,147    |   |                  |  
|Liabilities of discontinued operations                                                                                                                                          |  |                   | 23,367     |   |                  |  
|                                                                                                                                                                                |  |                   |            |   |                  |  
|Total current liabilities                                                                                                                                                       |  |                   | 3,548,276  |   |                  |  
|Long term debt, less current maturities                                                                                                                                         |  |                   | 2,944,319  |   |                  |  
|Long term liabilities of discontinued operations                                                                                                                                |  |                   |           |   |                  |  
|                                                                                                                                                                                |  |                  
|Shareholders equity:                                                                                                                                                           |  |                   |            |   |                  |  
|Common stock, $0.001 par value; 50,000,000 shares authorized; 19,956,294 and 13,956,294 shares issued and outstanding at September
30, 2003 and December 31, 2002, respectively |  |                   | 19,956     |   |                  |  
|Additional paid-in capital                                                                                                                                                      |  |                   | 12,775,578 |   |                  |  
|Accumulated deficit                                                                                                                                                             |  |                   | (8,571,927 | ) |                  |  
|Accumulated other comprehensive loss                                                                                                                                            |  |                   | (68,241    | ) |                  |  
|                                                                                                                                                                                |  |                   |            |   |                  |  
|                                                                                                                                                                                |  |                   | 4,155,366  |   |                  |  
|                                                                                                                                                                                |  |                   |            |   |                  |  
|                                                                                                                                                                                |  | $                 | 10,647,961 |   |                  | $
|                                                                                                                                                                                |  |                   |            |   |                  |  



See notes to condensed consolidated
financial statements.



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ROYAL BODYCARE, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                               |  | For the Quarter Ended September 30, |           
|-------------------------------------------------------------- |  | ----------------------------------- | ----------
|                                                               |  | 2003                                |           
|Sales                                                          |  | $                                   | 5,877,068 
|                                                               |  |                                    
|Cost of goods sold                                             |  |                                     | 2,238,576 
|                                                               |  |                                     |           
|Gross margin                                                   |  |                                     | 3,638,492 
|                                                               |  |                                    
|Operating expenses                                             |  |                                     |           
|Distributor commissions                                        |  |                                     | 1,388,743 
|General and administrative                                     |  |                                     | 1,787,495 
|Depreciation and amortization                                  |  |                                     | 160,555   
|                                                               |  |                                     |           
|Total operating expenses                                       |  |                                     | 3,336,793 
|                                                               |  |                                     |           
|Operating profit (loss)                                        |  |                                     | 301,699   
|                                                               |  |                                    
|Interest expense                                               |  |                                     | 71,649    
|Loss on disposition of assets                                  |  |                                     |          
|Other income                                                   |  |                                     | (30,490   
|                                                               |  |                                     |           
|                                                               |  |                                     | 41,159    
|                                                               |  |                                     |           
|Earnings (loss) from continuing operations before income taxes |  |                                     | 260,540   
|                                                               |  |                                    
|Provision for income taxes                                     |  |                                     |          
|                                                               |  |                                     |           
|Earnings (loss) from continuing operations                     |  |                                     | 260,540   
|                                                               |  |                                    
|Earnings from discontinued operations                          |  |                                     |          
|                                                               |  |                                     |           
|Net earnings (loss)                                            |  | $                                   | 260,540   
|                                                               |  |                                     |           
|Earnings (loss) per share - basic and diluted:                 |  |                                     |           
|                                                               |  |                                    
|Earnings (loss) from continuing operations per share           |  | $                                   | 0.01      
|Earnings from discontinued operations per share                |  |                                     | 0.00      
|                                                               |  |                                     |           
|Net earnings (loss) per share - basic and diluted              |  | $                                   | 0.01      
|                                                               |  |                                     |           
|Weighted average common shares outstanding - basic and diluted |  |                                     | 19,956,294
|                                                               |  |                                     |           



See notes to condensed consolidated
financial statements.



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ROYAL BODYCARE, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                               |  | For the Nine Months Ended September 30, |           
|-------------------------------------------------------------- |  | --------------------------------------- | ----------
|                                                               |  | 2003                                    |           
|Sales                                                          |  | $                                       | 15,388,796
|                                                               |  |                                        
|Cost of goods sold                                             |  |                                         | 4,802,669 
|                                                               |  |                                         |           
|Gross margin                                                   |  |                                         | 10,586,127
|                                                               |  |                                        
|Operating expenses                                             |  |                                         |           
|Distributor commissions                                        |  |                                         | 4,468,393 
|General and administrative                                     |  |                                         | 5,454,811 
|Depreciation and amortization                                  |  |                                         | 479,778   
|                                                               |  |                                         |           
|Total operating expenses                                       |  |                                         | 10,402,982
|                                                               |  |                                         |           
|Operating profit                                               |  |                                         | 183,145   
|                                                               |  |                                        
|Interest expense                                               |  |                                         | 232,108   
|Loss on disposition of assets                                  |  |                                         |          
|Other income                                                   |  |                                         | (83,139   
|                                                               |  |                                         |           
|                                                               |  |                                         | 148,969   
|                                                               |  |                                         |           
|Earnings (loss) from continuing operations before income taxes |  |                                         | 34,176    
|                                                               |  |                                        
|Provision for income taxes                                     |  |                                         |          
|                                                               |  |                                         |           
|Earnings (loss) from continuing operations                     |  |                                         | 34,176    
|                                                               |  |                                        
|Earnings from discontinued operations                          |  |                                         | 113,348   
|                                                               |  |                                         |           
|Net earnings (loss)                                            |  | $                                       | 147,524   
|                                                               |  |                                         |           
|Earnings (loss) per share - basic and diluted:                 |  |                                         |           
|                                                               |  |                                        
|Earnings (loss) from continuing operations per share           |  | $                                       | 0.00      
|Earnings from discontinued operations per share                |  |                                         | 0.01      
|                                                               |  |                                         |           
|Net earnings (loss) per share                                  |  | $                                       | 0.01      
|                                                               |  |                                         |           
|Weighted average common shares outstanding - basic and diluted |  |                                         | 18,178,516
|                                                               |  |                                         |           



See notes to condensed consolidated
financial statements.



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ROYAL BODYCARE, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                   |  | For the Nine Months Ended September 30, |         
|------------------------------------------------------------------ |  | --------------------------------------- | --------
|                                                                   |  | 2003                                    |         
|Cash flows from operating activities:                              |  |                                         |         
|Net earnings (loss)                                                |  | $                                       | 147,524 
|Earnings from discontinued operations                              |  |                                         | 113,348 
|                                                                   |  |                                         |         
|Earnings (loss) from continuing operations                         |  |                                         | 34,176  
|Adjustment for non-cash items:                                     |  |                                         |         
|Depreciation and amortization                                      |  |                                         | 485,727 
|Change in operating assets and liabilities                         |  |                                         |         
|Interest bearing deposit                                           |  |                                         |        
|Accounts receivable                                                |  |                                         | 60,156  
|Inventories                                                        |  |                                         | (36,381 
|Prepaid expenses and other                                         |  |                                         | (119,725
|Other assets                                                       |  |                                         | (5,526  
|Accounts payable and accrued liabilities                           |  |                                         | (166,595
|                                                                   |  |                                         |         
|Net cash provided by operating activities of continuing operations |  |                                         | 251,832 
|Net cash used by discontinued operations                           |  |                                         |        
|                                                                   |  |                                         |         
|Net cash provided by operating activities                          |  |                                         | 251,832 
|                                                                   |  |                                         |         
|Cash flows from investing activities:                              |  |                                         |         
|Purchase of property and equipment                                 |  |                                         | (30,809 
|                                                                   |  |                                         |         
|Net cash used by investing activities                              |  |                                         | (30,809 
|                                                                   |  |                                         |         
|Cash flows from financing activities:                              |  |                                         |         
|Proceeds from the sale of common stock                             |  |                                         | 600,000 
|Net proceeds from (payments of) lines of credit                    |  |                                         | (126,697
|Payments of long term debt                                         |  |                                         | (475,908
|                                                                   |  |                                         |         
|Net cash used by financing activities of continuing operations     |  |                                         | (2,605  
|Net cash used by discontinued operations                           |  |                                         | (230,440
|                                                                   |  |                                         |         
|Net cash used by financing activities                              |  |                                         | (233,045
|                                                                   |  |                                         |         
|Effect of exchange rate changes on cash flows                      |  |                                         | (1,158  
|                                                                   |  |                                         |         
|Net decrease in cash and cash equivalents                          |  |                                         | (13,180 
|                                                                   |  |                                        
|Cash and cash equivalents, beginning of period                     |  |                                         | 626,933 
|                                                                   |  |                                         |         
|Cash and cash equivalents, end of period                           |  | $                                       | 613,753 
|                                                                   |  |                                         |         



See notes to condensed consolidated
financial statements.



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ROYAL BODYCARE, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note A
 Unaudited Condensed Consolidated Financial Statements:



The
accompanying unaudited condensed consolidated financial statements of Royal BodyCare, Inc. (RBC or the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly, certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are normally included in
financial statements prepared in accordance with accounting principles generally accepted in the United States of America. However, the Company believes that the disclosures made are adequate to make the information presented not misleading.
Nevertheless, it is suggested that these financial statements be read in conjunction with the summary of significant accounting policies and notes to the financial statements included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2002, and the Companys reports on Form 10-Q for the quarterly periods ended March 31, 2003 and June 30, 2003.



In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation of the Companys results
for the interim periods have been included. The Condensed Consolidated Balance Sheet as of December 31, 2002 was derived from the Companys audited financial statements included in the Companys Form 10-K for the year ended December 31,
2002. The preparation of consolidated 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 consolidated financial statements and reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The results of operations for the interim periods presented are
not necessarily indicative of the results to be expected for the full year.



Note B  Nature of Operations and Organization:



RBC is
principally engaged in the marketing of nutritional supplements and personal care products in the United States, Canada and Japan. The Companys products are marketed through a network marketing system in which distributors, who are independent
contractors, purchase products for resale to retail customers or for personal use.



RBC has also entered into agreements to license the exclusive rights to sell its nutritional supplements and personal care products in certain international markets through third party licensees in the respective countries. RBC has entered
into two such arrangements pursuant to which its products are presently being marketed. Under these agreements, distributors in these countries are compensated by the third party licensees according to the same or a similar compensation plan as the
one used by RBC for its independent distributors in the United States, Canada and Japan.



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Through its wholly-owned subsidiary, MPM Medical, Inc., a Texas corporation (MPM Medical), the Company also
distributes wound care and oncology products under the MPM Medical trade name. The wound care products are distributed directly to hospitals, nursing homes and home health care agencies throughout the United States through a network of
medical/surgical supply dealers. The oncology products are distributed to hospitals, cancer treatment clinics and pharmacies through a nationwide network of pharmaceutical distributors.



Discontinued Operations



In December 2000, RBC created a new subsidiary named BizAdigm, Inc. (BizAdigm) to offer various internet products through a network of independent
distributors similar in approach to the marketing of RBCs nutritional and personal care products. Due to low sales volume, RBC discontinued the operations of BizAdigm during the second quarter of 2002.



Consequently, the operating results of BizAdigm are classified as discontinued operations.
Liabilities of BizAdigm are included in Liabilities of Discontinued Operations and Long Term Liabilities of Discontinued Operations, at September 30, 2003 and December 31, 2002. Liabilities of discontinued operations
represent the current portion of long-term debt. The long-term debt of discontinued operations are capital lease and other long-term borrowing arrangements that mature at various dates through the first quarter of 2004. One such obligation was
settled prior to its maturity date as described in the following paragraph.



Earnings from discontinued operations in the nine months ended September 30, 2003, resulted from the settlement of a $241,000 obligation of BizAdigm prior to its maturity date for less than the contractual amount. This obligation was
settled in April 2003 for a cash payment of $125,000 and the issuance of a five-year option to purchase 25,000 shares of the Companys common stock at an exercise price of $0.10 per share, which was the market price of the stock and also the
fair value of the stock option at the time this obligation was settled.



Earnings from discontinued operations in the quarter and nine months ended September 30, 2002 represent the net result of activities associated with BizAdigm and activities associated with Great Xpectations Marketing, Inc.
(GXI), the Companys wholly-owned subsidiary that discontinued its operations in 1999. During the third quarter of 2002, the Company recorded earnings from discontinued operations of $100,000 due to the reversal of an accrual
related to certain contingent liabilities of GXI that the Company determined would not have to be paid. During the third quarter of 2002, BizAdigm had no recognized sales and incurred a loss of approximately $7,000 related to certain administrative
expenses incurred in connection with close-down activities. For the nine months ended September 30, 2002, BizAdigm incurred a loss of approximately $63,000 and had recognized sales of $45,000.



Note C  Liquidity:



During 2002 and 2001, the Company incurred net losses and a decline in working capital. At
December 31, 2002, the Company had cash and cash equivalents of $627,000 and a working capital deficiency of $1,400,000. To improve its working capital position, on March 27, 2003, the Company sold 4,000,000 shares of its common stock at an
aggregate price of $400,000 to its licensee in the former Soviet Union. The president of this licensee, Coral Club International, Inc., is a member of the Companys Board of Directors. Additionally, the



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Companys founder and Chairman purchased 2,000,000 shares of our common stock for $200,000 during the second quarter of 2003. Management of the Company
has also continued to take actions that it believes will help improve future operating results. During 2002, the Company began manufacturing the key raw materials used in products that account for more than 50% of consolidated sales. The
Companys cost to manufacture these raw materials is less than it paid the former supplier for these materials.



In addition, the Company has undertaken other cost cutting measures to reduce its administrative expenses, while implementing marketing strategies and programs it
believes will improve retention of its distributor base and reverse the declining sales trend the Company has experienced during the past three years. However, there can be no assurances that these efforts will be successful to allow the Company to
avoid a further decline in its sales.



Note D  Inventories:



Inventories at September 30, 2003 and December 31, 2002 consist of the
following:



|                                |  | September 30,2003 |           | December 31,2002
|------------------------------- |  | ----------------- | --------- | ----------------
|Raw materials and bulk products |  | $                 | 623,004   |                 
|Packaging Materials             |  |                   | 384,590   |                 
|Finished goods                  |  |                   | 884,059   |                 
|                                |  |                   |           |                 
|                                |  | $                 | 1,891,653 |                 
|                                |  |                   |           |                 



Note E  Property and
Equipment:



Property and equipment at September 30, 2003 and December 31,
2002 consists of the following:



|                                       |  | September 30,2003 |           | December 31,2002
|-------------------------------------- |  | ----------------- | --------- | ----------------
|Building and improvements              |  | $                 | 2,729,984 |                 
|Computer software and office equipment |  |                   | 3,228,925 |                 
|Warehouse equipment                    |  |                   | 295,802   |                 
|Automotive equipment                   |  |                   | 60,517    |                 
|Leasehold improvements                 |  |                   | 48,186    |                 
|                                       |  |                   |           |                 
|                                       |  |                   | 6,363,414 |                 
|Less  accumulated depreciation        |  |                   | 2,459,266 |                 
|                                       |  |                   |           |                 
|                                       |  |                   | 3,904,148 |                 
|Land                                   |  |                   | 1,141,173 |                 
|                                       |  |                   |           |                 
|                                       |  | $                 | 5,045,321 |                 
|                                       |  |                   |           |                 



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Note F  Intangible Assets:



The Company measures its goodwill for impairment at the end of each fiscal year. Intangible assets consist of the following:



|                                               |  | Average life (years) |  | September 30, 2003       |           |  | December 31, 2002  |           
|---------------------------------------------- |  | -------------------- |  | ------------------------ | --------- |  | ------------------ | ----------
|                                               |  | Gross carrying value |  | Accumulated amortization |           |  | Grosscarryingvalue |           
|Amortizable intangible assets                  |  |                      |  |                          |           |  |                    |           
|Distribution contracts                         |  | 8                    |  | $                        | 277,369   |  | $                  | (71,539   
|Copywrites, trademarks and other registrations |  | 19                   |  |                          | 99,100    |  |                    | (11,232   
|Other                                          |  | 11                   |  |                          | 47,600    |  |                    | (9,303    
|                                               |  |                      |  |                          |           |  |                    |           
|Total amortizable intangible assets            |  |                      |  |                          | 424,069   |  |                    | (92,074   
|                                               |  |                      |  |                          |          
|Intangible assets not subject to amortization: |  |                      |  |                          |           |  |                    |           
|Goodwill                                       |  |                      |  |                          | 3,222,349 |  |                    | (1,127,295
|                                               |  |                      |  |                          |           |  |                    |           
|Total intangible assets                        |  |                      |  | $                        | 3,646,418 |  | $                  | (1,219,369
|                                               |  |                      |  |                          |           |  |                    |           



Amortization expense related to
intangible assets, excluding goodwill, totaled $10,600 for the quarters ended September 30, 2003 and 2002, and $31,800 for the nine months ended September 30, 2003 and 2002. The aggregate estimated amortization expense for intangible assets
remaining as of September 30, 2003 is as follows:



|Remainder of 2003 |  | $ | 10,601 
|----------------- |  | - | -------
|2004              |  |   | 42,407 
|2005              |  |   | 42,407 
|2006              |  |   | 42,407 
|2007              |  |   | 42,407 
|Thereafter        |  |   | 151,766
|                  |  |   |        
|Total             |  | $ | 331,995
|                  |  |   |        



Note G  Accrued Liabilities:



Accrued liabilities at September 30, 2003 and December 31, 2002 consist
of the following:



|                        |  | September 30,2003 |           | December 31,2002
|----------------------- |  | ----------------- | --------- | ----------------
|Distributor commissions |  | $                 | 701,408   |                 
|Salaries and wages      |  |                   | 531,268   |                 
|Deferred revenue        |  |                   | 444,313   |                 
|Sales and other taxes   |  |                   | 94,036    |                 
|Interest                |  |                   | 23,959    |                 
|Other                   |  |                   | 5,179     |                 
|                        |  |                   |           |                 
|                        |  | $                 | 1,800,163 |                 
|                        |  |                   |           |                 



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Note H  Stock-Based Compensation:



On July 1, 1998, the Companys shareholders adopted the 1998 Stock Option Plan (the Plan) and reserved 500,000 shares of
common stock for issuance under the Plan. Effective September 4, 2003, the Companys shareholders adopted an amendment and restatement of the Plan in the form of the 2003 Stock Incentive Plan. The purpose of this amendment and restatement was,
among other things, to increase the number of shares issuable under the Plan to 3,500,000 shares of common stock and to add restricted stock as available for awards under the Plan. The Plan, in both the original form and the amended and restated
form, provides for the issuance of both nonqualified and incentive stock options, and permits grants to employees, non-employee directors and consultants of the Company.



On September 4, 2003, the Company granted to certain officers, directors and key employees options to purchase 3,140,000 shares of the
Companys common stock at exercise prices of $0.145 or $0.16 per share, which prices were equal to or in excess of the market price on the date of grant. These options expire on dates either five or nine years from the date of grant, and
certain of these options vest ratably over periods of either four or five years.



The Company accounts for the Plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected
in net earnings (loss), as all options granted under this plan had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings (loss) and
earnings (loss) per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                                                            |  | Quarter Ended September 30,    |         
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | --------
|                                                                                                                                            |  | 2003                           |         
|Net earnings (loss), as reported                                                                                                            |  | $                              | 260,540 
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related
tax expense |  |                                | (100,451
|                                                                                                                                            |  |                                |         
|Pro forma net earnings (loss)                                                                                                               |  | $                              | 160,089 
|                                                                                                                                            |  |                                |         
|Earnings (loss) per share  basic and diluted                                                                                               |  |                                |         
|As reported                                                                                                                                 |  | $                              | 0.01    
|Pro forma                                                                                                                                   |  | $                              | 0.01    
|                                                                                                                                            | 
|                                                                                                                                            |  | Nine Months EndedSeptember 30, |         
|                                                                                                                                            |  | 2003                           |         
|Net earnings (loss), as reported                                                                                                            |  | $                              | 147,524 
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related
tax expense |  |                                | (121,356
|                                                                                                                                            |  |                                |         
|Pro forma net earnings (loss)                                                                                                               |  | $                              | 26,168  
|                                                                                                                                            |  |                                |         
|Earnings (loss) per share  basic and diluted                                                                                               |  |                                |         
|As reported                                                                                                                                 |  | $                              | 0.01    
|Pro forma                                                                                                                                   |  | $                              | 0.00    



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Note I  Long Term Obligations:



At September 30, 2003 and December 31, 2002 long-term debt consists of the following:



|                                                                                                                                                                                                                                                                                          |  | September 30,2003 |           | December 31,2002
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ----------------
|Mortgage note payable bearing interest at 7.75%, payable in monthly installments of $25,797 through April 2019, collateralized by
land and building                                                                                                                                       |  | $                 | 2,795,898 |                 
|Note payable to previous owner of the Companys headquarters facility bearing interest at 7%, payable in monthly installments
of $3,483 through June 2004 at which time a final installment of $94,000 is due                                                                             |  |                   | 118,759   |                 
|Note payable to bank bearing interest at prime plus 2% (6% at September 30, 2003) due in monthly installments of $10,810 through
March 2005                                                                                                                                               |  |                   | 179,251   |                 
|U. S. Small Business Administration note bearing interest at prime plus 2.75% (6.75% at September 30, 2003) due in monthly
installments of approximately $4,400 through July 2008                                                                                                         |  |                   | 216,076   |                 
|Note payable to bank bearing interest at 10.4%, payable through July 2005, collateralized by an automobile                                                                                                                                                                                |  |                   | 20,761    |                 
|Convertible notes (original amount $730,000) bearing interest at 10% payable quarterly, originally due two years from the date of
issuance, notes are convertible into common stock any time prior to maturity at the option of the holder based on a per share conversion price of $1.32 |  |                   | 128,000   |                 
|Settlement to former marketing consultant and distributor, payable $5,000 per month through April 2004, settlement is without
interest and has been discounted at 10%                                                                                                                     |  |                   | 33,862    |                 
|Capital lease obligations                                                                                                                                                                                                                                                                 |  |                   | 75,835    |                 
|Other                                                                                                                                                                                                                                                                                     |  |                   | 10,000    |                 
|                                                                                                                                                                                                                                                                                          |  |                   |           |                 
|                                                                                                                                                                                                                                                                                          |  |                   | 3,578,442 |                 
|Less  current maturities                                                                                                                                                                                                                                                                 |  |                   | 634,123   |                 
|                                                                                                                                                                                                                                                                                          |  |                   |           |                 
|                                                                                                                                                                                                                                                                                          |  | $                 | 2,944,319 |                 
|                                                                                                                                                                                                                                                                                          |  |                   |           |                 



Certain purchases of equipment have
been financed through capital leases. Such leases have terms ending in 2004 and have various interest rates approximating 15%.



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Note J  Segments and Geographic Area:



The Companys segments are based on the organization structure that is used by management for making operating and investment decisions
and for assessing performance. Based on this management approach, the Company has two operating segments: Nutritional Products and Medical Products. The Nutritional Products segment manufactures and distributes a line of over 100 nutritional
supplements and personal care products, including herbs, vitamins and minerals, as well as natural skin, hair and body care products. These products are marketed under the Royal BodyCare® trade name and are distributed by a network of independent distributors operating
primarily in North America and by licensees operating in certain other countries outside of North America. The Medical Products segment markets a line of approximately 25 wound care and oncology products under the MPM Medical trade name. The wound
care products are distributed directly to hospitals, nursing homes and home health care agencies throughout the United States through a network of medical/surgical supply dealers. The oncology products are distributed to hospitals, cancer treatment
clinics and pharmacies through a nationwide network of pharmaceutical distributors.



The Company evaluates the performance of its segments primarily based on operating profit. All intercompany transactions have been eliminated, and intersegment revenues are not significant. In calculating operating profit for these two
segments, administrative expenses incurred that are common to the two segments are allocated on a usage basis.



Segment information is as follows (in thousands):



|                                     |  | NutritionalProducts |        | MedicalProducts |   |       | Consolidated
|------------------------------------ |  | ------------------- | ------ | --------------- | - | ----- | ------------
|Quarter ended September 30, 2003     |  |                     |        |                 |   |       |             
|Sales to external customers          |  | $                   | 5,422  |                 | $ | 455   |             
|Depreciation and amortization        |  |                     | 151    |                 |   | 10    |             
|Operating profit                     |  |                     | 247    |                 |   | 55    |             
|Capital expenditures                 |  |                     | 11     |                 |   |      |             
|Total assets                         |  |                     | 10,043 |                 |   | 605   |             
|                                     |  |                     |       
|Quarter ended September 30, 2002     |  |                     |        |                 |   |       |             
|Sales to external customers          |  | $                   | 5,886  |                 | $ | 317   |             
|Depreciation and amortization        |  |                     | 148    |                 |   | 8     |             
|Operating profit (loss)              |  |                     | 26     |                 |   | (26   | )           
|Capital expenditures                 |  |                     | 95     |                 |   |      |             
|Total assets                         |  |                     | 10,765 |                 |   | 650   |             
|                                     |  |                     |       
|Nine Months ended September 30, 2003 |  |                     |        |                 |   |       |             
|Sales to external customers          |  | $                   | 14,204 |                 | $ | 1,185 |             
|Depreciation and amortization        |  |                     | 453    |                 |   | 27    |             
|Operating profit                     |  |                     | 171    |                 |   | 12    |             
|Capital expenditures                 |  |                     | 31     |                 |   |      |             
|Total assets                         |  |                     | 10,043 |                 |   | 605   |             
|                                     |  |                     |       
|Nine Months ended September 30, 2002 |  |                     |        |                 |   |       |             
|Sales to external customers          |  | $                   | 19,866 |                 | $ | 838   |             
|Depreciation and amortization        |  |                     | 443    |                 |   | 22    |             
|Operating profit (loss)              |  |                     | 176    |                 |   | (142  | )           
|Capital expenditures                 |  |                     | 241    |                 |   |      |             
|Total assets                         |  |                     | 10,765 |                 |   | 650   |             



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Financial information summarized geographically for the quarters and nine months ended September 30, 2003 and 2002 is
listed below (in thousands):



|                                     |  | Sales to externalcustomers |        | Long-Livedassets
|------------------------------------ |  | -------------------------- | ------ | ----------------
|Quarter ended September 30, 2003     |  |                            |        |                 
|Domestic                             |  | $                          | 3,149  |                 
|Canada                               |  |                            | 683    |                 
|All others                           |  |                            | 2,045  |                 
|                                     |  |                            |        |                 
|Totals                               |  | $                          | 5,877  |                 
|                                     |  |                            |        |                 
|Quarter ended September 30, 2002     |  |                            |        |                 
|Domestic                             |  | $                          | 4,322  |                 
|Canada                               |  |                            | 859    |                 
|All others                           |  |                            | 1,022  |                 
|                                     |  |                            |        |                 
|Totals                               |  | $                          | 6,203  |                 
|                                     |  |                            |        |                 
|Nine Months ended September 30, 2003 |  |                            |        |                 
|Domestic                             |  | $                          | 9,880  |                 
|Canada                               |  |                            | 2,232  |                 
|All others                           |  |                            | 3,277  |                 
|                                     |  |                            |        |                 
|Totals                               |  | $                          | 15,389 |                 
|                                     |  |                            |        |                 
|Nine Months ended September 30, 2002 |  |                            |        |                 
|Domestic                             |  | $                          | 14,805 |                 
|Canada                               |  |                            | 2,996  |                 
|All others                           |  |                            | 2,903  |                 
|                                     |  |                            |        |                 
|Totals                               |  | $                          | 20,704 |                 
|                                     |  |                            |        |                 



Significant Customers



The Company recorded sales to its licensee in the former Soviet Union in
the amount of $1,975,000 and $735,000 during the quarters ended September 30, 2003 and 2002, respectively, and $3,051,000 and $1,886,000 during the nine months ended September 30, 2003 and 2002, respectively. These sales accounted for more than ten
percent of net sales in the quarters ended September 30, 2003 and 2002, and in the nine months ended September 30, 2003. In no other case did a customer of the Company account for more than ten percent of net sales during the quarters or nine months
ended September 30, 2003 or 2002.



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Note K  Earnings (Loss) Per Share:



|                                                                             |  | Quarter ended September 30,     |           
|---------------------------------------------------------------------------- |  | ------------------------------- | ----------
|                                                                             |  | 2003                            |           
|Earnings (loss) from continuing operations                                   |  | $                               | 260,540   
|                                                                             |  |                                 |           
|Weighted average common shares outstanding during period  basic and diluted |  |                                 | 19,956,294
|                                                                             |  |                                 |           
|Earnings (loss) per share from continuing operations  basic and diluted     |  | $                               | 0.01      
|                                                                             |  |                                 |           
|                                                                             | 
|                                                                             |  | Nine Months ended September 30, |           
|                                                                             |  | 2003                            |           
|Earnings (loss) from continuing operations                                   |  | $                               | 34,176    
|                                                                             |  |                                 |           
|Weighted average common shares outstanding during period  basic and diluted |  |                                 | 18,178,516
|                                                                             |  |                                 |           
|Earnings (loss) per share from continuing operations  basic and diluted     |  | $                               | 0.00      
|                                                                             |  |                                 |           



The assumed conversion of the
convertible notes would have an anti-dilutive effect on diluted earnings per common share for the quarters and nine months ended September 30, 2003 and 2002, and accordingly have been excluded from the computation.



All stock options and warrants outstanding in the respective periods were excluded from the
computation of diluted earnings per common share because their exercise price was greater than the average market price of the common stock and, therefore anti-dilutive.



Note L  Comprehensive Income (Loss):



Comprehensive income (loss) is net earnings (loss) plus other comprehensive income (loss), which, for the periods presented, consists of the change in the foreign
currency translation adjustment. The following table provides information regarding comprehensive income (loss):



|                                        |  | Quarter ended September 30, |        
|--------------------------------------- |  | --------------------------- | -------
|                                        |  | 2003                        |        
|Net earnings (loss)                     |  | $                           | 260,540
|Other comprehensive income (loss):      |  |                             |        
|Foreign currency translation adjustment |  |                             | 8,620  
|                                        |  |                             |        
|Comprehensive income (loss)             |  | $                           | 269,160
|                                        |  |                             |        



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|                                        |  | Nine Months ended September 30, |        
|--------------------------------------- |  | ------------------------------- | -------
|                                        |  | 2003                            |        
|Net income (loss)                       |  | $                               | 147,524
|                                        |  |                                
|Other comprehensive income (loss):      |  |                                 |        
|Foreign currency translation adjustment |  |                                 | 63,748 
|                                        |  |                                 |        
|Comprehensive income (loss)             |  | $                               | 211,272
|                                        |  |                                 |        



Note M  Legal Proceedings:



On May 29, 2002, the Company filed suit against a former supplier and
member of its Board of Directors (G. Patrick Flanagan), and certain others (Defendants) requesting injunctive and monetary relief and alleging, among other causes of action, breach of contract, conspiracy, fraud, breach of fiduciary
duty, disparagement, tortuous interference and unlawful restraint of trade. On July 26, 2002, the Court granted an Agreed Injunction that enjoined the Defendants and other parties acting in concert with them from, among other things, refusing to
sell certain raw materials to the Company and disparaging Royal BodyCare, Inc. and its officers, directors, employees or its products. In connection with this suit, on August 16, 2002, the Defendants filed a counter claim against the Company
alleging, among other causes of action, unfair competition, breach of contract and conspiracy.



On February 18, 2003, the parties entered into an agreement to settle all claims and causes of actions that existed between them, including those arising out of the transactions that formed the basis of the lawsuit.
Under the terms of this settlement, G. Patrick Flanagan and/or Flantech Group, defendants in the original suit, agreed to pay to the Company an aggregate of $250,000, payable in monthly installments beginning in February 2003, calculated as a
percentage of gross revenues, as defined, generated by G. Patrick Flanagan or certain entities to which he is related. The Company has received payments totaling approximately $83,000 during the first nine months of 2003 pursuant to this settlement
arrangement. In addition, the parties agreed not to disparage the other, its products, its directors, officers or employees, and not to send unsolicited communications to any known customer of the other. Additional details are set forth below at
RESULTS OF OPERATIONS.



The Company is from time to time engaged in routine
litigation. The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate by management for these litigation matters.





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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



FORWARD-LOOKING STATEMENTS



The statements, other than statements of historical facts included in this report are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical or present facts, that address activities, events, outcomes and other matters that we plan, expect, intend, assume, believe, budget,
predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward looking statements. Forward-looking statements generally can be identified by the use of forward-looking
terminology such as may, will, expect, intend, estimate, anticipate or believe. These forward-looking statements are based on managements current belief, based
on currently available information, as to the outcome and time of future events. We believe that the expectations reflected in such forward-looking statements are accurate. However, we cannot assure you that such expectations will occur. Our actual
future performance could differ materially from such statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 10-Q. We do not undertake any obligation to publicly
release any revisions to any forward-looking statement to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. Factors that could cause or contribute to such differences include, but are
not limited to:



| |  | general economic conditions
| | - | ---------------------------



| |  | general market acceptance of our products and distribution methods
| | - | ------------------------------------------------------------------



| |  | introduction of competitive products
| | - | ------------------------------------



| |  | pricing of directly and indirectly competitive products
| | - | -------------------------------------------------------



| |  | the market acceptance of our newly developed proprietary versions of silica hydride powder and other raw materials formerly supplied by Flanagan
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to modify existing product formulations or develop new formulations consistent with new scientific research in the nutrition industry
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the introduction of competitive business opportunities that may attract potential distributors to other businesses
| | - | ------------------------------------------------------------------------------------------------------------------



| |  | continued reduction in demand for our products or the rate at which new distributors are recruited to join us, or an increased rate of attrition of our current distributor base
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | legislative and regulatory actions affecting the manufacturing or marketing of our products and/or our distribution methods
| | - | ---------------------------------------------------------------------------------------------------------------------------



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| |  | a change in market conditions in the former Soviet Union, which market provided more than 10% of our revenues in 2002 and almost 20% of our revenues in the first nine months of 2003
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to obtain future financing to fund internal growth and future capital requirements
| | - | ----------------------------------------------------------------------------------------------



| |  | the loss of key management personnel, particularly the developer of our proprietary versions of silica hydride powder and other raw materials formerly supplied by Flanagan
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



RESULTS OF OPERATIONS



Quarter Ended September 30, 2003 Compared with the
Quarter Ended September 30, 2002



Our sales for the quarter ended
September 30, 2003 were $5,877,000 compared with sales for same quarter of the prior year of $6,203,000, a decrease of $326,000 or 5%. The decline in third quarter sales resulted mainly from sales declines in our Nutritional Products segment in the
U.S. and Canada of $1,311,000 and $176,000, respectively. These declines were partially offset by a net sales increase in our Nutritional Products segment international markets, primarily the former Soviet Union, and our Medical Products segment of
$1,022,000 and $139,000, respectively.



We believe that the principal factor
affecting our U.S. and Canadian Nutritional Products sales has been the dispute with G. Patrick Flanagan, formerly a member of our Board of Directors, and the related entities through which his proprietary products are marketed (collectively
Flanagan). We entered into a supply contract with Flanagan in 1998 that gave us the unfettered right to purchase silica hydride powder, the principal ingredient in our top selling product, Microhydrin®, and certain other proprietary raw materials. Sales of products containing
Flanagans proprietary ingredients increased to a level that represented in excess of 50% of our sales volume. We were effectively the exclusive distributor of products containing his proprietary ingredients until December 2001 when Flanagan
began marketing a product competitive with Microhydrin on his web site and, on a limited basis, through certain health food stores. Flanagans actions had a negative impact on the marketing efforts of our network of independent distributors. To
improve our competitive position, we developed a proprietary, broad-based blend of antioxidants, including Microhydrin. This new product, Microhydrin Plus, was introduced in late April 2002.



In contravention of our written unlimited supply agreement, on May 24, 2002, Flanagan
informed us that he had signed an agreement with an Arizona-based company granting it exclusive rights for the distribution of his products through network marketing, and that he would no longer supply us his products. Concurrent with his
announcement on May 24, Flanagan and two former RBC distributors launched an aggressive negative campaign to entice our distributors to leave us and join the Arizona-based company. In addition, in breach of its license agreement with us, our
European licensee announced it was doing business with Flanagan and discontinued purchasing products from us in May 2002.



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In response to Flanagans actions, on May 29, 2002, we filed suit against Flanagan and one former RBC distributor in
the Dallas County, Texas District Court. As described elsewhere in this report, we settled this litigation in February 2003. In addition, as a result of Flanagans actions, we refined and completed the development of our proprietary version of
silica hydride powder and other raw materials formerly supplied by Flanagan. We began shipping Microhydrin made with our silica hydride powder on July 31, 2002, and other products made with our proprietary raw materials as existing supplies of
products made with Flanagans raw materials were exhausted.



We believe
that the actions we have taken along with our present marketing strategies and programs, will help us, for the most part, to improve retention of our present distributor base, stabilize our present sales volume and provide a base from which we can
begin to grow our business. However, there can be no assurances that these efforts will be successful or that the introduction of products that directly compete with our Microhydrin will not cause a further decline in sales.



Cost of goods sold for the quarter ended September 30, 2003 was $2,239,000 compared with cost
of goods sold in the same quarter of the prior year of $1,987,000, an increase of $252,000 or 13%. As a percentage of sales, cost of goods sold was 38% in the third quarter of 2003 compared with 32% in the third quarter of 2002. This decline in
gross margin is related to the increase in sales to our international licensees. The gross margin for products sold to international licensees is lower than the gross margin for products sold in other markets because we sell internationally at lower
prices, as we do not pay distributor commissions on sales of products to international licensees.



Our distributor commissions declined significantly in the third quarter of 2003 as a result of the decline in our sales. Distributor commissions for the quarter ended September 30, 2003 were $1,389,000 compared with
distributor commissions in the same quarter of 2002 of $2,068,000, a decrease of $679,000 or 33%. In the Nutritional Products segment, U.S. and Canadian market distributor commissions as a percentage of sales were unchanged at 41%. On a consolidated
basis, distributor commissions as a percentage of sales declined to 24% in the third quarter of 2003 compared with 33% in the same period of 2002. This percentage decline was related to the increase in sales to our international licensees because we
do not pay distributor commissions on sales of these products.



Our general and
administrative expenses for the quarter ended September 30, 2003, were $1,787,000 compared with such expenses in the same quarter of 2002 of $1,992,000, a decrease of $205,000 or 10%. This decrease was mainly related to managements efforts to
reduce operating expenses in light of the decline in sales. As a percentage of sales, general and administrative expenses were 30% in the third quarter of 2003 compared with 32% in the third quarter of 2002.



Interest expense for the quarter ended September 30, 2003, was $72,000 compared with such
expense in the same quarter of 2002 of $94,000, a decrease of $22,000 or 23%. This decrease was related to the repayment of long-term debt during 2002 and the first part of 2003.



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Other income of $30,000 recognized in the third quarter of 2003 represents payments received during the quarter pursuant
to the settlement of our lawsuit with Flanagan in February 2003. Under the terms of the settlement, Flanagan is obligated to make monthly payments calculated as a percentage of his gross revenues, as defined, up to an aggregate of $250,000.



Earnings from discontinued operations in the quarter ended September 30, 2002
represent the net result of activities associated with BizAdigm and activities associated with Great Xpectations Marketing, Inc. (GXI), our wholly-owned subsidiary that discontinued its operations in 1999. BizAdigms operations were
discontinued during the second quarter of 2002. BizAdigm had no recognized sales during the third quarter of 2002, and recognized a loss of approximately $7,000 related to certain administrative expenses incurred in connection with close-down
activities. Also during the third quarter of 2002, we recorded earnings from discontinued operations of $100,000 due to the reversal of an accrual related to certain contingent liabilities of GXI that we determined would not have to be paid.



Our net earnings for the quarter ended September 30, 2003 were $261,000, or
$0.01 per share, compared with a net loss in the comparable quarter of the prior year of $34,000 or $0.00 per share, an improvement of $295,000. This improvement resulted from the factors described above.



Nine Months Ended September 30, 2003 Compared with the
Nine Months Ended September 30, 2002



Our sales for the nine months ended
September 30, 2003 were $15,389,000 compared with sales for the same period of the prior year of $20,704,000, a decrease of $5,315,000 or 26%. This decline in sales resulted mainly from sales declines in our Nutritional Products segment in the U.S.
and Canada of $5,272,000 and $764,000, respectively. These declines were partially offset by a net sales increase in our Nutritional Products segment international markets, primarily the former Soviet Union, and our Medical Products segment of
$374,000 and $347,000, respectively.



We believe that the principal factor
affecting our U.S. and Canadian Nutritional Products sales has been the dispute with G. Patrick Flanagan, as fully discussed above in RESULTS OF OPERATIONS  Quarter Ended September 30, 2003 compared with the Quarter Ended September 30, 2002,
which is hereby incorporated by reference. As previously noted, to improve our competitive position, we developed a proprietary, broad-based blend of antioxidants, including Microhydrin. This new product, Microhydrin Plus, was introduced in late
April 2002.



Also, as noted above our European licensee announced it was doing
business with Flanagan and discontinued purchasing products from us in May 2002. Sales to the European licensee were $364,000 in the first nine months of 2002.



We believe that the actions we have taken along with our present marketing strategies and programs, will help us, for the most part, to improve retention of our
present distributor base, stabilize our present sales volume and provide a base from which we can begin to grow our



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business. However, there can be no assurances that these efforts will be successful or that the introduction of products that directly compete with our
Microhydrin will not cause a further decline in sales.



Our cost of goods sold
declined significantly in the first nine months of 2003 mainly as a result of the sales decline described above. Cost of goods sold for the nine months ended September 30, 2003 was $4,803,000 compared with cost of goods sold in the same period of
the prior year of $6,713,000, a decrease of $1,910,000 or 28%. As a percentage of sales, cost of goods sold was 31% in the first nine months of 2003 compared with 32% in the first nine months of 2002. This improvement is related to the fact that we
now manufacture the key raw materials used in our top-selling products. Our costs to manufacture these raw materials are less than the price we paid to purchase them from the former third party supplier. This percentage improvement was partially
offset by the increase in sales to our international licensees. The gross margin for products sold to international licensees is lower than the gross margin for products sold in other markets because we sell internationally at lower prices, as we do
not pay distributor commissions on sales of these products.



Our distributor
commissions also declined significantly in the first nine months of 2003 as a result of the decline in our sales. Distributor commissions for the nine months ended September 30, 2003 were $4,468,000 compared with distributor commissions in the same
period of 2002 of $6,953,000, a decrease of $2,485,000 or 36%. In the Nutritional Products segment, U.S. and Canadian market distributor commissions as a percentage of sales were unchanged at 41%. On a consolidated basis, distributor commissions as
a percentage of sales declined to 29% in the first nine months of 2003 compared with 34% in the same period of 2002. This percentage decline was mainly related to the increase in sales to our international licensees because we do not pay distributor
commissions on sales of these products.



Our general and administrative
expenses for the nine months ended September 30, 2003, were $5,455,000 compared with such expenses in the same period of 2002 of $6,538,000, a decrease of $1,083,000 or 17%. This decrease was mainly related to managements efforts to reduce
operating expenses in light of the decline in sales. As a percentage of sales, general and administrative expenses were 35% in the first nine months of 2003 compared with 32% in the first nine months of 2002.



Interest expense for the nine months ended September 30, 2003, was $232,000 compared with
such expense in the same period of 2002 of $300,000, a decrease of $68,000 or 23%. This decrease was related to the repayment of long-term debt during 2002 and the first part of 2003.



Other income of $83,000 recognized in the first nine months of 2003 represents payments received pursuant to the settlement of our lawsuit
with Flanagan in February 2003. Under the terms of the settlement, Flanagan is obligated to make monthly payments calculated as a percentage of his gross revenues, as defined, up to an aggregate of $250,000.



Earnings from discontinued operations in the nine months ended September 30, 2003, resulted
from the settlement of a $241,000 obligation of BizAdigm prior to its maturity date



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for less than the contractual amount. This obligation was settled in April 2003 for a cash payment of $125,000 and the issuance of a five-year option to
purchase 25,000 shares of the Companys common stock at an exercise price of $0.10 per share, which was the market price of the stock and the fair value of the stock option at the time this obligation was settled.



Earnings from discontinued operations in the nine months ended September 30, 2002 represent
the net result of activities associated with BizAdigm and activities associated with Great Xpectations Marketing, Inc. (GXI), our wholly-owned subsidiary that discontinued its operations in 1999. BizAdigms operations were discontinued during
the second quarter of 2002. BizAdigm had recognized sales of $45,000 during the first nine months of 2002, and recognized a loss of approximately $63,000. This loss represented the excess of selling, general and administrative expenses plus cost of
cost of goods sold and distributor commissions over recognized sales. Also during the first nine months of 2002, we recorded earnings from discontinued operations of $100,000 due to the reversal of an accrual related to certain contingent
liabilities of GXI that we have now determined will not have to be paid.



Our
net earnings for the nine months ended September 30, 2003 were $148,000, or $0.01 per share, compared with a net loss in the comparable nine months of the prior year of $289,000 or $0.02 per share, an improvement of $437,000. This improvement
resulted from the factors described above.



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



LIQUIDITY
AND CAPITAL RESOURCES



During the first nine months of 2003, we had a net
decrease in cash of $13,000. This decrease in cash resulted from net cash used by financing activities and net cash used to purchase property and equipment of $233,000 and $31,000, respectively, that was partially offset by cash provided by
operating activities of $252,000. Net cash used by financing activities represented the repayment of debt in the amount of $833,000 that was partially offset by the sale of 6,000,000 shares of our common stock for $600,000. Of the common stock sold,
4,000,000 shares were sold to our licensee in the former Soviet Union. The president of Coral Club International, our licensee, is a member of our Board of Directors. The remaining common shares were sold to our Chairman and CEO, Clinton H. Howard.



Our working capital increased $674,000 during the first nine months of 2003
mainly as a result of the sale of common stock and net earnings generated during this period. We have also continued to take other actions that we believe will help improve future operating results. During 2002, we began manufacturing the key raw
materials used in products that account for more than 50% of our sales. Our operating results in the first nine months of 2003 reflect the improvement in gross margin on sales of these products, as our costs to manufacture these raw materials are
less than we paid to our former supplier for



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these materials. In addition, we have undertaken other cost cutting measures that will reduce our administrative expenses in 2003, while implementing
marketing strategies and programs we believe will improve retention of our distributor base and reverse the declining sales trend we have experienced during the past three years. However, there can be no assurances that these efforts will be
successful to allow us to avoid a further decline in our sales or a decrease in working capital.



Consistent with industry practice, most of our sales are paid by our distributors at the time of order. Therefore, our primary working capital need is to maintain inventory at a level commensurate with sales
activities. Because our sales are generated through independent distributors who do not maintain a significant inventory, it is necessary for us to have products on hand when the distributors place their orders. During periods of sales growth we
must purchase inventory in anticipation of sales, thereby creating the need for additional working capital.



We believe that we will be able to fund moderate sales increases through our operations. Should sales growth increase beyond our ability to finance our growth internally, or should we require additional working
capital before returning to profitability, we may again seek outside sources of capital including bank borrowings, other types of debt or equity financings. There is no assurance, however, that, beyond the recent financing arrangements we have
undertaken as described above, we would be able to obtain any additional outside financing or on terms we would find acceptable. We have no plans or requirements for any other significant capital expenditures during the next twelve months.



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



CRITICAL ESTIMATES, UNCERTAINTIES, OR ASSESSMENTS IN OUR FINANCIAL STATEMENTS



The preparation of our financial statements in conformity with generally accepted accounting principles in the United States of America requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In
applying our accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. As you might expect, the actual results or outcomes are generally different that the estimated or assumed
amounts. These differences are usually minor and are included in our consolidated financial statements as soon as they are known. Our estimates, judgments and assumptions are continually evaluated based on available information and experience.
Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.



We periodically review the carrying value of our goodwill and other intangible assets when events and circumstances warrant such a review. One of the methods used for
this review is performed using estimates of future cash flows. If the carrying value of our goodwill or other intangible assets is considered impaired, an impairment charge is recorded for the



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amount by which the carrying value of the goodwill or intangible assets exceeds its fair value. We believe that the estimates of future cash flows and fair
value are reasonable. Changes in estimates of such cash flows and fair value, however, could affect the evaluation.



We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period such determination was made.



Based on the assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements provide a
meaningful and fair perspective of our company.



CONTRACTUAL CASH
COMMITMENTS



The table below summarizes minimum cash obligations
outstanding as of September 30, 2003:



|                                          |  | Payments due (000s)
|----------------------------------------- |  | --------------------
|Contractual Cash Obligations              |  | Total               
|Long-term debt(including current portion) |  | $                   
|Lines of credit                           |  |                     
|Operating leases                          |  |                     



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|------- | ---------------------------------------------------------



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



Foreign exchange



We have foreign-based operations in Canada that accounted for 15% of net sales during the first nine months of 2003 and 14% of 2002 net sales. We make advances to our
foreign subsidiary denominated in U.S. dollars, exposing the foreign subsidiary to the effect of changes in spot exchange rates of the Canadian dollar relative to the U.S. dollar. We do not regularly use forward-exchange contracts to hedge these
exposures. Based on our foreign currency exchange rate exposure for intercompany advances of approximately $162,000 at September 30, 2003, a 10% adverse change in the currency rate would reduce earnings before tax by approximately $16,200.



Interest rates



Our credit arrangements expose us to fluctuations in interest rates. At September 30, 2003,
we had $526,000 outstanding in indebtedness, which provided for interest to be paid monthly based on a variable rate. Thus, interest rate changes would result in a change in the amount of interest to be paid each month. Based upon the interest rates
and borrowings at September 30, 2003, a 10% increase in interest rates would adversely affect our financial position, annual results of operations, or cash flows by approximately $3,500.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



Company management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a  15(e) and 15d  15(e)) as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial
Officer, concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known
to them in a timely fashion. There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are likely to materially affect, our internal control
over financial reporting or in other factors that could significantly affect such controls subsequent to their evaluation.



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PART II. OTHER INFORMATION



Item 1. Legal Proceedings.



None. For
a description of previously concluded legal Proceedings, see Note M  Legal Proceedings in Notes to Condensed Consolidated Financial Statements herein and the discussion contained in Item 2, RESULTS OF OPERATIONS, above.



Item 2. Changes in Securities.



None



Item 3. Defaults Upon Senior Securities.



None



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



Effective September 1, 2003, through consent of a majority of our shareholders entitled to vote at all meetings of shareholders of the Company, we adopted an amended and restated stock option plan, the Royal BodyCare,
Inc. 2003 Stock Incentive Plan (the Plan). The Plan covers 3,500,000 shares of common stock of the Company, an increase from the 500,000 shares previously covered. In addition, the Plan provides the ability to grant awards in the form of
stock options or restricted stock, whereas, previously, only stock option grants were permitted.



Item 5. Other Information.



None



Item 6. Exhibits and Reports on Form 8-K.



| | (a) | Exhibits
| | --- | --------



The Exhibit Index filed herewith is incorporated herein by reference.



| | (b) | Reports on Form 8-K
| | --- | -------------------



We filed a report on Form 8-K on September 29, 2003 announcing that, effective September 4, 2003, our shareholders adopted an amendment and restatement of
our 1998 Stock Option Plan in the form of the 2003 Stock Incentive Plan (the Plan). The purpose of this amendment and restatement was, among other things, to increase the number of shares of our common stock issuable under the Plan to
3,500,000, and to add restricted stock as available for awards under the Plan.



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SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Royal BodyCare, Inc.RegistrantBy:        /s/     Clinton H.
HowardIts:

Chief Executive OfficerBy:        /s/     Steven E.
BrownIts:

Vice President-Finance and Chief Financial Officer




DATE:         November 14, 2003

Irving, Texas



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ROYAL BODYCARE, INC.



Exhibit
Index



|Exhibit Number |  | Description                                                                                                           
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------
|               | 
|3.3            |  | Amendment No. 1 to the Bylaws                                                                                         
|               | 
|31.1           |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|               | 
|31.2           |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|               | 
|32             |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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