##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





---




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,
2002





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, 2002:    13,936,294





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##### Table of Contents




TABLE OF CONTENTS





PART IFINANCIAL INFORMATION

Page NumberItem 1.

Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001

3Condensed Consolidated Statements of Operations for the quarters ended September 30, 2002 and 2001 (unaudited)

4Condensed Consolidated Statements of Operations for the nine months ended September 30, 2002 and 2001 (unaudited)

5Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 (unaudited)

6Notes to Condensed Consolidated Financial Statements

7Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

16Item 3.

Quantitative and Qualitative Disclosure about Market Risk

24Item 4.

Controls and Procedures

24PART IIOTHER INFORMATIONItem 1.

Legal Proceedings

25Item 2.

Changes in Securities

25Item 3.

Defaults Upon Senior Securities

25Item 4.

Submission of Matters to a Vote of Security Holders

25Item 5.

Other Information

26Item 6.

Exhibits and Reports on Form 8-K

26Signatures

27Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

28Exhibit 99.1Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the         Sarbanes-Oxley Act of 2002

33Exhibit 99.2Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the         Sarbanes-Oxley Act of 2002

34




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##### Table of Contents

Item 1.    FINANCIAL STATEMENTS





ROYAL BODYCARE, INC. and SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)





September 30, 2002


December 31, 2001ASSETSCurrent assets:Cash and cash equivalents

$
190,704


$
239,307Interest bearing deposit






125,000Accounts receivable


234,167



699,157Inventories


2,123,554



2,422,579Deferred income tax assets


9,776



4,784Prepaid expenses and other


181,455



160,980Assets of discontinued operations






39,807Total current assets


2,739,656



3,691,614Property & equipment, net


5,583,630



5,796,111Goodwill, net


2,095,054



2,095,054Other assets


634,784



644,864$
11,053,124


$
12,227,643LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable, trade

$
1,142,029


$
1,043,775Accrued liabilities


1,765,104



1,804,538Current maturities of long-term debt


898,061



923,083Lines of credit


202,551



341,468Liabilities of discontinued operations


141,642



326,265Total current liabilities


4,149,387



4,439,129Deferred income tax liabilities






Long term debt, less current maturities


3,372,562



3,903,840Long term liabilities of discontinued operations


225,822



291,183Shareholders equity:Common stock, $0.001 par value; 50,000,000 shares authorized; 13,936,294 shares issued and outstanding at June 30, 2002
and December 31, 2001, respectively


13,936



13,936Additional paid-in capital


12,179,098



12,179,098Accumulated deficit


(8,752,854
)


(8,464,317
)Accumulated other comprehensive loss


(134,827
)


(135,226
)3,305,353



3,593,491$
11,053,124


$
12,227,643





See notes to condensed consolidated financial statements




3




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##### Table of Contents

ROYAL BODYCARE, INC. and SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





For the Quarter Ended September 30,2002


2001Sales

$
6,202,887


$
7,823,152Cost of goods sold


2,019,313



2,377,112Gross margin


4,183,574



5,446,040Operating expensesDistributor commissions


2,068,499



2,784,967Selling, general and administrative


2,247,833



2,585,020Total operating expenses


4,316,332



5,369,987Earnings (loss) before income taxes


(132,758
)


76,053Provision for income taxes






28,000Earnings (loss) from continuing operations


(132,758
)


48,053Earnings (loss) from discontinued operations, net of tax benefit of $15,000 in 2001


98,859



(26,917
)Net earnings (loss)

$
(33,899
)

$
21,136Earnings (loss) per sharebasic and diluted:Earnings (loss) from continuing operations per share

$
(0.01
)

$
0.00Earnings (loss) from discontinued operations per share


0.01



(0.00
)Net earnings (loss) per sharebasic and diluted

$
(0.00
)

$
0.00Weighted average common shares outstandingbasic and diluted


13,936,294



13,936,294





See notes to condensed consolidated financial statements.




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##### Table of Contents

ROYAL BODYCARE, INC. and SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





For the Nine Months Ended September 30,2002


2001Sales

$
20,704,189


$
25,901,243Cost of goods sold


6,772,012



7,966,584Gross margin


13,932,177



17,934,659Operating expensesDistributor commissions


6,953,466



9,466,737Selling, general and administrative


7,323,714



8,383,662Total operating expenses


14,277,180



17,850,399Earnings (loss) before income taxes


(345,003
)


84,260Provision for income taxes






31,000Earnings (loss) from continuing


(345,003
)


53,260Earnings (loss) from discontinued operations, net of tax benefit of $121,000 in 2001


56,466



(232,423
)Net loss

$
(288,537
)

$
(179,163
)Earnings (loss) per sharebasic and diluted:Earnings (loss) from continuing operations per share

$
(0.02
)

$
0.00Earnings (loss) from discontinued operations per share


0.00



(0.01
)Net loss per share

$
(0.02
)

$
(0.01
)Weighted average common sharesbasic and diluted


13,936,294



13,931,850





See notes to condensed consolidated financial statements.




5




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##### Table of Contents

ROYAL BODYCARE, INC. and SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





For the Nine Months Ended September 30,2002


2001Cash flows from operating activities:Net loss

$
(288,537
)

$
(179,163
)(Earnings) loss from discontinued operations


(56,466
)


232,423Earnings (loss) from continuing operations


(345,003
)


53,260Adjustment for non-cash items:Depreciation and amortization


468,038



649,677Deferred income taxes






Change in operating assets and liabilitiesInterest bearing deposit


125,000



Accounts receivable


368,816



250,721Inventories


304,966



429,422Prepaid expenses and other


16,562



50,543Other assets


(21,725
)


328,871Accounts payable and accrued liabilities


132,286



(601,283
)Cash flows from continuing operations


1,048,940



1,161,211Cash flows from discontinued operations


(72,818
)


(382,227
)Net cash provided by operating activities


976,122



778,984Cash flows from investing activities:Purchase of property and equipment


(240,911
)


(4,140,415
)Investing activities of discontinued operations






Net cash used for investing activities


(240,911
)


(4,140,415
)Cash flows from financing activities:Net proceeds from (payments of) lines of credit


(85,438
)


(71,157
)Proceeds from long term debt






3,997,000Payments of long term debt


(611,302
)


(406,807
)Financing activities of discontinued operations


(80,893
)


(33,837
)Net cash provided (used) by financing activities


(777,633
)


3,485,199Effect of exchange rate changes on cash flows


(6,181
)


16,006Net increase (decrease) in cash and cash equivalents


(48,603
)


139,774Cash and cash equivalents, beginning of period


239,307



230,460Cash and cash equivalents, end of period

$
190,704


$
370,234





See notes to condensed consolidated financial statements




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##### Table of Contents




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, 2001, and the Companys Quarterly Reports for the periods ended June 30, 2002 and March 31, 2002.





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, 2001 was derived from the Companys audited financial statements included in the Companys Form 10-K for the year ended December 31, 2001. The preparation of
consolidated financial statements in conformity with generally accepted accounting principles 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 and Canada. 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 entered into agreements to license the exclusive rights to sell its nutritional and personal care products internationally through third party licensees in the respective countries. RBC has
entered into five such arrangements to market these products. Under these agreements, distributors in these countries are compensated by the third party licensees according to the same or a similar compensation plan as the one used by RBC for its
independent distributors in the United States and Canada.







7




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In August 2001, RBC, through a newly formed subsidiary, purchased substantially all of the assets of MPM
Medical, Inc., a Texas corporation (MPM Medical). MPM Medical distributed wound care products throughout the United States. The acquisition of MPM Medical enhances RBCs ability to market products through broadened distribution
channels. The acquisition of MPM Medical was not significant to RBCs financial statements.





Discontinued Operations





In December 2000, RBC created a new subsidiary called 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.





In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the
Impairment of Long-Lived Assets, which requires a single accounting model to be used for long-lived assets to be sold and broadens the presentation of discontinued operations to include a component of an entity (rather than a
segment of a business). A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. A component of an entity that is classified as
held for sale, or has been disposed of, is presented as a discontinued operation if the operations and cash flows of the component will be (or have been) eliminated from the ongoing operations of the entity and the entity will not have any
significant continuing involvement in the operations of the component.





Consequently, the operating results of BizAdigm, which was
discontinued in the second quarter of 2002, are classified as discontinued operations. Assets and liabilities of BizAdigm are included in Assets of Discontinued Operations, Liabilities of Discontinued Operations and
Long Term Liabilities of Discontinued Operations, at December 31, 2001 and September 30, 2002, respectively.





The assets of
discontinued operations represent prepaid expenses; the liabilities of discontinued operations represent accounts payable, accrued commissions and the current portion of long-term liabilities. The long-term liabilities of discontinued operations are
capital lease and other long-term borrowing arrangements that mature at various dates through 2004.





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), the Companys 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 $1,000 related to certain
administrative expenses incurred in connection with close-down activities. Also 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 has now determined will not have to be paid. The loss from discontinued operations in the third quarter of 2001 relates solely to the operations of BizAdigm and represents the excess of selling, general and
administrative expenses plus cost of goods sold and distributor commissions over recognized sales of $185,000. The loss in the third quarter of 2001 is net of income tax benefits of $15,000.







8




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##### Table of Contents

Note CInventories:





Inventories at September 30, 2002 and December 31, 2001 consist of the following:





September 30, 2002

December 31, 2001Raw materials and bulk products

$
525,692

$
814,009Packaging Materials


423,020


321,044Finished goods


1,174,842


1,287,526$
2,123,554

$
2,422,579





Note DProperty and Equipment:





Property and equipment at September 30, 2002 and December 31, 2001 consists of the following:





September 30, 2002

December 31, 2001Building and improvements

$
2,729,983

$
2,716,452Computer software and office equipment


3,086,593


2,927,084Warehouse equipment


301,445


247,061Automotive equipment


102,807


118,079Leasehold improvements


41,002


40,8596,261,830


6,049,535Lessaccumulated depreciation


1,819,373


1,394,5974,442,457


4,654,938Land


1,141,173


1,141,173$
5,583,630

$
5,796,111





Note EAccrued Liabilities:





Accrued liabilities at September 30, 2002 and December 31, 2001 consist of the following:





September 30, 2002

December 31, 2001Distributor commissions

$
786,967

$
1,034,033Deferred revenue


386,117


179,763Sales and other taxes


142,884


173,378Interest


31,743


39,826Other


417,393


377,538$
1,765,104

$
1,804,538







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##### Table of Contents




Note FLong Term Obligations:





At September 30, 2002 and December 31, 2001 long-term debt consists of the following:





September 30, 2002

December 31, 2001Mortgage note payable bearing interest at7.75%, payable in monthly installments of$25,797 through April 2019,
collateralizedby land and building

$
2,884,996

$
2,947,447Note payable to previous owner of theCompanys headquarters facility bearinginterest at 7%, payable in
monthlyinstallments of $3,483 through March 2003at which time a final installment of $255,000is due


267,206


284,032Note payable to bank bearing interest at primeplus 2% (6.75% at September 30, 2002) duein monthly installments
of $10,810 throughMarch 2005


293,557


300,792U. S. Small Business Administration notebearing interest at prime plus 2.75% (7.5%at September 30, 2002) due in
monthlyinstallments of approximately $4,700through July 2008


251,985


277,062Notes payable to banks bearing interest at ratesranging from 4.9% to 10.4%, payablethrough 2005, collateralized
by automobiles


38,120


67,333Note payable to bank bearing interest at 9%,due in monthly payments of $2,146 through2002, collateralized by
equipment


4,107


22,490Convertible notes (original amount $730,000)bearing interest at 10% payable quarterly,originally due two years
from the date ofissuance, notes are convertible into commonstock any time prior to maturity at the optionof the holder based on a per share conversionprice of $1.32


128,000


193,000Settlement to former marketing consultant anddistributor, payable $5,000 per monththrough April 2004, settlement
is withoutinterest and has been discounted at 10%


87,525


124,406Capital lease obligations


300,127


585,361Other


15,000


25,0004,270,623


4,826,923Lesscurrent maturities


898,061


923,083$
3,372,562

$
3,903,840




10




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





Note GInformation:





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





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





Operating information related to MPM Medical, Inc. is included as part of domestic operations. The Company will consider the significance of future operations as part of the overall evaluation of the
segments in which the Company operates.





Financial information for continuing operations summarized by geographical segment for the
quarters and nine-month periods ended September 30, 2002 and 2001 is listed below (in thousands):





Sales to external customers

Earnings (loss) before income taxes


Long-lived assets

Total AssetsQuarter ended September 30, 2002Domestic

$
4,322

$
(189
)

$
7,853

$
9,854Canada


859


15



460


1,199All others


1,022


41






Totals

$
6,203

$
(133
)

$
8,313

$
11,053Quarter ended September 30, 2001Domestic

$
5,773

$
(103
)

$
8,684

$
12,011Canada


1,317


167



504


1,545All others


733


12






Totals

$
7,823

$
76


$
9,188

$
13,556




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##### Table of Contents

Nine Months ended September 30, 2002Domestic

$
14,805

$
(581
)

$
7,853

$
9,854Canada


2,996


132



460


1,199All others


2,903


104






Totals

$
20,704

$
(345
)

$
8,313

$
11,053





Nine Months ended September 30, 2001Domestic

$
19,255

$
(357
)

$
8,684

$
12,011Canada


4,504


348



504


1,545All others


2,142


93






Totals

$
25,901

$
84


$
9,188

$
13,556





Note HEarnings (Loss) Per Share:





Quarter ended September 30,2002


2001Earnings (loss) from continuing operations

$
(132,758
)

$
48,053Weighted average common shares outstandingduring periodbasic and diluted


13,936,294



13,936,294Earnings (loss) per share from continuingoperationsbasic and diluted

$
(0.01
)

$
0.00





Nine Months ending September 30,2002


2001Earnings (loss) from continuing operations

$
(345,003
)

$
53,260Weighted average common shares outstandingduring periodbasic and diluted


13,936,294



13,931,850Earnings (loss) per share from continuingoperationsbasic and diluted

$
(0.02
)

$
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-month periods ended September 30, 2002 and 2001, 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.







12




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##### Table of Contents




Note IComprehensive Income (Loss):





Comprehensive income (loss) is net income (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 30,2002


2001Net income (loss)

$
(33,899
)

$
21,136Other comprehensive income (loss):Foreign currency translation adjustment


(21,612
)


(34,976
)Comprehensive loss

$
(55,511
)

$
(13,840
)





Nine Months ended September 30,2002


2001Net loss

$
(288,537
)

$
(179,163
)Other comprehensive income (loss):Foreign currency translation adjustment


399



(33,987
)Comprehensive loss

$
(288,138
)

$
(213,150
)





Note JIntangibles:





The Company amortized goodwill and intangible assets acquired prior to July 1, 2001 until December 31, 2001. Beginning January 1, 2002, annual goodwill amortization of approximately $156,000
will no longer be recognized. The Company completed a transitional impairment test of all intangible assets by March 31, 2002, and a transitional fair value based impairment test of goodwill as of January 1, 2002 by June 30, 2002. No impairment
losses were recognized as a result of this testing.




13




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Intangible assets consist of the following:





September 30, 2002


December 31, 2001Average life (years)

Gross carrying value

Accumulated amortization


Gross carrying value

Accumulated amortizationAmortizable intangible assetsDistribution contracts

8

$
277,369

$
(38,589
)

$
277,369

$
(13,877
)Copywrites, trademarks andother registrations

19


99,100


(5,946
)


99,100


(1,982
)Other

11


47,600


(5,131
)


47,600


(2,002
)Total amortizable intangibleassets



$
424,069

$
(49,666
)

$
424,069

$
(17,861
)Intangible assets not subject toamortizationGoodwill



$
3,039,261

$
(944,207
)

$
3,039,261

$
(944,207
)





Amortization expense related to intangible assets, excluding goodwill, totaled $10,602 and
$7,259 during the three months ended September 30, 2002 and 2001, respectively, and $31,805 and $7,259 during the nine months ended September 30, 2002 and 2001, respectively. The aggregate estimated amortization expense for intangible assets
remaining as of September 30, 2002 is as follows:





Remainder of 2002

$
10,6022003


42,4072004


42,4072005


42,4072006


42,407Thereafter


194,173Total

$
374,403





Earnings (loss) from continuing operations and earnings (loss) from continuing operations
per share for the quarters and nine-month periods ended September 30, 2002 and 2001, adjusted to exclude amortization expense, is as follows:





Quarter ended September 30,2002


2001Earnings (loss) from continuing operations:As reported

$
(132,758
)

$
48,053Goodwill amortization, net of income tax






24,500As adjusted

$
(132,758
)

$
75,553Earnings (loss) from continuing operations persharebasic and diluted:As reported

$
(0.01
)

$
0.00Goodwill amortization, net of income tax






0.00As adjusted

$
(0.01
)

$
0.00




14




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##### Table of Contents




Nine Months Ended September 30,2002


2001Earnings (loss) from continuing operations:As reported

$
(345,003
)

$
53,260Goodwill amortization, net of income tax






73,500As adjusted

$
(345,003
)

$
126,760Earnings (loss) from continuing operations persharebasic and diluted:As reported

$
(0.02
)

$
0.00Goodwill amortization, net of income tax






0.01As adjusted

$
(0.02
)

$
0.01





Note KLegal Proceedings:





On May 24, 2002, the sole source supplier of silica hydride, the principal ingredient in the Companys top selling product,
Microhydrin ® , announced that he had entered into an exclusive network marketing contract with an
Arizona Company, and that he would no longer supply silica hydride to the Company. This supplier, a former director of the Company, took this action despite a written unlimited supply agreement for the purchase of silica hydride between Flanagan
Technologies and the Company. On May 29, 2002, the Company filed suit against this supplier requesting injunctive and monetary relief and alleging, amongst other causes of actions, 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 enjoins Flanagan and other parties acting in concert with him from, among other things, refusing to sell silica
hydride in capsule form to the Company and disparaging RBC and its officers, directors, employees or its products. In connection with this suit, on August 16, 2002, the defendants filed a counter claim against us alleging, amongst other causes of
action, unfair competition, breach of contract and conspiracy. We believe that the defendants claims are false and without merit and we intend to vigorously defend ourselves against such claims. As only minimal discovery has been accomplished, and a
final trial on the merits is not set until September 15, 2003, the Company is unable to predict the ultimate resolution of this case or to determine its materiality, if any, on the Companys operations.





While Flanagan cannot refuse to supply silica hydride powder in capsule form to the Company under the terms of the Agreed Injunction, the Company does not
anticipate the need to make further purchases of Flanagans silica hydride powder. In response to Flanagans actions, the Company established a manufacturing facility and is presently producing silica hydride powder using its own
proprietary process. The Company began shipping Microhydrin made with its proprietary silica hydride powder on July 31, 2002.




15




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##### Table of Contents

ITEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF INANCIAL CONDITION AND RESULTS OF


OPERATIONS





FORWARD-LOOKING STATEMENTS





This Form 10-Q, including this Item 2, contains statements which, to the extent they
are not historical fact, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 (the Safe Harbor Acts). The forward-looking
statements in this Form 10-Q are intended to be subject to the safe harbor protections provided by the Safe Harbor Acts.





Statements
regarding the future financial positions, business strategy, budgets, project cost, and plans and objectives for future operations are forward-looking statements. Forward-looking statements generally can be identified by the use of anticipatory or
forward-looking terminology, including but not limited to, may, will, expect, intend, estimate, anticipate or believe. We believe that the expectations reflected in
such forward-looking statements will prove to be correct. However, we cannot assure you that such expectations will occur. Our actual future performance could differ materially from such statements. Factors or events 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 directly and indirectly competitive products
|- |  | ------------------------------------------------------------




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




| |  | legislative and regulatory actions effecting the market of our products and distribution methods
|- |  | ------------------------------------------------------------------------------------------------




| |  | 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 distributors
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | the Companys ability to obtain future financing to fund internal growth and the Companys future capital requirements
|- |  | ----------------------------------------------------------------------------------------------------------------------




| |  | the market acceptance of the Companys newly developed proprietary versions of silica hydride powder and other raw materials heretofore supplied by
Flanagan
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------






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RESULTS OF OPERATIONS





Quarter Ended September 30, 2002 Compared with the Quarter Ended September 30, 2001





Our sales for the quarter ended September 30, 2002 were $6,203,000 compared with sales for same quarter of the prior year of $7,823,000, a decrease of $1,620,000 or 21%. The decline in third quarter sales resulted mainly from sales
declines of our traditional nutritional and personal care products in the U.S. and Canadian markets of $1,630,000 and $459,000, respectively. Declines in these markets were partially offset by a net sales increase in our other international markets
of $290,000 and in our MPM Medical products market of $179,000.





We believe the principal factor affecting our sales has been the actions
of 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 disrupted 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 and the acceptance of this product has been very positive.





Despite 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. As a result of the
actions of Flanagan and others, we estimate that North American sales of our nutritional and personal care products have declined over 15%. In addition, in breach of its license agreement with us, our European licensee announced its alignment with
Flanagan and discontinued purchasing products from us in May 2002. There were no sales to the European licensee in the third quarter of 2002 compared with sales of $282,000 in the third quarter of 2001.





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
(Cause Number DV02-04797) requesting injunctive and monetary relief and alleging, amongst other causes of action, breach of contract, breach of fiduciary duty and disparagement. On July 26, 2002, the Court granted an Agreed Injunction enjoining
Flanagan and other parties acting in concert with him from, among other things, refusing to sell us silica hydride in capsule form and disparaging RBC and its officers, directors, employees and its products. (Final trial on the merits is set for
September 15, 2003). In addition, since Flanagans announcement, we have refined and completed the development of our proprietary version of silica hydride powder







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##### Table of Contents

and other raw materials formerly supplied by Flanagan. We began shipping Microhydrin made with our silica hydride powder on July 31, 2002, and
we will begin shipping other products made with our proprietary raw materials as existing supplies of products made with Flanagans raw materials are exhausted.





We believe that the actions we have taken along with our present marketing strategies and programs, will allow us, for the most part, to retain 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.





Our cost of goods sold for the quarter ended September 30, 2002 was $2,019,000 compared with cost of goods
sold in the same quarter of the prior year of $2,377,000, a decrease of $358,000 or 15%. As a percentage of sales, cost of goods sold was 33% in the third quarter of 2002 compared with 30% in the third quarter of 2001. This percentage increase was
mainly related to the increase in sales to our international licensees. Cost of goods sold as a percentage of sales is higher for products sold to international licensees because we do not pay distributor commissions on sales of these products.





Our distributor commissions for the quarter ended September 30, 2002 were $2,068,000 compared with distributor commissions in the same
quarter of 2001 of $2,785,000, a decrease of $717,000 or 26%. As a percentage of sales, distributor commissions in the third quarter of 2002 were 33% compared with 36% in the same period of 2001. This percentage decline was mainly related to the
increase in sales to our international licensees and sales of MPM Medical products because we do not pay distributor commissions on sales of these products.





Our general and administrative expenses for the quarter ended September 30, 2002, were $2,248,000 compared with such expenses in the same quarter of 2001 of $2,585,000, a decrease of $337,000 or 13%. 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 36% in the third quarter of 2002 compared with 33% in the third quarter of 2001.





In the quarter ended September 30, 2001, we recorded goodwill amortization expense of $39,000. As described in Note J to the financial
statements, we recorded no goodwill amortization expense in the quarter ended September 30, 2002.





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 $1,000 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 have now
determined will not have to be paid.







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The loss from discontinued operations in the third quarter of 2001 relates solely to the operations of
BizAdigm and represents the excess of selling, general and administrative expenses plus cost of goods sold and distributor commissions over recognized sales of $185,000. The loss in the third quarter of 2001 is net of income tax benefits of $15,000.





Our net loss for the quarter ended September 30, 2002 was $34,000, or $0.00 per share, compared with a net income in the comparable
quarter of the prior year of $21,000 or $0.00 per share, a decline of $55,000. This increased net loss resulted from the factors described above.





Nine Months Ended September 30, 2002 Compared with the Nine Months Ended September 30, 2001





Our sales for
the nine months ended September 30, 2002 were $20,704,000 compared with sales for same period of the prior year of $25,901,000, a decrease of $5,197,000 or 20%. This decline in sales resulted mainly from sales declines of our traditional nutritional
and personal care products in the U.S. and Canadian markets of $5,151,000 and $1,508,000, respectively. Declines in these markets were partially offset by a net sales increase in our other international markets of $761,000 and in our MPM Medical
products market of $701,000.





We believe the principal factor affecting our sales has been the actions of 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 disrupted 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 and the
acceptance of this product has been very positive.





Despite 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. As a result of the actions of Flanagan and others, we estimate that North American sales
of our nutritional and personal care products have declined in excess of 15%. In addition, in breach of its license agreement with us, our European licensee announced its alignment with Flanagan and discontinued purchasing products from us in May
2002. Sales to the European licensee were $291,000 in the first nine months of 2002 compared with $871,000 in the same period of 2001.







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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 (Cause Number DV02-04797) requesting injunctive and monetary relief and alleging, amongst other causes of action, breach of contract, breach of fiduciary duty and disparagement. On July 26,
2002, the Court granted an Agreed Injunction enjoining Flanagan and other parties acting in concert with him from, among other things, refusing to sell us silica hydride in capsule form and disparaging RBC and its officers, directors, employees and
its products. (Final trial on the merits is set for September 15, 2003). In addition, since Flanagans announcement, we have 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 we will begin shipping other products made with our proprietary raw materials as existing supplies of products made with
Flanagans raw materials are exhausted.





We believe that the actions we have taken along with our present marketing strategies and
programs, will allow us, for the most part, to retain 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.





Our cost of goods sold for the nine months ended September 30, 2002 was $6,772,000 compared with cost of goods sold in the same period of the prior year of $7,967,000, a decrease of $1,195,000 or 15%. As a percentage of sales, cost
of goods sold was 33% in the first nine months of 2002 compared with 31% in the first nine months of 2001. This percentage increase was mainly related to the increase in sales to our international licensees. Cost of goods sold as a percentage of
sales is higher for products sold to international licensees because we do not pay distributor commissions on sales of these products.





Our distributor commissions for the nine months ended September 30, 2002 were $6,953,000 compared with distributor commissions in the same period of 2001 of $9,467,000, a decrease of $2,514,000 or 27%. As a percentage of sales,
distributor commissions in the first nine months of 2002 were 34% compared with 37% in the same period of 2001. This percentage decline was mainly related to the increase in sales to our international licensees and sales of MPM Medical products
because we do not pay distributor commissions on sales of these products.





Our general and administrative expenses for the nine months
ended September 30, 2002, were $7,324,000 compared with such expenses in the same period of 2001 of $8,384,000, a decrease of $1,060,000 or 13%. 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 2002 compared with 32% in the first nine months of 2001.





In the nine months ended September 30, 2001, we recorded goodwill amortization expense of $117,000. As described in Note J to the financial statements, we recorded no goodwill amortization expense in
the nine months ended September 30, 2002.







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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 $44,000. 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. The loss from discontinued operations in the first nine months of 2001 relates solely to the operations of BizAdigm and represents the excess of selling, general and administrative expenses
plus cost of goods sold and distributor commissions over recognized sales of $620,000. The loss in the third quarter of 2001 is net of income tax benefits of $136,000.





Our net loss for the nine months ended September 30, 2002 was $289,000, or $0.02 per share, compared with a net loss in the comparable period of the prior year of $179,000 or $0.01 per share, an
increase of $110,000. This increased net loss 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 2002, we had a net decrease in cash of $49,000. This decrease in cash resulted from net cash provided by operating activities of
$976,000 that was more than offset by the net cash used to purchase property and equipment of $241,000 and net cash used by financing activities of $778,000. Net cash used by financing activities was mainly related to the repayment of long-term
debt.





Our working capital declined during the third quarter of 2002 as a result of the decline in sales and the net loss incurred during
the period. As previously described, we believe that the actions we have taken relative to Flanagan and the raw materials he formerly provided, along with our present marketing strategies and programs, will allow us to retain, for the most part, our
present distributor base and ultimately reverse the declining sales trend we experienced during the later part of 2001 and the first nine months of 2002. 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 our sales. In addition, as part of our overall effort to return to profitability we have implemented cost-cutting measures that we believe will
significantly reduce our operating expenses.







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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 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 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







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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, 2002:





Payments dueContractual Cash Obligations

Total

Remainder of 2002

2003

2004

2005 and BeyondLong-term debt(including current portion)

$
4,591,000

$
355,000

$
1,012,000

$
345,000

$
2,879,000Lines of credit


203,000


203,000








Operating leases


853,000


151,000


355,000


240,000


107,000




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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 2002 and 17% of 2001 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 $134,000 at September 30, 2002, a 10% adverse change in the currency rate would reduce earnings before tax by approximately $13,400.





Interest rates





Our credit arrangements expose us to fluctuations in interest rates. At September 30, 2002, we had $748,000 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, 2002, a 10% increase in interest rates would adversely affect our financial position, annual results of
operations, or cash flows by approximately $5,400.





ITEM 4.     CONTROLS AND PROCEDURES





An evaluation was performed under the supervision and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures within 90 days before the filing of this
quarterly report. Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures were effective. There have been no significant changes in our
internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.







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PART II.     OTHER INFORMATION





Item 1.     Legal Proceedings.





ROYAL BODYCARE, INC. v. G. PATRICK
FLANAGAN, Individually and as authorized agent on behalf of FLANAGAN TECHNOLOGIES, INC., FLANAGAN TECHNOLOGIES, INC. a/k/a and d/b/a FLANTECH and/or FLANTECH GROUP and JOHN LLOYD, Cause Number DV02-04797, Dallas County, Texas, District Court.





On May 24, 2002, the sole source supplier of silica hydride, the principal ingredient in our top
selling product, Microhydrin ® , announced that he had entered into an exclusive network marketing
contract with an Arizona Company, and that he would no longer supply silica hydride to us. Our supplier, a former director of the Company, took this action despite a written unlimited supply agreement for the purchase of silica hydride between
Flanagan Technologies and us. On May 29, 2002, we filed suit, cause number DV02-04797, in Dallas County, Texas District Court against this supplier requesting injunctive and monetary relief and alleging, amongst other causes of actions, 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 enjoins Flanagan and other parties acting in concert with him
from, among other things, refusing to sell silica hydride in capsule form to us and disparaging RBC and its officers, directors, employees or its products. In connection with this suit, on August 16, 2002, the defendants filed a counter claim
against us alleging, amongst other causes of action, unfair competition, breach of contract and conspiracy. We believe that the defendants claims are false and without merit and we intend to vigorously defend ourselves against such claims. As only
minimal discovery has been accomplished, and a final trial on the merits is not set until September 15, 2003, we are unable to predict the ultimate resolution of this case, and it is not possible to determine materiality on our operations.





Item 2.     Changes in Securities.





None





Item 3.   Defaults Upon Senior Securities.





None





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





None







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Item 5.     Other Information.





None





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





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




| | Exhibit |  | 99.1Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
| | ------- |  | -----------------------------------------------------------------

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





| | Exhibit |  | 99.2Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
| | ------- |  | -----------------------------------------------------------------

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





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




We filed a report on Form 8-K dated August 16, 2002 providing information and documentation relating to a counterclaim filed in connection with the lawsuit we filed against the former sole source supplier of silica
hydride, the principal ingredient of our top selling product, Microhydrin ® . We filed suit
against this supplier on May 29, 2002 alleging, among other things, breach of contract, after the supplier announced on May 25, 2002 that he would no longer sell silica hydride to us in breach of an unlimited supply agreement between the supplier
and us. On August 16, 2002, the defendants filed a counterclaim against us alleging, among other things, unfair competition, breach of contract and conspiracy.







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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: President and Chief
Executive Officer





By:

/s/    STEVEN E.
BROWNIts: Vice PresidentFinance and Chief Financial Officer





DATE:    November 13, 2002


Irving, Texas




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ROYAL BODYCARE, INC.





CERTIFICATIONS PURSUANT TO





SECTION 302 OF





THE SARBANES-OXLEY ACT OF 2002





CERTIFICATION





I, Clinton H. Howard, certify that:





|1. |  | I have reviewed this quarterly report on Form 10-Q of Royal BodyCare, Inc.;
|-- |  | ---------------------------------------------------------------------------




|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:    November 13, 2002





/s/    CLINTON H.
HOWARDClinton H. Howard President
and Chief Executive Officer




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ROYAL BODYCARE, INC.





CERTIFICATIONS PURSUANT TO





SECTION 302 OF





THE SARBANES-OXLEY ACT OF 2002





CERTIFICATION





I, Steven E. Brown, certify that:





|1. |  | I have reviewed this quarterly report on Form 10-Q of Royal BodyCare, Inc.;
|-- |  | ---------------------------------------------------------------------------




|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------




|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date:    November 13, 2002





/s/    STEVEN E.
BROWNSteven E. Brown Vice
President-Finance and Chief Financial Officer




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ROYAL BODYCARE, INC.





Exhibit Index





Exhibit Number

Description99.1

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
200299.2

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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