Got this working with the help from balinor (Padraic). See his answer here:
http://forum.x-cart.com/showthread.php?p=247095#post247095
I used a free password protect javascript and form found online. With the custom My Account Login mod, I created the custom auth_mod.tpl to include register.php. I copied the entire javascript and form and paste it into my custom auth_mod.tpl. The final step was to add {literal} {/literal} before and after the free javascript.
{literal}
<script>
script code
</script>
{/literal}
With the script, there's a pop-up message alerting a correct login is needed for the register portion. This allows us to direct newly approved customers to the custom Login - Apply - Register page with a username and password to create an account for online shopping.
Thank you all for your input and suggestions.
Christine