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EX-32.2 - RBC LIFE SCIENCES, INC.v165146_ex32-2.htm
EX-32.1 - RBC LIFE SCIENCES, INC.v165146_ex32-1.htm
EX-31.1 - RBC LIFE SCIENCES, INC.v165146_ex31-1.htm
EX-31.2 - RBC LIFE SCIENCES, INC.v165146_ex31-2.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
 
SECURITIES EXCHANGE ACT OF 1934
 
     
 
For the quarterly period ended September 30, 2009
 
     
 
OR
 
     
o
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:    000-50417

RBC Life Sciences, Inc.
(Exact name of registrant as specified in its charter)

Nevada
 
91-2015186
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
2301 Crown Court, Irving, Texas
 
75038
(Address of principal executive offices)
 
(Zip Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes o     No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer
o
Non-accelerated filer o  (Do not check if a smaller reporting company)
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     Yes o     No  x

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

Class
 
Outstanding at October 15, 2009
Common Stock, $0.001 par value per share
 
21,921,934 shares

 
 

 

TABLE OF CONTENTS

 
Page Number
PART I – FINANCIAL INFORMATION
   
         
 
Item 1.
Condensed Consolidated Financial Statements (unaudited)
 
3
   
Notes to Condensed Consolidated Financial Statements
 
7
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
15
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
20
 
Item 4.
Controls and Procedures
 
21
         
PART II – OTHER INFORMATION
   
         
 
Item 1.
Legal Proceedings
 
22
 
Item 1A.
Risk Factors
 
22
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
22
 
Item 3.
Defaults Upon Senior Securities
 
22
 
Item 4.
Submission of Matters to a Vote of Security Holders
 
22
 
Item 5.
Other Information
 
22
 
Item 6.
Exhibits
 
22
         
Signatures
 
23
     
Exhibit Index
 
24

 
 

 

PART 1 – FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS

RBC LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

   
September 30,
2009
   
December 31,
2008
 
   
(Unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 3,517,955     $ 4,973,405  
Accounts receivable, net
    321,014       465,311  
Inventories
    4,886,019       5,706,613  
Deferred income taxes
    363,956       405,286  
Prepaid expenses
    1,443,332       1,374,805  
                 
Total current assets
    10,532,276       12,925,420  
                 
Property and equipment, net
    4,984,538       4,330,451  
                 
Goodwill, net
    2,259,575       2,197,082  
                 
Intangible assets, net
    90,718       109,347  
                 
Other assets
    10,672       203,816  
                 
    $ 17,877,779     $ 19,766,116  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable, trade
  $ 1,738,363     $ 1,961,579  
Accrued liabilities
    1,007,821       1,266,167  
Current maturities of long-term obligations
    153,010       144,397  
Deferred revenue
    2,842,870       4,278,503  
                 
Total current liabilities
    5,742,064       7,650,646  
                 
Long-term obligations, less current maturities
    1,936,213       2,052,071  
                 
Deferred income taxes
    728,483       676,495  
                 
Shareholders’ equity:
               
Common stock, $0.001 par value; 50,000,000 shares authorized; 21,921,934 and 21,915,004 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively
    21,922       21,915  
Additional paid-in capital
    13,467,795       13,364,308  
Accumulated deficit
    (4,150,160 )     (4,104,241 )
Accumulated other comprehensive income
    131,462       104,922  
                 
      9,471,019       9,386,904  
                 
    $ 17,877,779     $ 19,766,116  

See notes to condensed consolidated financial statements.

 
- 3 -

 

RBC LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
For the Quarters Ended September 30,
 
   
2009
   
2008
 
             
Net sales
  $ 6,487,110     $ 9,925,196  
                 
Cost of sales
    3,272,153       5,215,627  
                 
Gross profit
    3,214,957       4,709,569  
                 
Operating expenses:
               
General and administrative
    2,645,550       2,634,437  
Distributor commissions
    637,389       601,302  
Depreciation and amortization
    86,441       86,665  
Total operating expenses
    3,369,380       3,322,404  
                 
Operating profit (loss)
    (154,423 )     1,387,165  
                 
Interest expense
    40,715       43,442  
                 
Earnings (loss) before income taxes
    (195,138 )     1,343,723  
                 
Provision (benefit) for income taxes
    (43,000 )     498,000  
                 
Net earnings (loss)
  $ (152,138 )   $ 845,723  
                 
Earnings (loss) per share:
               
Basic
  $ (0.01 )   $ 0.04  
Diluted
    (0.01 )     0.04  
                 
Weighted average common shares outstanding:
               
Basic
    21,921,934       21,587,224  
Diluted
    21,921,934       22,906,187  

See notes to condensed consolidated financial statements.

 
- 4 -

 

RBC LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
For the Nine Months Ended September 30,
 
   
2009
   
2008
 
             
Net sales
  $ 19,262,207     $ 23,159,662  
                 
Cost of sales
    9,386,910       11,250,738  
                 
Gross profit
    9,875,297       11,908,924  
                 
Operating expenses:
               
General and administrative
    7,567,442       7,438,620  
Distributor commissions
    1,839,814       1,719,049  
Depreciation and amortization
    275,724       251,925  
Total operating expenses
    9,682,980       9,409,594  
                 
Operating profit
    192,317       2,499,330  
                 
Interest expense
    124,236       132,276  
                 
Earnings before income taxes
    68,081       2,367,054  
                 
Provision for income taxes
    114,000       890,000  
                 
Net earnings (loss)
  $ (45,919 )   $ 1,477,054  
                 
Earnings (loss) per share:
               
Basic
  $ (0.00 )   $ 0.07  
Diluted
    (0.00 )     0.06  
                 
Weighted average common shares outstanding:
               
Basic
    21,920,394       21,314,775  
Diluted
    21,920,394       22,923,458  

See notes to condensed consolidated financial statements.

 
- 5 -

 

RBC LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
For the Nine Months Ended September 30,
 
   
2009
   
2008
 
             
Cash flows from operating activities:
           
Net earnings (loss)
  $ (45,919 )   $ 1,477,054  
Adjustment for non-cash items:
               
Depreciation and amortization
    317,091       277,587  
Stock-based compensation
    102,039       90,764  
Deferred income taxes
    101,493       (87,000 )
Change in operating assets and liabilities:
               
Accounts receivable
    144,281       119,506  
Inventories
    838,697       (169,313 )
Prepaid expenses
    (58,006 )     (377,464 )
Other assets
    -       (7,765 )
Accounts payable and accrued liabilities
    (495,464 )     (1,024,697 )
Deferred revenue
    (1,439,025 )     753,647  
                 
Net cash provided by (used in) operating activities
    (534,813 )     1,052,319  
                 
Cash flows from investing activities:
               
Purchase of property and equipment
    (948,943 )     (356,406 )
Proceeds from surrender of insurance policy
    194,277       -  
                 
Net cash used in investing activities
    (754,666 )     (356,406 )
                 
Cash flows from financing activities:
               
Payments of long-term obligations
    (107,245 )     (101,038 )
Proceeds from the exercise of stock options
    1,455       157,600  
                 
Net cash provided by (used in) financing activities
    (105,790 )     56,562  
                 
Effect of exchange rate changes on cash flows
    (60,181 )     9,031  
                 
Net increase (decrease) in cash and cash equivalents
    (1,455,450 )     761,506  
                 
Cash and cash equivalents, beginning of period
    4,973,405       6,368,885  
                 
Cash and cash equivalents, end of period
  $ 3,517,955     $ 7,130,391  

See notes to condensed consolidated financial statements.

 
- 6 -

 

RBC LIFE SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A – Unaudited Condensed Consolidated Financial Statements:

The accompanying unaudited condensed consolidated financial statements of RBC Life Sciences, Inc. (sometimes hereinafter referred to collectively as “we”, “our”, “RBC” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Certain information and disclosures that are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to these rules and regulations.  These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Form 10-K”), previously filed with the Securities and Exchange Commission.

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 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.

In connection with preparation of these condensed consolidated financial statements, the Company evaluated subsequent events after the balance sheet date of September 30, 2009 through November 9, 2009.

Recent Accounting Pronouncement
    
In June 2009, the Financial Accounting Standards Board (the “FASB”) issued the FASB Accounting Standards Codification (the “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretative releases of the Securities and Exchange Commission (the “SEC”) are also sources of authoritative U.S. GAAP for SEC registrants. The ASC became effective for financial statements issued for interim and annual periods ending after September 15, 2009 and superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the ASC became non-authoritative.  The Company adopted the ASC effective September 30, 2009, and, other than the manner in which new accounting guidance is referenced, the adoption of the ASC had no impact on the Company’s results of operations, financial position or notes to the condensed consolidated financial statements.

Note B – Nature of Operations and Organization:

The Company is principally engaged in the marketing of nutritional supplements and personal care products (collectively “Nutritional Products”) under the brand name “RBC Life”.  In certain markets, primarily the U.S. and Canada, the Company markets its products through a network of distributors that are referred to as “Associates.”  The Associates are independent contractors who purchase products for personal use, purchase products for resale to retail customers and sponsor other individuals as Associates.  Associates can derive compensation both from the direct sales of products and from sales generated by sponsored Associates.

RBC also markets its Nutritional Products in certain international markets through license arrangements.  The licensees are third parties who are granted exclusive rights to distribute RBC products in their respective territories and, for the most part, distribute these products through an independent Associate network in the licensed territory.  Under these arrangements, the independent Associate network in a licensed territory is compensated by the licensee according to the same or a similar compensation plan as the one used by RBC for its Associates in North America.

 
- 7 -

 

In addition to its Nutritional Products, RBC also markets a line of wound care products (“Medical Products”) under the MPM Medical brand name.  Medical Products are distributed mainly in the U.S. to hospitals, nursing homes, clinics and pharmacies through traditional medical/surgical supply dealers and pharmaceutical distributors.  Medical Products are used to prevent and treat wounds, and manage pain associated with wounds, in the acute care, long-term care and oncology markets.

Note C – Inventories:

Inventories at September 30, 2009 and December 31, 2008 consist of the following:

   
September 30, 2009
   
December 31, 2008
 
Raw materials and bulk products
  $ 380,827     $ 384,376  
Packaging materials
    557,566       584,842  
Finished goods
    3,947,626       4,737,395  
    $ 4,886,019     $ 5,706,613  

Note D – Prepaid Expenses:

Prepaid expenses at September 30, 2009 and December 31, 2008 consist of the following:

   
September 30, 2009
   
December 31, 2008
 
Advance payment to suppliers
  $ 319,770     $ 415,699  
Certificates of deposit - restricted
    579,296       569,445  
Prepaid insurance and other
    544,266       389,661  
    $ 1,443,332     $ 1,374,805  

Note E – Property and Equipment:

Property and equipment at September 30, 2009 and December 31, 2008 consists of the following:

   
September 30, 2009
   
December 31, 2008
 
Building and improvements
  $ 3,523,428     $ 3,523,428  
Computer software and office equipment
    2,133,372       1,625,205  
Warehouse equipment
    275,265       367,285  
Automotive equipment
    15,228       55,392  
Leasehold improvements
    20,391       17,858  
      5,967,684       5,589,168  
Less – accumulated depreciation
    (2,124,319 )     (2,399,890 )
      3,843,365       3,189,278  
Land
    1,141,173       1,141,173  
    $ 4,984,538     $ 4,330,451  

Note F – Goodwill and Other Intangible Assets:

The Company measures its goodwill for impairment at the end of each year or in the event of an impairment indicator.  No impairment losses have been recognized as a result of this testing.  Goodwill balances are summarized as follows:
 
   
Gross Carrying Value
   
Accumulated Amortization
 
Balance, December 31, 2008
  $ 3,238,342     $ (1,041,260 )
Currency translation adjustment
    121,945       (59,452 )
Balance, September 30, 2009
  $ 3,360,287     $ (1,100,712 )

 
- 8 -

 

Other intangible assets consist of the following:

         
September 30, 2009
   
December 31, 2008
 
   
Average
Life
(years)
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Gross
Carrying
Value
   
Accumulated
Amortization
 
                               
Distribution contracts
 
8
    $ 277,369     $ (256,073 )   $ 277,369     $ (244,536 )
Copyrights, trademarks and other registrations
 
19
      99,100       (42,943 )     99,100       (38,979 )
Other
 
11
      47,600       (34,335 )     47,600       (31,207 )
          $ 424,069     $ (333,351 )   $ 424,069     $ (314,722 )

Amortization expense related to other intangible assets totaled approximately $5,400 and $10,600 for the quarters ended September 30, 2009 and 2008, respectively, and $18,600 and $31,800 for the nine months ended September 30, 2009 and 2008, respectively.  The aggregate estimated amortization expense for intangible assets remaining as of September 30, 2009 is as follows:

Remainder of 2009
  $ 5,406  
2010
    21,626  
2011
    13,792  
2012
    5,957  
2013
    5,957  
Thereafter
    37,980  
Total
  $ 90,718  

Note G – Accrued Liabilities:

Accrued liabilities at September 30, 2009 and December 31, 2008 consist of the following:

   
September 30, 2009
   
December 31, 2008
 
Salaries and wages
  $ 513,805     $ 798,913  
Distributor commissions
    307,986       297,570  
Sales and property taxes
    75,997       32,759  
Interest
    13,493       14,186  
Other
    96,540       122,739  
    $ 1,007,821     $ 1,266,167  

Note H – Share-Based Compensation:

The Company records compensation expense for all share-based payments based on the estimated grant date fair value.  Share-based compensation expense for the quarters ended September 30, 2009 and 2008 was approximately $32,000 and $28,800, respectively, and for the nine months ended September 30, 2009 and 2008 was approximately $102,000 and $90,800.  Share-based compensation is classified as a general and administrative expense.  There were no material tax benefits related to this expense because virtually all share-based compensation resulted from grants of incentive stock options.

 
- 9 -

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
 
   
Quarters Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2009 (1)
   
2008 (1)
   
2009
   
2008
 
                         
Weighted average expected life (years)
                7.3       9.0  
Risk-free interest rate
                2.67 %     3.77 %
Expected volatility
                114.92 %     138.57 %
Expected dividend yield
                0.0 %     0.0 %
 

(1)           There were no option grants during this period.

On May 13, 2009, the Company granted to certain key Associates, non-qualified stock options to purchase an aggregate of 150,000 shares of the Company’s common stock at an exercise price of $0.39 per share.  The options expire five years from the date of grant and are subject to vesting provisions based on attaining certain performance goals.  However, if the first performance goal is not attained on or before May 13, 2011, the options will expire on that date.  The fair value of these options was estimated to be $43,400 using the Black-Scholes pricing model.  In September 2009, one of these options to purchase 75,000 shares of common stock was cancelled upon resignation of the Associate to whom the option was granted.  As of September 30, 2009, no compensation cost has been recognized with respect to the remaining options as, based on available information, the Company does not believe that the performance goals are probable of being achieved.

A summary of stock option activity for the nine months ended September 30, 2009 is as follows:
 
   
Options
   
Weighted-
Average Exercise
Price per Share
   
Weighted-Average
Remaining
Contractual Term
(in years)
   
Aggregate
Intrinsic
Value
 
Outstanding on January 1, 2009
    2,292,885     $ 0.46              
Granted
    351,485       0.47              
Exercised
    (6,930 )     0.21              
Forfeited/canceled
    (550,270 )     0.67              
                             
Outstanding on September 30, 2009
    2,087,170     $ 0.41       5.5     $ 131,253  
                                 
Exercisable on September 30, 2009
    1,065,360     $ 0.23       4.0     $ 126,127  
 
A summary of the status of the Company’s non-vested stock options as of September 30, 2009 and changes during the nine months then ended are presented below:
 
  
       
Weighted-Average
 
  
       
Grant Date Fair
 
  
 
Shares
   
Value per Share
 
             
Non-vested stock options at January 1, 2009
    819,075     $ 0.60  
Non-vested stock options granted
    350,000       0.41  
Vested stock options
    (40,000 )     0.42  
Forfeited stock options
    (107,265 )     0.40  
Non-vested stock options at September 30, 2009
    1,021,810       0.56  

As of September 30, 2009, there was approximately $571,000 of total unrecognized compensation cost related to stock option grants.
 
- 10 -


Note I – Long-Term Obligations and Credit Lines:

At September 30, 2009 and December 31, 2008 long-term obligations consist of the following:

   
September 30, 2009
   
December 31, 2008
 
             
Mortgage note payable bearing interest at 7.75%, payable in monthly installments of $25,797 through April 2019, collateralized by land and building, and personally guaranteed by the Company’s Chairman of the Board of Directors
  $ 2,089,223     $ 2,196,468  
                 
Less – current maturities
    (153,010 )     (144,397 )
                 
    $ 1,936,213     $ 2,052,071  

The fair value of long-term debt is estimated based on interest rates for the same or similar instruments offered having the same or similar maturities and collateral requirements.  At September 30, 2009, the fair value of fixed-rate long-term debt was $2,259,000, which was $170,000 above the carrying value of $2,089,000.  At December 31, 2008, the fair value of fixed-rate long-term debt was $2,386,000, which was $190,000 above the carrying value of $2,196,000.

The Company maintained a $500,000 bank line of credit that matured October 22, 2009 and was not renewed.  Through the line of credit maturity date, the Company maintained a $500,000 certificate of deposit at the bank to secure borrowings under the line.  There were no borrowings outstanding under this line at September 30, 2009.

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 75 nutritional supplements and personal care products, including herbs, vitamins and minerals, as well as natural skin, hair and body care products.  Nutritional Products are marketed under the brand name “RBC Life”.  These products are distributed by a network of independent Associates in certain markets, primarily the U.S. and Canada, and by licensees in certain other international markets.  For the most part, licensees also market the Nutritional Products in their respective territories through a network of independent Associates.

The Medical Products segment markets a line of approximately 28 wound care products primarily in the U.S. under the MPM Medical brand name.  The wound care products are distributed to hospitals, nursing homes, home health care agencies, clinics and pharmacies through a network of medical/surgical supply dealers and pharmaceutical distributors.  MPM’s Medical Products are used to prevent and treat wounds, and manage pain associated with wounds, in the acute care, long-term care and oncology markets.

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.

 
- 11 -

 

Segment information is as follows (in thousands):

   
Nutritional Products
   
Medical Products
   
Consolidated
 
Quarter Ended September 30, 2009
                 
Net sales
  $ 4,982     $ 1,505     $ 6,487  
Depreciation and amortization
    101       11       112  
Operating profit (loss)
    (214 )     60       (154 )
Capital expenditures
    183       12       195  
Total assets
    15,065       2,813       17,878  
                         
Quarter Ended September 30, 2008
                       
Net sales
  $ 8,284     $ 1,641     $ 9,925  
Depreciation and amortization
    71       25       96  
Operating profit
    1,294       93       1,387  
Capital expenditures
    77       8       85  
Total assets
    18,411       2,001       20,412  
                         
Nine Months Ended September 30, 2009
                       
Net sales
  $ 14,803     $ 4,459     $ 19,262  
Depreciation and amortization
    267       50       317  
Operating profit
    12       180       192  
Capital expenditures
    930       19       949  
Total assets
    15,065       2,813       17,878  
                         
Nine Months Ended September 30, 2008
                       
Net sales
  $ 18,631     $ 4,529     $ 23,160  
Depreciation and amortization
    205       73       278  
Operating profit
    2,246       253       2,499  
Capital expenditures
    325       31       356  
Total assets
    18,411       2,001       20,412  

Financial information summarized geographically for the quarters and nine months ended September 30, 2009 and 2008 is listed below (in thousands):

   
Quarter Ended September 30, 2009
   
Quarter Ended September 30, 2008
 
   
Net sales
   
Long-Lived assets
   
Net sales
   
Long-Lived assets
 
Domestic
  $ 2,804     $ 6,806     $ 2,765     $ 6,225  
Former Soviet Union
    3,398       -       6,742       -  
Canada
    262       540       281       552  
All others
    23       -       137       -  
Totals
  $ 6,487     $ 7,346     $ 9,925     $ 6,777  

   
Nine Months Ended
September 30, 2009
   
Nine Months Ended
September 30, 2008
 
   
Net sales
   
Long-Lived assets
   
Net sales
   
Long-Lived assets
 
Domestic
  $ 8,181     $ 6,806     $ 7,904     $ 6,225  
Former Soviet Union
    10,004       -       13,789       -  
Canada
    804       540       876       552  
All others
    273       -       591       -  
Totals
  $ 19,262     $ 7,346     $ 23,160     $ 6,777  

 
- 12 -

 

Significant Customers

The Company recorded sales of Nutritional Products to Coral Club International, Inc., a licensee of the Company, in the amounts of $3,398,000 and $6,742,000 during the quarters ended September 30, 2009 and 2008, respectively, and $10,004,000 and $13,789,000 during the nine months ended September 30, 2009 and 2008, respectively.  The Company also recorded sales of Medical Products to a medical/surgical dealer in the amounts of $855,000 and $1,058,000 during the quarters ended September 30, 2009 and 2008, respectively, and $2,742,000 and $2,796,000 during the nine months ended September 30, 2009 and 2008, respectively.  These sales accounted for more than 10% of net sales in these periods.  Other than these two customers, no customer of the Company accounted for more than 10% of net sales during the quarters or nine months ended September 30, 2009 and 2008.

Note K – Earnings (Loss) Per Share:

Summarized basic and diluted earnings (loss) per common share were calculated as follows:

   
Net Earnings (Loss)
   
Weighted
Average
Shares
   
Per Share
 
Quarter Ended September 30, 2009
                 
Basic loss per common share
  $ (152,138 )     21,921,934     $ (0.01 )
Effect of dilutive stock options
    -       -          
Diluted loss per common share
  $ (152,138 )     21,921,934     $ (0.01 )
                         
Quarter Ended September 30, 2008
                       
Basic earnings per common share
  $ 845,723       21,587,224     $ 0.04  
Effect of dilutive stock options
    -       1,318,963          
Diluted earnings per common share
  $  845,723       22,906,187     $ 0.04  
                         
Nine Months Ended September 30, 2009
                       
Basic loss per common share
  $ (45,919 )     21,920,394     $ (0.00 )
Effect of dilutive stock options
    -       -          
Diluted loss per common share
  $  (45,919 )     21,920,394     $ (0.00 )
                         
Nine Months Ended September 30, 2008
                       
Basic earnings per common share
  $ 1,477,054       21,314,775     $ 0.07  
Effect of dilutive stock options
    -       1,608,683          
Diluted earnings per common share
  $ 1,477,054       22,923,458     $ 0.06  

The number of stock options that were outstanding, but not included in the computation of diluted earnings (loss) per common share because their exercise price was greater than the average market price of the common stock, or were otherwise anti-dilutive, was 2,087,000 and 905,000 for the quarters ended September 30, 2009 and 2008, respectively, and 2,087,000 and 882,000 for the nine months ended September 30, 2009 and 2008, respectively.

Note L – Comprehensive Income (Loss):

Comprehensive income (loss) is net earnings adjusted for 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):

 
- 13 -

 

   
Quarters Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Net earnings (loss)
  $ (152,138 )   $ 845,723     $ (45,919 )   $ 1,477,054  
Other comprehensive income (loss):
                               
Foreign currency translation adjustment
    15,150       (18,002 )     26,540       (35,438 )
Comprehensive income (loss)
  $ (136,988 )   $ 827,721     $ (19,379 )   $ 1,441,616  

Note M – Legal Proceedings:

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.

 
- 14 -

 

ITEM 2. 
Management’s Discussion and Analysis of Financial Condition and Results ofOperations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report and the audited consolidated financial statements and notes thereto included in the 2008 Form 10-K.

FORWARD-LOOKING STATEMENTS
 
The statements, other than statements of historical or present 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 can be identified by the use of the words “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “objective,” “projection,” forecast,” “goal,” “believe,” and similar expressions.  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 and assumptions reflected in these forward-looking statements are reasonable.  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 and those previously disclosed in Item 1A to Part I of the 2008 Form 10-K.  Many of these factors are beyond the Company’s ability to control or predict. We caution you not to put undue reliance on forward-looking statements or to project any future results based on such statements or on present or prior earnings levels. 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.  Please consider our forward-looking statements in light of those risks as you read this report.

OVERVIEW
 
We operate in two industry segments, Nutritional Products and Medical Products.
 
·
Through the Nutritional Products segment, we distribute products in three broad categories: (i) wellness products, (ii) fitness products and (iii) skin care products.   Products include herbal formulas, vitamins, minerals, antioxidants and personal care products.  In certain markets, principally in the U.S. and Canada, we distribute Nutritional Products directly through a network of independent Associates. In certain other markets, we distribute Nutritional Products through exclusive license arrangements with third parties who, for the most part, distribute our products through an independent Associate network in the licensed territory.
 
·
Through the Medical Products segment, we distribute wound care products.  These products are distributed mainly in the U.S. to hospitals, nursing homes, clinics and pharmacies through traditional medical/surgical supply dealers and pharmaceutical distributors.  MPM’s Medical Products are used to prevent and treat wounds, and manage pain associated with wounds, in the acute care, long-term care and oncology markets.

 
- 15 -

 

Consolidated net sales in dollars and as a percentage of consolidated net sales are as follows:

   
Quarters Ended September 30,
 
   
2009
   
2008
 
   
(U.S. dollars in 000’s)
 
Nutritional Products:
                       
Licensees
  $ 3,421       53 %   $ 6,879       69 %
Associate network
    1,561       24 %     1,405       14 %
      4,982       77 %     8,284       83 %
Medical Products
    1,505       23 %     1,641       17 %
    $ 6,487       100 %   $ 9,925       100 %

   
Nine Months Ended September 30,
 
   
2009
   
2008
 
   
(U.S. dollars in 000’s)
 
Nutritional Products:
                       
Licensees
  $ 10,277       54 %   $ 14,279       61 %
Associate network
    4,526       23 %     4,352       19 %
      14,803       77 %     18,631       80 %
Medical Products
    4,459       23 %     4,529       20 %
    $ 19,262       100 %   $ 23,160       100 %

Licensees. Our highest revenue distribution channel is the licensee channel.  In the licensee channel we sell Nutritional Products to third parties who purchase products from us in accordance with a license arrangement that gives the licensee exclusive rights to distribute our products in the licensed territory. Licensees are generally required to distribute our products in the licensed territory through network marketing. Net sales in this distribution channel are mainly dependent upon the licensee’s success in building a distribution network in the licensed territory.
 
Our principal licensee is Coral Club International (“CCI”). CCI, which accounted for 97% of licensee net sales in both the nine months ended September 30, 2009 and 2008, distributes products in a territory comprised mainly of the former Soviet Union and Eastern Europe. The President of CCI is a former member of our Board of Directors and beneficially owns approximately 18% of our outstanding common stock.

Net sales to our licensees declined $3,458,000, or 50%, and $4,002,000, or 28%, for the quarter and nine months ended September 30, 2009, respectively, compared with net sales for the same periods in 2008.  These declines were mainly related to declines in net sales to CCI.  Net sales to CCI declined $3,344,000, or 50%, and $3,785,000, or 27%, for the quarter and nine months ended September 30, 2009, respectively, compared with net sales for the same periods in 2008.  The decline in net sales to CCI is attributable to a decline in CCI’s sales to its independent Associates during this period.  CCI’s sales were negatively affected by the global economic recession that began in late 2008.  After several years of increasing purchases of our products to support rapid growth, CCI was forced to significantly reduce its purchases from us in 2009 to appropriately align its inventories with the reduced sales volumes.  We expect this trend to continue through the fourth quarter of 2009 and into 2010 until economic conditions improve.

Under our arrangement with CCI, CCI orders products from us and pays for them when we segregate them in our warehouse for CCI’s account. Once segregated, products are not subject to return except in the case of a manufacturing defect.  We store the products until CCI provides shipping instructions.  Because we do not recognize revenue until we ship products to CCI, our sales to CCI fluctuate from quarter to quarter depending on a number of logistical considerations, only one of which is the sales demand of CCI’s Associate network.  Reflecting the reduction in CCI’s sales, backlog related to CCI’s account was $4,979,000 at September 30, 2009 compared to $8,698,000 at September 30, 2008.

 
- 16 -

 

Associate Network.  The following table sets forth the Associate network net sales by geographic region as a percentage of total net sales for the periods indicated:

   
Quarters Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
United States
    83 %     80 %     82 %     80 %
Canada
    17       20       18       20  
      100 %     100 %     100 %     100 %

Net sales through the Associate network channel increased approximately 4% during the first nine months of 2009 compared to the same period in 2008.  This increase is primarily attributable to an increase in the rate of sponsorship of new Associates by the current Associate network in the U.S. market. Sales in this channel are dependent upon the number and productivity of our Associates.  Accordingly, growth in sales is dependent upon the sponsorship of new Associates and retention of existing Associates.
 
Medical Products. We sell Medical Products primarily in the U.S. to wholesalers such as medical/surgical dealers and pharmaceutical distributors. These wholesalers supply various health care providers such as hospitals, nursing homes, clinics and pharmacies. In some cases, wholesalers maintain their own sales forces to market products that they supply, which include our products.
 
This segment’s largest customer, a medical/surgical dealer, accounted for 62% of Medical Products net sales during both the nine months ended September 30, 2009 and 2008.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and judgments that affect the amounts reported in our financial statements and accompanying footnotes. On an on-going basis, we evaluate these estimates and assumptions based on historical experience and various other factors and circumstances. Our management believes that the estimates and assumptions are reasonable in the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances.
 
Management believes that there have been no significant changes during the nine months ended September 30, 2009 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2008 Form 10-K.

RESULTS OF OPERATIONS
 
The following table sets forth our operating results as a percentage of net sales for the periods indicated:

   
Quarters Ended September 30,
   
Nine Months Ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Net sales
    100.0 %     100.0 %     100.0 %     100.0 %
Cost of sales
    50.4       52.5       48.7       48.6  
Gross profit
    49.6       47.5       51.3       51.4  
Operating expenses:
                               
General and administrative
    40.8       26.5       39.3       32.1  
Distributor commissions
    9.9       6.1       9.6       7.4  
Depreciation and amortization
    1.3       0.9       1.4       1.1  
Total operating expenses
    52.0       33.5       50.3       40.6  
Operating profit (loss)
    (2.4 )     14.0       1.0       10.8  
Interest expense
    0.6       0.5       0.6       0.6  
Earnings (loss) before income taxes
    (3.0 )     13.5       0.4       10.2  
Provision (benefit) for income taxes
    (0.7 )     5.0       0.6       3.8  
Net earnings (loss)
    (2.3 ) %     8.5 %     (0.2 ) %     6.4 %

 
- 17 -

 

Quarter ended September 30, 2009 compared with quarter ended September 30, 2008
 
Net sales. Net sales for the quarter ended September 30, 2009 were $6,487,000 compared with net sales for the same period in 2008 of $9,925,000, a decrease of $3,438,000 or 35%. This decline in net sales, along with the resulting decline in gross profit, is the primary reason we incurred a net loss in the third quarter of 2009.  The decline in net sales resulted from a $3,302,000 decrease in net sales of Nutritional Products and a $136,000 decrease in net sales of Medical Products. Net sales of Nutritional Products to our licensees decreased $3,458,000 while net sales of Nutritional Products to our Associate network increased $156,000.

Licensees.  Net sales to our licensees decreased primarily as a result of decreased shipments to CCI. Sales to CCI decreased $3,344,000 during the quarter ended September 30, 2009.  While sales to CCI can vary significantly from quarter to quarter due to various logistical factors irrespective of the sales demand of CCI’s Associate network, in-territory sales of our products to CCI’s Associate network declined during the third quarter of 2009 as described above under the caption Overview-Licensees.

Associate Network.  Net sales in the North American market grew approximately $156,000, or 11%, during the quarter ended September 30, 2009.  Continuing the trend from the first half of 2009, the sponsorship of new Associates by the current Associate network increased more than 100% during the third quarter of 2009.  While we believe the marketing initiatives and other actions we have undertaken led to this increase in the sponsorship of new Associates, we can give no assurance that the number of active Associates will continue to increase.
 
Medical products.  The decline in net sales of Medical Products resulted from decreased sales to the largest customer in this segment.   Sales to this customer, which distributes wound care products and provides services to the nursing home market, decreased $203,000 during the third quarter of 2009 compared to the third quarter of 2008.  We attribute the decline in sales to efforts by this distributor to align inventory with projected demand.  Sales to this distributor in the third quarter of 2009 were approximately $855,000.

Cost of sales.  Cost of sales for the quarter ended September 30, 2009 was $3,272,000 compared with cost of sales in the third quarter of 2008 of $5,216,000, a decrease of $1,944,000 or 37%. As a percentage of net sales, cost of sales was 50% in the third quarter of 2009 and 53% in the third quarter of 2008. Gross profit as a percentage of net sales increased 3% mainly because of a change in the sales mix of Nutritional Products between sales to the Associate network and sales to licensees. The gross profit for products sold to licensees is lower than the gross profit for products sold to the Associate network because we sell to licensees at lower prices. Sales prices to licensees are lower since we do not pay Associate commissions or incur other expenses related to product distribution in the licensed territory.

General and administrative. General and administrative expenses for the quarter ended September 30, 2009, were $2,646,000 compared with expenses in the third quarter of 2008 of $2,634,000, an increase of $12,000.  While the amount of general and administrative expenses was relatively unchanged between quarters, as a percentage of net sales, general and administrative expenses increased 14% to 41% in the third quarter of 2009 compared with 27% in the third quarter of 2008 due to the decline in net sales.
 
Distributor commissions. Distributor commissions were $637,000 for the quarter ended September 30, 2009 compared with distributor commissions of $601,000 in the third quarter of 2008, an increase of $36,000 or 6%.  This increase is associated with the increase in Associate Network sales during the third quarter of 2009 compared with the third quarter of 2008.  Distributor commissions as a percentage of commissionable sales to the Associate network increased slightly to approximately 37% in the third quarter of 2009 compared to 36% in the same period in 2008.  This percentage increase was mainly due to the payment of extra commissions during the third quarter of 2009 in connection with certain marketing and sales initiatives undertaken during the quarter.  On a consolidated basis, distributor commissions as a percentage of net sales were 10% and 6% in the third quarter of 2009 and 2008, respectively, mainly because a higher percentage of consolidated sales in the third quarter of 2009 were Associate network sales.
 
Income taxes.  We recorded a benefit for income taxes of $43,000 during the quarter ended September 30, 2009 based on our estimate of the effective annual income tax rate.  Our effective income tax rate was affected by an increase in the valuation allowance related to net operating loss carryforwards in Canada, which offset tax benefits related to the consolidated loss before income taxes.

 
- 18 -

 

Net earnings (loss).  As a result of the factors described above, the net loss for the quarter ended September 30, 2009 was $152,000, or $0.01 per share, compared with net earnings in the third quarter of 2008 of $846,000, or $0.04 per share.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008
 
Net sales. Net sales for the nine months ended September 30, 2009 were $19,262,000 compared with net sales for the same period in 2008 of $23,160,000, a decrease of $3,898,000 or 17%. This decline in net sales, along with the resulting decline in gross profit, is the primary reason for the substantial decline in 2009 operating results compared to 2008.  The decrease in net sales resulted from a $3,828,000 decrease in net sales of Nutritional Products and a $70,000 decrease in net sales of Medical Products. Net sales of Nutritional Products to our licensees decreased $4,002,000 while net sales of Nutritional Products to our Associate network increased $174,000.
 
Licensees.  Net sales to our licensees decreased primarily as a result of decreased shipments to CCI. Sales to CCI decreased $3,785,000 in the first nine months of 2009.  While sales to CCI can vary significantly from quarter to quarter due to various logistical factors irrespective of the sales demand of CCI’s Associate network, in-territory sales of our products to CCI’s Associate network declined during the first nine months of 2009, as described above under the caption Overview-Licensees.

Associate Network.  Net sales in the North American market increased approximately $174,000 during the first nine months of 2009, a significant change in the declining sales trend we have reported in this distribution channel for several years.  We attribute this increase mainly to an increase in the number of active Associates, which resulted from higher levels of sponsorship of new Associates by the current Associate network in the U.S. market.  While we believe the marketing initiatives and other actions we have undertaken led to this increase in the sponsorship of new Associates, we can give no assurance that the number of active Associates will continue to increase.
 
Medical products.  The decline in net sales of Medical Products resulted mainly from decreased sales to the largest customer in this segment.   Sales to this customer, which distributes wound care products and provides services to the nursing home market, decreased $54,000 during the first nine months of 2009 compared to the first nine months of 2008.  Sales to this distributor in the first nine months of 2009 were approximately $2,742,000.

Cost of sales.  Cost of sales for the nine months ended September 30, 2009 was $9,387,000 compared with cost of sales in the first nine months of 2008 of $11,251,000, a decrease of $1,864,000 or 17%. As a percentage of net sales, cost of sales was 49% in both the first nine months of 2009 and 2008.
 
General and administrative. General and administrative expenses for the nine months ended September 30, 2009, were $7,567,000 compared with expenses in the first nine months of 2008 of $7,439,000, an increase of $128,000 or 2%. This increase was mainly attributable to increased expenses associated with the upgrade of our network marketing computer software, regulatory compliance and support activities and facilities maintenance.  As a percentage of net sales, general and administrative expenses were 39% and 32% in the nine months ended September 30, 2009 and 2008, respectively.
 
Distributor commissions.   Distributor commissions were $1,840,000 for the nine months ended September 30, 2009 compared with distributor commissions of $1,719,000 in the first nine months of 2008, an increase of $121,000 or 7%.  This increase is associated with the increase in Associate Network sales during the first nine months of 2009 compared with the same period in 2008.  Distributor commissions as a percentage of commissionable sales to the Associate network increased to approximately 36% in the first nine months of 2009 compared to 34% in the same period in 2008.  This percentage increase was mainly due to the payment of extra commissions during the first nine months of 2009 in connection with certain marketing and sales initiatives undertaken during this period.  On a consolidated basis, distributor commissions as a percentage of net sales increased to 10% in the nine months of 2009 compared with 7% in the nine months of 2008 mainly because a higher percentage of our 2009 consolidated sales were Associate network sales.

 
- 19 -

 
 
Income taxes.  We recorded a provision for income taxes of $114,000 during the nine months ended September 30, 2009 based on our estimate of the effective annual income tax rate adjusted for an increase in the valuation allowance related to operating loss carryforwards in Canada.

Net earnings (loss).  As a result of the factors described above, the net loss for the nine months ended September 30, 2009 was $46,000, or $0.00 per diluted share, compared with net earnings in the nine months of 2008 of $1,477,000, or $0.06 per diluted share.

LIQUIDITY AND CAPITAL RESOURCES
 
Cash and working capital. At September 30, 2009, all of our cash and cash equivalents were maintained in accounts that were fully insured by federal government agencies.  During the nine months ended September 30, 2009, we had a net decrease in cash of $1,455,000 compared with a net increase in cash of $762,000 in the first nine months of 2008.  At September 30, 2009, we had working capital of $4,790,000, a $485,000 decrease from working capital at December 31, 2008 of $5,275,000.   The reasons for these changes in cash and working capital are described below.
 
Operating activities. In the first nine months of 2009, our operating activities used cash flows of $535,000.  In the first nine months of 2008, our operating activities provided cash flows of $1,052,000.  The primary use of cash by operating activities during the first nine months of 2009 related to a $495,000 reduction in accounts payable and accrued liabilities and a $1,439,000 decrease in deferred revenue.  The decreases in accounts payable and accrued liabilities and deferred revenue were primarily associated with the decrease in CCI sales.  In the first nine months of 2009, the net loss adjusted for non-cash activities, which include depreciation and amortization, stock-based compensation and deferred income taxes, provided cash flows of $475,000 compared with providing cash flows of $1,758,000 in the first nine months of 2008.
 
Investing activities. During the first nine months of 2009, we used cash of $949,000 to purchase property and equipment.  Of this amount, approximately $876,000 was associated with the upgrade of our network marketing computer software.  We expect additional capital expenditures of approximately $200,000 to complete this project.  During the first nine months of 2009, we also received $194,000 from the surrender of a life insurance policy covering our former Chief Executive Officer who retired in December 2008.
 
Financing activities. The principle financing activity during the first nine months of 2009 was the repayment of long-term debt in the amount of $107,000.  At September 30, 2009, we maintained a $500,000 line of credit arrangement with a bank, none of which was used as of that date.  We did not renew this line when it matured on October 22, 2009.

General liquidity and cash flows. We believe that the working capital requirements of our existing operations can be met through available cash and cash generated from operating activities for the foreseeable future; however, an overall decrease in demand for our products could adversely affect our liquidity. In the event of a significant decrease in cash provided by our operating activities, we may seek outside sources of capital including bank borrowings or other types of debt or equity financings. We can give no assurance, however, that we would be able to obtain any additional outside financing or obtain financing on terms we would find acceptable.  Other than those described above, we have no plans or requirements for any significant capital expenditures during the next 12 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.

ITEM 3.                      Quantitative and Qualitative Disclosures 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 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.

 
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Foreign exchange
 
We have foreign-based operations in Canada that accounted for 4% of net sales during the first nine months of 2009 and during fiscal 2008.  We advance funds to and from 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 $593,000 to our Canadian operations at September 30, 2009, a 10% adverse change in the currency rate would reduce earnings before income taxes by approximately $59,300.

All transactions with our licensees are denominated in U.S. dollars so the licensee bears the currency exchange risk.  Accordingly, exchange rate fluctuations in international markets served by our licensees do not directly affect our results of operations.  However, exchange rate fluctuations in these markets may affect the ability of our licensees to conduct their business operations profitably.
 
ITEM 4.                      Controls and Procedures.

As required by Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated as of September 30, 2009, the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of September 30, 2009, were effective for the purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosures.

There has been no change in internal control over financial reporting that occurred during the quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
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PART II – OTHER INFORMATION
 
ITEM 1.                      Legal Proceedings.

None
 
ITEM 1A.                   Risk Factors.
 
Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our common stock. For a discussion of these risks, please refer to the “Risk Factors” section of the 2008 Form 10-K. In connection with our preparation of this quarterly report, management has reviewed and considered these risk factors and has determined that there have been no material changes to our risk factors since the date of filing of the 2008 Form 10-K.
 
ITEM 2.                      Unregistered Sales of Equity Securities and Use of Proceeds.
 
None
 
ITEM 3.                      Defaults Upon Senior Securities.
 
None
 
ITEM 4.                      Submission of Matters to a Vote of Security Holders.

None

ITEM 5.                      Other Information.
 
None
 
ITEM 6.                      Exhibits.

The Exhibit Index filed herewith is incorporated herein by reference.

 
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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.

 
RBC Life Sciences, Inc.
 
 
Registrant
 
       
November 9, 2009
By:
/s/ John W. Price
 
Date
Its:
President and Chief Executive Officer
       
November 9, 2009
By:
/s/ Steven E. Brown
 
Date
Its:
Vice President-Finance and
   
Chief Financial Officer
   
(Principal Financial and Accounting Officer)

 
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RBC LIFE SCIENCES, INC.

Exhibit Index

Exhibit Number
 
Description
31.1
 
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2
 
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1
 
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2
 
Certification of Principal Financial Officer 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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