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 June 30, 2011

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 x     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 July 29, 2011
Common Stock, $0.001 par value per share
 
22,228,834 shares



TABLE OF CONTENTS

 
Page Number
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
Reserved
Item 5.
Other Information
Item 6.
Exhibits
 
 
 
Signatures
 
 
Exhibit Index
 


PART 1 – FINANCIAL INFORMATION

ITEM 1.             FINANCIAL STATEMENTS

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

 
June 30,
2011
 
December 31,
2010
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
5,614,221

 
$
4,220,152

Accounts receivable, net
564,571

 
491,576

Inventories
5,548,083

 
5,343,016

Deferred income taxes
411,928

 
396,415

Prepaid expenses
1,179,384

 
807,344

Total current assets
13,318,187

 
11,258,503

Property and equipment, net
4,453,213

 
4,638,075

Goodwill, net
2,308,750

 
2,295,270

Intangible assets, net
52,872

 
55,851

Other assets
116,989

 
95,813

 
$
20,250,011

 
$
18,343,512

LIABILITIES AND SHAREHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable, trade
$
2,253,920

 
$
2,110,624

Accrued liabilities
1,557,214

 
976,495

Current maturities of long-term obligations
175,159

 
168,522

Deferred revenue
3,573,178

 
2,489,828

Total current liabilities
7,559,471

 
5,745,469

Long-term obligations, less current maturities
1,638,285

 
1,727,555

Deferred income taxes
997,566

 
994,909

Shareholders’ equity:
 
 
 

Common stock, $0.001 par value; 50,000,000 shares authorized; 22,228,834 shares issued and outstanding at June 30, 2011 and December 31, 2010
22,229

 
22,229

Additional paid-in capital
13,627,537

 
13,605,922

Accumulated deficit
(3,720,984
)
 
(3,881,348
)
Accumulated other comprehensive income
125,907

 
128,776

 
10,054,689

 
9,875,579

 
$
20,250,011

 
$
18,343,512


See notes to condensed consolidated financial statements.

- 3 -


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

 
For the Quarters Ended June 30,
 
2011
 
2010
Net sales
$
7,494,068

 
$
7,838,364

Cost of sales
3,509,250

 
4,182,481

Gross profit
3,984,818

 
3,655,883

Operating expenses:
 

 
 

General and administrative
2,330,339

 
2,431,944

Distributor commissions
1,488,918

 
746,493

Depreciation and amortization
108,225

 
120,546

Total operating expenses
3,927,482

 
3,298,983

Operating profit
57,336

 
356,900

Interest expense
35,406

 
38,527

Earnings before income taxes
21,930

 
318,373

Provision for income taxes
4,900

 
146,400

Net earnings
$
17,030

 
$
171,973


Earnings per share:
 
 
 
  Basic
$
0.00

 
$
0.01

  Diluted
$
0.00

 
$
0.01


Weighted average common shares outstanding:
 
 
 
  Basic
22,228,834

 
21,921,934

  Diluted
22,548,108

 
22,386,656


See notes to condensed consolidated financial statements.


- 4 -


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

 
For the Six Months Ended June 30,
 
2011
 
2010
Net sales
$
14,031,951

 
$
14,819,893

Cost of sales
6,730,968

 
7,775,216

Gross profit
7,300,983

 
7,044,677

Operating expenses:
 

 
 

General and administrative
4,440,354

 
4,757,327

Distributor commissions
2,323,482

 
1,287,238

Depreciation and amortization
218,268

 
242,917

Total operating expenses
6,982,104

 
6,287,482

Operating profit
318,879

 
757,195

Interest expense
71,615

 
77,798

Earnings before income taxes
247,264

 
679,397

Provision for income taxes
86,900

 
296,100

Net earnings
$
160,364

 
$
383,297


Earnings per share:
 
 
 
  Basic
$
0.01

 
$
0.02

  Diluted
$
0.01

 
$
0.02


Weighted average common shares outstanding:
 
 
 
  Basic
22,228,834

 
21,921,934

  Diluted
22,547,168

 
22,322,362


See notes to condensed consolidated financial statements.


- 5 -


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

 
For the Six Months Ended June 30,
 
2011
 
2010
Cash flows from operating activities:
 
 
 
Net earnings
$
160,364

 
$
383,297

Adjustment for non-cash items:
 
 
 
Depreciation and amortization
253,143

 
274,072

Stock-based compensation
21,615

 
25,503

Deferred income taxes
(11,414
)
 
41,742

     Loss on disposition of equipment
—

 
22,868

Change in operating assets and liabilities:
 
 
 
Accounts receivable
(72,961
)
 
(224,993
)
Inventories
(202,699
)
 
538,687

Prepaid expenses
(369,832
)
 
94,742

Other assets
(20,984
)
 
(2,594
)
Accounts payable and accrued liabilities
720,473

 
(282,559
)
Deferred revenue
1,083,327

 
(953,713
)
Net cash provided by (used in) operating activities
1,561,032

 
(82,948
)
Cash flows from investing activities:
 

 
 

Purchase of property and equipment
(65,274
)
 
(132,725
)
Proceeds from sale of equipment
—

 
7,031

Net cash used in investing activities
(65,274
)
 
(125,694
)
Cash flows from financing activities:
 

 
 

Payments of long-term obligations
(82,634
)
 
(76,491
)
Net cash used in financing activities
(82,634
)
 
(76,491
)
Effect of exchange rate changes on cash flows
(19,055
)
 
10,181

Net increase (decrease) in cash and cash equivalents
1,394,069

 
(274,952
)
Cash and cash equivalents, beginning of period
4,220,152

 
3,972,111

Cash and cash equivalents, end of period
$
5,614,221

 
$
3,697,159


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 U.S. (“US 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 US GAAP 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, 2010 (the “2010 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 US GAAP 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.  Subsequent events were evaluated through the issuance date of the 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”) through subsidiaries in the U.S. and Canada.  This product line is marketed under the “RBC Life” brand name.  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.  Accordingly, Associates may be product consumers only or they may also seek to derive compensation both from the direct sales of products and from sales generated by sponsored Associates. In certain markets in Southeast Asia, principally Taiwan, the Company sells its products through an NFR program. Individuals who participate in the NFR program function similarly to Associates in the U.S. and Canada in that they can sponsor others and derive compensation from sales generated by individuals they sponsor. However, they may only order products for personal use and may not resell products to retail customers.

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 in accordance with a compensation plan similar to the one used by RBC for its Associates in North America.

In addition to its Nutritional Products, RBC also markets a line of wound care products (“Medical Products”) under the MPM Medical brand name through a U.S. subsidiary.  Medical Products are distributed primarily 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.


- 7 -


Note C – Inventories:

Inventories consist of the following:
 
June 30, 2011
 
December 31, 2010
Raw materials and bulk products
$
552,840

 
$
287,644

Packaging materials
383,675

 
318,397

Finished goods
4,611,568

 
4,736,975

 
$
5,548,083

 
$
5,343,016


Note D – Prepaid Expenses:

Prepaid expenses consist of the following:
 
June 30, 2011
 
December 31, 2010
Advance payment to suppliers
$
600,873

 
$
333,763

Prepaid income taxes
—

 
225,698

Certificates of deposit - restricted
87,049

 
84,923

Prepaid insurance and other
491,462

 
162,960

 
$
1,179,384

 
$
807,344


At June 30, 2011 and December 31, 2010, the Company held certificates of deposit in the amount of approximately $87,000 and $85,000, respectively, which were pledged to secure surety bonds.

Note E – Property and Equipment:

Property and equipment consists of the following:
 
June 30, 2011
 
December 31, 2010
Building and improvements
$
3,523,428

 
$
3,523,428

Computer software and office equipment
2,106,182

 
2,063,488

Warehouse equipment
226,922

 
219,030

Automotive equipment
29,945

 
15,228

 
5,886,477

 
5,821,174

Less – accumulated depreciation
(2,574,437
)
 
(2,324,272
)
 
3,312,040

 
3,496,902

Land
1,141,173

 
1,141,173

 
$
4,453,213

 
$
4,638,075


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, 2010
$
3,429,940

 
$
(1,134,670
)
Currency translation adjustment
26,304

 
(12,824
)
Balance, June 30, 2011
$
3,456,244

 
$
(1,147,494
)
  

- 8 -


Other intangible assets consist of the following:
 
 
 
June 30, 2011
 
December 31, 2010
 
Average
Life
(years)
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Gross
Carrying
Value
 
Accumulated
Amortization
Copyrights, trademarks and other registrations
19
 
$
99,100

 
$
(52,192
)
 
$
99,100

 
$
(49,549
)
Other
19
 
12,600

 
(6,636
)
 
12,600

 
(6,300
)
 
 
 
$
111,700

 
$
(58,828
)
 
$
111,700

 
$
(55,849
)

Amortization expense related to other intangible assets totaled approximately $1,500 for the quarters ended June 30, 2011 and 2010, and $3,000 for the six months ended June 30, 2011 and 2010.  The aggregate estimated amortization expense for intangible assets remaining as of June 30, 2011 is as follows:
Remainder of 2011
$
2,979

2012
5,957

2013
5,957

2014
5,957

2015
5,957

Thereafter
26,065

 
$
52,872


Note G – Accrued Liabilities:

Accrued liabilities consist of the following:
 
June 30, 2011
 
December 31, 2010
Distributor commissions
$
916,152

 
$
470,778

Salaries and wages
383,481

 
399,357

Sales and property taxes
87,637

 
31,422

Interest
11,712

 
12,246

Other
158,232

 
62,692

 
$
1,557,214

 
$
976,495


Note H – Long-Term Obligations:

Long-term obligations consist of the following:
 
June 30, 2011
 
December 31, 2010
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 and Chief Executive Officer
$
1,813,444

 
$
1,896,077

Less – current maturities
(175,159
)
 
(168,522
)
 
$
1,638,285

 
$
1,727,555


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 June 30, 2011, the fair value of fixed-rate long-term debt was approximately $1,979,000, which was $166,000 above the carrying value of approximately $1,813,000.  At December 31, 2010, the fair value of fixed-rate long-term debt was approximately $2,041,000, which was $145,000 above the carrying value of approximately $1,896,000.

Note I – Share-Based Compensation:

The Company records compensation expense for all share-based payments based on the estimated grant date fair value.  Share-

- 9 -


based compensation expense was approximately $11,200 for the quarter ended June 30, 2011 and $21,600 and $25,500 for the six months ended June 30, 2011 and 2010, respectively.  As a result of the forfeiture of certain stock options before the vesting date, the Company recorded a net reversal of share-based compensation expense of approximately $7,700 during the quarter ended June 30, 2010. 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.
 
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 June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
 
(1)
 
(1)
 
 
 
(1)
Weighted average expected life (years)
—

 
—

 
8.4

 
—

Risk-free interest rate
—
%
 
—
%
 
3.32
%
 
—
%
Expected volatility
—
%
 
—
%
 
96.23
%
 
—
%
Expected dividend yield
—
%
 
—
%
 
—
%
 
—
%
__________________
(1) There were no option grants during this period.

A summary of stock option activity for the six months ended June 30, 2011 is as follows:
 
Options
 
Weighted-Average Exercise Price per Share
 
Weighted-Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value
Outstanding on December 31, 2010
1,198,390

 
$
0.34

 
                                      
 
 
Granted
33,600

 
0.28

 
 
 
 
Exercised
—

 
—

 
 
 
 
Forfeited/canceled
(50,900
)
 
0.45

 
 
 
 
Outstanding on June 30, 2011
1,181,090

 
$
0.34

 
3.8

 
$
95,532

Exercisable on June 30, 2011
926,990

 
$
0.28

 
3.2

 
$
94,126

 
A summary of the status of the Company's non-vested stock options as of June 30, 2011 and changes during the six months then ended are presented below:
 
Shares
 
Weighted-Average Grant Date Fair Value per Share
Non-vested stock options at December 31, 2010
303,930

 
$
0.46

Non-vested stock options granted
—

 
—

Vested stock options
(7,500
)
 
0.29

Forfeited stock options
(42,330
)
 
0.44

Non-vested stock options at June 30, 2011
254,100

 
0.47


As of June 30, 2011, there was approximately $97,100 of total unrecognized compensation cost related to stock option grants.
 

- 10 -


Note J – Segments and Geographic Area:

The Company's segments are based on the organizational 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 “RBC Life” brand name through subsidiaries in the U.S. and Canada.  These products are distributed by a network comprised of independent Associates and NFR program participants in certain markets, primarily the U.S., Canada and Southeast Asia, 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 under the MPM Medical brand name through a U.S. subsidiary operating primarily in the U.S.  These 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.  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.
 
Segment information is as follows (in thousands):
 
Nutritional Products
 
Medical Products
 
Consolidated
Quarter Ended June 30, 2011
 

 
 

 
 

  Net sales
$
5,702

 
$
1,792

 
$
7,494

  Depreciation and amortization
108

 
18

 
126

  Operating profit
14

 
43

 
57

  Capital expenditures
32

 
—

 
32

  Total assets
17,457

 
2,793

 
20,250

Quarter Ended June 30, 2010
 

 
 

 
 

  Net sales
$
6,187

 
$
1,651

 
$
7,838

  Depreciation and amortization
115

 
21

 
136

  Operating profit
214

 
143

 
357

  Capital expenditures
79

 
—

 
79

  Total assets
14,533

 
3,177

 
17,710

Six Months Ended June 30, 2011
 

 
 

 
 

Net sales
$
10,517

 
$
3,515

 
$
14,032

Depreciation and amortization
217

 
36

 
253

Operating profit
172

 
147

 
319

Capital expenditures
65

 
—

 
65

Total assets
17,457

 
2,793

 
20,250

Six Months Ended June 30, 2010
 

 
 

 
 

Net sales
$
11,601

 
$
3,219

 
$
14,820

Depreciation and amortization
232

 
42

 
274

Operating profit
583

 
174

 
757

Capital expenditures
133

 
—

 
133

Total assets
14,533

 
3,177

 
17,710



- 11 -


Financial information summarized geographically is as follows (in thousands):

 
Quarter Ended June 30, 2011
 
Quarter Ended June 30, 2010
 
Net sales
 
Long-Lived assets
 
Net sales
 
Long-Lived assets
Domestic
$
3,574

 
$
6,351

 
$
2,811

 
$
6,687

Russia/Eastern Europe
2,980

 
—

 
4,615

 
—

Canada
486

 
555

 
330

 
520

All others
454

 
26

 
82

 
—

Totals
$
7,494

 
$
6,932

 
$
7,838

 
$
7,207


 
Six Months Ended June 30, 2011
 
Six Months Ended June 30, 2010
 
Net sales
 
Long-Lived assets
 
Net sales
 
Long-Lived assets
Domestic
$
6,532

 
$
6,351

 
$
5,410

 
$
6,687

Russia/Eastern Europe
6,037

 
—

 
8,587

 
—

Canada
804

 
555

 
559

 
520

All others
659

 
26

 
264

 
—

Totals
$
14,032

 
$
6,932

 
$
14,820

 
$
7,207

  
Significant Customers

The Company recorded sales of Nutritional Products to Coral Club International, Inc. ("CCI"), a licensee of the Company, in the amounts of $2,980,000 and $4,615,000 during the quarters ended June 30, 2011 and 2010, respectively, and $6,037,000 and $8,587,000 during the six months ended June 30, 2011 and 2010, respectively.  The Company also recorded sales of Medical Products to a medical/surgical dealer in the amounts of $1,078,000 and $1,011,000 during the quarters ended June 30, 2011 and 2010, respectively, and $2,148,000 and $2,032,000 during the six months ended June 30, 2011 and 2010, respectively.  In no other case did a customer of the Company account for more than 10% of net sales during the quarters or the six months ended June 30, 2011 and 2010.



- 12 -


Note K – Earnings Per Share:

Summarized basic and diluted earnings per common share were calculated as follows:
 
Net Earnings
 
Weighted
Average
Shares
 
Per Share
Quarter Ended June 30, 2011
 

 
 

 
 

  Basic earnings per common share
$
17,030

 
22,228,834

 
$
0.00

  Effect of dilutive stock options
—

 
319,274

 
 

  Diluted earnings per common share
$
17,030

 
22,548,108

 
$
0.00

Quarter Ended June 30, 2010
 

 
 

 
 

  Basic earnings per common share
$
171,973

 
21,921,934

 
$
0.01

  Effect of dilutive stock options
—

 
464,722

 
 

  Diluted earnings per common share
$
171,973

 
22,386,656

 
$
0.01

Six Months Ended June 30, 2011
 

 
 

 
 

Basic earnings per common share
$
160,364

 
22,228,834

 
$
0.01

Effect of dilutive stock options
—

 
318,334

 
 

Diluted earnings per common share
$
160,364

 
22,547,168

 
$
0.01

Six Months Ended June 30, 2010
 

 
 

 
 

Basic earnings per common share
$
383,297

 
21,921,934

 
$
0.02

Effect of dilutive stock options
—

 
400,428

 
 

Diluted earnings per common share
$
383,297

 
22,322,362

 
$
0.02


The number of stock options that were outstanding, but not included in the computation of diluted earnings per common share because their exercise price was greater than the average market price of the common stock, or were otherwise anti-dilutive, was approximately 458,000 and 1,008,000 for the quarters ended June 30, 2011 and 2010, respectively, and 469,000 and 1,058,000 for the six months ended June 30, 2011 and 2010, respectively.

Note L – Comprehensive Income:

Comprehensive income 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:
 
Quarters Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
Net earnings
$
17,030

 
$
171,973

 
$
160,364

 
$
383,297

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
343

 
647

 
(2,869
)
 
1,805

Comprehensive income
$
17,373

 
$
172,620

 
$
157,495

 
$
385,102


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.


- 13 -


ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 2010 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 (the "Exchange Act").  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 2010 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., Canada and Southeast Asia, we distribute Nutritional Products directly through a network comprised of independent Associates and individuals who participate in our NFR program. 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.  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.
  
Consolidated net sales in dollars and as a percentage of consolidated net sales are as follows:
 
Quarters Ended June 30,
 
2011
 
2010
 
(U.S. dollars in 000’s)
Nutritional Products:
 
 
 
 
 
 
 
Licensees
$
3,021

 
40
%
 
$
4,642

 
59
%
Associate network
2,681

 
36
%
 
1,545

 
20
%
 
5,702

 
76
%
 
6,187

 
79
%
Medical Products
1,792

 
24
%
 
1,651

 
21
%
 
$
7,494

 
100
%
 
$
7,838

 
100
%


- 14 -


 
Six Months Ended June 30,
 
2011
 
2010
 
(U.S. dollars in 000’s)
Nutritional Products:
 
 
 
 
 
 
 
Licensees
$
6,110

 
44
%
 
$
8,796

 
59
%
Associate network
4,407

 
31
%
 
2,805

 
19
%
 
10,517

 
75
%
 
11,601

 
78
%
Medical Products
3,515

 
25
%
 
3,219

 
22
%
 
$
14,032

 
100
%
 
$
14,820

 
100
%

Licensees. Our highest revenue distribution channel is the licensee channel.  In this 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. For the most part, licensees are 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 CCI, which accounted for 99% and 98% of licensee net sales in the six months ended June 30, 2011 and 2010, respectively. CCI distributes products in a territory comprised mainly of Russia 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. Under our arrangement with CCI, CCI orders products from the Company and pays for products when they are segregated in the Company's warehouse for CCI’s account. Once segregated, products are stored until CCI provides shipping instructions; segregated products are not subject to return except in the case of a manufacturing defect.  Because we do not recognize revenue until products are shipped to CCI, the Company's 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. 
 
Net sales in this channel decreased $2,686,000, or 31%, during the six months ended June 30, 2011 compared with net sales for the same period in 2010 primarily as a result of a decrease in net sales to CCI.  Net sales to CCI decreased $2,550,000, or 30%, for the six months ended June 30, 2011.  We attribute this decline primarily to the logistical considerations affecting the timing of shipments to CCI as well as decreased in-territory demand. Reduced in-territory demand generally results in a disproportionate reduction of sales to CCI as CCI adjusts its inventory to a level commensurate with expected future sales. Backlog related to CCI’s account was $7,687,000 at June 30, 2011 compared to $6,403,000 at June 30, 2010. Net sales in this channel represented 44% of consolidated net sales in the first six months of 2011, compared to 56%, 51% and 60% for the years ended December 31, 2010, 2009 and 2008, respectively.

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 June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
U.S.
68
%
 
75
%
 
70
%
 
78
%
Canada
18

 
21

 
18

 
20

Southeast Asia
14

 
4

 
12

 
2

 
100
%
 
100
%
 
100
%
 
100
%
 
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.  Net sales through the Associate network channel increased approximately 57% during the first six months of 2011 compared to the same period in 2010.  This increase was primarily attributable to the following:

•
In late March 2010, we initiated a program whereby we began selling selected nutritional supplement products in Taiwan under an NFR program.  In June 2010, October 2010 and April 2011, this program was expanded to include the Southeast Asian markets of Brunei, Singapore and Hong Kong, respectively. The NFR program allows consumers in NFR markets to sign up as customers, purchase products, refer others to our network marketing program and receive commissions. The NFR program also allows independent Associates in North America to expand their distributorships into these NFR markets.   Product orders from NFR customers are currently fulfilled from our U.S. warehouse located in Irving,

- 15 -


Texas.  Because of the favorable results we have seen from this program, we plan to open an office and distribution facility in Taiwan during 2011.
•
In May 2011, we launched a new product, Stem-KineTM. Stem-Kine is a dietary supplement that has been shown in published human clinical studies to nutritionally enable bone marrow and other stem cell-producing tissues to increase their production of stem cells, which form the natural repair and renewal system of the body. In connection with this launch, we promoted sales of Stem-Kine through special purchase offers, sales contests and a series of Company-sponsored events. Primarily as a result of these activities, Associate network sales and sponsorship of new Associates in the second quarter of 2011 increased 55% and 115%, respectively, when compared to the first quarter of 2011.
 
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 61% and 63% of Medical Products net sales during the six months ended June 30, 2011 and 2010, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The preparation of our financial statements and related disclosures in conformity with US GAAP 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 six months ended June 30, 2011 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 2010 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 June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
Net sales
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Cost of sales
46.8

 
53.4

 
48.0

 
52.5

Gross profit
53.2

 
46.6

 
52.0

 
47.5

Operating expenses:
 

 
 

 
 

 
 

General and administrative
31.1

 
31.0

 
31.6

 
32.1

Distributor commissions
19.9

 
9.5

 
16.6

 
8.7

Depreciation and amortization
1.4

 
1.5

 
1.5

 
1.6

Total operating expenses
52.4

 
42.0

 
49.7

 
42.4

Operating profit
0.8

 
4.6

 
2.3

 
5.1

Interest expense
0.5

 
0.5

 
0.5

 
0.5

Earnings before income taxes
0.3

 
4.1

 
1.8

 
4.6

Provision for income taxes
0.1

 
1.9

 
0.7

 
2.0

Net earnings
0.2
%
 
2.2
%
 
1.1
%
 
2.6
%

Quarter ended June 30, 2011 compared with quarter ended June 30, 2010 (000’s except per share amounts)
 
Net sales. Net sales for the quarter ended June 30, 2011 were $7,494 compared with net sales for the same period in 2010 of $7,838, a decrease of $344 or 4%. This decrease resulted from a $485 decrease in net sales of Nutritional Products, which was partially offset by a $141 increase in net sales of Medical Products. Net sales of Nutritional Products to our licensees decreased $1,621 while net sales of Nutritional Products to our Associate network increased $1,136.
 

- 16 -


Licensees.  Net sales to our licensees decreased as a result of decreased shipments to CCI; sales of our products to CCI decreased $1,635, or 35%, during the second quarter of 2011. We attribute this decline primarily to the logistical considerations affecting the timing of shipments to CCI as well as decreased in-territory demand. Sales to CCI can vary from quarter to quarter due to various logistical factors, sometimes significantly, irrespective of the sales demand of CCI’s Associate network.
  
Associate Network.  Net sales to our Associate network increased approximately $1,136, or 74%, during the second quarter of 2011 primarily as a result of increased levels of sponsorship of new Associates and the introduction of Stem-Kine, as described above under the section "Overview - Associate Network." During the second quarter of 2011, the number of new Associates sponsored more than doubled from the number sponsored during the second quarter of 2010.

Medical products.  The growth in net sales of Medical Products resulted from increased sales both to new customers and to existing customers in this segment.   Sales to the largest customer in this segment, which distributes wound care products and provides services to the nursing home market, increased $67 during the second quarter of 2011 compared to the second quarter of 2010.  Sales to this distributor in the second quarter of 2011 were approximately $1,078.

Cost of sales.  Cost of sales for the quarter ended June 30, 2011 was $3,509 compared with cost of sales in the first quarter of 2010 of $4,182, a decrease of $673 or 16%. As a percentage of net sales, cost of sales was 47% in the second quarter of 2011 and 53% in the second quarter of 2010. As a percentage of net sales, gross profit increased 6% primarily because of a change in sales mix in the Nutritional Products segment.  During the second quarter of 2011, a greater percentage of our sales in this segment was contributed by Associate network sales, which have a higher gross margin than sales to our licensees. Sales to licensees have a lower gross margin because the licensees bear the cost of Associate commissions and other marketing and distribution expenses in the licensed territories.
 
General and administrative. General and administrative expenses for the quarter ended June 30, 2011 were $2,330 compared with expenses in the second quarter of 2010 of $2,432, a decrease of $102 or 4%. This decrease was primarily attributable to decreased expenses associated with our Canadian operations and decreased personnel expenses.  As a percentage of net sales, general and administrative expenses were 31% in the quarters ended June 30, 2011 and 2010.
 
Distributor commissions. Distributor commissions were $1,489 for the quarter ended June 30, 2011 compared with distributor commissions of $746 in the second quarter of 2010, an increase of $743 or 100%.  With respect to our Associate network, distributor commissions as a percentage of commissionable sales exclusive of rebates, which are recorded as a reduction of sales, increased to approximately 56% in the second quarter of 2011 compared to 47% in the same period in 2010.  This percentage increase was mainly due to (i) special price promotions offered in connection with the launch of Stem-Kine, (ii) an increase in sales of product "entry packs" that are available for purchase by newly enrolling Associates, which provide a higher percentage of commissions than non-entry pack sales, and (iii) the qualification of certain Associates at higher commission levels of the Associate compensation plan, which was attributable to the overall increase in Associate network sales. On a consolidated basis, distributor commissions as a percentage of net sales were 20% and 10% in the quarter ended June 30, 2011 and 2010, respectively.
 
Income taxes.  We recorded a provision for income taxes of $5 and $146 during the quarters ended June 30, 2011 and 2010, respectively, based on our estimate of the effective annual income tax rate for the applicable period.

Net earnings.  As a result of the factors described above, net earnings for the quarter ended June 30, 2011 were $17, or $0.00 per share, compared with net earnings in the first quarter of 2010 of $172, or $0.01 per share.

Six months ended June 30, 2011 compared with six months ended June 30, 2010 (000’s except per share amounts)
 
Net sales. Net sales for the six months ended June 30, 2011 were $14,032 compared with net sales for the same period in 2010 of $14,820, a decrease of $788 or 5%. This decrease resulted from a $1,084 decrease in net sales of Nutritional Products, which was partially offset by a $296 increase in net sales of Medical Products. Net sales of Nutritional Products to our licensees decreased $2,686 while net sales of Nutritional Products to our Associate network increased $1,602.
 
Licensees.  Net sales to our licensees decreased primarily as a result of decreased shipments to CCI; sales of our products to CCI decreased $2,550, or 30%, during the first six months of 2011. We attribute this decline primarily to the logistical considerations affecting the timing of shipments to CCI as well as decreased in-territory demand. Sales to CCI vary from period to period due to various logistical factors, sometimes significantly, irrespective of the sales demand of CCI’s Associate network.
  
Associate Network.  Net sales to our Associate network increased approximately $1,602, or 57%, during the first six months of 2011 primarily as a result of increased levels of sponsorship of new Associates and the introduction of Stem-Kine, as described above under the section "Overview - Associate Network." During the first six months of 2011, the number of new Associates

- 17 -


sponsored more than doubled from the number sponsored during the first six months of 2010.

Medical products.  The growth in net sales of Medical Products resulted from increased sales both to new customers and to existing customers in this segment.   Sales to the largest customer in this segment, which distributes wound care products and provides services to the nursing home market, increased $116 during the first six months of 2011 compared to the first six months of 2010.  Sales to this distributor in the first six months of 2011 were approximately $2,148.

Cost of sales.  Cost of sales for the six months ended June 30, 2011 was $6,731 compared with cost of sales in the first six months of 2010 of $7,775, a decrease of $1,044 or 13%. As a percentage of net sales, cost of sales was 48% in the first six months of 2011 and 53% in the first six months of 2010. As a percentage of net sales, gross profit increased 5% primarily because of a change in sales mix in the Nutritional Products segment.  During the first six months of 2011, a greater percentage of our sales in this segment was contributed by Associate network sales, which have a higher gross margin than sales to our licensees. Sales to licensees have a lower gross margin because the licensees bear the cost of Associate commissions and other marketing and distribution expenses in the licensed territories.
 
General and administrative. General and administrative expenses for the six months ended June 30, 2011 were $4,440 compared with expenses in the first six months of 2010 of $4,757, a decrease of $317 or 7%. This decrease was primarily attributable to decreased expenses associated with our Canadian operations and decreased personnel expenses.  As a percentage of net sales, general and administrative expenses were 32% in the six months ended June 30, 2011 and 2010.
 
Distributor commissions. Distributor commissions were $2,323 for the six months ended June 30, 2011 compared with distributor commissions of $1,287 in the first six months of 2010, an increase of $1,036 or 80%.  With respect to our Associate network, distributor commissions as a percentage of commissionable sales exclusive of rebates, which are recorded as a reduction of sales, increased to approximately 52% in the first six months of 2011 compared to 44% in the same period in 2010.  This percentage increase was mainly due to (i) special price promotions offered in connection with the launch of Stem-Kine, (ii) an increase in sales of product "entry packs" that are available for purchase by newly enrolling Associates, which provide a higher percentage of commissions than non-entry pack sales, and (iii) the qualification of certain Associates at higher commission levels of the Associate compensation plan, which was attributable to the overall increase in Associate network sales. On a consolidated basis, distributor commissions as a percentage of net sales were 17% and 9% in the six months ended June 30, 2011 and 2010, respectively.
 
Income taxes.  We recorded a provision for income taxes of $87 and $296 during the six months ended June 30, 2011 and 2010, respectively, based on our estimate of the effective annual income tax rate for the applicable period.

Net earnings.  As a result of the factors described above, net earnings for the six months ended June 30, 2011 were $160, or $0.01 per share, compared with net earnings in the first six months of 2010 of $383, or $0.02 per share.

LIQUIDITY AND CAPITAL RESOURCES (000’s)
 
Cash and working capital. During the first six months of 2011, we had a net increase in cash of $1,394 compared with a net decrease in cash of $275 in the first six months of 2010.  At June 30, 2011, we had working capital of $5,759, a $246 increase from working capital at December 31, 2010 of $5,513.   The reasons for these changes in cash and working capital are described below.
 
Operating activities. In the first six months of 2011, our operating activities provided cash flows of $1,561.  In the first six months of 2010, our operating activities used cash flows of $83.  The primary sources of cash provided by operating activities during the first six months of 2011 were a $1,083 increase in deferred revenue, which primarily resulted from an increase in order deposits received from CCI, and a $720 increase in accounts payable and accrued liabilities, which primarily resulted from an increase in accrued Associate commissions. Offsetting these sources of cash were a $370 increase in prepaid expenses, which primarily resulted from increased supplier deposits and annual insurance policy renewals, and a $203 increase in inventories, which primarily resulted from inventory purchased for the Taiwan branch operation and inventory held for CCI. In the first six months of 2011, net earnings adjusted for non-cash activities, which include depreciation and amortization, stock-based compensation and deferred income taxes, provided cash flows of $424 compared with providing cash flows of $747 in the first six months of 2010.
 
Investing activities. During the first six months of 2011, we used cash of $65 to purchase property and equipment, most of which was related to computer systems or warehouse operations.
 
Financing activities. The only financing activity during the first six months of 2011 was the repayment of long-term debt in the amount of $83.


- 18 -


General liquidity and cash flows. We believe that the working capital requirements of our existing operations, including the start-up of branch operations in Taiwan, 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.  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.
 
Foreign exchange
 
We have foreign-based operations in Canada that accounted for 6% of net sales during the first six months of 2011 and 4% of net sales in 2010.  We also plan to establish foreign operations in Taiwan during 2011. We advance funds to and from our foreign operations denominated in U.S. dollars, exposing the foreign operation to the effect of changes in spot exchange rates of the local currency 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 $751,000 and $94,000 to our Canadian operations and Taiwan operations, respectively, at June 30, 2011, a 10% adverse change in the currency rate would reduce earnings before income taxes by approximately $84,500.

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 Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated as of June 30, 2011, 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 June 30, 2011, 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 June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 

- 19 -


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 2010 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 2010 Form 10-K.

ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

None

ITEM 3.
Defaults Upon Senior Securities.
 
None

ITEM 4.
Reserved.
 
ITEM 5.
Other Information.
 
None

ITEM 6.
Exhibits.

The Exhibit Index filed herewith is incorporated herein by reference.


- 20 -


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
 
 
 
 
August 12, 2011
 
By:
/s/             Clinton H. Howard
Date
 
Its:
President and Chief Executive Officer
 
 
 
(principal executive officer)
 
 
 
 
August 12, 2011
 
By:
/s/              Steven E. Brown
Date
 
Its:
Executive Vice President and Chief Financial Officer
 
 
 
(principal financial and accounting officer)


- 21 -


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
101.INS
XBRL Instance Document **
101.SCH
XBRL Taxonomy Extension Schema Document **
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document **
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document **
101.LAB
XBRL Taxonomy Extension Label Linkbase Document **
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document **

** Filed electronically herewith

- 22 -


EXHIBIT 31.1
 
SECTION 302 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER
 
I, Clinton H. Howard, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of RBC Life Sciences, Inc.;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
Date: August 12, 2011
 
 
/s/           Clinton H. Howard
 
Clinton H. Howard
 
President and Chief Executive Officer
 
 





EXHIBIT 31.2
 
SECTION 302 - CERTIFICATION OF CHIEF FINANCIAL OFFICER

 
I, Steven E. Brown, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of RBC Life Sciences, Inc.;

2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
Date: August 12, 2011
 
 
/s/            Steven E. Brown
 
Steven E. Brown
 
Executive Vice President and Chief Financial Officer

 





EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of RBC Life Sciences, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clinton H. Howard, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 
/s/             Clinton H. Howard
 
Clinton H. Howard
 
President and Chief Executive Officer
 
August 12, 2011

 





EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of RBC Life Sciences, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven E. Brown, Vice President-Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 
/s/             Steven E. Brown
 
Steven E. Brown
 
Executive Vice President and Chief Financial Officer
 
August 12, 2011



Document and Entity Information

Document and Entity Information
(USD $) 		 6 Months Ended
06/30/2011 		 07/29/2011 
Entity Registrant Name RBC LIFE SCIENCES, INC.  
Entity Central Index Key 0000830052  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Document Type 10-Q  
Document Period End Date 2011-06-30  
Document Fiscal Year Focus 2,011  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   22,228,834

Condensed Consolidated Balance Sheets

Condensed Consolidated Balance Sheets
(USD $) 		 06/30/2011  12/31/2010 
ASSETS  
Current assets:  
Cash and cash equivalents $ 5,614,221 $ 4,220,152
Accounts receivable, net 564,571 491,576
Inventories 5,548,083 5,343,016
Deferred income taxes 411,928 396,415
Prepaid expenses 1,179,384 807,344
Total current assets 13,318,187 11,258,503
Property and equipment, net 4,453,213 4,638,075
Goodwill, net 2,308,750 2,295,270
Intangible assets, net 52,872 55,851
Other assets 116,989 95,813
Total assets 20,250,011 18,343,512
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:  
Accounts payable, trade 2,253,920 2,110,624
Accrued liabilities 1,557,214 976,495
Current maturities of long-term obligations 175,159 168,522
Deferred revenue 3,573,178 2,489,828
Total current liabilities 7,559,471 5,745,469
Long-term obligations, less current maturities 1,638,285 1,727,555
Deferred income taxes 997,566 994,909
Shareholders' equity:  
Common stock, $0.001 par value; 50,000,000 shares authorized; 22,228,834 shares issued and outstanding at June 30, 2011 and December 31, 2010 22,229 22,229
Additional paid-in capital 13,627,537 13,605,922
Accumulated deficit (3,720,984) (3,881,348)
Accumulated other comprehensive income 125,907 128,776
Total shareholders' equity 10,054,689 9,875,579
Total liabilities and shareholders' equity $ 20,250,011 $ 18,343,512

Condensed Consolidated Balance Sheets (Parenthetical)

Condensed Consolidated Balance Sheets
(Parenthetical) (USD $) 		 06/30/2011  12/31/2010 
Shareholders' equity:  
Common stock par value $ 0.001 $ 0.001
Common stock shares authorized 50,000,000 50,000,000
Common stock shares issued 22,228,834 22,228,834
Common stock shares outstanding 22,228,834 22,228,834

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Operations
(USD $) 		 3 Months Ended
06/30/2011 		 3 Months Ended
06/30/2010 		 6 Months Ended
06/30/2011 		 6 Months Ended
06/30/2010 
Net sales $ 7,494,068 $ 7,838,364 $ 14,031,951 $ 14,819,893
Cost of sales 3,509,250 4,182,481 6,730,968 7,775,216
Gross profit 3,984,818 3,655,883 7,300,983 7,044,677
Operating expenses:  
General and administrative 2,330,339 2,431,944 4,440,354 4,757,327
Distributor commissions 1,488,918 746,493 2,323,482 1,287,238
Depreciation and amortization 108,225 120,546 218,268 242,917
Total operating expenses 3,927,482 3,298,983 6,982,104 6,287,482
Operating profit 57,336 356,900 318,879 757,195
Interest expense 35,406 38,527 71,615 77,798
Earnings before income taxes 21,930 318,373 247,264 679,397
Provision for income taxes 4,900 146,400 86,900 296,100
Net earnings $ 17,030 $ 171,973 $ 160,364 $ 383,297
Earnings per share:  
Basic $ 0 $ 0.01 $ 0.01 $ 0.02
Diluted $ 0 $ 0.01 $ 0.01 $ 0.02
Weighted average common shares outstanding:  
Basic 22,228,834 21,921,934 22,228,834 21,921,934
Diluted 22,548,108 22,386,656 22,547,168 22,322,362

Condensed Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Cash Flows
(USD $) 		 6 Months Ended
06/30/2011 		 6 Months Ended
06/30/2010 
Cash flows from operating activities:  
Net earnings $ 160,364 $ 383,297
Adjustment for non-cash items:  
Depreciation and amortization 253,143 274,072
Stock-based compensation 21,615 25,503
Deferred income taxes (11,414) 41,742
Loss on disposition of equipment 0 (22,868)
Change in operating assets and liabilities:  
Accounts receivable (72,961) (224,993)
Inventories (202,699) 538,687
Prepaid expenses (369,832) 94,742
Other assets (20,984) (2,594)
Accounts payable and accrued liabilities 720,473 (282,559)
Deferred revenue 1,083,327 (953,713)
Net cash provided by (used in) operating activities 1,561,032 (82,948)
Cash flows from investing activities:  
Purchase of property and equipment (65,274) (132,725)
Proceeds from sale of equipment 0 7,031
Net cash used in investing activities (65,274) (125,694)
Cash flows from financing activities:  
Payments of long-term obligations (82,634) (76,491)
Net cash used in financing activities (82,634) (76,491)
Effect of exchange rate changes on cash flows (19,055) 10,181
Net increase (decrease) in cash and cash equivalents 1,394,069 (274,952)
Cash and cash equivalents, beginning of period 4,220,152 3,972,111
Cash and cash equivalents, end of period $ 5,614,221 $ 3,697,159

Unaudited Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Financial Statements
(USD $) 		 6 Months Ended
06/30/2011 
Basis of Accounting [Text Block]
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 U.S. (“US 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 US GAAP 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, 2010 (the “2010 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 US GAAP 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.  Subsequent events were evaluated through the issuance date of the consolidated financial statements.

Nature of Operations and Organization

Nature of Operations and Organization
(USD $) 		 6 Months Ended
06/30/2011 
Nature of Operations [Text Block]
Nature of Operations and Organization:


The Company is principally engaged in the marketing of nutritional supplements and personal care products (collectively “Nutritional Products”) through subsidiaries in the U.S. and Canada.  This product line is marketed under the “RBC Life” brand name.  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.  Accordingly, Associates may be product consumers only or they may also seek to derive compensation both from the direct sales of products and from sales generated by sponsored Associates. In certain markets in Southeast Asia, principally Taiwan, the Company sells its products through an NFR program. Individuals who participate in the NFR program function similarly to Associates in the U.S. and Canada in that they can sponsor others and derive compensation from sales generated by individuals they sponsor. However, they may only order products for personal use and may not resell products to retail customers.


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 in accordance with a compensation plan similar to the one used by RBC for its Associates in North America.


In addition to its Nutritional Products, RBC also markets a line of wound care products (“Medical Products”) under the MPM Medical brand name through a U.S. subsidiary.  Medical Products are distributed primarily 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.

Inventories

Inventories
(USD $) 		 6 Months Ended
06/30/2011 
Inventory Disclosure [Text Block]
Inventories:


Inventories consist of the following:
 
June 30, 2011
 
December 31, 2010
Raw materials and bulk products
$
552,840


 
$
287,644


Packaging materials
383,675


 
318,397


Finished goods
4,611,568


 
4,736,975


 
$
5,548,083


 
$
5,343,016


Prepaid Expenses

Prepaid Expenses
(USD $) 		 6 Months Ended
06/30/2011 
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block]
Prepaid Expenses:


Prepaid expenses consist of the following:
 
June 30, 2011
 
December 31, 2010
Advance payment to suppliers
$
600,873


 
$
333,763


Prepaid income taxes
—


 
225,698


Certificates of deposit - restricted
87,049


 
84,923


Prepaid insurance and other
491,462


 
162,960


 
$
1,179,384


 
$
807,344




At June 30, 2011 and December 31, 2010, the Company held certificates of deposit in the amount of approximately $87,000 and $85,000, respectively, which were pledged to secure surety bonds.

Property and Equipment

Property and Equipment
(USD $) 		 6 Months Ended
06/30/2011 
Property, Plant and Equipment [Text Block]
Property and Equipment:


Property and equipment consists of the following:
 
June 30, 2011
 
December 31, 2010
Building and improvements
$
3,523,428


 
$
3,523,428


Computer software and office equipment
2,106,182


 
2,063,488


Warehouse equipment
226,922


 
219,030


Automotive equipment
29,945


 
15,228


 
5,886,477


 
5,821,174


Less – accumulated depreciation
(2,574,437
)
 
(2,324,272
)
 
3,312,040


 
3,496,902


Land
1,141,173


 
1,141,173


 
$
4,453,213


 
$
4,638,075


Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets
(USD $) 		 6 Months Ended
06/30/2011 
Goodwill and Intangible Assets Disclosure [Text Block]
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, 2010
$
3,429,940


 
$
(1,134,670
)
Currency translation adjustment
26,304


 
(12,824
)
Balance, June 30, 2011
$
3,456,244


 
$
(1,147,494
)
  
Other intangible assets consist of the following:
 
 
 
June 30, 2011
 
December 31, 2010
 
Average
Life
(years)
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Gross
Carrying
Value
 
Accumulated
Amortization
Copyrights, trademarks and other registrations
19
 
$
99,100


 
$
(52,192
)
 
$
99,100


 
$
(49,549
)
Other
19
 
12,600


 
(6,636
)
 
12,600


 
(6,300
)
 
 
 
$
111,700


 
$
(58,828
)
 
$
111,700


 
$
(55,849
)


Amortization expense related to other intangible assets totaled approximately $1,500 for the quarters ended June 30, 2011 and 2010, and $3,000 for the six months ended June 30, 2011 and 2010.  The aggregate estimated amortization expense for intangible assets remaining as of June 30, 2011 is as follows:
Remainder of 2011
$
2,979


2012
5,957


2013
5,957


2014
5,957


2015
5,957


Thereafter
26,065


 
$
52,872




Accrued Liabilities

Accrued Liabilities
(USD $) 		 6 Months Ended
06/30/2011 
Accounts Payable and Accrued Liabilities Disclosure [Text Block]
Accrued Liabilities:


Accrued liabilities consist of the following:
 
June 30, 2011
 
December 31, 2010
Distributor commissions
$
916,152


 
$
470,778


Salaries and wages
383,481


 
399,357


Sales and property taxes
87,637


 
31,422


Interest
11,712


 
12,246


Other
158,232


 
62,692


 
$
1,557,214


 
$
976,495


Long-Term Obligations

Long-Term Obligations
(USD $) 		 6 Months Ended
06/30/2011 
Long-term Debt [Text Block]
Long-Term Obligations:


Long-term obligations consist of the following:
 
June 30, 2011
 
December 31, 2010
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 and Chief Executive Officer
$
1,813,444


 
$
1,896,077


Less – current maturities
(175,159
)
 
(168,522
)
 
$
1,638,285


 
$
1,727,555




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 June 30, 2011, the fair value of fixed-rate long-term debt was approximately $1,979,000, which was $166,000 above the carrying value of approximately $1,813,000.  At December 31, 2010, the fair value of fixed-rate long-term debt was approximately $2,041,000, which was $145,000 above the carrying value of approximately $1,896,000.

Share-Based Compensation

Share-Based Compensation
(USD $) 		 6 Months Ended
06/30/2011 
Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Text Block]
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 was approximately $11,200 for the quarter ended June 30, 2011 and $21,600 and $25,500 for the six months ended June 30, 2011 and 2010, respectively.  As a result of the forfeiture of certain stock options before the vesting date, the Company recorded a net reversal of share-based compensation expense of approximately $7,700 during the quarter ended June 30, 2010. 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.
 
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 June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
 
(1)
 
(1)
 
 
 
(1)
Weighted average expected life (years)
—


 
—


 
8.4


 
—


Risk-free interest rate
—
%
 
—
%
 
3.32
%
 
—
%
Expected volatility
—
%
 
—
%
 
96.23
%
 
—
%
Expected dividend yield
—
%
 
—
%
 
—
%
 
—
%
__________________
(1) There were no option grants during this period.


A summary of stock option activity for the six months ended June 30, 2011 is as follows:
 
Options
 
Weighted-Average Exercise Price per Share
 
Weighted-Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value
Outstanding on December 31, 2010
1,198,390


 
$
0.34


 
                                      
 
 
Granted
33,600


 
0.28


 
 
 
 
Exercised
—


 
—


 
 
 
 
Forfeited/canceled
(50,900
)
 
0.45


 
 
 
 
Outstanding on June 30, 2011
1,181,090


 
$
0.34


 
3.8


 
$
95,532


Exercisable on June 30, 2011
926,990


 
$
0.28


 
3.2


 
$
94,126


 
A summary of the status of the Company's non-vested stock options as of June 30, 2011 and changes during the six months then ended are presented below:
 
Shares
 
Weighted-Average Grant Date Fair Value per Share
Non-vested stock options at December 31, 2010
303,930


 
$
0.46


Non-vested stock options granted
—


 
—


Vested stock options
(7,500
)
 
0.29


Forfeited stock options
(42,330
)
 
0.44


Non-vested stock options at June 30, 2011
254,100


 
0.47




As of June 30, 2011, there was approximately $97,100 of total unrecognized compensation cost related to stock option grants.

Segments and Geographic Area

Segments and Geographic Area
(USD $) 		 6 Months Ended
06/30/2011 
Segment Reporting Disclosure [Text Block]
Segments and Geographic Area:


The Company's segments are based on the organizational 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 “RBC Life” brand name through subsidiaries in the U.S. and Canada.  These products are distributed by a network comprised of independent Associates and NFR program participants in certain markets, primarily the U.S., Canada and Southeast Asia, 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 under the MPM Medical brand name through a U.S. subsidiary operating primarily in the U.S.  These 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.  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.
 
Segment information is as follows (in thousands):
 
Nutritional Products
 
Medical Products
 
Consolidated
Quarter Ended June 30, 2011
 


 
 


 
 


  Net sales
$
5,702


 
$
1,792


 
$
7,494


  Depreciation and amortization
108


 
18


 
126


  Operating profit
14


 
43


 
57


  Capital expenditures
32


 
—


 
32


  Total assets
17,457


 
2,793


 
20,250


Quarter Ended June 30, 2010
 


 
 


 
 


  Net sales
$
6,187


 
$
1,651


 
$
7,838


  Depreciation and amortization
115


 
21


 
136


  Operating profit
214


 
143


 
357


  Capital expenditures
79


 
—


 
79


  Total assets
14,533


 
3,177


 
17,710


Six Months Ended June 30, 2011
 


 
 


 
 


Net sales
$
10,517


 
$
3,515


 
$
14,032


Depreciation and amortization
217


 
36


 
253


Operating profit
172


 
147


 
319


Capital expenditures
65


 
—


 
65


Total assets
17,457


 
2,793


 
20,250


Six Months Ended June 30, 2010
 


 
 


 
 


Net sales
$
11,601


 
$
3,219


 
$
14,820


Depreciation and amortization
232


 
42


 
274


Operating profit
583


 
174


 
757


Capital expenditures
133


 
—


 
133


Total assets
14,533


 
3,177


 
17,710




Financial information summarized geographically is as follows (in thousands):


 
Quarter Ended June 30, 2011
 
Quarter Ended June 30, 2010
 
Net sales
 
Long-Lived assets
 
Net sales
 
Long-Lived assets
Domestic
$
3,574


 
$
6,351


 
$
2,811


 
$
6,687


Russia/Eastern Europe
2,980


 
—


 
4,615


 
—


Canada
486


 
555


 
330


 
520


All others
454


 
26


 
82


 
—


Totals
$
7,494


 
$
6,932


 
$
7,838


 
$
7,207




 
Six Months Ended June 30, 2011
 
Six Months Ended June 30, 2010
 
Net sales
 
Long-Lived assets
 
Net sales
 
Long-Lived assets
Domestic
$
6,532


 
$
6,351


 
$
5,410


 
$
6,687


Russia/Eastern Europe
6,037


 
—


 
8,587


 
—


Canada
804


 
555


 
559


 
520


All others
659


 
26


 
264


 
—


Totals
$
14,032


 
$
6,932


 
$
14,820


 
$
7,207


  
Significant Customers


The Company recorded sales of Nutritional Products to Coral Club International, Inc. ("CCI"), a licensee of the Company, in the amounts of $2,980,000 and $4,615,000 during the quarters ended June 30, 2011 and 2010, respectively, and $6,037,000 and $8,587,000 during the six months ended June 30, 2011 and 2010, respectively.  The Company also recorded sales of Medical Products to a medical/surgical dealer in the amounts of $1,078,000 and $1,011,000 during the quarters ended June 30, 2011 and 2010, respectively, and $2,148,000 and $2,032,000 during the six months ended June 30, 2011 and 2010, respectively.  In no other case did a customer of the Company account for more than 10% of net sales during the quarters or the six months ended June 30, 2011 and 2010.


Earnings Per Share

Earnings Per Share
(USD $) 		 6 Months Ended
06/30/2011 
Earnings Per Share [Text Block]
Earnings Per Share:


Summarized basic and diluted earnings per common share were calculated as follows:
 
Net Earnings
 
Weighted
Average
Shares
 
Per Share
Quarter Ended June 30, 2011
 


 
 


 
 


  Basic earnings per common share
$
17,030


 
22,228,834


 
$
0.00


  Effect of dilutive stock options
—


 
319,274


 
 


  Diluted earnings per common share
$
17,030


 
22,548,108


 
$
0.00


Quarter Ended June 30, 2010
 


 
 


 
 


  Basic earnings per common share
$
171,973


 
21,921,934


 
$
0.01


  Effect of dilutive stock options
—


 
464,722


 
 


  Diluted earnings per common share
$
171,973


 
22,386,656


 
$
0.01


Six Months Ended June 30, 2011
 


 
 


 
 


Basic earnings per common share
$
160,364


 
22,228,834


 
$
0.01


Effect of dilutive stock options
—


 
318,334


 
 


Diluted earnings per common share
$
160,364


 
22,547,168


 
$
0.01


Six Months Ended June 30, 2010
 


 
 


 
 


Basic earnings per common share
$
383,297


 
21,921,934


 
$
0.02


Effect of dilutive stock options
—


 
400,428


 
 


Diluted earnings per common share
$
383,297


 
22,322,362


 
$
0.02




The number of stock options that were outstanding, but not included in the computation of diluted earnings per common share because their exercise price was greater than the average market price of the common stock, or were otherwise anti-dilutive, was approximately 458,000 and 1,008,000 for the quarters ended June 30, 2011 and 2010, respectively, and 469,000 and 1,058,000 for the six months ended June 30, 2011 and 2010, respectively.

Comprehensive Income

Comprehensive Income
(USD $) 		 6 Months Ended
06/30/2011 
Comprehensive Income Note [Text Block]
Comprehensive Income:


Comprehensive income 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:
 
Quarters Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
Net earnings
$
17,030


 
$
171,973


 
$
160,364


 
$
383,297


Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
343


 
647


 
(2,869
)
 
1,805


Comprehensive income
$
17,373


 
$
172,620


 
$
157,495


 
$
385,102


Legal Proceedings

Legal Proceedings
(USD $) 		 6 Months Ended
06/30/2011 
Legal Costs, Policy [Text Block]
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.