RBC Life Sciences (RBCL) 10-Q 2009 Q2 Quarterly report

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, 2009
OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________

Commission file number:   00-50417

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  ¨

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 ¨     No  ¨

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	¨
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 ¨     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 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

	June 30, 2009			December 31, 2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,096,880		$	4,973,405
Accounts receivable, net		366,458			465,311
Inventories		5,608,457			5,706,613
Deferred income taxes		399,286			405,286
Prepaid expenses		1,109,406			1,374,805
Total current assets		11,580,487			12,925,420
Property and equipment, net		4,893,651			4,330,451
Goodwill, net		2,220,322			2,197,082
Intangible assets, net		96,125			109,347
Other assets		9,960			203,816
	$	18,800,545		$	19,766,116
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	1,503,439		$	1,961,579
Accrued liabilities		1,041,088			1,266,167
Current maturities of long-term obligations		150,083			144,397
Deferred revenue		3,837,452			4,278,503
Total current liabilities		6,532,062			7,650,646
Long-term obligations, less current maturities		1,975,580			2,052,071
Deferred income taxes		716,855			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 June 30, 2009 and December 31, 2008, respectively		21,922			21,915
Additional paid-in capital		13,435,836			13,364,308
Accumulated deficit		(3,998,022	)		(4,104,241	)
Accumulated other comprehensive income		116,312			104,922
		9,576,048			9,386,904
	$	18,800,545		$	19,766,116

See notes to condensed consolidated financial statements.

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RBC LIFE SCIENCES, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Quarters Ended June 30,
	2009		2008
Net sales	$	6,759,219	$	6,886,775
Cost of sales		3,238,206		3,190,209
Gross profit		3,521,013		3,696,566
Operating expenses:
General and administrative		2,353,383		2,551,430
Distributor commissions		567,395		560,100
Depreciation and amortization		92,619		84,473
Total operating expenses		3,013,397		3,196,003
Operating profit		507,616		500,563
Interest expense		41,417		44,091
Earnings before income taxes		466,199		456,472
Provision for income taxes		189,000		180,000
Net earnings	$	277,199	$	276,472
Earnings per share:
Basic	$	0.01	$	0.01
Diluted		0.01		0.01
Weighted average common shares outstanding:
Basic		21,921,934		21,242,664
Diluted		22,477,317		22,943,569

See notes to condensed consolidated financial statements.

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RBC LIFE SCIENCES, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Six Months Ended June 30,
	2009		2008
Net sales	$	12,775,097	$	13,234,466
Cost of sales		6,114,757		6,035,111
Gross profit		6,660,340		7,199,355
Operating expenses:
General and administrative		4,930,380		4,804,182
Distributor commissions		1,202,426		1,117,748
Depreciation and amortization		180,794		165,260
Total operating expenses		6,313,600		6,087,190
Operating profit		346,740		1,112,165
Interest expense		83,521		88,834
Earnings before income taxes		263,219		1,023,331
Provision for income taxes		157,000		392,000
Net earnings	$	106,219	$	631,331
Earnings per share:
Basic	$	0.00	$	0.03
Diluted		0.00		0.03
Weighted average common shares outstanding:
Basic		21,919,624		21,178,551
Diluted		22,508,523		22,920,405

See notes to condensed consolidated financial statements.

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RBC LIFE SCIENCES, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended June 30,
	2009			2008
Cash flows from operating activities:
Net earnings	$	106,219		$	631,331
Adjustment for non-cash items:
Depreciation and amortization		204,980			181,723
Stock-based compensation		70,080			61,945
Deferred income taxes		49,400			(113,000	)
Change in operating assets and liabilities:
Accounts receivable		98,846			41,773
Inventories		105,125			(980,283	)
Prepaid expenses		269,340			(505,491	)
Other assets		-			(924	)
Accounts payable and accrued liabilities		(688,923	)		(1,445,407	)
Deferred revenue		(441,051	)		1,412,688
Net cash used in operating activities		(225,984	)		(715,645	)
Cash flows from investing activities:
Purchase of property and equipment		(753,574	)		(271,554	)
Proceeds from surrender of insurance policy		194,277			-
Net cash used in investing activities		(559,297	)		(271,554	)
Cash flows from financing activities:
Payments of long-term obligations		(70,804	)		(67,306	)
Proceeds from the exercise of stock options		1,455			56,123
Net cash used in financing activities		(69,349	)		(11,183	)
Effect of exchange rate changes on cash flows		(21,895	)		2,448
Net decrease in cash and cash equivalents		(876,525	)		(995,934	)
Cash and cash equivalents, beginning of period		4,973,405			6,368,885
Cash and cash equivalents, end of period	$	4,096,880		$	5,372,951

See notes to condensed consolidated financial statements.

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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 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 and in accordance with Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”), the Company evaluated subsequent events after the balance sheet date of June 30, 2009 through August 6, 2009.

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 RBC Life Sciences 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.  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.

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, oncology and podiatry markets.

- 7 - -

Note C – Inventories:

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

	June 30, 2009		December 31, 2008
Raw materials and bulk products	$	415,611	$	384,376
Packaging materials		656,298		584,842
Finished goods		4,536,548		4,737,395
	$	5,608,457	$	5,706,613

Note D – Prepaid Expenses:

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

	June 30, 2009		December 31, 2008
Advance payment to suppliers	$	87,192	$	415,699
Certificates of deposit - restricted		573,109		569,445
Prepaid insurance and other		449,105		389,661
	$	1,109,406	$	1,374,805

Note E – Property and Equipment:

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

	June 30, 2009			December 31, 2008
Building and improvements	$	3,523,428		$	3,523,428
Computer software and office equipment		1,947,740			1,625,205
Warehouse equipment		242,941			367,285
Automotive equipment		15,228			55,392
Leasehold improvements		18,800			17,858
		5,748,137			5,589,168
Less – accumulated depreciation		(1,995,659	)		(2,399,890	)
		3,752,478			3,189,278
Land		1,141,173			1,141,173
	$	4,893,651		$	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		45,348		(22,108	)
Balance, June 30, 2009	$	3,283,690	$	(1,063,368	)

- 8 - -

Other intangible assets consist of the following:

			June 30, 2009					December 31, 2008
	Average Life (years)		Gross Carrying Value		Accumulated Amortization			Gross Carrying Value		Accumulated Amortization
Distribution contracts		8	$	277,369	$	(253,031	)	$	277,369	$	(244,536	)
Copyrights, trademarks and other registrations		19		99,100		(41,621	)		99,100		(38,979	)
Other		11		47,600		(33,292	)		47,600		(31,207	)
			$	424,069	$	(327,944	)	$	424,069	$	(314,722	)

Amortization expense related to other intangible assets totaled approximately $5,400 and $10,600 for the quarters ended June 30, 2009 and 2008, respectively, and $13,200 and $21,200 for the six months ended June 30, 2009 and 2008, respectively.  The aggregate estimated amortization expense for intangible assets remaining as of June 30, 2009 is as follows:

Remainder of 2009	$	10,813
2010		21,626
2011		13,792
2012		5,957
2013		5,957
Thereafter		37,980
Total	$	96,125

Note G – Accrued Liabilities:

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

	June 30, 2009		December 31, 2008
Salaries and wages	$	562,462	$	798,913
Distributor commissions		305,364		297,570
Sales and property taxes		54,921		32,759
Interest		13,728		14,186
Other		104,613		122,739
	$	1,041,088	$	1,266,167

Note H – Share-Based Compensation:

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment (“SFAS 123R”) using the modified-prospective transition method.  As a result, the Company records compensation expense for all share-based payments based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.  Share-based compensation expense for the quarters ended June 30, 2009 and 2008 was approximately $35,400 and $32,000, respectively, and for the six months ended June 30, 2009 and 2008 was approximately $70,100 and $62,000.  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 June 30,					Six Months Ended June 30,
	2009			2008 (1)		2009			2008
Weighted average expected life (years)		5.0			—		7.3			9.0
Risk-free interest rate		2.31	%		—		2.67	%		3.77	%
Expected volatility		97.75	%		—		114.92	%		138.57	%
Expected dividend yield		0.0	%		—		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.  As of June 30, 2009, no compensation cost has been recognized with respect to these 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 six months ended June 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		(446,385	)		0.72
Outstanding on June 30, 2009		2,191,055		$	0.41		5.7		$	266,404
Exercisable on June 30, 2009		1,074,445		$	0.23		4.2		$	248,450

A summary of the status of the Company’s non-vested stock options as of June 30, 2009 and changes during the six 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		(12,465	)		0.51
Non-vested stock options at June 30, 2009		1,116,610			0.54

As of June 30, 2009, there was approximately $533,000 of total unrecognized compensation cost related to stock option grants.

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Note I – Long-Term Obligations and Credit Lines:

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

	June 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	$	2,125,663		$	2,196,468
Less – current maturities		(150,083	)		(144,397	)
	$	1,975,580		$	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 June 30, 2009, fair value of fixed-rate long-term debt was $2,209,000, which was $83,000 above the carrying value of $2,126,000.  At December 31, 2008, 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 maintains a $500,000 bank line of credit that matures October 22, 2009.  Borrowings under this line of credit bear interest at 5.05% and are secured by a $500,000 certificate of deposit maintained at the bank.  There were no borrowings outstanding under this line at June 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 RBC Life Sciences brand name.  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, oncology and podiatry 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.

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Segment information is as follows (in thousands):

	Nutritional Products		Medical Products		Consolidated
Quarter Ended June 30, 2009
Net sales	$	5,301	$	1,458	$	6,759
Depreciation and amortization		87		18		105
Operating profit		432		76		508
Capital expenditures		248		7		255
Total assets		16,845		1,956		18,801
Quarter Ended June 30, 2008
Net sales	$	5,361	$	1,526	$	6,887
Depreciation and amortization		69		24		93
Operating profit		384		117		501
Capital expenditures		184		8		192
Total assets		18,054		1,681		19,735
Six Months Ended June 30, 2009
Net sales	$	9,821	$	2,954	$	12,775
Depreciation and amortization		166		39		205
Operating profit		227		120		347
Capital expenditures		747		7		754
Total assets		16,845		1,956		18,801
Six Months Ended June 30, 2008
Net sales	$	10,346	$	2,888	$	13,234
Depreciation and amortization		134		48		182
Operating profit		952		160		1,112
Capital expenditures		249		23		272
Total assets		18,054		1,681		19,735

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

	Quarter Ended June 30, 2009				Quarter Ended June 30, 2008
	Net sales		Long-Lived assets		Net sales		Long-Lived assets
Domestic	$	2,649	$	6,721	$	2,600	$	6,228
Former Soviet Union		3,609		-		3,672		-
Canada		287		499		306		575
All others		214		-		309		-
Totals	$	6,759	$	7,220	$	6,887	$	6,803

	Six Months Ended June 30, 2009				Six Months Ended June 30, 2008
	Net sales		Long-Lived assets		Net sales		Long-Lived assets
Domestic	$	5,377	$	6,721	$	5,138	$	6,228
Former Soviet Union		6,607		-		7,047		-
Canada		542		499		595		575
All others		249		-		454		-
Totals	$	12,775	$	7,220	$	13,234	$	6,803

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Significant Customers

The Company recorded sales of Nutritional Products to Coral Club International, Inc., a licensee of the Company, in the amounts of $3,609,000 and $3,672,000 during the quarters ended June 30, 2009 and 2008, respectively, and $6,607,000 and $7,047,000 during the six months ended June 30, 2009 and 2008, respectively.  The Company also recorded sales of Medical Products to a medical/surgical dealer in the amounts of $870,000 and $914,000 during the quarters ended June 30, 2009 and 2008, respectively, and $1,888,000 and $1,738,000 during the six months ended June 30, 2009 and 2008, respectively.  These sales accounted for more than 10% of net sales in these periods.  In no other case did a customer of the Company account for more than 10% of net sales during the quarters or six months ended June 30, 2009 and 2008.

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, 2009
Basic earnings per common share	$	277,199		21,921,934	$	0.01
Effect of dilutive stock options		-		555,383
Diluted earnings per common share	$	277,199		22,477,317	$	0.01
Quarter Ended June 30, 2008
Basic earnings per common share	$	276,472		21,242,664	$	0.01
Effect of dilutive stock options		-		1,700,905
Diluted earnings per common share	$	276,472		22,943,569	$	0.01
Six Months Ended June 30, 2009
Basic earnings per common share	$	106,219		21,919,624	$	0.00
Effect of dilutive stock options		-		588,899
Diluted earnings per common share	$	106,219		22,508,523	$	0.00
Six Months Ended June 30, 2008
Basic earnings per common share	$	631,331		21,178,551	$	0.03
Effect of dilutive stock options		-		1,741,854
Diluted earnings per common share	$	631,331		22,920,405	$	0.03

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 1,121,000 and 909,000 for the quarters ended June 30, 2009 and 2008, respectively, and 1,159,000 and 870,000 for the six months ended June 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 June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Net earnings	$	277,199	$	276,472	$	106,219	$	631,331
Other comprehensive income (loss):
Foreign currency translation adjustment		18,936		5,875		11,390		(17,436	)
Comprehensive income	$	296,135	$	282,347	$	117,609	$	613,895

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.

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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 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, oncology and podiatry markets.

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

	Quarters Ended June 30,
	2009				2008
	(U.S. dollars in 000’s)
Nutritional Products:
Associate network	$	1,478	22	%	$	1,481	22	%
Licensees		3,823	56	%		3,880	56	%
		5,301	78	%		5,361	78	%
Medical Products		1,458	22	%		1,526	22	%
	$	6,759	100	%	$	6,887	100	%

	Six Months Ended June 30,
	2009				2008
	(U.S. dollars in 000’s)
Nutritional Products:
Associate network	$	2,965	23	%	$	2,946	22	%
Licensees		6,856	54	%		7,400	56	%
		9,821	77	%		10,346	78	%
Medical Products		2,954	23	%		2,888	22	%
	$	12,775	100	%	$	13,234	100	%

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,
	2009			2008			2009			2008
United States		81	%		79	%		82	%		80	%
Canada		19			21			18			20
		100	%		100	%		100	%		100	%

Net sales through the Associate network channel increased approximately 1% during the first six 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.

Licensees. 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 Coral Club International (“CCI”). CCI, which accounted for 96% and 95% of licensee net sales in the six months ended June 30, 2009 and 2008, respectively, 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.

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.

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This segment’s largest customer, a medical/surgical dealer, accounted for 64% and 60% of Medical Products net sales during the six months ended June 30, 2009 and 2008, respectively.

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 six months ended June 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 June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		47.9			46.3			47.9			45.6
Gross profit		52.1			53.7			52.1			54.4
Operating expenses:
General and administrative		34.8			37.1			38.6			36.3
Distributor commissions		8.4			8.1			9.4			8.4
Depreciation and amortization		1.4			1.2			1.4			1.3
Total operating expenses		44.6			46.4			49.4			46.0
Operating profit		7.5			7.3			2.7			8.4
Interest expense		0.6			0.7			0.7			0.7
Earnings before income taxes		6.9			6.6			2.0			7.7
Provision for income taxes		2.8			2.6			1.2			2.9
Net earnings		4.1	%		4.0	%		0.8	%		4.8	%

Quarter ended June 30, 2009 compared with quarter ended June 30, 2008

Net sales. Net sales for the quarter ended June 30, 2009 were $6,759,000 compared with net sales for the same period in 2008 of $6,887,000, a decrease of $128,000 or 2%. This decrease resulted from a $60,000 decrease in net sales of Nutritional Products and a $68,000 decrease in net sales of Medical Products. Net sales of Nutritional Products to our licensees decreased $57,000 while net sales of Nutritional Products to our Associate network decreased $3,000.

Associate Network.  Net sales in the North American market were essentially flat, decreasing approximately $3,000 during the quarter ended June 30, 2009.  Continuing the trend from the first quarter of 2009, the sponsorship of new Associates by the current Associate network increased more than 100% during the second 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.

Licensees.  Net sales to our licensees decreased primarily as a result of decreased shipments to CCI. Sales to CCI decreased $63,000 during the quarter ended June 30, 2009.  While 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, in-territory sales of our products to CCI’s Associate network did decline during the second quarter of 2009.  We attribute this decline in sales to the general decline in economic conditions in countries served by CCI, and we expect this trend to continue until economic conditions improve.

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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 slow-down in CCI’s sales, backlog related to CCI’s account was $4,933,000 at June 30, 2009 compared to $11,162,000 at June 30, 2008.

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 $44,000 during the second quarter of 2009 compared to the second 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 second quarter were approximately $870,000.

Cost of sales.  Cost of sales for the quarter ended June 30, 2009 was $3,238,000 compared with cost of sales in the second quarter of 2008 of $3,190,000, an increase of $48,000 or 2%. As a percentage of net sales, cost of sales was 48% in the second quarter of 2009 and 46% in the second quarter of 2008. As a percentage of net sales, gross profit decreased 2% mainly because of a change in the sales mix of Nutritional Products.  During the second quarter of 2009, the sales mix associated with sales to our licensees and our Associate network contributed a lower gross margin than the corresponding sales mix in the second quarter of 2008.

General and administrative. General and administrative expenses for the quarter ended June 30, 2009, were $2,353,000 compared with expenses in the second quarter of 2008 of $2,551,000, a decrease of $198,000 or 8%.  This decrease was mainly related to the timing of expenses associated with the annual marketing and sales event that we sponsor for our North American Associates.  The 2008 Associate event took place during the second quarter of 2008 while the 2009 Associate event is not scheduled to be held until the third quarter of this year.  Also contributing to the decrease in general and administrative expenses in the second quarter of 2009 was a decrease of Medical Products marketing and sales expenses, primarily related to reduced travel expenses.  As a percentage of net sales, general and administrative expenses were 35% and 37% in the quarters ended June 30, 2009 and 2008, respectively.

Distributor commissions. Distributor commissions were $567,000 for the quarter ended June 30, 2009 compared with distributor commissions of $560,000 in the second quarter of 2008, an increase of $7,000 or 1%.  With regard to our Associate network, distributor commissions as a percentage of commissionable sales increased slightly to approximately 34% in the second quarter of 2009 compared to 33% in the same period in 2008.  This percentage increase was mainly due to the payment of extra commissions during the second 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 8% in the second quarter of 2009 and 2008.

Income taxes.  We recorded a provision for income taxes of $189,000 during the quarter ended June 30, 2009 based on our estimate of the effective annual income tax rate.

Net earnings.  As a result of the factors described above, net earnings for the quarter ended June 30, 2009 were $277,000, or $0.01 per share, compared with net earnings in the second quarter of 2008 of $276,000, or $0.01 per share.

Six months ended June 30, 2009 compared with six months  ended June 30, 2008

Net sales. Net sales for the six months ended June 30, 2009 were $12,775,000 compared with net sales for the same period in 2008 of $13,234,000, a decrease of $459,000 or 3%. This decrease resulted from a $525,000 decrease in net sales of Nutritional Products that was partially offset by a $66,000 increase in net sales of Medical Products. Net sales of Nutritional Products to our licensees decreased $544,000 while net sales of Nutritional Products to our Associate network increased $19,000.

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Associate Network.  Net sales in the North American market increased approximately $19,000 during the first six 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.

Licensees.  Net sales to our licensees decreased primarily as a result of decreased shipments to CCI. Sales to CCI decreased $440,000 in the first six months of 2009.  While 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, in-territory sales of our products to CCI’s Associate network did decline during the first six months of 2009.  We attribute this slowdown to the general decline in economic conditions in countries served by CCI, and we expect this trend to continue until economic conditions improve.

Medical products.  The growth in net sales of Medical Products resulted from increased 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, increased $150,000 during the first six months of 2009 compared to the first six months of 2008.  Sales to this distributor in the first six months of 2009 were approximately $1,888,000.

Cost of sales.  Cost of sales for the six months ended June 30, 2009 was $6,115,000 compared with cost of sales in the first six months of 2008 of $6,035,000, an increase of $80,000 or 1%. As a percentage of net sales, cost of sales was 48% in the first six months of 2009 and 46% in the first six months of 2008. As a percentage of net sales, gross profit decreased 2% mainly because of a change in the sales mix of Nutritional Products.  During the first six months of 2009, the sales mix associated with sales to our licensees and our Associate network contributed a lower gross margin than the corresponding sales mix in the first six months of 2008.

General and administrative. General and administrative expenses for the six months ended June 30, 2009, were $4,930,000 compared with expenses in the first six months of 2008 of $4,804,000, an increase of $126,000 or 3%. 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 36% in the six months ended June 30, 2009 and 2008, respectively.

Distributor commissions. Distributor commissions were $1,202,000 for the six months ended June 30, 2009 compared with distributor commissions of $1,118,000 in the first six months of 2008, an increase of $84,000 or 8%.  With regard to our Associate network, distributor commissions as a percentage of commissionable sales increased to approximately 36% in the first six months of 2009 compared to 33% in the same period in 2008.  This percentage increase was mainly due to the payment of extra commissions during the first six months of 2009 in connection with certain marketing and sales initiatives undertaken during this period, most of which were paid in the first quarter of 2009.  On a consolidated basis, distributor commissions as a percentage of net sales increased to 9% in the first six months of 2009 compared with 8% in the first six months of 2008.

Income taxes.  We recorded a provision for income taxes of $157,000 during the six months ended June 30, 2009 based on our estimate of the effective annual income tax rate.

Net earnings.  As a result of the factors described above, net earnings for the six months ended June 30, 2009 were $106,000, or $0.00 per share, compared with net earnings in the first six months of 2008 of $631,000, or $0.03 per share.

LIQUIDITY AND CAPITAL RESOURCES

Cash and working capital. At June 30, 2009, all of our cash and cash equivalents were maintained in accounts that were fully insured by federal government agencies.  During the six months ended June 30, 2009, we had a net decrease in cash of $877,000 compared with a net decrease in cash of $996,000 in the first six months of 2008.  At June 30, 2009, we had working capital of $5,048,000, a $227,000 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.

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Operating activities. In the first six months of 2009, our operating activities used cash flows of $226,000.  In the first six months of 2008, our operating activities used cash flows of $716,000.  The primary use of cash by operating activities during the first six months of 2009 related to a $689,000 reduction in accounts payable and accrued liabilities and a $441,000 decrease in deferred revenue.  The decreases in accounts payable and accrued liabilities and deferred revenue were mainly associated with the decrease in CCI sales.  In the first six months of 2009, net earnings adjusted for non-cash activities, which include depreciation and amortization, stock-based compensation and deferred income taxes, provided cash flows of $431,000 compared with providing cash flows of $762,000 in the first six months of 2008.

Investing activities. During the first six months of 2009, we used cash of $754,000 to purchase property and equipment.  Of this amount, approximately $640,000 was associated with the upgrade of our network marketing computer software.  We expect additional capital expenditures of approximately $300,000 during 2009 to complete this project.  During the first six 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 six months of 2009 was the repayment of long-term debt in the amount of $71,000.  We maintain a $500,000 line of credit arrangement with a bank, none of which was used as of June 30, 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.

Foreign exchange

We have foreign-based operations in Canada that accounted for 4% of net sales during the first six 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 $521,000 to our Canadian operations at June 30, 2009, a 10% adverse change in the currency rate would reduce earnings before income taxes by approximately $52,100.

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.

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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 June 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 June 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 June 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.

We held our Annual Meeting of Shareholders on June 3, 2009.  At this meeting the following persons were elected to serve as directors until the 2010 Annual Meeting of Shareholders:

	For	Withheld
Steven E. Brown	15,578,564	453,451
Clinton H. Howard	15,580,564	451,451
Robert A. Kaiser	15,618,583	413,432
Paul R. Miller	15,595,383	436,632
Joseph P. Philipp	15,618,583	413,432
John W. Price	15,580,564	451,451
Kenneth L. Sabot	15,580,564	451,451

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
August 7, 2009	By:	/s/	John W. Price
Date		Its:	President and Chief Executive Officer
August 7, 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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