RBC Life Sciences (RBCL) 10-Q 2006 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

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: 000-50417

RBC Life Sciences, Inc.

(Exact name of registrant as specified in its charter)

Nevada	91-2015186
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

2301 Crown Court, Irving, Texas	75038
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: 972-893-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (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.    x  YES    ¨  NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  YES    x  NO

Number of shares of common stock, par value $0.001, outstanding at August 1, 2006:

20,155,294

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	16
	Item 3.	Quantitative and Qualitative Disclosure about Market Risk	22
	Item 4.	Controls and Procedures	22
PART II – OTHER INFORMATION
	Item 1.	Legal Proceedings	23
	Item 1A.	Risk Factors	23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
	Item 3.	Defaults Upon Senior Securities	23
	Item 4.	Submission of Matters to a Vote of Security Holders	23
	Item 5.	Other Information	23
	Item 6.	Exhibits	23
Signatures			24
Exhibit Index			25

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RBC LIFE SCIENCES, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2006			December 31, 2005
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,128,799		$	1,697,966
Accounts receivable, net		357,846			352,741
Inventories		2,999,610			3,564,760
Prepaid expenses and other		815,379			511,975
Total current assets		6,301,634			6,127,442
Property and equipment, net		4,040,645			3,975,948
Goodwill, net		2,095,054			2,095,054
Intangible assets, net		215,376			236,580
Other assets		480,543			251,895
	$	13,133,252		$	12,686,919
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	1,022,355		$	1,202,990
Accrued liabilities		1,045,604			1,134,478
Current maturities of long-term obligations		372,737			303,655
Lines of credit		120,875			122,249
Deferred revenue		2,494,735			2,224,341
Total current liabilities		5,056,306			4,987,713
Long-term obligations, less current maturities		2,672,455			2,802,113
Deferred income tax liabilities		158,218			—
Shareholders’ equity:
Common stock, $0.001 par value; 50,000,000 shares authorized; 20,155,294 and 20,056,294 shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively		20,155			20,056
Additional paid-in capital		12,854,223			12,789,978
Accumulated deficit		(7,594,237	)		(7,848,454	)
Accumulated other comprehensive loss		(33,868	)		(64,487	)
		5,246,273			4,897,093
	$	13,133,252		$	12,686,919

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,
	2006		2005
Net sales	$	6,202,541	$	5,358,114
Cost of sales		2,628,860		2,190,132
Gross profit		3,573,681		3,167,982
Operating expenses
General and administrative		2,126,067		1,754,091
Distributor commissions		768,720		826,037
Depreciation and amortization		161,917		144,016
Total operating expenses		3,056,704		2,724,144
Operating profit		516,977		443,838
Interest expense		64,122		63,454
Earnings before income taxes		452,855		380,384
Provision for income taxes		160,000		—
Net earnings	$	292,855	$	380,384
Earnings per share:
Basic	$	0.01	$	0.02
Diluted		0.01		0.02
Weighted average common shares outstanding:
Basic		20,155,294		20,056,294
Diluted		22,404,118		21,183,028

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,
	2006		2005
Net sales	$	11,011,440	$	9,498,099
Cost of sales		4,181,591		3,574,430
Gross profit		6,829,849		5,923,669
Operating expenses
General and administrative		4,310,364		3,484,999
Distributor commissions		1,652,535		1,652,541
Depreciation and amortization		324,295		287,857
Total operating expenses		6,287,194		5,425,397
Operating profit		542,655		498,272
Interest expense		128,438		126,725
Earnings before income taxes		414,217		371,547
Provision for income taxes		160,000		—
Net earnings	$	254,217	$	371,547
Earnings per share:
Basic	$	0.01	$	0.02
Diluted		0.01		0.02
Weighted average common shares outstanding:
Basic		20,149,794		20,056,294
Diluted		22,491,663		20,619,661

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,
	2006			2005
Cash flows from operating activities:
Net earnings	$	254,217		$	371,547
Adjustment for non-cash items:
Depreciation and amortization		331,627			295,018
Stock-based compensation		49,989			—
Deferred income taxes		160,000			—
Change in operating assets and liabilities
Accounts receivable		(5,011	)		121,712
Inventories		559,568			(810,388	)
Prepaid expenses and other		(288,143	)		(158,945	)
Other assets		(221,433	)		(11,469	)
Accounts payable and accrued liabilities		(277,185	)		421,187
Deferred revenue		270,394			1,053,673
Net cash provided by operating activities		834,023			1,282,335
Cash flows from investing activities:
Purchase of property and equipment		(370,367	)		(59,289	)
Net cash used by investing activities		(370,367	)		(59,289	)
Cash flows from financing activities:
Net payments of lines of credit		(1,374	)		(1,828	)
Payments of long term obligations		(60,576	)		(130,533	)
Proceeds from the exercise of stock options		14,355			—
Net cash used by financing activities		(47,595	)		(132,361	)
Effect of exchange rate changes on cash flows		14,772			1,411
Net increase in cash and cash equivalents		430,833			1,092,096
Cash and cash equivalents, beginning of period		1,697,966			1,051,511
Cash and cash equivalents, end of period	$	2,128,799		$	2,143,607

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., f/k/a Royal BodyCare, 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, 2005 (the “2005 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.

Note B – Nature of Operations and Organization:

In June 2006, the Company changed its name from Royal BodyCare, Inc. to RBC Life Sciences, Inc. The Company made this change to more clearly identify its name with the products it sells, to reflect the advanced level of biotechnology that is incorporated into its product lines and to improve the direct marketing opportunity for its Associates.

The Company is principally engaged in the marketing of nutritional supplements and personal care products (collectively “Nutritional Products”). In North America, South Korea and Japan, the Company’s products are marketed 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. The Company began marketing its Nutritional Products in South Korea in February 2006.

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, South Korea and Japan.

In addition to its Nutritional Products, RBC also markets a line of wound care and oncology products throughout the United States under the MPM Medical trade name. These products are distributed to hospitals, nursing homes, clinics and pharmacies through traditional medical/surgical supply dealers and pharmaceutical distributors.

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Note C – Inventories:

Inventories at June 30, 2006 and December 31, 2005 consist of the following:

	June 30, 2006		December 31, 2005
Raw materials and bulk products	$	293,577	$	389,764
Packaging materials		410,459		403,452
Finished goods		2,295,574		2,771,544
	$	2,999,610	$	3,564,760

Note D – Property and Equipment:

Property and equipment at June 30, 2006 and December 31, 2005 consists of the following:

	June 30, 2006		December 31, 2005
Building and improvements	$	2,758,983	$	2,758,983
Computer software and office equipment		3,191,051		2,992,090
Warehouse equipment		275,627		257,520
Automotive equipment		55,392		55,392
Leasehold improvements		188,238		18,752
		6,469,291		6,082,737
Less – accumulated depreciation		3,569,819		3,247,962
		2,899,472		2,834,775
Land		1,141,173		1,141,173
	$	4,040,645	$	3,975,948

Note E – 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 consists of the following:

	June 30, 2006					December 31, 2005
	Gross carrying value		Accumulated amortization			Gross carrying value		Accumulated amortization
Goodwill	$	3,222,349	$	(1,127,295	)	$	3,222,349	$	(1,127,295	)

Other intangible assets consist of the following:

		June 30, 2006					December 31, 2005
	Average life (years)	Gross carrying value		Accumulated amortization			Gross carrying value		Accumulated amortization
Distribution contracts	8	$	277,369	$	(162,151	)	$	277,369	$	(145,675	)
Copyrights, trademarks and other registrations	19		99,100		(25,766	)		99,100		(23,123	)
Other	11		47,600		(20,776	)		47,600		(18,691	)
		$	424,069	$	(208,693	)	$	424,069	$	(187,489	)

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Amortization expense related to other intangible assets totaled approximately $10,600 for the quarters ended June 30, 2006 and 2005 and $21,200 for the six months ended June 30, 2006 and 2005. The aggregate estimated amortization expense for intangible assets remaining as of June 30, 2006 is as follows:

Remainder of 2006	$	21,203
2007		42,407
2008		42,407
2009		24,048
2010		21,626
Thereafter		63,685
Total	$	215,376

Note F – Accrued Liabilities:

Accrued liabilities at June 30, 2006 and December 31, 2005 consist of the following:

	June 30, 2006		December 31, 2005
Distributor commissions	$	434,212	$	458,522
Salaries and wages		454,767		535,004
Sales and other taxes		79,990		69,896
Interest		21,178		21,617
Other		55,457		49,439
	$	1,045,604	$	1,134,478

Note G – Share-Based Compensation:

Employee stock options

On July 1, 1998, the Company’s shareholders adopted the 1998 Stock Option Plan (the “1998 Plan”) and reserved 500,000 shares of common stock for issuance under the 1998 Plan. The 1998 Plan provided for the issuance of both non-qualified stock options and incentive stock options (“ISOs”), and permitted grants to employees, non-employee directors and consultants of the Company. Effective September 4, 2003, the Company’s shareholders adopted an amendment and restatement of the 1998 Plan in the form of the 2003 Stock Incentive Plan (the “2003 Plan”). The purpose of this amendment and restatement was, among other things, to reserve 3,500,000 shares of common stock for issuance under the 2003 Plan, an increase from the 500,000 shares of common stock issuable under the 1998 Plan, and to add restricted stock as available for awards under the 2003 Plan.

On June 1, 2006, the Company’s shareholders adopted the 2006 Stock Incentive Plan (the “2006 Plan”) under which 2,500,000 shares of common stock were reserved for issuance. The 2006 Plan provides for the issuance of non-qualified stock options, ISOs, restricted stock awards and stock appreciation rights, and permits grants to employees, non-employee directors and consultants of the Company.

The Company has also granted employee stock options outside of the plans described above. Under these arrangements, as of June 30, 2006, the Company had granted non-qualified options to purchase 400,000 shares of common stock.

Prior to January 1, 2006, the Company accounted for employee stock options under Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation (“SFAS 123”). As permitted under this standard, compensation cost was recognized using the intrinsic value method described in Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees (“APB 25”). In accordance with APB 25, prior to January 1, 2006, no stock-based compensation cost was reflected in net earnings, as all options granted had an exercise price equal to or greater than the quoted market price of the underlying common stock on the date of grant.

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On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004),Share-Based Payment(“SFAS 123R”) and applied the provisions of the Securities and Exchange Commission Staff Accounting Bulletin No. 107 using the modified-prospective transition method. In accordance with this method, stock-based compensation expense recognized subsequent to December 31, 2005 includes (i) compensation expense for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (ii) compensation expense for all share-based payments granted on or subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Also in accordance with this method, periods ending prior to January 1, 2006 are not retroactively adjusted.

Stock-based compensation expense for the quarter and six months ended June 30, 2006 was approximately $27,400 and $50,000, respectively, and is classified as a general and administrative expense. There were no tax benefits related to this expense because all stock-based compensation resulted from grants of ISOs. In accordance with Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes, no tax benefit is recorded for an ISO unless upon exercise a disqualifying disposition occurs. In accordance with SFAS 123R, the Company will prospectively record any excess tax benefits from the exercise of stock options as cash flows from financing activities. There were no excess tax benefits in the six months ended June 30, 2006.

Other stock options

In April 2003, the Company granted a five-year option to purchase 25,000 shares of common stock to an individual at an exercise price of $0.10 per share in partial settlement of an obligation of BizAdigm, Inc. The Company recorded an increase of $2,500 to additional paid-in capital in connection with this option grant, which was the fair value of this option based on the Black-Scholes option pricing model.

Fair value

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,
	2006		2005(1)	2006		2005(1)
Expected life (years)	9.0		—	9.0		—
Risk-free interest rate	4.67	%	—	4.67	%	—
Expected Volatility	35.0	%	—	35.0	%	—
Expected Dividend yield	0	%	—	0	%	—

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

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Stock option activity

A summary of stock option activity for the six months ended June 30, 2006 is as follows:

	Options		Weighted- Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on January 1, 2006	3,565,000		$	0.21
Granted	200,000			0.74
Exercised	(99,000	)		0.15
Forfeited/Canceled	—			—
Outstanding on June 30, 2006	3,666,000		$	0.24	5.6	$	1,078,555
Exercisable on June 30, 2006	2,099,000		$	0.26	5.5	$	598,820

There were no options granted during the quarter ended June 30, 2006; there was one option to purchase common stock granted during the six months ended June 30, 2006, which had a fair value of $0.71. There were no options granted during the six months ended June 30, 2005. There were no options exercised during the quarter ended June 30, 2006; the intrinsic value of options exercised during the six months ended June 30, 2006 was approximately $60,000. There were no options exercised during the six months ended June 30, 2005.

A summary of the status of the Company’s non-vested stock options as of June 30, 2006, and changes during the six months then ended, is presented below:

	Shares		Weighted Average Grant Date Fair Value per Share
Non-vested stock options at January 1, 2006	1,507,000		$	0.14
Non-vested stock options granted	200,000			0.71
Vested stock options	(140,000	)		0.14
Forfeited stock options	—			—
Non-vested stock options at June 30, 2006	1,567,000			0.21

As of June 30, 2006, there was approximately $262,000 of total unrecognized compensation cost related to stock option grants. That cost is expected to be recognized over a weighted average period of 3.5 years. The total fair value of shares vested during the quarter and six months ended June 30, 2006 was approximately $2,900 and $19,700, respectively.

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The following table illustrates the effect on net earnings and net earnings per share if, for the quarter and six months ended June 30, 2005, the Company had applied the fair value recognition provisions, under which compensation expense would be recognized as incurred, of SFAS 123 to stock-based employee compensation:

	Quarter Ended June 30, 2005			Six Months Ended June 30, 2005
Net earnings, as reported	$	380,384		$	371,547
Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects		(19,527	)		(39,054	)
Pro forma net earnings	$	360,857		$	332,493
Earnings per share:
Basic and diluted, as reported	$	0.02		$	0.02
Basic and diluted, pro forma		0.02			0.02

Note H – Long Term Obligations:

At June 30, 2006 and December 31, 2005 long-term obligations consist of the following:

	June 30, 2006		December 31, 2005
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 Chief Executive Officer	$	2,512,224	$	2,568,382
Note payable to bank bearing interest at 7.96%, payable interest only through June 2006 and thereafter in monthly installments of $12,550 through June 2009, collateralized by accounts receivable, inventories and equipment, and personally guaranteed by the Company’s Chief Executive Officer		400,000		400,000
Convertible notes (original amount $730,000) bearing interest at 10% payable quarterly, originally due two years from the date of issuance (1997), notes are convertible into common stock any time prior to maturity at the option of the holder based on a per share conversion price of $1.32		121,500		123,000
Capital lease obligation		11,468		14,386
		3,045,192		3,105,768
Less – current maturities		372,737		303,655
	$	2,672,455	$	2,802,113

The note payable to bank is part of a $1.3 million credit facility arranged to fund the Company’s expansion into South Korea. The other portion of this credit facility is a $900,000 line of credit. Borrowings under the line of credit bear interest at prime plus 1.0% and are limited to a borrowing base, as defined in the line of credit agreement. The borrowing base, which was $900,000 at June 30, 2006, is calculated as a specified percentage of eligible collateral up to a maximum of $900,000. This line of credit is collateralized by accounts receivable, inventory and equipment, and is personally guaranteed by the Company’s Chief Executive Officer. In addition, the Company is required to maintain minimum amounts of working capital, cash flow and tangible net worth, as defined in the line of credit agreement. The Company was in compliance with these covenants at June 30, 2006.

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In May 2005, the Company financed the purchase of certain equipment in the amount of approximately $18,000 through a capital lease. This capital lease has a term ending in 2008 and an interest rate approximating 10%.

Note I – 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 marked under the RBC Life Sciences brand name. These products are distributed by a network of independent Associates operating primarily in North America and South Korea and by licensees operating in certain other international markets. The Medical Products segment markets a line of approximately 28 wound care and oncology products in the United States under the MPM Medical trade name. The wound care products are distributed directly to hospitals, nursing homes and home health care agencies through medical/surgical supply dealers. The oncology products are distributed to hospitals, cancer treatment clinics and pharmacies through pharmaceutical distributors.

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, 2006
Net sales	$	5,297	$	906	$	6,203
Depreciation and amortization		152		14		166
Operating profit		368		149		517
Capital expenditures		16		—		16
Total assets		11,691		1,442		13,133
Quarter ended June 30, 2005
Net sales	$	4,595	$	763	$	5,358
Depreciation and amortization		137		10		147
Operating profit		332		112		444
Capital expenditures		21		—		21
Total assets		11,759		1,116		12,875
Six Months ended June 30, 2006
Net sales	$	9,361	$	1,650	$	11,011
Depreciation and amortization		305		27		332
Operating profit		341		202		543
Capital expenditures		370		—		370
Total assets		11,691		1,442		13,133
Six Months ended June 30, 2005
Net sales	$	8,132	$	1,366	$	9,498
Depreciation and amortization		275		20		295
Operating profit		357		141		498
Capital expenditures		59		—		59
Total assets		11,759		1,116		12,875

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Financial information summarized geographically for the quarters and six months ended June 30, 2006 and 2005 is listed below (in thousands):

	Quarter ended June 30, 2006				Quarter ended June 30, 2005
	Net sales		Long-Lived assets		Net sales		Long-Lived assets
Domestic	$	2,497	$	5,886	$	2,663	$	6,347
Canada		401		389		496		398
South Korea		200		557		—		—
Former Soviet Union		2,858		—		2,140		—
All others		247		—		59		—
Totals	$	6,203	$	6,832	$	5,358	$	6,745
	Six Months ended June 30, 2006				Six Months ended June 30, 2005
	Net sales		Long-Lived assets		Net sales		Long-Lived assets
Domestic	$	5,040	$	5,886	$	5,233	$	6,347
Canada		870		389		1,013		398
South Korea		429		557		—		—
Former Soviet Union		4,125		—		3,138		—
All others		547		—		114		—
Totals	$	11,011	$	6,832	$	9,498	$	6,745

Significant Customers

The Company recorded sales to Coral Club International, Inc., a licensee of the Company, in the amounts of $2,858,000 and $2,140,000 during the quarters ended June 30, 2006 and 2005, respectively, and $4,125,000 and $3,138,000 during the six months ended June 30, 2006 and 2005, 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 and six months ended June 30, 2006 and 2005.

Note J – Earnings Per Share:

Summarized basic and diluted earnings per common share was calculated as follows:

		Net Earnings		Shares	Per Share
Quarter ended June 30, 2006
Basic earnings per common share		$	292,855	20,155,294	$	0.01
Effect of dilutive stock options	��		—	2,248,824
Diluted earnings per common share		$	292,855	22,404,118	$	0.01
Quarter ended June 30, 2005
Basic earnings per common share		$	380,384	20,056,294	$	0.02
Effect of dilutive stock options			—	1,126,734
Diluted earnings per common share		$	380,384	21,183,028	$	0.02
Six months ended June 30, 2006
Basic earnings per common share		$	254,217	20,149,794	$	0.01
Effect of dilutive stock options			—	2,341,869
Diluted earnings per common share		$	254,217	22,491,663	$	0.01
Six months ended June 30, 2005
Basic earnings per common share		$	371,547	20,056,294	$	0.02
Effect of dilutive stock options			—	563,367
Diluted earnings per common share		$	371,547	20,619,661	$	0.02

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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 500,000 and 402,000 for the quarters ended June 30, 2006 and 2005, respectively, and 500,000 and 402,000 for the six months ended June 30, 2006 and 2005, respectively.

The assumed conversion of the convertible notes would have an anti-dilutive effect on diluted loss per common share for the quarters and six months ended June 30, 2006 and 2005, and accordingly have been excluded from the computation.

Note K – 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,
	2006		2005			2006		2005
Net earnings	$	292,855	$	380,384		$	254,217	$	371,547
Other comprehensive income (loss):
Foreign currency translation adjustment		28,167		(5,227	)		30,619		(6,654	)
Comprehensive income	$	321,022	$	375,157		$	284,836	$	364,893

Note L – 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 2005 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 2005 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) weight loss products and (iii) fitness products. Products include herbal formulas, vitamins, minerals, antioxidants and personal care products. In North America, South Korea and Japan 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 and oncology products. These products are distributed in the United States to hospitals, nursing homes, clinics and pharmacies through traditional medical/surgical supply dealers and pharmaceutical distributors.

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

	Quarters Ended June 30,
	2006				2005
	(U.S. dollars in 000’s)
Nutritional Products:
Associate network	$	2,193	35	%	$	2,399	45	%
Licensees		3,104	50	%		2,196	41	%
		5,297	85	%		4,595	86	%
Medical Products		906	15	%		763	14	%
	$	6,203	100	%	$	5,358	100	%

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	Six Months Ended June 30,
	2006				2005
	(U.S. dollars in 000’s)
Nutritional Products:
Associate network	$	4,690	43	%	$	4,884	52	%
Licensees		4,671	42	%		3,248	34	%
		9,361	85	%		8,132	86	%
Medical Products		1,650	15	%		1,366	14	%
	$	11,011	100	%	$	9,498	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,
	2006		2005		2006		2005
United States	72	%	79	%	72	%	79	%
Canada	19		21		19		21
South Korea	9		—		9		—
	100	%	100	%	100	%	100	%

In February 2006, we began distribution of Nutritional Products through our Associate network in South Korea. We initiated sales activities after establishing a fully staffed office located in Seoul, South Korea; however, the full range of Nutritional Products we market in South Korea was not available for distribution until early May 2006. Net sales in this market were $200,000 and $429,000 during the quarter and six months ended June 30, 2006, respectively. Although there is no assurance that net sales in South Korea will increase, based on the market analysis we performed prior to opening this market, we continue to believe that expansion into this market will ultimately make a positive contribution to our consolidated net sales and future earnings.

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 88% and 97% of licensee net sales in the six months ended June 30, 2006 and 2005, 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 owns approximately 20% of our outstanding common stock.

Medical Products. We sell Medical Products primarily 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 55% and 44% of Medical Products net sales in the six months ended June 30, 2006 and 2005, respectively.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Company’s financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America 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. 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 other than the adoption of SFAS 123R, there have been no significant changes during the six months ended June 30, 2006 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 2005 Form 10-K.

Stock-Based Compensation Expense

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R using the modified prospective transition method; therefore we have not restated results for prior periods. Under this transition method, we recognize compensation expense for all stock options granted prior to, but not yet vested as of January 1, 2006,based on the grant date fair value estimated in accordance with the original provision of SFAS 123. Stock-based compensation expense for all stock-based compensation awards granted after December 31, 2005 is based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Prior to the adoption of SFAS 123R on January 1, 2006, the Company recognized stock-based compensation expense in accordance with APB 25, and provided pro forma disclosure of the effect on net earnings and earnings per share as if the fair value method defined by SFAS 123 had been applied to its stock-based compensation. Under the fair value recognition provisions of SFAS 123R, the Company recognizes stock-based compensation expense for those shares expected to vest on a straight-line basis over the requisite service period of the award.

Determining the appropriate fair value model and calculating the fair value of share-based payment awards requires the input of subjective assumptions. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. See Note G to the condensed consolidated financial statements for further discussion of stock-based compensation.

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,
	2006		2005		2006		2005
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	42.4		40.9		38.0		37.7
Gross profit	57.6		59.1		62.0		62.3
Operating expenses:
General and administrative	34.3		32.7		39.1		36.7
Distributor commissions	12.4		15.4		15.0		17.4
Depreciation and amortization	2.6		2.7		3.0		3.0
Total operating expenses	49.3		50.8		57.1		57.1
Operating profit	8.3		8.3		4.9		5.2
Interest expense	1.0		1.2		1.1		1.3
Earnings before income taxes	7.3		7.1		3.8		3.9
Provision for income taxes	2.6		—		1.5		—
Net earnings	4.7	%	7.1	%	2.3	%	3.9	%

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Quarter ended June 30, 2006 compared with Quarter ended June 30, 2005

Net sales.Net sales for the quarter ended June 30, 2006 were $6,203,000 compared with net sales for the prior year of $5,358,000, an increase of $845,000 or 16%. This increase was due to a $702,000 increase in net sales of Nutritional Products and a $143,000 increase in net sales of Medical Products. Net sales of Nutritional Products to our licensees increased $908,000 while net sales of Nutritional Products to our Associate network decreased $206,000.

Associate Network. We began distribution of our Nutritional Products in South Korea in February 2006 and recorded net sales of $200,000 during the quarter ended June 30, 2006. Net sales in this market during the quarter were adversely affected by the termination of an Associate in June 2006. This Associate, who had a sales organization in both the U.S. and South Korea, was terminated for violating certain of the Company’s Associate policies and procedures with which Associates are contractually obligated to comply. We have undertaken a variety of initiatives to minimize the effect of this termination and build sales in this market, although no assurance can be given that these initiatives will be successful.

Net sales in the North American market declined approximately $404,000 during the second quarter of 2006. We attribute this decrease to a decline in the number of active Associates, which resulted from low levels of sponsorship of new Associates by the current Associate network. During the second quarter of 2006, we initiated certain new marketing programs intended to encourage greater levels of sponsorship by the Associate network in North America. While we believe these programs and other actions we may undertake in the future will ultimately increase the sponsorship of new Associates, we can give no assurance that the decline of active Associates will not continue.

Licensees. The growth in net sales to our licensees relates mainly to growth of CCI. Sales to CCI increased $718,000 in the second quarter of 2006. CCI’s sales growth is attributed to the continued expansion of the independent Associate network in CCI’s territory. However, sales to CCI may vary significantly from quarter to quarter irrespective of the sales demand of CCI’s independent Associate network. 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. We then store these products until CCI provides shipping instructions. Because we do not recognize revenue until we ship products to CCI, our sales to CCI will fluctuate from quarter to quarter depending on a number of logistical considerations, only one of which is the sales demand of CCI’s independent Associate network. Backlog related to CCI’s account was $3,469,000 and $3,487,000 at June 30, 2006 and 2005, respectively.

Medical products. The growth in net sales of Medical Products is mainly related to increased sales to the largest customer in this segment. Sales to this customer increased $132,000 during the second quarter of 2006 compared to the second quarter of 2005. We attribute this increase to the growth of this customer’s business.

Cost of sales. Cost of sales for the quarter ended June 30, 2006 was $2,629,000 compared with cost of sales in the prior year of $2,190,000, an increase of $439,000 or 20%. As a percentage of net sales, cost of sales was 42% in 2006 and 41% in 2005. As a percentage of net sales, gross profit decreased 1% because of the change in sales mix of Nutritional Products between sales to the Associate network and sales to licensees.

Distributor commissions. Distributor commissions for the quarter ended June 30, 2006 were $769,000 compared with distributor commissions in 2005 of $826,000, a decrease of $57,000 or 7%. With regard to our Associate network, distributor commissions as a percentage of commissionable sales were 32% in the second quarter of 2006 and 2005. On a consolidated basis, distributor commissions as a percentage of net sales declined to 12% in the second quarter of 2006 compared with 15% in 2005. This percentage decline was related to the change in sales mix of Nutritional Products between sales to the Associate network and sales to licensees.

General and administrative. General and administrative expenses for the quarter ended June 30, 2006, were $2,126,000 compared with 2005 expenses of $1,754,000, an increase of $372,000 or 21%. Of this increase, $309,000 resulted from general and administrative expenses incurred in connection with the expansion of our Associate network into South Korea. Also, approximately $27,000 of this increase resulted from recognition of stock-based compensation pursuant to the adoption of SFAS 123R as of January 1, 2006. As a percentage of net sales, general and administrative expenses were 34% and 33% in 2006 and 2005, respectively.

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Income taxes.We recorded a provision for income taxes of $160,000 during the quarter ended June 30, 2006 based on the earnings before income taxes reported for the period. We recorded this provision because earnings of the Company have now more than offset the available net operating loss carryforwards as determined for financial reporting purposes.

Net earnings. As a result of the factors described above, the net earnings for the quarter ended June 30, 2006 were $293,000, or $0.01 per share, compared with net earnings in the prior year of $380,000 or $0.02 per share.

Six Months ended June 30, 2006 compared with Six Months ended June 30, 2005

Net sales.Net sales for the six months ended June 30, 2006 were $11,011,000 compared with net sales for the prior year of $9,498,000, an increase of $1,513,000 or 16%. This increase was due to a $1,229,000 increase in net sales of Nutritional Products and a $284,000 increase in net sales of Medical Products. Net sales of Nutritional Products to our licensees increased $1,423,000 while net sales of Nutritional Products to our Associate network decreased $194,000.

Associate Network. We began distribution of our Nutritional Products in South Korea in February 2006 and recorded net sales of $429,000 during the six months ended June 30, 2006. Net sales in this market during the period were adversely affected by the termination of an Associate in June 2006. This Associate, who had a sales organization in both the U.S. and South Korea, was terminated for violating certain of the Company’s Associate policies and procedures with which Associates are contractually obligated to comply. We have undertaken a variety of initiatives to minimize the effect of this termination and build sales in this market, although no assurance can be given that these initiatives will be successful.

Net sales in the North American market declined approximately $621,000 during the first six months of 2006. We attribute this decrease to a decline in the number of active Associates, which resulted from low levels of sponsorship of new Associates by the current Associate network. During the first six months of 2006, we initiated certain new marketing programs intended to encourage greater levels of sponsorship by the Associate network in North America. While we believe these programs and other actions we may undertake in the future will ultimately increase the sponsorship of new Associates, we can give no assurance that the decline of active Associates will not continue.

Licensees. The growth in net sales to our licensees relates mainly to growth of CCI. Sales to CCI increased $988,000 in the first six months of 2006. CCI’s sales growth is attributed to the continued expansion of the independent Associate network in CCI’s territory. 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. We then store these products until CCI provides shipping instructions. Because we do not recognize revenue until we ship products to CCI, our sales to CCI will fluctuate from quarter to quarter depending on a number of logistical considerations, only one of which is the sales demand of CCI’s independent Associate network. Backlog related to CCI’s account was $3,469,000 and $3,487,000 at June 30, 2006 and 2005, respectively.

Medical products. The growth in net sales of Medical Products is related to increased sales to the largest customer in this segment. Sales to this customer increased $317,000 during the first six months of 2006 compared to 2005. We attribute this increase to the growth of this customer’s business.

Cost of sales. Cost of sales for the six months ended June 30, 2006 was $4,182,000 compared with cost of sales in the prior year of $3,574,000, an increase of $608,000 or 17%. As a percentage of net sales, cost of sales was 38% in 2006 and 2005.

Distributor commissions. Distributor commissions were $1,653,000 for the six months ended June 30, 2006 and 2005. With regard to our Associate network, distributor commissions as a percentage of commissionable sales were 33% in the first six months of 2006 compared with 32% in 2005. On a consolidated basis, distributor commissions as a percentage of net sales declined to 15% in the first six months of 2006 compared with 17% in 2005. This percentage decline was related to the change in sales mix of Nutritional Products between sales to the Associate network and sales to licensees.

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General and administrative. General and administrative expenses for the six months June 30, 2006, were $4,310,000 compared with 2005 expenses of $3,485,000, an increase of $825,000 or 24%. Of this increase, $661,000 resulted from general and administrative expenses incurred in connection with the expansion of our Associate network into South Korea. Also, approximately $50,000 of this increase resulted from recognition of stock-based compensation pursuant to the adoption of SFAS 123R as of January 1, 2006. As a percentage of net sales, general and administrative expenses were 39% and 37% in 2006 and 2005, respectively.

Income taxes.We recorded a provision for income taxes of $160,000 during the six months ended June 30, 2006 based on the earnings before income taxes reported for the period. We recorded this provision because earnings of the Company have now more than offset the available net operating loss carryforwards as determined for financial reporting purposes.

Net earnings. As a result of the factors described above, the net earnings for the six months ended June 30, 2006 were $254,000, or $0.01 per share, compared with net earnings in the prior year of $372,000 or $0.02 per share.

LIQUIDITY AND CAPITAL RESOURCES

Cash and working capital. During the six months ended June 30, 2006, we had a net increase in cash of $431,000 compared with a net increase in cash of $1,092,000 in 2005. At June 30, 2006, we had working capital of $1,245,000, a $105,000 increase from working capital at December 31, 2005 of $1,140,000. These increases were attributable to cash flows from operating activities.

Operating activities. In the first six months of 2006, our operating activities provided cash flows of $834,000 compared with $1,282,000 in 2005. This decline was primarily related to the timing of payments received from certain large customers, the timing of inventory purchases, the timing of payments made to suppliers and deposits made with various entities in connection with the establishment of operations in South Korea. In the first six months of 2006, net earnings adjusted for non-cash activities, which include depreciation and amortization, stock-based compensation and deferred income taxes, provided cash flows of $796,000 compared with $667,000 in 2005.

Investing activities.During the first six months of 2006, we used cash of $370,000 related to the purchase of property and equipment. Most of this property and equipment was purchased in connection with the establishment of operations in South Korea.

Financing activities. During the first six months of 2006, we used cash of $48,000 related to financing activities. We used cash of $61,000 to repay long-term debt, which use was partially offset by proceeds received from the exercise of employee stock options.

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, 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.

In connection with the establishment of operations in South Korea, we arranged a $1.3 million credit facility with a bank. This credit facility is comprised of a $900,000 line of credit secured by inventory and accounts receivable and a five-year note in the amount of $400,000 secured by equipment. At June 30, 2006, there were no borrowings outstanding under the line of credit. In addition to this credit facility, we may seek additional outside sources of capital including bank borrowings, other types of debt or equity financings to provide further funding for this project if we determine additional funding is necessary. We can give no assurance, however, that we would be able to obtain additional outside 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 described above.

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.

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ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.

The following discussion about our market risk includes “forward-looking statements” that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. We do not use derivative financial instruments for speculative or trading purposes. We are exposed to market risk from changes in foreign currency exchange rates and interest rates that could affect our future results of operations and financial condition. We manage our exposure to these risks through our regular operating and financing activities.

Foreign exchange

We have foreign-based operations in Canada and South Korea that accounted for 8% and 4%, respectively, of net sales during the first six months of 2006. Canadian operations accounted for 10% of net sales during fiscal 2005. We advance funds to and from our foreign subsidiaries denominated in U.S. dollars, exposing the foreign subsidiary to the effect of changes in spot exchange rates of the Canadian dollar and Korean Won 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 $44,000 from our Canadian operation and $1,159,000 to our Korean operation at June 30, 2006, a 10% adverse change in the currency rate would reduce earnings before tax by approximately $120,000.

Interest rates

Our credit arrangements expose us to fluctuations in interest rates. At June 30, 2006, we had $121,000 outstanding in indebtedness, which provided for interest to be paid monthly based on a variable rate. Thus, interest rate changes would result in a change in the amount of interest to be paid each month. Based upon the interest rates and borrowings at June 30, 2006, a 10% increase in interest rates would adversely affect our financial position, annual results of operations and cash flows by approximately $1,300.

ITEM 4. Controls and Procedures.

As required by Rule 13a-15(b) and Rule 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, 2006, 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, 2006, 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.

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

There has been no change in internal controls over financial reporting that occurred during the quarter ended June 30, 2006 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 2005 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 2005 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 1, 2006. At this meeting the following persons were elected to serve as directors until the 2007 Annual Meeting of Shareholders:

	For	Withheld
Steven E. Brown	18,938,697	31,809
David H. Brune	18,948,156	22,350
J. Ike Guest	18,949,156	21,350
Clinton H. Howard	18,948,156	22,350
Wayne R. Holbrook	18,938,697	31,809
Joseph P. Philipp	18,948,156	22,350
Kenneth L. Sabot	18,948,156	22,350

At this meeting, the shareholders also approved an amendment to the Company’s Articles of Incorporation to change the name of the Company from Royal BodyCare, Inc. to RBC Life Sciences, Inc. The vote in favor of this proposal was as follows:

For – 18,935,173 Against – 17,333 Abstained – 18,000

At this meeting, the shareholders also approved the 2006 Stock Incentive Plan. The vote in favor of this proposal was as follows:

For – 14,653,466 Against – 194,826 Abstained – 61,800

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
By:	/s/ Clinton H. Howard
Its:	Chief Executive Officer
By:	/s/ Steven E. Brown
Its:	Vice President-Finance and Chief Financial Officer (Principal Financial and Accounting Officer)

DATE:	August 10, 2006
	Irving, Texas

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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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