10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2008

OR

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

For the transition period from                      to                     

Commission file number: 000-50417

RBC Life Sciences, Inc.

(Exact name of registrant as specified in its charter)

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

972-893-4000

(Registrant’s telephone number, including area 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 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. þ YES o 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

Number of shares of common stock, par value $0.001, outstanding at April 15, 2008:

21,242,664

TABLE OF CONTENTS

	Page Number
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)		3
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3. Quantitative and Qualitative Disclosure about Market Risk		17
Item 4. Controls and Procedures		17
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		18
Item 1A. Risk Factors		18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3. Defaults Upon Senior Securities		18
Item 4. Submission of Matters to a Vote of Security Holders		18
Item 5. Other Information		18
Item 6. Exhibits		18
Signatures		19
Exhibit Index		20
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

	March 31,			December 31,
	2008			2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,729,735		$	6,368,885
Accounts receivable, net		392,156			687,505
Inventories		4,945,662			4,725,372
Deferred income taxes		341,395			340,395
Prepaid expenses		358,633			305,960
Total current assets		11,767,581			12,428,117
Property and equipment, net		4,077,549			4,078,035
Goodwill, net		2,281,305			2,302,226
Intangible assets, net		141,155			151,758
Other assets		204,874			198,306
	$	18,472,464		$	19,158,442
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	1,779,147		$	1,932,158
Accrued liabilities		1,245,895			2,498,682
Current maturities of long-term obligations		136,268			135,428
Deferred revenue		4,687,047			4,323,316
Total current liabilities		7,848,357			8,889,584
Long-term obligations, less current maturities		2,161,408			2,196,468
Deferred income taxes		467,474			494,265
Shareholders’ equity:
Common stock, $0.001 par value; 50,000,000 shares authorized; 21,242,664 and 20,863,724 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively		21,243			20,864
Additional paid-in capital		13,171,355			13,086,182
Accumulated deficit		(5,365,142	)		(5,720,001	)
Accumulated other comprehensive income		167,769			191,080
		7,995,225			7,578,125
	$	18,472,464		$	19,158,442

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 March 31,
	2008		2007
Net sales	$	6,347,691	$	5,392,052
Cost of sales		2,844,902		2,087,737
Gross profit		3,502,789		3,304,315
Operating expenses:
General and administrative		2,252,753		1,966,856
Distributor commissions		557,647		654,890
Depreciation and amortization		80,787		90,218
Total operating expenses		2,891,187		2,711,964
Operating profit		611,602		592,351
Interest expense		44,743		59,210
Earnings before income taxes		566,859		533,141
Provision for income taxes		212,000		208,000
Net earnings	$	354,859	$	325,141
Earnings per share:
Basic	$	0.02	$	0.02
Diluted		0.02		0.02
Weighted average common shares outstanding:
Basic		21,114,437		20,188,294
Diluted		22,572,680		21,556,552

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 Quarters Ended March 31,
	2008			2007
Cash flows from operating activities:
Net earnings	$	354,859		$	325,141
Adjustment for non-cash items:
Depreciation and amortization		88,777			96,084
Stock-based compensation		29,428			19,852
Deferred income taxes		(30,000	)		(55,518	)
Change in operating assets and liabilities:
Accounts receivable		295,369			(318,195	)
Inventories		(225,236	)		(357,346	)
Prepaid expenses		(52,945	)		(347,778	)
Other assets		(6,947	)		145
Accounts payable and accrued liabilities		(1,400,444	)		582,205
Deferred revenue		363,731			895,787
Net cash provided (used) by operating activities		(583,408	)		840,377
Cash flows from investing activities:
Purchase of property and equipment		(79,235	)		(25,920	)
Net cash used by investing activities		(79,235	)		(25,920	)
Cash flows from financing activities:
Net payments of lines of credit		—			(100,000	)
Payments of long-term obligations		(34,220	)		(129,235	)
Proceeds from the exercise of stock options		56,124			—
Net cash provided (used) by financing activities		21,904			(229,235	)
Effect of exchange rate changes on cash flows		1,589			1,192
Net increase (decrease) in cash and cash equivalents		(639,150	)		586,414
Cash and cash equivalents, beginning of period		6,368,885			3,219,503
Cash and cash equivalents, end of period	$	5,729,735		$	3,805,917

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, 2007 (the “2007 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:

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”) throughout the U.S. under the MPM Medical brand name. Medical Products are distributed 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.

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Note C — Inventories:

Inventories at March 31, 2008 and December 31, 2007 consist of the following:

	March 31, 2008		December 31, 2007
Raw materials and bulk products	$	479,492	$	573,625
Packaging materials		520,408		509,541
Finished goods		3,945,762		3,642,206
	$	4,945,662	$	4,725,372

Note D — Prepaid Expenses:

Prepaid expenses at March 31, 2008 and December 31, 2007 consist of the following:

	March 31, 2008		December 31, 2007
Advance payment to suppliers	$	256,604	$	179,844
Prepaid insurance and other		102,029		126,116
	$	358,633	$	305,960

Note E — Property and Equipment:

Property and equipment at March 31, 2008 and December 31, 2007 consists of the following:

	March 31, 2008			December 31, 2007
Building and improvements	$	3,363,556		$	3,314,482
Computer software and office equipment		1,588,685			1,567,381
Warehouse equipment		341,850			345,030
Automotive equipment		55,392			55,392
Leasehold improvements		21,272			22,120
		5,370,755			5,304,405
Less — accumulated depreciation		(2,434,379	)		(2,367,543	)
		2,936,376			2,936,862
Land		1,141,173			1,141,173
	$	4,077,549		$	4,078,035

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 consists of the following:

	March 31, 2008					December 31, 2007
	Gross					Gross
	carrying		Accumulated			carrying		Accumulated
	value		amortization			value		amortization
Goodwill	$	3,402,689	$	(1,121,384	)	$	3,443,512	$	(1,141,286	)

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Other intangible assets consist of the following:

			March 31, 2008					December 31, 2007
	Average		Gross					Gross
	life		carrying		Accumulated			carrying		Accumulated
	(years)		value		amortization			value		amortization
Distribution contracts		8	$	277,369	$	(219,822	)	$	277,369	$	(211,583	)
Copyrights, trademarks and other registrations		19		99,100		(35,015	)		99,100		(33,694	)
Other		11		47,600		(28,077	)		47,600		(27,034	)
			$	424,069	$	(282,914	)	$	424,069	$	(272,311	)

Amortization expense related to other intangible assets totaled approximately $10,600 for the quarters ended March 31, 2008 and 2007. The aggregate estimated amortization expense for intangible assets remaining as of March 31, 2008 is as follows:

Remainder of 2008	$	31,804
2009		24,049
2010		21,626
2011		13,792
2012		5,957
Thereafter		43,927
Total	$	141,155

Note G — Accrued Liabilities:

Accrued liabilities at March 31, 2008 and December 31, 2007 consist of the following:

	March 31, 2008		December 31, 2007
Salaries and wages	$	451,499	$	850,855
Income taxes		217,858		1,052,813
Distributor commissions		342,507		362,900
Sales and property taxes		57,281		57,908
Interest		14,839		15,064
Other		161,911		159,142
	$	1,245,895	$	2,498,682

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 March 31, 2008 and 2007 were approximately $29,400 and $19,900, respectively. Share-based compensation is classified as a general and administrative expense. There were no tax benefits related to this expense because virtually all share-based compensation resulted from grants of incentive stock options.

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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 March 31,
	2008			2007(1)
Weighted average expected life (years)		9.0			—
Risk-free interest rate		3.77	%		—
Expected volatility		138.57	%		—
Expected dividend yield		0.0	%		—

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

A summary of stock option activity for the quarter ended March 31, 2008 is as follows:

						Weighted-Average
				Weighted-		Remaining		Aggregate
				Average Exercise		Contractual Term		Intrinsic
	Options			Price per Share		(in years)		Value
Outstanding on January 1, 2008		3,494,950		$	0.32
Granted		100,000			0.71
Exercised		(378,940	)		0.15
Forfeited/canceled		—			—
Outstanding on March 31, 2008		3,216,010		$	0.35		4.6	$	1,066,122
Exercisable on March 31, 2008		2,249,470		$	0.27		3.5	$	886,717

A summary of the status of the Company’s non-vested stock options as of March 31, 2008, and changes
during the three months then ended, is presented below:

			Weighted-Average
			Grant Date Fair
	Shares		Value per Share
Non-vested stock options at January 1, 2008		866,540	$	0.50
Non-vested stock options granted		100,000		0.69
Vested stock options		—		—
Forfeited stock options		—		—
Non-vested stock options at March 31, 2008		966,540		0.52

As of March 31, 2008, there was approximately $452,000 of total unrecognized compensation cost related to stock option grants.

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Note I — Long-Term Obligations and Credit Lines:

At March 31, 2008 and December 31, 2007 long-term obligations consist of the following:

	March 31, 2008			December 31, 2007
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	$	2,297,676		$	2,330,130
Capital lease obligation		—			1,766
		2,297,676			2,331,896
Less — current maturities		(136,268	)		(135,428	)
	$	2,161,408		$	2,196,468

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 had a term ending in March 2008 and an interest rate approximating 10%.

The Company maintains a $500,000 line of credit with a bank. Borrowings under this line of credit bear interest at prime, which was 5.25% at March 31, 2008, and are limited to a borrowing base, as defined in the line of credit agreement. The borrowing base, which was $500,000 at March 31, 2008, is calculated as a specified percentage of eligible collateral up to a maximum of $500,000. This line of credit is collateralized by accounts receivable, inventory and equipment, and is personally guaranteed by the Company’s Chief Executive Officer. There were no borrowings outstanding under this credit line as of March 31, 2008.

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 markets 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 in the United States 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 March 31, 2008
Net sales	$	4,986	$	1,362	$	6,348
Depreciation and amortization		65		24		89
Operating profit		569		43		612
Capital expenditures		79		—		79
Total assets		17,026		1,446		18,472
Quarter ended March 31, 2007
Net sales	$	4,360	$	1,032	$	5,392
Depreciation and amortization		72		24		96
Operating profit		466		126		592
Capital expenditures		26		—		26
Total assets		13,575		1,663		15,238

Financial information summarized geographically for the quarters ended March 31, 2008 and 2007 is listed below (in thousands):

	Quarter Ended March 31, 2008				Quarter Ended March 31, 2007
	Net sales		Long-Lived assets		Net sales		Long-Lived assets
Domestic	$	2,538	$	6,133	$	2,551	$	6,132
Former Soviet Union		3,376		—		2,334		—
Canada		289		572		353		509
All others		145		—		154		—
Totals	$	6,348	$	6,705	$	5,392	$	6,641

Significant Customers

The Company recorded sales of Nutritional Products to Coral Club International, Inc., a licensee of the Company, in the amounts of $3,376,000 and $2,334,000 during the quarters ended March 31, 2008 and 2007, respectively. During the quarter ended March 31, 2008, the Company recorded sales of Medical Products to a medical/surgical dealer in the amount of $824,000. 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 ended March 31, 2008 and 2007.

Note K — Earnings Per Share:

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

			Weighted
			Average
	Net Earnings		Shares		Per Share
Quarter ended March 31, 2008
Basic earnings per common share	$	354,859		21,114,437	$	0.02
Effect of dilutive stock options		—		1,458,243
Diluted earnings per common share	$	354,859		22,572,680	$	0.02
Quarter ended March 31, 2007
Basic earnings per common share	$	325,141		20,188,294	$	0.02
Effect of dilutive stock options		—		1,368,258
Diluted earnings per common share	$	325,141		21,556,552	$	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 611,750 and 400,000 for the quarters ended March 31, 2008 and 2007, respectively.

As of March 31, 2007, the Company had outstanding convertible notes in the amount $121,500, which notes were convertible into common stock based on a per share conversion price of $1.32. The assumed conversion of these convertible notes would have had an anti-dilutive effect on diluted earnings per common share for the quarter ended March 31, 2007 and accordingly were excluded from the computation.

Note L — Comprehensive Income:

Comprehensive income is net earnings adjusted for other comprehensive income (loss), which, for the periods presented, consists of the change in the foreign currency translation adjustment. The following table provides information regarding comprehensive income:

	Quarters Ended March 31,
	2008			2007
Net earnings	$	354,859		$	325,141
Other comprehensive income (loss):
Foreign currency translation adjustment		(23,311	)		7,134
Comprehensive income	$	331,548		$	332,275

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 2007 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 2007 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 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 March 31,
	2008				2007
	(U.S. dollars in 000’s)
Nutritional Products:
Associate network	$	1,465	23	%	$	1,873	35	%
Licensees		3,521	56	%		2,487	46	%
		4,986	79	%		4,360	81	%
Medical Products		1,362	21	%		1,032	19	%
	$	6,348	100	%	$	5,392	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 March 31,
	2008			2007
United States		80	%		81	%
Canada		20			19
		100	%		100	%

Net sales through the Associate network channel have declined primarily because of the low rate of sponsorship of new Associates by the current Associate network. This is discussed further below under the caption “Results of Operations — Quarter ended March 31, 2008 compared with quarter ended March 31, 2007.”

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 94% of licensee net sales in the quarters ended March 31, 2008 and 2007, 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 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 61% and 50% of Medical Products net sales in the quarters ended March 31, 2008 and 2007, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our 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. 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 quarter ended March 31, 2008 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 2007 Form 10-K.

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RESULTS OF OPERATIONS

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

	Quarters Ended March 31,
	2008			2007
Net sales		100.0	%		100.0	%
Cost of sales		44.8			38.7
Gross profit		55.2			61.3
Operating expenses:
General and administrative		35.5			36.5
Distributor commissions		8.8			12.1
Depreciation and amortization		1.3			1.7
Total operating expenses		45.6			50.3
Operating profit		9.6			11.0
Interest expense		0.7			1.1
Earnings before income taxes		8.9			9.9
Provision for income taxes		3.3			3.9
Net earnings		5.6	%		6.0	%

Quarter ended March 31, 2008 compared with quarter ended March 31, 2007

Net sales. Net sales for the quarter ended March 31, 2008 were $6,348,000 compared with net sales for the prior year of $5,392,000, an increase of $956,000 or 18%. This increase was due to a $626,000 increase in net sales of Nutritional Products and a $330,000 increase in net sales of Medical Products. Net sales of Nutritional Products to our licensees increased $1,034,000 while net sales of Nutritional Products to our Associate network decreased $408,000.

Associate Network. Net sales in the North American market declined approximately $408,000 during the first quarter of 2008. We attribute this decrease mainly to a continued 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 quarter of 2008, we introduced a new product, implemented new marketing programs and modified existing marketing programs in our continuing effort to encourage greater levels of sponsorship by the Associate network in North America. While we believe these marketing initiatives 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 is the result of the growth of CCI. Sales to CCI increased $1,042,000 in the first quarter of 2008. 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 $6,081,000 and $5,343,000 at March 31, 2008 and 2007, respectively.

Medical products. The growth in net sales of Medical Products is related to an increase in the customer base for our wound care products and increased sales to the largest customer in this segment. Sales to this customer, which distributes wound care products to the nursing home market, increased $313,000 during the first quarter of 2008 compared to the first quarter of 2007. We attribute this distributor’s sales increase to the increase of its nursing home customer base, which was achieved through expansion of its sales force.

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Cost of sales. Cost of sales for the quarter ended March 31, 2008 was $2,845,000 compared with cost of sales in the first quarter of 2007 of $2,088,000, an increase of $757,000 or 36%. As a percentage of net sales, cost of sales was 45% in the first quarter of 2008 and 39% in the first quarter of 2007. As a percentage of net sales, gross profit decreased 6% mainly because of a change in sales mix. During the first quarter of 2008, a smaller percentage of our sales was contributed by sales of Nutritional Products to the Associate network, which sales have a higher gross margin. In addition, the mix of products sold to licensees in the first quarter of 2008 had a lower gross margin than the mix of products sold to licensees in the first quarter of 2007.

General and administrative. General and administrative expenses for the quarter ended March 31, 2008, were $2,253,000 compared with expenses in the first quarter of 2007 of $1,967,000, an increase of $286,000 or 15%. This increase was mainly attributable to marketing expenses associated with Medical Products sales, and salaries and benefits required to support our sales growth in both of our industry segments. As a percentage of net sales, general and administrative expenses were 36% and 37% in the quarters ended March 31, 2008 and 2007, respectively.

Distributor commissions. Distributor commissions for the quarter ended March 31, 2008 were $558,000 compared with distributor commissions in the same quarter of 2007 of $655,000, a decrease of $97,000 or 15%. With regard to our Associate network, distributor commissions as a percentage of commissionable sales increased to approximately 33% in the first quarter of 2008 compared to 32% in the same period in 2007. On a consolidated basis, distributor commissions as a percentage of net sales declined to 9% in the first quarter of 2008 compared with 12% in the first quarter of 2007. This percentage decline was related to the change in sales mix described above. Most of our distributor commissions are associated with sales to the Associate network.

Income taxes. We recorded a provision for income taxes of $212,000 during the quarter ended March 31, 2008 based on our estimate of the effective annual income tax rate.

Net earnings. As a result of the factors described above, the net earnings for the quarter ended March 31, 2008 were $355,000, or $0.02 per share, compared with net earnings in the first quarter of 2007 of $325,000, or $0.02 per share.

LIQUIDITY AND CAPITAL RESOURCES

Cash and working capital. During the quarter ended March 31, 2008, we had a net decrease in cash of $639,000 compared with a net increase in cash of $586,000 in the first quarter of 2007. At March 31, 2008, we had working capital of $3,919,000, a $381,000 increase from working capital at December 31, 2007 of $3,539,000. The reasons for these changes in cash and working capital are described below.

Operating activities. In the first quarter of 2008, our operating activities used cash flows of $583,000. In the first quarter of 2007, our operating activities provided cash flows of $840,000. The use of cash by operating activities during the first quarter of 2008 resulted from our payment of approximately $1.1 million related to our 2007 federal income tax liability. In accordance with Internal Revenue Service regulations regarding the timing of estimated tax payments, we were not required to make any significant estimated tax payments related to our 2007 income tax liability until the first quarter of 2008. For 2008, we are required to make quarterly estimated income tax payments with respect to 2008 earnings. In the first quarter of 2008, net earnings adjusted for non-cash activities, which include depreciation and amortization, stock-based compensation and deferred income taxes, provided cash flows of $443,000 compared with $386,000 in the first quarter of 2007.

Investing activities. During the first quarter of 2008, we used cash of $79,000 related to the purchase of property and equipment.

Financing activities. During the first quarter of 2008, we used cash of $34,000 to repay long-term debt and received $56,000 in proceeds from the exercise of employee stock options. We maintain a $500,000 line of credit arrangement with a bank, none of which was used as of March 31, 2008.

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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.

During the second quarter of 2008, we anticipate the completion of a project to affect certain improvements and repairs of our headquarters building at a cost of approximately $200,000. The improvements relate mainly to improvements in the building drainage system. Other than the foregoing, 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 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 that accounted for 5% of net sales during the first quarter of 2008 and during fiscal 2007. 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 $105,000 to our Canadian operations at March 31, 2008, a 10% adverse change in the currency rate would reduce earnings before income taxes by approximately $10,500.

Interest rates

Our line of credit arrangement may expose us to fluctuations in interest rates. At March 31, 2008, we maintained a $500,000 line of credit arrangement that provides 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. We had no borrowings outstanding against this credit line as of March 31, 2008.

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 March 31, 2008, 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 March 31, 2008, 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 have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2008 that have materially affected, or are 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 2007 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 2007 Form 10-K.

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

None

ITEM 3. Defaults Upon Senior Securities.

None

ITEM 4. Submission of Matters to a Vote of Security Holders.

None.

ITEM 5. Other Information.

None

ITEM 6. Exhibits.

The Exhibit Index filed herewith is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RBC Life Sciences, Inc. Registrant
Date: May 9, 2008	By:	/s/ Clinton H. Howard
		Its: Chief Executive Officer
Date: May 9, 2008	By:	/s/ Steven E. Brown
		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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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Clinton H. Howard, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of RBC Life Sciences, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2008

/s/ Clinton H. Howard  

Clinton H. Howard 

Chief Executive Officer 

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Steven E. Brown, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of RBC Life Sciences, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2008

/s/ Steven E. Brown  

Steven E. Brown 

Vice President-Finance and Chief Financial Officer 

EX-32.1

Exhibit 32.1

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

In connection with the Quarterly Report of RBC Life Sciences, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Clinton H. Howard, Chairman of the Board and Chief Executive Officer of the Company does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Clinton H. Howard  

Clinton H. Howard 

Chairman of the Board and Chief Executive Officer 
May 9, 2008 

EX-32.2

Exhibit 32.2

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

In connection with the Quarterly Report of RBC Life Sciences, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Steven E. Brown, Vice President — Finance and Chief Financial Officer of the Company, does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Steven E. Brown  

Steven E. Brown 

Vice President-Finance and Chief Financial Officer 
May 9, 2008