RBCL RBC Life Sciences Inc (CE)

2

TABLE OF CONTENTS

3

PART 1 – FINANCIAL INFORMATION

See notes to condensed consolidated financial statements.

- 4 -

5

See notes to condensed consolidated financial statements.

- 5 -

6

See notes to condensed consolidated financial statements.

- 6 -

7

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, 2006 (the “2006 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 February 2006, RBC began marketing its Nutritional Products in South Korea through an Associate network. This business was conducted by its wholly owned subsidiary in South Korea. On October 31, 2006, RBC consummated the sale of this subsidiary and, as part of the sale agreement, entered into a five-year exclusive license agreement with the purchaser. Under the terms of the license agreement, the purchaser distributes RBC products in this market as a licensee.

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 brand name. Medical Products are distributed to hospitals, nursing homes, clinics and pharmacies through traditional medical/surgical supply dealers and pharmaceutical distributors.

- 7 -

8

- 8 -

9

Other intangible assets consist of the following:

Amortization expense related to other intangible assets totaled approximately $10,600 for the quarters ended September 30, 2007 and 2006 and $31,800 for the nine months ended September 30, 2007 and 2006. The aggregate estimated amortization expense for intangible assets remaining as of September 30, 2007 is as follows:

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 September 30, 2007 and 2006 were approximately $15,900 and $27,400, respectively, and for the nine months ended September 30, 2007 and 2006 were approximately $53,900 and $77,300, 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.  

- 9 -

10

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:

A summary of stock option activity for the nine months ended September 30, 2007 is as follows:
 

 
A summary of the status of the Company’s non-vested stock options as of September 30, 2007, and changes during the nine months then ended, is presented below:
 

 
As of September 30, 2007, there was approximately $68,000 of total unrecognized compensation cost related to stock option grants.

Note I – Long-Term Obligations and Credit Lines:

At September 30, 2007 and December 31, 2006 long-term obligations consist of the following:

- 10 -

11

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%.

In March 2007, the Company paid off, and did not renew, a line of credit borrowing arrangement in the amount of $100,000. The Company continues to maintain a $900,000 line of credit against which there were no borrowings outstanding at September 30, 2007. Borrowings under this 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 September 30, 2007, 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 September 30, 2007.

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 and oncology products in the United States under the MPM Medical brand name. The wound care products are distributed to hospitals, nursing homes and home health care agencies through a network of 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.

- 11 -

12

Segment information is as follows (in thousands):

Financial information summarized geographically for the quarters and nine months ended September 30, 2007 and 2006 is listed below (in thousands):

- 12 -

13

Significant Customers

The Company recorded sales of Nutritional Products to Coral Club International, Inc., a licensee of the Company, in the amounts of $4,898,000 and $2,336,000 during the quarters ended September 30, 2007 and 2006, respectively, and $11,314,000 and $6,462,000 for the nine months ended September 30, 2007 and 2006, respectively. These sales accounted for more than 10% of net sales in these periods. In no other case did a customer of the Company account for more than 10% of net sales during the quarters or nine months ended September 30, 2007 and 2006.

Note K – Earnings Per Share:

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

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 300,000 and 600,000 for the quarters ended September 30, 2007 and 2006, respectively, and 300,000 and 500,000 for the nine months ended September 30, 2007 and 2006, respectively.

The assumed conversion of the convertible notes would have an anti-dilutive effect on diluted earnings per common share for the quarters and nine months ended September 30, 2007 and 2006, and accordingly have been 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:

- 13 -

14

Note M – Legal Proceedings:

The Company is from time to time engaged in routine litigation. The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate by management for these litigation matters.

- 14 -

15

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 2006 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 2006 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.

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

- 15 -

16

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

In February 2006, we began distributing Nutritional Products through an Associate network in South Korea. This business was conducted by our wholly owned subsidiary in South Korea. On October 31, 2006, we sold this subsidiary and as part of the sale agreement, entered into a five-year license agreement with the purchaser. Under the terms of the license agreement, the purchaser distributes our products in this market as a licensee.
 
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 91% of licensee net sales in the nine months ended September 30, 2007 and 2006, 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 57% of Medical Products net sales in the nine months ended September 30, 2007 and 2006.
 
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.

- 16 -

17

Management believes that there have been no significant changes during the nine months ended September 30, 2007 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 2006 Form 10-K.

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

Quarter ended September 30, 2007 compared with quarter ended September 30, 2006

Net sales. Net sales for the quarter ended September 30, 2007 were $7,857,000 compared with net sales for the prior year of $5,405,000, an increase of $2,452,000 or 45%. This increase was due to a $2,325,000 increase in net sales of Nutritional Products and a $127,000 increase in net sales of Medical Products. Net sales of Nutritional Products to our licensees increased $2,641,000 while net sales of Nutritional Products to our Associate network decreased $316,000.
 
Associate Network . We began distribution of our Nutritional Products in South Korea through an Associate network in February 2006 and recorded net sales of $115,000 during the quarter ended September 30, 2006. As described above under the caption “Overview – Associate Network,” on October 31, 2006, we sold the South Korean operations and entered into an exclusive license arrangement with the purchaser pursuant to which our products continue to be sold in this market.

Net sales in the North American market declined approximately $200,000 during the third quarter of 2007. We attribute this decrease 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 nine months of 2007, we 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 primarily the result of the growth of CCI. Sales to CCI increased $2,562,000 in the third quarter of 2007. 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 $5,828,000 and $2,718,000 at September 30, 2007 and 2006, respectively.

- 17 -

18

 
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 $70,000 during the third quarter of 2007 compared to the third quarter of 2006. 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.

Cost of sales. Cost of sales for the quarter ended September 30, 2007 was $3,702,000 compared with cost of sales in the third quarter of 2006 of $2,302,000, an increase of $1,400,000 or 61%. As a percentage of net sales, cost of sales was 47% in the third quarter of 2007 and 43% in the third quarter of 2006. As a percentage of net sales, gross profit decreased 4% mainly because of a change in sales mix. During the third quarter of 2007, a smaller percentage of our sales was contributed by sales of Nutritional Products to the Associate network, which sales have a higher gross margin.
 
General and administrative. General and administrative expenses for the quarter ended September 30, 2007, were $2,296,000 compared with expenses in the third quarter of 2006 of $2,125,000, an increase of $171,000 or 8%. As a percentage of net sales, general and administrative expenses were 29% and 39% in the quarters ended September 30, 2007 and 2006, respectively. General and administrative expenses in the third quarter of 2006 included $322,000 of expenses associated with operations in South Korea. The elimination of these expenses for the third quarter of 2007 was more than offset by increases in other general and administrative expenses, mainly marketing expenses related to both Nutritional Products sales in North America and Medical Products sales, and salaries and benefits required to support our growth. General and administrative expenses in the third quarter of 2007 also included a charge of approximately $134,000 related to an adjustment of the fair value of the long-term receivable we received in connection with the sale of our South Korean subsidiary in October 2006. This receivable was recorded at its fair value based on the timing of expected payments. Based on historical trends, we adjusted the timing of expected payments and recalculated the fair value accordingly.
 
Distributor commissions. Distributor commissions for the quarter ended September 30, 2007 were $601,000 compared with distributor commissions in the same quarter of 2006 of $649,000, a decrease of $48,000 or 7%. With regard to our Associate network, distributor commissions as a percentage of commissionable sales increased approximately 2% in the third quarter of 2007 compared to the same period in 2006. On a consolidated basis, distributor commissions as a percentage of net sales declined to 8% in the third quarter of 2007 compared with 12% in the third quarter of 2006. 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 $455,000 during the quarter ended September 30, 2007 based on our estimate of the effective annual income tax rate. We have no U.S. net operating loss carryforwards available to offset taxable income.

Net earnings. As a result of the factors described above, the net earnings for the quarter ended September 30, 2007 were $672,000, or $0.03 per share, compared with net earnings in the third quarter of 2006 of $80,000, or $0.00 per share.

Nine months ended September 30, 2007 compared with nine months ended September 30, 2006
 
Net sales. Net sales for the nine months ended September 30, 2007 were $20,397,000 compared with net sales for the same period in the prior year of $16,416,000, an increase of $3,981,000 or 24%. This increase was due to a $3,383,000 increase in net sales of Nutritional Products and a $598,000 increase in net sales of Medical Products. Net sales of Nutritional Products to our licensees increased $4,715,000 while net sales of Nutritional Products to our Associate network decreased $1,332,000.
 
Associate Network . We began distribution of our Nutritional Products in South Korea through an Associate network in February 2006 and recorded net sales of $543,000 during the nine months ended September 30, 2006. As described above under the caption “Overview – Associate Network,” on October 31, 2006, we sold the South Korean operations and entered into an exclusive license arrangement with the purchaser pursuant to which our products continue to be sold in this market.

- 18 -

19

Net sales in the North American market declined approximately $789,000 during the first nine months of 2007. We attribute this decrease 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 nine months of 2007, we 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 $4,852,000 in the first nine months of 2007 as compared to the same period in 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 $5,828,000 and $2,718,000 at September 30, 2007 and 2006, 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 $349,000 during the first nine months of 2007 compared to the first nine months of 2006. 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.

Cost of sales. Cost of sales for the nine months ended September 30, 2007 was $9,144,000 compared with cost of sales in the first nine months of 2006 of $6,483,000, an increase of $2,661,000 or 41%. As a percentage of net sales, cost of sales was 45% in the first nine months of 2007 and 40% in the first nine months of 2006. As a percentage of net sales, gross profit decreased 5% mainly because of a change in sales mix. During the first nine months of 2007, a smaller percentage of our sales was contributed by sales of Nutritional Products to the Associate network, which sales have a higher gross margin.
 
General and administrative. General and administrative expenses for the nine months ended September 30, 2007, were $6,463,000 compared with expenses in the first nine months of 2006 of $6,436,000, an increase of $27,000 or less than 1%. As a percentage of net sales, general and administrative expenses were 32% and 39% in the nine months ended September 30, 2007 and 2006, respectively. General and administrative expenses in the first nine months of 2006 included $984,000 of expenses associated with operations in South Korea. The elimination of these expenses for the first nine months of 2007 was offset mainly by increased marketing expenses related to both Nutritional Products sales in North America and Medical Products sales, and increased salaries and benefits required to support our growth. General and administrative expenses in 2007 also included a charge of approximately $134,000 related to an adjustment of the fair value of the long-term receivable we received in connection with the sale of our South Korean subsidiary in October 2006. This receivable was recorded at its fair value based on the timing of expected payments. Based on historical trends, we adjusted the timing of expected payments and recalculated the fair value accordingly.

Distributor commissions. Distributor commissions for the nine months ended September 30, 2007 were $1,899,000 compared with distributor commissions in the same nine months of 2006 of $2,302,000, a decrease of $403,000 or 18%. With regard to our Associate network, distributor commissions as a percentage of commissionable sales were substantially unchanged in the first nine months of 2007 compared to 2006. On a consolidated basis, distributor commissions as a percentage of net sales declined to 9% in the first nine months of 2007 compared with 14% in 2006. 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 $965,000 during the nine months ended September 30, 2007 based on our estimate of the effective annual income tax rate. We have no U.S. net operating loss carryforwards available to offset taxable income.

- 19 -

20

Net earnings. As a result of the factors described above, the net earnings for the nine months ended September 30, 2007 were $1,507,000, or $0.07 per share, compared with net earnings in the first nine months of 2006 of $335,000, or $0.01 per share.

LIQUIDITY AND CAPITAL RESOURCES
 
Cash and working capital. During the nine months ended September 30, 2007, we had a net increase in cash of $2,043,000 compared with a net increase in cash of $239,000 in the first nine months of 2006. At September 30, 2007, we had working capital of $3,378,000, a $1,443,000 increase from working capital at December 31, 2006 of $1,935,000. These increases were mainly attributable to cash flows from operating activities.
 
Operating activities . In the first nine months of 2007, our operating activities provided cash flows of $2,780,000 compared with $774,000 in the first nine months of 2006. This improvement was primarily related to net earnings and the timing of supplier and other payments. Cash used to increase inventory was mainly used to increase inventory associated with CCI’s product orders. We also used cash to increase our Medical Products inventory in support of sales increases in this segment. In the first nine months of 2007, net earnings adjusted for non-cash activities, which mainly include depreciation and amortization, stock-based compensation and deferred income taxes, provided cash flows of $1,735,000 compared with $1,092,000 in the first nine months of 2006.
 
Investing activities. During the first nine months of 2007, we used cash of $154,000 related to the purchase of property and equipment.
 
Financing activities . During the first nine months of 2007, we used cash of $533,000 to repay long-term debt, which included the payment of the remaining balance of our note payable to a bank. We also used $100,000 to pay off our remaining line of credit borrowings. We continue to maintain a $900,000 line of credit arrangement with a bank, none of which was used at September 30, 2007.

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 fourth quarter of 2007, we plan to complete a project to affect certain improvements and repairs of our headquarters building. This project is expected to be completed by year end at a cost of approximately $600,000. We expect that approximately $400,000 to $500,000 of this amount will represent capital improvements to our building with the remainder representing a repair expense. Capital 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.

Foreign exchange

We have foreign-based operations in Canada that accounted for 5% of net sales during the first nine months of 2007 and 7% during fiscal 2006. 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 $24,000 to our Canadian operations at September 30, 2007, a 10% adverse change in the currency rate would reduce earnings before income taxes by approximately $2,400.

Interest rates

Our line of credit arrangement may expose us to fluctuations in interest rates. At September 30, 2007, we maintained a $900,000 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 line at September 30, 2007.

PART II – OTHER INFORMATION

SIGNATURES

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

RBC Life Sciences, Inc.
Registrant

November 12, 2007
Date

By: / s/ Clinton H. Howard                     
Its: Chief Executive Officer

November 12, 2007
Date

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

- 23 -

24

RBC LIFE SCIENCES, INC.

Exhibit Index

- 24 -

25