UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number: 000-50417
RBC Life Sciences, Inc.
(Exact name of registrant as specified in its charter)
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Nevada
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91-2015186
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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2301 Crown Court, Irving, Texas
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75038
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(Address of principal executive offices)
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(Zip code)
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972-893-4000
(Registrants 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):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
þ
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(Do not check if smaller reporting company)
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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 $0.001, outstanding at April 15, 2008:
21,242,664
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RBC LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31,
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December 31,
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2008
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2007
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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5,729,735
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$
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6,368,885
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Accounts receivable, net
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392,156
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687,505
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Inventories
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4,945,662
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4,725,372
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Deferred income taxes
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341,395
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340,395
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Prepaid expenses
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358,633
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305,960
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Total current assets
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11,767,581
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12,428,117
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Property and equipment, net
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4,077,549
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4,078,035
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Goodwill, net
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2,281,305
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2,302,226
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Intangible assets, net
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141,155
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151,758
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Other assets
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204,874
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198,306
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$
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18,472,464
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$
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19,158,442
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Accounts payable, trade
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$
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1,779,147
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$
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1,932,158
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Accrued liabilities
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1,245,895
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2,498,682
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Current maturities of long-term obligations
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136,268
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135,428
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Deferred revenue
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4,687,047
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4,323,316
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Total current liabilities
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7,848,357
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8,889,584
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Long-term obligations, less current maturities
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2,161,408
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2,196,468
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Deferred income taxes
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467,474
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494,265
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Shareholders equity:
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Common stock, $0.001 par value; 50,000,000
shares authorized; 21,242,664 and 20,863,724 shares
issued and outstanding at March 31, 2008 and
December 31, 2007, respectively
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21,243
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20,864
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Additional paid-in capital
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13,171,355
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13,086,182
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Accumulated deficit
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(5,365,142
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)
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(5,720,001
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Accumulated other comprehensive income
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167,769
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191,080
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7,995,225
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7,578,125
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$
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18,472,464
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$
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19,158,442
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See notes to condensed consolidated financial statements.
- 3 -
RBC LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the Quarters Ended March 31,
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2008
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2007
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Net sales
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$
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6,347,691
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$
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5,392,052
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Cost of sales
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2,844,902
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2,087,737
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Gross profit
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3,502,789
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3,304,315
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Operating expenses:
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General and administrative
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2,252,753
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1,966,856
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Distributor commissions
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557,647
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654,890
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Depreciation and amortization
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80,787
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90,218
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Total operating expenses
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2,891,187
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2,711,964
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Operating profit
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611,602
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592,351
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Interest expense
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44,743
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59,210
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Earnings before income taxes
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566,859
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533,141
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Provision for income taxes
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212,000
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208,000
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Net earnings
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$
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354,859
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$
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325,141
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Earnings per share:
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Basic
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$
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0.02
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$
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0.02
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Diluted
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0.02
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0.02
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Weighted average common shares outstanding:
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Basic
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21,114,437
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20,188,294
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Diluted
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22,572,680
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21,556,552
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See notes to condensed consolidated financial statements.
- 4 -
RBC LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Quarters Ended March 31,
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2008
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2007
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Cash flows from operating activities:
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Net earnings
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$
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354,859
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$
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325,141
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Adjustment for non-cash items:
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Depreciation and amortization
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88,777
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96,084
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Stock-based compensation
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29,428
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19,852
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Deferred income taxes
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(30,000
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(55,518
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Change in operating assets and liabilities:
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Accounts receivable
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295,369
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(318,195
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Inventories
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(225,236
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(357,346
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Prepaid expenses
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(52,945
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(347,778
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Other assets
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(6,947
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145
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Accounts payable and accrued liabilities
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(1,400,444
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)
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582,205
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Deferred revenue
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363,731
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895,787
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Net cash provided (used) by operating activities
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(583,408
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)
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840,377
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Cash flows from investing activities:
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Purchase of property and equipment
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(79,235
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)
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(25,920
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)
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Net cash used by investing activities
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(79,235
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)
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(25,920
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)
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Cash flows from financing activities:
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Net payments of lines of credit
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(100,000
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)
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Payments of long-term obligations
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(34,220
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)
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(129,235
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)
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Proceeds from the exercise of stock options
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56,124
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Net cash provided (used) by financing activities
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21,904
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(229,235
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)
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Effect of exchange rate changes on cash flows
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1,589
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1,192
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Net increase (decrease) in cash and cash equivalents
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(639,150
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)
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586,414
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Cash and cash equivalents, beginning of period
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6,368,885
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3,219,503
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Cash and cash equivalents, end of period
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$
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5,729,735
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$
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3,805,917
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See notes to condensed consolidated financial statements.
- 5 -
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 Companys 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 Companys 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.
- 6 -
Note C Inventories:
Inventories at March 31, 2008 and December 31, 2007 consist of the following:
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March 31, 2008
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December 31, 2007
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Raw materials and bulk products
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$
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479,492
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$
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573,625
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Packaging materials
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520,408
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509,541
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Finished goods
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3,945,762
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3,642,206
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$
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4,945,662
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$
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4,725,372
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Note D Prepaid Expenses:
Prepaid expenses at March 31, 2008 and December 31, 2007 consist of the following:
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March 31, 2008
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December 31, 2007
|
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Advance payment to suppliers
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$
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256,604
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$
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179,844
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Prepaid insurance and other
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|
102,029
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126,116
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$
|
358,633
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$
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305,960
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Note E Property and Equipment:
Property and equipment at March 31, 2008 and December 31, 2007 consists of the following:
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March 31, 2008
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December 31, 2007
|
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Building and improvements
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|
$
|
3,363,556
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$
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3,314,482
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Computer software and office equipment
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1,588,685
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|
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1,567,381
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Warehouse equipment
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|
|
341,850
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345,030
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Automotive equipment
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55,392
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55,392
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Leasehold improvements
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21,272
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|
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22,120
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5,370,755
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5,304,405
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Less accumulated depreciation
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(2,434,379
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)
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(2,367,543
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)
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2,936,376
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2,936,862
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Land
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1,141,173
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1,141,173
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$
|
4,077,549
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|
$
|
4,078,035
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|
|
|
|
|
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|
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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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Gross
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|
|
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Gross
|
|
|
|
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carrying
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Accumulated
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carrying
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Accumulated
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value
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|
|
amortization
|
|
|
value
|
|
|
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
3,402,689
|
|
|
$
|
(1,121,384
|
)
|
|
$
|
3,443,512
|
|
|
$
|
(1,141,286
|
)
|
- 7 -
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.
- 8 -
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 Companys 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.
- 9 -
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 Companys 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 Companys Chief Executive Officer. There were no borrowings outstanding under
this credit line as of March 31, 2008.
Note J Segments and Geographic Area:
The Companys 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. MPMs 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.
- 10 -
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
|
|
|
|
|
|
|
|
|
|
|
|
|
- 11 -
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.
- 12 -
|
|
|
ITEM 2.
|
|
Managements 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 managements
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 Companys 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.
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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.
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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. MPMs 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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- 13 -
Consolidated net sales in dollars and as a percentage of consolidated net sales are as follows:
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|
|
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|
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|
|
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|
|
|
|
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Quarters Ended March 31,
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2008
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2007
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(U.S. dollars in
000s)
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Nutritional Products:
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|
|
|
|
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|
|
|
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|
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Associate network
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$
|
1,465
|
|
|
|
23
|
%
|
|
$
|
1,873
|
|
|
|
35
|
%
|
Licensees
|
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|
3,521
|
|
|
|
56
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%
|
|
|
2,487
|
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,986
|
|
|
|
79
|
%
|
|
|
4,360
|
|
|
|
81
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Medical Products
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|
1,362
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|
|
|
21
|
%
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|
|
1,032
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|
|
|
19
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%
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
$
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6,348
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|
|
|
100
|
%
|
|
$
|
5,392
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|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
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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:
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|
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Quarters Ended March 31,
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|
|
2008
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|
2007
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|
United States
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|
|
80
|
%
|
|
|
81
|
%
|
Canada
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|
|
20
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
100
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%
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|
|
100
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%
|
|
|
|
|
|
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|
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 licensees 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 segments 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
Managements Discussion and Analysis of Financial Condition and Results of Operations in the 2007
Form 10-K.
- 14 -
RESULTS OF OPERATIONS
The following table sets forth our operating results as a percentage of net sales for the periods
indicated:
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|
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|
Quarters Ended March 31,
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|
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2008
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|
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2007
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|
Net sales
|
|
|
100.0
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%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
44.8
|
|
|
|
38.7
|
|
|
|
|
|
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Gross profit
|
|
|
55.2
|
|
|
|
61.3
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Operating expenses:
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|
|
|
|
|
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|
General and administrative
|
|
|
35.5
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|
|
|
36.5
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|
Distributor commissions
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|
|
8.8
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|
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|
12.1
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|
Depreciation and amortization
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|
|
1.3
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|
|
|
1.7
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|
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|
|
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Total operating expenses
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|
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45.6
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|
|
|
50.3
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|
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|
|
|
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|
Operating profit
|
|
|
9.6
|
|
|
|
11.0
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|
Interest expense
|
|
|
0.7
|
|
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|
1.1
|
|
|
|
|
|
|
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|
Earnings before income taxes
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|
|
8.9
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|
|
|
9.9
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|
Provision for income taxes
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|
|
3.3
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|
|
|
3.9
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
5.6
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%
|
|
|
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. CCIs sales growth is attributed to the
continued expansion of the independent Associate network in CCIs territory. However, sales to CCI
may vary significantly from quarter to quarter irrespective of the sales demand of CCIs
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 CCIs 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 CCIs independent Associate
network. Backlog related to CCIs 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 distributors sales increase to the increase of its nursing home customer base,
which was achieved through expansion of its sales force.
- 15 -
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.
- 16 -
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.
- 17 -
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.
- 18 -
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.
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|
|
|
|
|
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)
|
|
- 19 -
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
|
- 20 -
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