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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended September 30, 2006

OR



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

For the transition period from  to

Commission file number: 000-50417



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RBC Life Sciences, Inc.

(Exact name of registrant as specified in its charter)



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



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

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



---

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.    x  YES ̈NO

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

Large accelerated
filer ̈Accelerated filer ̈Non-accelerated filer  x

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

Number of shares of common stock, par value $0.001,
outstanding at November 1, 2006: 20,188,294



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##### Table of Contents

TABLE OF CONTENTS



|                               |  |                                                                                       |  |   
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | --
|                               |  | Page Number                                                                          
|PART I  FINANCIAL INFORMATION |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Condensed Consolidated Financial Statements (unaudited)                               |  | 3 
|                               |  | Notes to Condensed Consolidated Financial Statements                                  |  | 7 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16
|Item 3.                        |  | Quantitative and Qualitative Disclosure about Market Risk                             |  | 22
|Item 4.                        |  | Controls and Procedures                                                               |  | 22
|                               | 
|PART II  OTHER INFORMATION    |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 23
|Item 1A.                       |  | Risk Factors                                                                          |  | 23
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 23
|Item 3.                        |  | Defaults Upon Senior Securities                                                       |  | 23
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 23
|Item 5.                        |  | Other Information                                                                     |  | 23
|Item 6.                        |  | Exhibits                                                                              |  | 23
|                               | 
|Signatures                     |  | 24                                                                                   
|                               | 
|Exhibit Index                  |  | 25                                                                                   



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##### Table of Contents

PART 1  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RBC LIFE SCIENCES, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                |  |                    |            |   |                   |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ----------------- | - | ---------- | -
|                                                                                                                                                                                |  | September 30, 2006 |            |   | December 31, 2005 |  
|                                                                                                                                                                                |  | (Unaudited)        |            |   |                   |  
|ASSETS                                                                                                                                                                          |  |                    |            |   |                   |   |            |  
|Current assets:                                                                                                                                                                 |  |                    |            |   |                   |   |            |  
|Cash and cash equivalents                                                                                                                                                       |  | $                  | 1,936,821  |   |                   | $ | 1,697,966  |  
|Accounts receivable, net                                                                                                                                                        |  |                    | 549,940    |   |                   |   | 352,741    |  
|Inventories                                                                                                                                                                     |  |                    | 3,070,625  |   |                   |   | 3,564,760  |  
|Prepaid expenses and other                                                                                                                                                      |  |                    | 538,814    |   |                   |   | 511,975    |  
|                                                                                                                                                                                |  |                    |            |   |                   |   |            |  
|Total current assets                                                                                                                                                            |  |                    | 6,096,200  |   |                   |   | 6,127,442  |  
|                                                                                                                                                                                |  |                   
|Property and equipment, net                                                                                                                                                     |  |                    | 3,938,987  |   |                   |   | 3,975,948  |  
|                                                                                                                                                                                |  |                   
|Goodwill, net                                                                                                                                                                   |  |                    | 2,095,054  |   |                   |   | 2,095,054  |  
|                                                                                                                                                                                |  |                   
|Intangible assets, net                                                                                                                                                          |  |                    | 204,774    |   |                   |   | 236,580    |  
|                                                                                                                                                                                |  |                   
|Other assets                                                                                                                                                                    |  |                    | 482,207    |   |                   |   | 251,895    |  
|                                                                                                                                                                                |  |                    |            |   |                   |   |            |  
|                                                                                                                                                                                |  | $                  | 12,817,222 |   |                   | $ | 12,686,919 |  
|                                                                                                                                                                                |  |                    |            |   |                   |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                            |  |                    |            |   |                   |   |            |  
|Current liabilities:                                                                                                                                                            |  |                    |            |   |                   |   |            |  
|Accounts payable, trade                                                                                                                                                         |  | $                  | 1,229,790  |   |                   | $ | 1,202,990  |  
|Accrued liabilities                                                                                                                                                             |  |                    | 933,201    |   |                   |   | 1,134,478  |  
|Current maturities of long-term obligations                                                                                                                                     |  |                    | 376,068    |   |                   |   | 303,655    |  
|Lines of credit                                                                                                                                                                 |  |                    | 100,000    |   |                   |   | 122,249    |  
|Deferred revenue                                                                                                                                                                |  |                    | 2,030,520  |   |                   |   | 2,224,341  |  
|                                                                                                                                                                                |  |                    |            |   |                   |   |            |  
|Total current liabilities                                                                                                                                                       |  |                    | 4,669,579  |   |                   |   | 4,987,713  |  
|                                                                                                                                                                                |  |                   
|Long-term obligations, less current maturities                                                                                                                                  |  |                    | 2,608,977  |   |                   |   | 2,802,113  |  
|                                                                                                                                                                                |  |                   
|Deferred income tax liabilities                                                                                                                                                 |  |                    | 183,221    |   |                   |   |           |  
|                                                                                                                                                                                |  |                   
|Shareholders equity:                                                                                                                                                           |  |                    |            |   |                   |   |            |  
|Common stock, $0.001 par value; 50,000,000 shares authorized; 20,188,294 and 20,056,294 shares issued and outstanding at September 30,
2006 and December 31, 2005, respectively |  |                    | 20,188     |   |                   |   | 20,056     |  
|Additional paid-in capital                                                                                                                                                      |  |                    | 12,886,336 |   |                   |   | 12,789,978 |  
|Accumulated deficit                                                                                                                                                             |  |                    | (7,513,933 | ) |                   |   | (7,848,454 | )
|Accumulated other comprehensive loss                                                                                                                                            |  |                    | (37,146    | ) |                   |   | (64,487    | )
|                                                                                                                                                                                |  |                    |            |   |                   |   |            |  
|                                                                                                                                                                                |  |                    | 5,355,445  |   |                   |   | 4,897,093  |  
|                                                                                                                                                                                |  |                    |            |   |                   |   |            |  
|                                                                                                                                                                                |  | $                  | 12,817,222 |   |                   | $ | 12,686,919 |  
|                                                                                                                                                                                |  |                    |            |   |                   |   |            |  

See notes to condensed consolidated financial statements.



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RBC LIFE SCIENCES, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                            |  |                                      |            |      |   |           
|------------------------------------------- |  | ------------------------------------ | ---------- | ---- | - | ----------
|                                            |  | For the Quarters Ended September 30,
|                                            |  | 2006                                 |            | 2005
|Net sales                                   |  | $                                    | 5,404,869  |      | $ | 4,914,551 
|Cost of sales                               |  |                                      | 2,301,883  |      |   | 1,979,578 
|                                            |  |                                      |            |      |   |           
|Gross profit                                |  |                                      | 3,102,986  |      |   | 2,934,973 
|                                            |  |                                     
|Operating expenses                          |  |                                      |            |      |   |           
|General and administrative                  |  |                                      | 2,125,289  |      |   | 1,776,673 
|Distributor commissions                     |  |                                      | 649,402    |      |   | 801,707   
|Depreciation and amortization               |  |                                      | 159,998    |      |   | 144,868   
|                                            |  |                                      |            |      |   |           
|Total operating expenses                    |  |                                      | 2,934,689  |      |   | 2,723,248 
|                                            |  |                                      |            |      |   |           
|Operating profit                            |  |                                      | 168,297    |      |   | 211,725   
|                                            |  |                                     
|Interest expense                            |  |                                      | 62,993     |      |   | 62,279    
|                                            |  |                                      |            |      |   |           
|Earnings before income taxes                |  |                                      | 105,304    |      |   | 149,446   
|                                            |  |                                     
|Provision for income taxes                  |  |                                      | 25,000     |      |   |          
|                                            |  |                                      |            |      |   |           
|Net earnings                                |  | $                                    | 80,304     |      | $ | 149,446   
|                                            |  |                                      |            |      |   |           
|Earnings per share:                         |  |                                      |            |      |   |           
|Basic                                       |  | $                                    | 0.00       |      | $ | 0.01      
|Diluted                                     |  |                                      | 0.00       |      |   | 0.01      
|                                            |  |                                     
|Weighted average common shares outstanding: |  |                                      |            |      |   |           
|Basic                                       |  |                                      | 20,166,294 |      |   | 20,056,294
|Diluted                                     |  |                                      | 22,177,336 |      |   | 22,202,158

See notes to condensed consolidated financial statements.



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RBC LIFE SCIENCES, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                            |  |                                         |            |      |   |           
|------------------------------------------- |  | --------------------------------------- | ---------- | ---- | - | ----------
|                                            |  | For the Nine Months Ended September 30,
|                                            |  | 2006                                    |            | 2005
|Net sales                                   |  | $                                       | 16,416,310 |      | $ | 14,412,650
|Cost of sales                               |  |                                         | 6,483,475  |      |   | 5,554,008 
|                                            |  |                                         |            |      |   |           
|Gross profit                                |  |                                         | 9,932,835  |      |   | 8,858,642 
|                                            |  |                                        
|Operating expenses                          |  |                                         |            |      |   |           
|General and administrative                  |  |                                         | 6,435,653  |      |   | 5,261,672 
|Distributor commissions                     |  |                                         | 2,301,937  |      |   | 2,454,248 
|Depreciation and amortization               |  |                                         | 484,292    |      |   | 432,725   
|                                            |  |                                         |            |      |   |           
|Total operating expenses                    |  |                                         | 9,221,882  |      |   | 8,148,645 
|                                            |  |                                         |            |      |   |           
|Operating profit                            |  |                                         | 710,953    |      |   | 709,997   
|                                            |  |                                        
|Interest expense                            |  |                                         | 191,432    |      |   | 189,004   
|                                            |  |                                         |            |      |   |           
|Earnings before income taxes                |  |                                         | 519,521    |      |   | 520,993   
|                                            |  |                                        
|Provision for income taxes                  |  |                                         | 185,000    |      |   |          
|                                            |  |                                         |            |      |   |           
|Net earnings                                |  | $                                       | 334,521    |      | $ | 520,993   
|                                            |  |                                         |            |      |   |           
|Earnings per share:                         |  |                                         |            |      |   |           
|Basic                                       |  | $                                       | 0.02       |      | $ | 0.03      
|Diluted                                     |  |                                         | 0.01       |      |   | 0.02      
|                                            |  |                                        
|Weighted average common shares outstanding: |  |                                         |            |      |   |           
|Basic                                       |  |                                         | 20,155,294 |      |   | 20,056,294
|Diluted                                     |  |                                         | 22,370,099 |      |   | 21,147,160

See notes to condensed consolidated financial statements.



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RBC LIFE SCIENCES, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                    |  |                                         |           |   |      |   |            |  
|--------------------------------------------------- |  | --------------------------------------- | --------- | - | ---- | - | ---------- | -
|                                                    |  | For the Nine Months Ended September 30, |          
|                                                    |  | 2006                                    |           |   | 2005 |  
|Cash flows from operating activities:               |  |                                         |           |   |      |   |            |  
|Net earnings                                        |  | $                                       | 334,521   |   |      | $ | 520,993    |  
|Adjustment for non-cash items:                      |  |                                         |           |   |      |   |            |  
|Depreciation and amortization                       |  |                                         | 495,317   |   |      |   | 443,417    |  
|Stock-based compensation                            |  |                                         | 77,350    |   |      |   |           |  
|Deferred income taxes                               |  |                                         | 185,000   |   |      |   |           |  
|Change in operating assets and liabilities          |  |                                         |           |   |      |   |            |  
|Accounts receivable                                 |  |                                         | (197,139  | ) |      |   | 133,253    |  
|Inventories                                         |  |                                         | 488,822   |   |      |   | (1,001,480 | )
|Prepaid expenses and other                          |  |                                         | (10,826   | ) |      |   | 62,743     |  
|Other assets                                        |  |                                         | (222,677  | ) |      |   | (13,513    | )
|Accounts payable and accrued liabilities            |  |                                         | (182,930  | ) |      |   | 108,104    |  
|Deferred revenue                                    |  |                                         | (193,821  | ) |      |   | 955,816    |  
|                                                    |  |                                         |           |   |      |   |            |  
|Net cash provided by operating activities           |  |                                         | 773,617   |   |      |   | 1,209,333  |  
|                                                    |  |                                         |           |   |      |   |            |  
|Cash flows from investing activities:               |  |                                         |           |   |      |   |            |  
|Purchase of property and equipment                  |  |                                         | (421,414  | ) |      |   | (91,874    | )
|Proceeds from disposition of property and equipment |  |                                         |          |   |      |   | 27,631     |  
|                                                    |  |                                         |           |   |      |   |            |  
|Net cash used by investing activities               |  |                                         | (421,414  | ) |      |   | (64,243    | )
|                                                    |  |                                         |           |   |      |   |            |  
|Cash flows from financing activities:               |  |                                         |           |   |      |   |            |  
|Net payments of lines of credit                     |  |                                         | (22,249   | ) |      |   | (2,649     | )
|Payments of long term obligations                   |  |                                         | (120,723  | ) |      |   | (195,474   | )
|Proceeds from the exercise of stock options         |  |                                         | 19,140    |   |      |   |           |  
|                                                    |  |                                         |           |   |      |   |            |  
|Net cash used by financing activities               |  |                                         | (123,832  | ) |      |   | (198,123   | )
|                                                    |  |                                         |           |   |      |   |            |  
|Effect of exchange rate changes on cash flows       |  |                                         | 10,484    |   |      |   | (18,076    | )
|                                                    |  |                                         |           |   |      |   |            |  
|Net increase in cash and cash equivalents           |  |                                         | 238,855   |   |      |   | 928,891    |  
|                                                    |  |                                        
|Cash and cash equivalents, beginning of period      |  |                                         | 1,697,966 |   |      |   | 1,051,511  |  
|                                                    |  |                                         |           |   |      |   |            |  
|Cash and cash equivalents, end of period            |  | $                                       | 1,936,821 |   |      | $ | 1,980,402  |  
|                                                    |  |                                         |           |   |      |   |            |  

See notes to condensed consolidated financial statements.



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RBC LIFE SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A  Unaudited Condensed Consolidated Financial Statements:

The accompanying unaudited condensed consolidated financial statements of RBC Life Sciences, Inc., f/k/a Royal BodyCare, Inc., (sometimes hereinafter referred to collectively as we, our, RBC or the
Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain
information and disclosures that are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to these rules and
regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2005 (the 2005 Form 10-K), previously filed with the Securities and Exchange Commission.

In the opinion of management, all
adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation of the Companys results for the interim periods have been included. The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and
reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full
year.

Note B  Nature of Operations and Organization:

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

The Company is principally engaged in the
marketing of nutritional supplements and personal care products (collectively Nutritional Products). In certain markets, primarily the U.S. and Canada, the Companys products are marketed through a network of distributors that are
referred to as Associates. The Associates are independent contractors who purchase products for personal use, purchase products for resale to retail customers and sponsor other individuals as Associates. Associates can derive
compensation both from the direct sales of products and from sales generated by sponsored Associates.

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. As more fully described in Note M, on October 31, 2006, RBC closed the sale of this subsidiary and, as part of the sale agreement, entered into a five-year exclusive license agreement
with the purchaser. Under terms of the license agreement, the purchaser will continue to distribute RBC products in this market.

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



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Note C  Inventories:

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



|                                |  |                    |           |                   |   |          
|------------------------------- |  | ------------------ | --------- | ----------------- | - | ---------
|                                |  | September 30, 2006 |           | December 31, 2005
|Raw materials and bulk products |  | $                  | 676,673   |                   | $ | 389,764  
|Packaging materials             |  |                    | 395,908   |                   |   | 403,452  
|Finished goods                  |  |                    | 1,998,044 |                   |   | 2,771,544
|                                |  |                    |           |                   |   |          
|                                |  | $                  | 3,070,625 |                   | $ | 3,564,760
|                                |  |                    |           |                   |   |          

Note D  Property and Equipment:

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



|                                       |  |                    |           |                   |   |          
|-------------------------------------- |  | ------------------ | --------- | ----------------- | - | ---------
|                                       |  | September 30, 2006 |           | December 31, 2005
|Building and improvements              |  | $                  | 2,758,983 |                   | $ | 2,758,983
|Computer software and office equipment |  |                    | 3,196,857 |                   |   | 2,992,090
|Warehouse equipment                    |  |                    | 275,619   |                   |   | 257,520  
|Automotive equipment                   |  |                    | 94,182    |                   |   | 55,392   
|Leasehold improvements                 |  |                    | 195,481   |                   |   | 18,752   
|                                       |  |                    |           |                   |   |          
|                                       |  |                    | 6,521,122 |                   |   | 6,082,737
|Less  accumulated depreciation        |  |                    | 3,723,308 |                   |   | 3,247,962
|                                       |  |                    |           |                   |   |          
|                                       |  |                    | 2,797,814 |                   |   | 2,834,775
|Land                                   |  |                    | 1,141,173 |                   |   | 1,141,173
|                                       |  |                    |           |                   |   |          
|                                       |  | $                  | 3,938,987 |                   | $ | 3,975,948
|                                       |  |                    |           |                   |   |          

Note E  Goodwill and Other Intangible Assets:

The Company measures its goodwill for impairment at the end of each year or in the event of an impairment indicator. No impairment losses have been recognized as a result
of this testing. Goodwill consists of the following:



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

Other intangible assets consist of the following:



|                                               |  |                      |  |                          |         |  |                      |          |                          |  |   |         |  |   |          |  
|---------------------------------------------- |  | -------------------- |  | ------------------------ | ------- |  | -------------------- | -------- | ------------------------ |  | - | ------- |  | - | -------- | -
|                                               |  | Average life (years) |  | September 30, 2006       |         |  | December 31, 2005    |         
|                                               |  | Gross carrying value |  | Accumulated amortization |         |  | Gross carrying value |          | Accumulated amortization | 
|Distribution contracts                         |  | 8                    |  | $                        | 277,369 |  | $                    | (170,389 | )                        |  | $ | 277,369 |  | $ | (145,675 | )
|Copyrights, trademarks and other registrations |  | 19                   |  |                          | 99,100  |  |                      | (27,087  | )                        |  |   | 99,100  |  |   | (23,123  | )
|Other                                          |  | 11                   |  |                          | 47,600  |  |                      | (21,819  | )                        |  |   | 47,600  |  |   | (18,691  | )
|                                               |  |                      |  |                          |         |  |                      |          |                          |  |   |         |  |   |          |  
|                                               |  |                      |  | $                        | 424,069 |  | $                    | (219,295 | )                        |  | $ | 424,069 |  | $ | (187,489 | )
|                                               |  |                      |  |                          |         |  |                      |          |                          |  |   |         |  |   |          |  



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Amortization expense related to other intangible assets totaled approximately $10,600 for the quarters ended
September 30, 2006 and 2005 and $31,800 for the nine months ended September 30, 2006 and 2005. The aggregate estimated amortization expense for intangible assets remaining as of September 30, 2006 is as follows:



|                  |  |   |        
|----------------- |  | - | -------
|Remainder of 2006 |  | $ | 10,601 
|2007              |  |   | 42,407 
|2008              |  |   | 42,407 
|2009              |  |   | 24,048 
|2010              |  |   | 21,626 
|Thereafter        |  |   | 63,685 
|                  |  |   |        
|Total             |  | $ | 204,774
|                  |  |   |        

Note F  Accrued Liabilities:

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



|                        |  |                    |         |                   |   |          
|----------------------- |  | ------------------ | ------- | ----------------- | - | ---------
|                        |  | September 30, 2006 |         | December 31, 2005
|Distributor commissions |  | $                  | 395,220 |                   | $ | 458,522  
|Salaries and wages      |  |                    | 366,758 |                   |   | 535,004  
|Sales and other taxes   |  |                    | 80,989  |                   |   | 69,896   
|Interest                |  |                    | 20,589  |                   |   | 21,617   
|Other                   |  |                    | 69,645  |                   |   | 49,439   
|                        |  |                    |         |                   |   |          
|                        |  | $                  | 933,201 |                   | $ | 1,134,478
|                        |  |                    |         |                   |   |          

Note G  Share-Based Compensation:

Employee stock options

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

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

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

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



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

Stock-based compensation expense for the quarter and nine months ended September 30, 2006 was approximately $27,400 and $77,300, respectively, and is classified as a general and administrative expense. There were no tax benefits
related to this expense because all stock-based compensation resulted from grants of ISOs. In accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, no tax benefit is recorded for an ISO unless
upon exercise a disqualifying disposition occurs. In accordance with SFAS 123R, the Company will prospectively record any excess tax benefits from the exercise of stock options as cash flows from financing activities. There were no excess tax
benefits in the nine months ended September 30, 2006.

Other stock options

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

Fair value

The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following assumptions:



|                        |  |                              |  |                                 |  |      |   |  |         
|----------------------- |  | ---------------------------- |  | ------------------------------- |  | ---- | - |  | --------
|                        |  | Quarters Ended September 30, |  | Nine Months Ended September 30,
|                        |  | 2006 (1)                     |  | 2005 (1)                        |  | 2006 |   |  | 2005 (1)
|Expected life (years)   |  |                             |  |                                |  | 9.0  |   |  |        
|Risk-free interest rate |  |                             |  |                                |  | 4.67 | % |  |        
|Expected Volatility     |  |                             |  |                                |  | 35.0 | % |  |        
|Expected Dividend yield |  |                             |  |                                |  | 0    | % |  |        

---

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



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##### Table of Contents

Stock option activity

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



|                                  |  |           |   |  |                                            |      |                                                        |     |                           |   |        
|--------------------------------- |  | --------- | - |  | ------------------------------------------ | ---- | ------------------------------------------------------ | --- | ------------------------- | - | -------
|                                  |  | Options   |   |  | Weighted- Average Exercise Price per
Share |      | Weighted-Average Remaining Contractual
Term (in years) |     | Aggregate Intrinsic Value
|Outstanding on January 1, 2006    |  | 3,565,000 |   |  | $                                          | 0.21 |                                                        |     |                           |   |        
|Granted                           |  | 200,000   |   |  |                                            | 0.74 |                                                        |     |                           |   |        
|Exercised                         |  | (132,000  | ) |  |                                            | 0.15 |                                                        |     |                           |   |        
|Forfeited/Canceled                |  |          |   |  |                                            |     |                                                        |     |                           |   |        
|                                  |  |           |   |  |                                            |      |                                                        |     |                           |   |        
|Outstanding on September 30, 2006 |  | 3,633,000 |   |  | $                                          | 0.25 |                                                        | 5.3 |                           | $ | 672,550
|                                  |  |           |   |  |                                            |      |                                                        |     |                           |   |        
|Exercisable on September 30, 2006 |  | 2,520,000 |   |  | $                                          | 0.24 |                                                        | 5.1 |                           | $ | 470,050
|                                  |  |           |   |  |                                            |      |                                                        |     |                           |   |        

There were no options granted during the quarter ended September 30, 2006; there was one option to purchase
common stock granted during the nine months ended September 30, 2006, which had a fair value of $0.71. There were no options granted during the nine months ended September 30, 2005. The intrinsic value of options exercised during the
quarter and nine months ended September 30, 2006 was approximately $13,000 and $73,000, respectively. There were no options exercised during the nine months ended September 30, 2005.

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



|                                               |  |           |   |  |                                                  |     
|---------------------------------------------- |  | --------- | - |  | ------------------------------------------------ | ----
|                                               |  | Shares    |   |  | Weighted Average Grant Date Fair Value per
Share
|Non-vested stock options at January 1, 2006    |  | 1,507,000 |   |  | $                                                | 0.14
|Non-vested stock options granted               |  | 200,000   |   |  |                                                  | 0.71
|Vested stock options                           |  | (594,000  | ) |  |                                                  | 0.14
|Forfeited stock options                        |  |          |   |  |                                                  |    
|                                               |  |           |   |  |                                                  |     
|Non-vested stock options at September 30, 2006 |  | 1,113,000 |   |  |                                                  | 0.24
|                                               |  |           |   |  |                                                  |     

As of September 30, 2006, there was approximately $234,000 of total unrecognized compensation cost
related to stock option grants. That cost is expected to be recognized over a weighted average period of 3.4 years. The total fair value of shares vested during the quarter and nine months ended September 30, 2006 was approximately $61,300 and
$81,000, respectively.



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



|                                                                                                                                            |  |                                  |         |   |                                      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------------ | - | ------- | -
|                                                                                                                                            |  | Quarter Ended September 30, 2005 |         |   | Nine Months Ended September 30, 2005 |  
|Net earnings, as reported                                                                                                                   |  | $                                | 149,446 |   |                                      | $ | 520,993 |  
|Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax
effects |  |                                  | (19,527 | ) |                                      |   | (58,581 | )
|                                                                                                                                            |  |                                  |         |   |                                      |   |         |  
|Pro forma net earnings                                                                                                                      |  | $                                | 129,919 |   |                                      | $ | 462,412 |  
|                                                                                                                                            |  |                                  |         |   |                                      |   |         |  
|Basic earnings per share:                                                                                                                   |  |                                  |         |   |                                      |   |         |  
|As reported                                                                                                                                 |  | $                                | 0.01    |   |                                      | $ | 0.03    |  
|Pro forma                                                                                                                                   |  |                                  | 0.01    |   |                                      |   | 0.02    |  
|                                                                                                                                            |  |                                 
|Diluted earnings per share:                                                                                                                 |  |                                  |         |   |                                      |   |         |  
|As reported                                                                                                                                 |  | $                                | 0.01    |   |                                      | $ | 0.02    |  
|Pro forma                                                                                                                                   |  |                                  | 0.01    |   |                                      |   | 0.02    |  

Note H  Long Term Obligations:

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



|                                                                                                                                                                                                                                                                                                  |  |                    |           |                   |   |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | ----------------- | - | ---------
|                                                                                                                                                                                                                                                                                                  |  | September 30, 2006 |           | December 31, 2005
|Mortgage note payable bearing interest at 7.75%, payable in monthly installments of $25,797 through April 2019, collateralized by land and
building, and personally guaranteed by the Companys Chief Executive Officer                                                                           |  | $                  | 2,483,321 |                   | $ | 2,568,382
|                                                                                                                                                                                                                                                                                                  |  |                   
|Note payable to bank bearing interest at 7.96%, payable interest only through June 2006 and thereafter in monthly installments of $12,550
through June 2009, collateralized by accounts receivable, inventories and equipment, and personally guaranteed by the Companys Chief Executive Officer |  |                    | 370,272   |                   |   | 400,000  
|                                                                                                                                                                                                                                                                                                  |  |                   
|Convertible notes (original amount $730,000) bearing interest at 10% payable quarterly, originally due two years from the date of issuance
(1997), notes are convertible into common stock any time prior to maturity at the option of the holder based on a per share conversion price of $1.32  |  |                    | 121,500   |                   |   | 123,000  
|                                                                                                                                                                                                                                                                                                  |  |                   
|Capital lease obligation                                                                                                                                                                                                                                                                          |  |                    | 9,952     |                   |   | 14,386   
|                                                                                                                                                                                                                                                                                                  |  |                    |           |                   |   |          
|                                                                                                                                                                                                                                                                                                  |  |                    | 2,985,045 |                   |   | 3,105,768
|Less  current maturities                                                                                                                                                                                                                                                                         |  |                    | 376,068   |                   |   | 303,655  
|                                                                                                                                                                                                                                                                                                  |  |                    |           |                   |   |          
|                                                                                                                                                                                                                                                                                                  |  | $                  | 2,608,977 |                   | $ | 2,802,113
|                                                                                                                                                                                                                                                                                                  |  |                    |           |                   |   |          

The note payable to bank is part of a $1.3 million credit facility originally arranged to fund the Companys
expansion into South Korea. See Note M. The other portion of this credit facility is a $900,000 line of credit against which there were no borrowings outstanding at September 30, 2006. Borrowings under the line of credit bear interest at prime
plus 1.0% and are limited to a borrowing base, as defined in the line of credit agreement. The borrowing base, which was $900,000 at September 30, 2006, is calculated as a specified percentage of eligible collateral up to a maximum of $900,000.
This line of credit is collateralized by accounts receivable, inventory and equipment, and is personally guaranteed by the Companys Chief Executive Officer.



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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, 2006.

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

Note I  Segments and Geographic Area:

The Companys segments are based on the organization structure that is used by management
for making operating and investment decisions and for assessing performance. Based on this management approach, the Company has two operating segments: Nutritional Products and Medical Products. The Nutritional Products segment manufactures and
distributes a line of over 75 nutritional supplements and personal care products, including herbs, vitamins and minerals, as well as natural skin, hair and body care products. Nutritional Products are 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. The Medical Products segment markets a line of approximately 28 wound
care and oncology products in the United States under the MPM Medical trade name. The wound care products are distributed directly to hospitals, nursing homes and home health care agencies through medical/surgical supply dealers. The oncology
products are distributed to hospitals, cancer treatment clinics and pharmacies through pharmaceutical distributors.

The Company evaluates the performance
of its segments primarily based on operating profit. All intercompany transactions have been eliminated, and intersegment revenues are not significant. In calculating operating profit for these two segments, administrative expenses incurred that are
common to the two segments are allocated on a usage basis.

Segment information is as follows (in thousands):



|                                     |  |                      |        |                  |   |              |  |   |       
|------------------------------------ |  | -------------------- | ------ | ---------------- | - | ------------ |  | - | ------
|                                     |  | Nutritional Products |        | Medical Products |   | Consolidated
|Quarter ended September 30, 2006     |  |                      |        |                  |   |              |  |   |       
|Net sales                            |  | $                    | 4,380  |                  | $ | 1,025        |  | $ | 5,405 
|Depreciation and amortization        |  |                      | 151    |                  |   | 13           |  |   | 164   
|Operating profit                     |  |                      | 16     |                  |   | 152          |  |   | 168   
|Capital expenditures                 |  |                      | 51     |                  |   |             |  |   | 51    
|Total assets                         |  |                      | 11,393 |                  |   | 1,424        |  |   | 12,817
|                                     |  |                      |       
|Quarter ended September 30, 2005     |  |                      |        |                  |   |              |  |   |       
|Net sales                            |  | $                    | 4,179  |                  | $ | 736          |  | $ | 4,915 
|Depreciation and amortization        |  |                      | 138    |                  |   | 10           |  |   | 148   
|Operating profit                     |  |                      | 124    |                  |   | 88           |  |   | 212   
|Capital expenditures                 |  |                      | 33     |                  |   |             |  |   | 33    
|Total assets                         |  |                      | 11,337 |                  |   | 1,210        |  |   | 12,547
|                                     |  |                      |       
|Nine Months ended September 30, 2006 |  |                      |        |                  |   |              |  |   |       
|Net sales                            |  | $                    | 13,741 |                  | $ | 2,675        |  | $ | 16,416
|Depreciation and amortization        |  |                      | 455    |                  |   | 40           |  |   | 495   
|Operating profit                     |  |                      | 357    |                  |   | 354          |  |   | 711   
|Capital expenditures                 |  |                      | 421    |                  |   |             |  |   | 421   
|Total assets                         |  |                      | 11,393 |                  |   | 1,424        |  |   | 12,817
|                                     |  |                      |       
|Nine Months ended September 30, 2005 |  |                      |        |                  |   |              |  |   |       
|Net sales                            |  | $                    | 12,311 |                  | $ | 2,102        |  | $ | 14,413
|Depreciation and amortization        |  |                      | 413    |                  |   | 30           |  |   | 443   
|Operating profit                     |  |                      | 481    |                  |   | 229          |  |   | 710   
|Capital expenditures                 |  |                      | 92     |                  |   |             |  |   | 92    
|Total assets                         |  |                      | 11,337 |                  |   | 1,210        |  |   | 12,547



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



|                    |  |                                      |        |                                      |   |           |  |                   |        |  |   |      
|------------------- |  | ------------------------------------ | ------ | ------------------------------------ | - | --------- |  | ----------------- | ------ |  | - | -----
|                    |  | Quarter ended September 30, 2006     |        | Quarter ended September 30, 2005    
|                    |  | Net sales                            |        | Long-Lived assets                    |   | Net sales |  | Long-Lived assets
|Domestic            |  | $                                    | 2,498  |                                      | $ | 5,763     |  | $                 | 2,602  |  | $ | 6,217
|Canada              |  |                                      | 357    |                                      |   | 386       |  |                   | 496    |  |   | 393  
|South Korea         |  |                                      | 115    |                                      |   | 572       |  |                   |       |  |   |     
|Former Soviet Union |  |                                      | 2,336  |                                      |   |          |  |                   | 1,735  |  |   |     
|All others          |  |                                      | 99     |                                      |   |          |  |                   | 82     |  |   |     
|                    |  |                                      |        |                                      |   |           |  |                   |        |  |   |      
|Totals              |  | $                                    | 5,405  |                                      | $ | 6,721     |  | $                 | 4,915  |  | $ | 6,610
|                    |  |                                      |        |                                      |   |           |  |                   |        |  |   |      
|                    |  |                                     
|                    |  | Nine Months ended September 30, 2006 |        | Nine Months ended September 30, 2005
|                    |  | Net sales                            |        | Long-Lived assets                    |   | Net sales |  | Long-Lived assets
|Domestic            |  | $                                    | 7,539  |                                      | $ | 5,763     |  | $                 | 7,834  |  | $ | 6,217
|Canada              |  |                                      | 1,226  |                                      |   | 386       |  |                   | 1,510  |  |   | 393  
|South Korea         |  |                                      | 543    |                                      |   | 572       |  |                   |       |  |   |     
|Former Soviet Union |  |                                      | 6,462  |                                      |   |          |  |                   | 4,873  |  |   |     
|All others          |  |                                      | 646    |                                      |   |          |  |                   | 196    |  |   |     
|                    |  |                                      |        |                                      |   |           |  |                   |        |  |   |      
|Totals              |  | $                                    | 16,416 |                                      | $ | 6,721     |  | $                 | 14,413 |  | $ | 6,610
|                    |  |                                      |        |                                      |   |           |  |                   |        |  |   |      

Significant Customers

The Company recorded sales of Nutritional Products to Coral Club International, Inc., a licensee of the Company, in the amounts of $2,336,000 and $1,735,000 during the quarters ended September 30, 2006 and 2005,
respectively, and $6,462,000 and $4,873,000 during the nine months ended September 30, 2006 and 2005, respectively. During the quarter ended September 30, 2006, the Company recorded sales of Medical Products to a medical/surgical dealer in
the amount of $613,000. 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 and nine months ended September 30, 2006
and 2005.

Note J  Earnings Per Share:

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



|                                     |  |              |         |        |            |           |   |     
|------------------------------------ |  | ------------ | ------- | ------ | ---------- | --------- | - | ----
|                                     |  | Net Earnings |         | Shares |            | Per Share
|Quarter ended September 30, 2006     |  |              |         |        |            |           |   |     
|Basic earnings per common share      |  | $            | 80,304  |        | 20,166,294 |           | $ | 0.00
|Effect of dilutive stock options     |  |              |        |        | 2,011,042  |           |   |     
|                                     |  |              |         |        |            |           |   |     
|Diluted earnings per common share    |  | $            | 80,304  |        | 22,177,336 |           | $ | 0.00
|                                     |  |              |         |        |            |           |   |     
|Quarter ended September 30, 2005     |  |              |         |        |            |           |   |     
|Basic earnings per common share      |  | $            | 149,446 |        | 20,056,294 |           | $ | 0.01
|Effect of dilutive stock options     |  |              |        |        | 2,145,864  |           |   |     
|                                     |  |              |         |        |            |           |   |     
|Diluted earnings per common share    |  | $            | 149,446 |        | 22,202,158 |           | $ | 0.01
|                                     |  |              |         |        |            |           |   |     
|Nine months ended September 30, 2006 |  |              |         |        |            |           |   |     
|Basic earnings per common share      |  | $            | 334,521 |        | 20,155,294 |           | $ | 0.02
|Effect of dilutive stock options     |  |              |        |        | 2,214,805  |           |   |     
|                                     |  |              |         |        |            |           |   |     
|Diluted earnings per common share    |  | $            | 334,521 |        | 22,370,099 |           | $ | 0.01
|                                     |  |              |         |        |            |           |   |     



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|                                     |  |              |         |        |            |           |   |     
|------------------------------------ |  | ------------ | ------- | ------ | ---------- | --------- | - | ----
|                                     |  | Net Earnings |         | Shares |            | Per Share
|Nine months ended September 30, 2005 |  |              |         |        |            |           |   |     
|Basic earnings per common share      |  | $            | 520,993 |        | 20,056,294 |           | $ | 0.03
|Effect of dilutive stock options     |  |              |        |        | 1,090,866  |           |   |     
|                                     |  |              |         |        |            |           |   |     
|Diluted earnings per common share    |  | $            | 520,993 |        | 21,147,160 |           | $ | 0.02
|                                     |  |              |         |        |            |           |   |     

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 600,000 and 402,000 for the quarters ended September 30, 2006 and 2005, respectively, and 500,000 and
402,000 for the nine months ended September 30, 2006 and 2005, respectively.

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

Note K  Comprehensive Income:

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



|                                        |  |                              |        |   |                                 |   |         |      |  |      |         |  |   |         |  
|--------------------------------------- |  | ---------------------------- | ------ | - | ------------------------------- | - | ------- | ---- |  | ---- | ------- |  | - | ------- | -
|                                        |  | Quarters Ended September 30, |        |   | Nine Months Ended September 30, |  
|                                        |  | 2006                         |        |   | 2005                            |   |         | 2006 |  | 2005 |        
|Net earnings                            |  | $                            | 80,304 |   |                                 | $ | 149,446 |      |  | $    | 334,521 |  | $ | 520,993 |  
|Other comprehensive income (loss):      |  |                              |        |   |                                 |   |         |      |  |      |         |  |   |         |  
|Foreign currency translation adjustment |  |                              | (3,278 | ) |                                 |   | (9,218  | )    |  |      | 27,341  |  |   | (15,872 | )
|                                        |  |                              |        |   |                                 |   |         |      |  |      |         |  |   |         |  
|Comprehensive income                    |  | $                            | 77,026 |   |                                 | $ | 140,228 |      |  | $    | 361,862 |  | $ | 505,121 |  
|                                        |  |                              |        |   |                                 |   |         |      |  |      |         |  |   |         |  

Note L  Legal Proceedings:

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

Note M  Subsequent Event:

On October 31, 2006, the Company completed a restructuring of its South Korea operations. On that date, the Company executed an agreement to sell all of the capital stock of its wholly owned subsidiary, RBC Life Sciences Korea Co.,
Ltd. (RBC Korea) to a private South Korean corporation, Merry Key, which is wholly owned by an individual who was the executive in charge of the Companys South Korean operations prior to the sale. The closing of the sales occurred
on October 31, 2006. Concurrent with the sale of RBC Korea, the Company also entered into a five-year exclusive license agreement with Merry Key.

In
accordance with the terms of the sale agreement, Merry Key paid the Company $100,000 in cash at closing and agreed to pay an additional $685,000 in monthly installments, the amount of each installment being the greater of $5,000 or 10% of previous
month net sales. The $685,000 receivable is non-interest bearing and has a fair value of $520,000 based on anticipated cash flows and an imputed interest rate of 10.75%. Payment of amounts due under the sale agreement is secured by the common stock
of RBC Korea and the personal guarantee of the owner of Mery Key. The Company estimates that it will record a one-time loss on disposition of assets in the fourth quarter of 2006 of approximately $200,000 to $250,000 in connection with this sale.

Under the terms of the license agreement, Merry Key is granted exclusive rights to distribute the Companys products and to use the Companys
name, trademarks and trade names in South Korea. The license agreement also gives Merry Key the right to expand its distribution into certain other Asian countries upon satisfaction of certain requirements set forth in the license agreement. In
consideration of the rights granted to Merry Key, Merry Key is required to purchase certain minimum amounts of the Companys products each year.



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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

The following
discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report and the audited
consolidated financial statements and notes thereto included in the 2005 Form 10-K.

FORWARD-LOOKING STATEMENTS

The statements, other than statements of historical or present facts, included in this report are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical or present facts, that address activities, events, outcomes and other matters that we plan, expect, intend,
assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements. Forward-looking statements can be identified by the use of the words
may, will, expect, intend, estimate, anticipate, objective, projection, forecast, goal, believe, and similar expressions.
These forward-looking statements are based on managements current belief, based on currently available information, as to the outcome and time of future events. We believe that the expectations and assumptions reflected in these
forward-looking statements are reasonable. However, we cannot assure you that such expectations will occur. Our actual future performance could differ materially from such statements. When considering forward-looking statements, you should keep in
mind the risk factors and other cautionary statements in this Form 10-Q and those previously disclosed in Item 1A to Part I of the 2005 Form 10-K. Many of these factors are beyond the Companys ability to control or predict. We caution you
not to put undue reliance on forward-looking statements or to project any future results based on such statements or on present or prior earnings levels. We do not undertake any obligation to publicly release any revisions to any forward-looking
statement to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. Please consider our forward-looking statements in light of those risks as you read this report.

OVERVIEW

We operate in two industry
segments, Nutritional Products and Medical Products.



| |  | Through the Nutritional Products segment, we distribute products in three broad categories: (i) wellness products, (ii) weight loss products and (iii) fitness
products. Products include herbal formulas, vitamins, minerals, antioxidants and personal care products. In certain markets, principally in the U.S. and Canada, we distribute Nutritional Products directly through a network of independent Associates.
In certain other markets, we distribute Nutritional Products through exclusive license arrangements with third parties, who, for the most part, distribute our products through an independent Associate network in the licensed territory.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Through the Medical Products segment, we distribute wound care and oncology products. These products are distributed in the United States to hospitals, nursing homes, clinics and
pharmacies through traditional medical/surgical supply dealers and pharmaceutical distributors.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|                      |  |                              |       |  |      |   |  |   |       |  |     |  
|--------------------- |  | ---------------------------- | ----- |  | ---- | - |  | - | ----- |  | --- | -
|                      |  | Quarters Ended September 30, |      
|                      |  | 2006                         |       |  | 2005 |  
|                      |  | (U.S. dollars in 000s)      |      
|Nutritional Products: |  |                              |       |  |      |   |  |   |       |  |     |  
|Associate network     |  | $                            | 1,946 |  | 36   | % |  | $ | 2,364 |  | 48  | %
|Licensees             |  |                              | 2,434 |  | 45   | % |  |   | 1,815 |  | 37  | %
|                      |  |                              |       |  |      |   |  |   |       |  |     |  
|                      |  |                              | 4,380 |  | 81   | % |  |   | 4,179 |  | 85  | %
|Medical Products      |  |                              | 1,025 |  | 19   | % |  |   | 736   |  | 15  | %
|                      |  |                              |       |  |      |   |  |   |       |  |     |  
|                      |  | $                            | 5,405 |  | 100  | % |  | $ | 4,915 |  | 100 | %
|                      |  |                              |       |  |      |   |  |   |       |  |     |  



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##### Table of Contents

|                      |  |                                 |        |  |      |   |  |   |        |  |     |  
|--------------------- |  | ------------------------------- | ------ |  | ---- | - |  | - | ------ |  | --- | -
|                      |  | Nine Months Ended September 30, |       
|                      |  | 2006                            |        |  | 2005 |  
|                      |  | (U.S. dollars in 000s)         |       
|Nutritional Products: |  |                                 |        |  |      |   |  |   |        |  |     |  
|Associate network     |  | $                               | 6,636  |  | 41   | % |  | $ | 7,248  |  | 50  | %
|Licensees             |  |                                 | 7,105  |  | 43   | % |  |   | 5,063  |  | 35  | %
|                      |  |                                 |        |  |      |   |  |   |        |  |     |  
|                      |  |                                 | 13,741 |  | 84   | % |  |   | 12,311 |  | 85  | %
|Medical Products      |  |                                 | 2,675  |  | 16   | % |  |   | 2,102  |  | 15  | %
|                      |  |                                 |        |  |      |   |  |   |        |  |     |  
|                      |  | $                               | 16,416 |  | 100  | % |  | $ | 14,413 |  | 100 | %
|                      |  |                                 |        |  |      |   |  |   |        |  |     |  

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



|              |  |                              |   |  |                                 |   |  |      |   |  |      |  
|------------- |  | ---------------------------- | - |  | ------------------------------- | - |  | ---- | - |  | ---- | -
|              |  | Quarters Ended September 30, |   |  | Nine Months Ended September 30, |  
|              |  | 2006                         |   |  | 2005                            |   |  | 2006 |   |  | 2005 |  
|United States |  | 76                           | % |  | 79                              | % |  | 73   | % |  | 79   | %
|Canada        |  | 18                           |   |  | 21                              |   |  | 19   |   |  | 21   |  
|South Korea   |  | 6                            |   |  |                                |   |  | 8    |   |  |     |  
|              |  |                              |   |  |                                 |   |  |      |   |  |      |  
|              |  | 100                          | % |  | 100                             | % |  | 100  | % |  | 100  | %
|              |  |                              |   |  |                                 |   |  |      |   |  |      |  

In February 2006, we began distributing Nutritional Products through our Associate network in South Korea. We
initiated sales activities after establishing a fully staffed office located in Seoul, South Korea; however, the full range of Nutritional Products we market in South Korea was not available for distribution until early May 2006. However, net sales
in this market, which amounted to $115,000 and $543,000 during the quarter and nine months ended September 30, 2006, respectively, were adversely affected by the termination of an Associate in June 2006. This Associate, who had a sales
organization in both the U.S. and South Korea, was terminated for violating certain of the Companys Associate policies and procedures with which Associates are contractually obligated to comply. As described in Note M to the condensed
consolidated financial statements, we restructured our South Korean operations effective October 31, 2006. This restructuring was consummated through the sale of our South Korean operations and concurrent entry into an exclusive license
agreement with the purchaser, pursuant to which the purchaser will distribute our Nutritional Products in this market. This restructuring permits us to continue to sell our products in this market through a licensee distribution model that has been
successful in other international markets, while eliminating the need for future cash investments.

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 91% and 96% of licensee net sales in the nine months ended
September 30, 2006 and 2005, respectively, distributes products in a territory comprised mainly of the former Soviet Union and Eastern Europe. The President of CCI is a former member of our Board of Directors and owns approximately 20% of our
outstanding common stock.

Medical Products. We sell Medical Products primarily to wholesalers such as medical/surgical dealers and pharmaceutical
distributors. These wholesalers supply various health care providers such as hospitals, nursing homes, clinics and pharmacies. In some cases, wholesalers maintain their own sales forces to market products that they supply, which include our
products.

This segments largest customer, a medical/surgical dealer, accounted for 57% and 44% of Medical Products net sales in the nine months
ended September 30, 2006 and 2005, respectively.



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the 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. Management believes
that the estimates and assumptions are reasonable in the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances.

Management believes that other than the adoption of SFAS 123R, there have been no significant changes during the nine months ended September 30, 2006 to the items that we disclosed as our critical accounting
policies and estimates in Managements Discussion and Analysis of Financial Condition and Results of Operations in the 2005 Form 10-K.

Stock-Based Compensation Expense

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

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

RESULTS OF OPERATIONS

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



|                              |  |                              |   |  |                                 |   |  |       |   |  |       |  
|----------------------------- |  | ---------------------------- | - |  | ------------------------------- | - |  | ----- | - |  | ----- | -
|                              |  | Quarters Ended September 30, |   |  | Nine Months Ended September 30, |  
|                              |  | 2006                         |   |  | 2005                            |   |  | 2006  |   |  | 2005  |  
|Net sales                     |  | 100.0                        | % |  | 100.0                           | % |  | 100.0 | % |  | 100.0 | %
|Cost of sales                 |  | 42.6                         |   |  | 40.3                            |   |  | 39.5  |   |  | 38.6  |  
|                              |  |                              |   |  |                                 |   |  |       |   |  |       |  
|Gross profit                  |  | 57.4                         |   |  | 59.7                            |   |  | 60.5  |   |  | 61.4  |  
|Operating expenses:           |  |                              |   |  |                                 |   |  |       |   |  |       |  
|General and administrative    |  | 39.3                         |   |  | 36.2                            |   |  | 39.2  |   |  | 36.5  |  
|Distributor commissions       |  | 12.0                         |   |  | 16.3                            |   |  | 14.0  |   |  | 17.0  |  
|Depreciation and amortization |  | 3.0                          |   |  | 2.9                             |   |  | 3.0   |   |  | 3.0   |  
|                              |  |                              |   |  |                                 |   |  |       |   |  |       |  
|Total operating expenses      |  | 54.3                         |   |  | 55.4                            |   |  | 56.2  |   |  | 56.5  |  
|                              |  |                              |   |  |                                 |   |  |       |   |  |       |  
|Operating profit              |  | 3.1                          |   |  | 4.3                             |   |  | 4.3   |   |  | 4.9   |  
|Interest expense              |  | 1.1                          |   |  | 1.3                             |   |  | 1.2   |   |  | 1.3   |  
|                              |  |                              |   |  |                                 |   |  |       |   |  |       |  
|Earnings before income taxes  |  | 2.0                          |   |  | 3.0                             |   |  | 3.1   |   |  | 3.6   |  
|Provision for income taxes    |  | 0.5                          |   |  |                                |   |  | 1.1   |   |  |      |  
|                              |  |                              |   |  |                                 |   |  |       |   |  |       |  
|Net earnings                  |  | 1.5                          | % |  | 3.0                             | % |  | 2.0   | % |  | 3.6   | %
|                              |  |                              |   |  |                                 |   |  |       |   |  |       |  



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##### Table of Contents

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

Net sales.Net sales for the quarter ended September 30, 2006 were $5,405,000 compared with net sales for the prior year of $4,915,000, an increase of
$490,000 or 10%. This increase was due to a $201,000 increase in net sales of Nutritional Products and a $289,000 increase in net sales of Medical Products. Net sales of Nutritional Products to our licensees increased $619,000 while net sales of
Nutritional Products to our Associate network decreased $418,000.

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 under which we will continue to sell our products in this market.

Net sales in the North American market declined approximately $532,000 during the third quarter of 2006. We attribute this decrease to a decline in the number of active Associates, which resulted from low levels of
sponsorship of new Associates by the current Associate network. During the third quarter of 2006, we continued to promote marketing programs intended to encourage greater levels of sponsorship by the Associate network in North America. While we
believe these programs and other actions we may undertake in the future will ultimately increase the sponsorship of new Associates, we can give no assurance that the decline of active Associates will not continue.

Licensees. The growth in net sales to our licensees relates mainly to growth of CCI. Sales to CCI increased $601,000 in the third quarter of 2006. CCIs
sales growth is attributed to the continued expansion of the independent Associate network in CCIs territory. However, sales to CCI may vary significantly from quarter to quarter irrespective of the sales demand of CCIs independent
Associate network. Under our arrangement with CCI, CCI orders products from us and pays for them when we segregate them in our warehouse for CCIs account. We then store these products until CCI provides shipping instructions. Because we do not
recognize revenue until we ship products to CCI, our sales to CCI will fluctuate from quarter to quarter depending on a number of logistical considerations, only one of which is the sales demand of CCIs independent Associate network. Backlog
related to CCIs account was $2,718,000 and $3,491,000 at September 30, 2006 and 2005, respectively.

Medical products. The growth in
net sales of Medical Products is related to increased sales to the largest customer in this segment. Sales to this customer increased $294,000 during the third quarter of 2006 compared to the third quarter of 2005. We attribute this
increase to the growth of this customers business.

Cost of sales. Cost of sales for the quarter ended September 30, 2006 was $2,302,000
compared with cost of sales in the prior year of $1,980,000, an increase of $322,000 or 16%. As a percentage of net sales, cost of sales was 43% in 2006 and 40% in 2005. As a percentage of net sales, gross profit decreased 3% because of a change in
sales mix. During the third quarter of 2006, a smaller percentage of our sales were contributed by sales of Nutritional Products to the Associate network, which sales have a higher gross margin.

Distributor commissions. Distributor commissions for the quarter ended September 30, 2006 were $649,000 compared with distributor commissions in 2005 of
$802,000, a decrease of $153,000 or 19%. With regard to our Associate network, distributor commissions as a percentage of commissionable sales were substantially unchanged in the third quarter of 2006 compared to 2005. On a consolidated basis,
distributor commissions as a percentage of net sales declined to 12% in the third quarter of 2006 compared with 16% in 2005. 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.

General and administrative. General and administrative expenses for the quarter ended
September 30, 2006, were $2,125,000 compared with 2005 expenses of $1,777,000, an increase of $348,000 or 20%. Of this increase, $322,000 resulted from general and administrative expenses incurred in connection with the expansion of our
Associate network into South Korea. Also, approximately $27,000 of this increase resulted from recognition of stock-based compensation pursuant to the adoption of SFAS 123R as of January 1, 2006. As a percentage of net sales, general and
administrative expenses were 39% and 36% in 2006 and 2005, respectively.



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Income taxes.We recorded a provision for income taxes of $25,000 during the quarter ended September 30, 2006
based on the earnings before income taxes reported for the period. We recorded this provision because earnings of the Company have now more than offset the available net operating loss carryforwards as determined for financial reporting purposes.

Net earnings. As a result of the factors described above, the net earnings for the quarter ended September 30, 2006 were $80,000, or $0.00 per
share, compared with net earnings in the prior year of $149,000 or $0.01 per share.

Nine Months ended September 30, 2006 compared with Nine
Months ended September 30, 2005

Net sales.Net sales for the nine months ended September 30, 2006 were $16,416,000 compared with
net sales for the prior year of $14,413,000, an increase of $2,003,000 or 14%. This increase was due to a $1,430,000 increase in net sales of Nutritional Products and a $573,000 increase in net sales of Medical Products. Net sales of Nutritional
Products to our licensees increased $2,042,000 while net sales of Nutritional Products to our Associate network decreased $612,000.

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 under which we will continue to sell our products in this market.

Net sales in the North American market declined approximately $1,152,000 during the first nine months of 2006. We attribute this decrease to a decline in
the number of active Associates, which resulted from low levels of sponsorship of new Associates by the current Associate network. During the first nine months of 2006, we initiated certain new marketing programs intended to encourage greater levels
of sponsorship by the Associate network in North America. While we believe these programs and other actions we may undertake in the future will ultimately increase the sponsorship of new Associates, we can give no assurance that the decline of
active Associates will not continue.

Licensees. The growth in net sales to our licensees relates mainly to growth of CCI. Sales to CCI increased
$1,589,000 in the first nine months of 2006. CCIs sales growth is attributed to the continued expansion of the independent Associate network in CCIs territory.

Medical products. The growth in net sales of Medical Products is related to increased sales to the largest customer in this segment. Sales to this customer increased $612,000 during the first nine
months of 2006 compared to 2005. We attribute this increase to the growth of this customers business.

Cost of sales. Cost of sales for
the nine months ended September 30, 2006 was $6,483,000 compared with cost of sales in the prior year of $5,554,000, an increase of $929,000 or 17%. As a percentage of net sales, cost of sales was 40% and 39% in 2006 and 2005, respectively. As
a percentage of net sales, gross profit decreased 1% because of the change in sales mix. During 2006, a smaller percentage of our sales were contributed by sales of Nutritional Products to the Associate network, which sales have a higher gross
margin.

Distributor commissions. Distributor commissions were $2,302,000 for the nine months ended September 30, 2006 compared with
distributor commissions of $2,454,000 in the prior year, a decrease of $152,000 or 6%. With regard to our Associate network, distributor commissions as a percentage of commissionable sales were substantially unchanged in the first nine months of
2006 compared with 2005. On a consolidated basis, distributor commissions as a percentage of net sales declined to 14% in the first nine months of 2006 compared with 17% in 2005. 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.

General and administrative. General and
administrative expenses for the nine months September 30, 2006, were $6,436,000 compared with 2005 expenses of $5,262,000, an increase of $1,174,000 or 22%. Of this increase, $984,000 resulted from general and administrative expenses incurred
in connection with the expansion



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##### Table of Contents

of our Associate network into South Korea. Also, approximately $77,000 of this increase resulted from recognition of stock-based compensation pursuant to the
adoption of SFAS 123R as of January 1, 2006. As a percentage of net sales, general and administrative expenses were 39% and 37% in 2006 and 2005, respectively.

Income taxes.We recorded a provision for income taxes of $185,000 during the nine months ended September 30, 2006 based on the earnings before income taxes reported for the period. We recorded this
provision because earnings of the Company have now more than offset the available net operating loss carryforwards as determined for financial reporting purposes.

Net earnings. As a result of the factors described above, the net earnings for the nine months ended September 30, 2006 were $335,000, or $0.01 per share, compared with net earnings in the prior year of $521,000 or $0.02 per
share.

LIQUIDITY AND CAPITAL RESOURCES

Cash
and working capital. During the nine months ended September 30, 2006, we had a net increase in cash of $239,000 compared with a net increase in cash of $929,000 in 2005. At September 30, 2006, we had working capital of $1,427,000, a
$287,000 increase from working capital at December 31, 2005 of $1,140,000. These increases were attributable to cash flows from operating activities.

Operating activities. In the first nine months of 2006, our operating activities provided cash flows of $774,000 compared with $1,209,000 in 2005. This decline was primarily related to the timing of payments received from certain
large customers, the timing of inventory purchases, the timing of payments made to suppliers and deposits made with various entities in connection with the establishment of operations in South Korea. In the first nine months of 2006, net earnings
adjusted for non-cash activities, which include depreciation and amortization, stock-based compensation and deferred income taxes, provided cash flows of $1,092,000 compared with $964,000 in 2005.

Investing activities.During the first nine months of 2006, we used cash of $421,000 related to the purchase of property and equipment. Most of this property and
equipment was purchased in connection with the establishment of operations in South Korea.

Financing activities. During the first nine months of
2006, we used cash of $124,000 related to financing activities. We used cash of $143,000 to repay long-term debt and reduce line of credit borrowings, which use was partially offset by proceeds received from the exercise of employee stock options.

General liquidity and cash flows. We believe that the working capital requirements of our existing operations can be met through available cash and
cash generated from operating activities for the foreseeable future; however, an overall decrease in demand for our products could adversely affect our liquidity. In the event of a significant decrease in cash provided by our operating activities,
we may seek outside sources of capital including bank borrowings, other types of debt or equity financings. We can give no assurance, however, that we would be able to obtain any additional outside financing or obtain financing on terms we would
find acceptable.

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

We have no plans or requirements for any significant capital expenditures during the next 12 months other than those described above.

Other than those factors already described, we are not aware of any trends or uncertainties that would significantly affect our liquidity or capital resources in the
future.



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ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.

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

Foreign exchange

We have foreign-based operations in Canada and South Korea that accounted for 7% and 3%, respectively, of net sales during the first nine months of 2006. Canadian operations accounted for 10% of net sales during fiscal 2005. We advance
funds to and from our foreign subsidiaries denominated in U.S. dollars, exposing the foreign subsidiary to the effect of changes in spot exchange rates of the Canadian dollar and Korean Won relative to the U.S. dollar. We do not regularly use
forward-exchange contracts to hedge these exposures. Based on our foreign currency exchange rate exposure for intercompany advances of approximately $40,000 to our Canadian operation and $1,400,000 to our Korean operation at September 30, 2006,
a 10% adverse change in the currency rate would reduce earnings before tax by approximately $144,000. As described in Note M to the condensed consolidated financial statements, on October 31, 2006, we sold our South Korean operations and
entered into an exclusive license arrangement with the purchaser under which we will continue to distribute our products in this market. Under the license arrangement, all transactions with the licensee are denominated in U.S. dollars.

Interest rates

Our credit arrangements expose us to fluctuations
in interest rates. At September 30, 2006, we had $100,000 outstanding in indebtedness, which provided for interest to be paid monthly based on a variable rate. Thus, interest rate changes would result in a change in the amount of interest to be
paid each month. Based upon the interest rates and borrowings at September 30, 2006, a 10% increase in interest rates would adversely affect our financial position, annual results of operations and cash flows by approximately $1,000.

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 September 30, 2006, the effectiveness of our disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of September 30, 2006, were effective for the
purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosures.

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

There has been no change in internal controls over financial reporting that occurred during the quarter ended
September 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION

ITEM 1. Legal Proceedings.

None

ITEM 1A. Risk Factors.

Our business is subject to certain risks and events that, if they occur, could adversely affect our
financial condition and results of operations and the trading price of our common stock. For a discussion of these risks, please refer to the Risk Factors section of the 2005 Form 10-K. In connection with our preparation of this
quarterly report, management has reviewed and considered these risk factors and has determined that there have been no material changes to our risk factors since the date of filing of the 2005 Form 10-K.

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

None

ITEM 3. Defaults Upon Senior Securities.

None

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

None

ITEM 5. Other Information.

None

ITEM 6. Exhibits.

The Exhibit Index filed herewith is incorporated herein by reference.



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##### Table of Contents

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.RegistrantBy:

/s/ Clinton H. HowardIts:

Chief Executive OfficerBy:

/s/ Steven E. BrownIts:

Vice President-Finance andChief Financial Officer(Principal Financial and Accounting Officer)




|      |  |                  
|----- |  | -----------------
|DATE: |  | November 14, 2006
|      |  | Irving, Texas    



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##### Table of Contents

RBC LIFE SCIENCES, INC.

Exhibit Index



|               |  |                                                                                                                                                      
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                          
|31.1           |  | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|               | 
|31.2           |  | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|               | 
|32.1           |  | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|               | 
|32.2           |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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