UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





x
            
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended June 30, 2010OR ̈
            
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the transition period from ________________ to
      ________________





Commission
file number:  000-50417





RBC Life Sciences,
Inc.


(Exact
name of registrant as specified in its charter)





Nevada
            
            91-2015186(State
      or other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      No.)2301
      Crown Court, Irving, Texas
            
            75038(Address
      of principal executive offices)
            
            (Zip
      Code)





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).     Yes  ̈     No   ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer o
            
            
            Accelerated filer
            oNon-accelerated filer   o
            (Do not check if a smaller reporting company)
            
            Smaller reporting company
            x





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





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.





Class
            
            Outstanding at July 30,
  2010Common
      Stock, $0.001 par value per share
            
            21,921,934
      shares








TABLE OF
CONTENTS





Page NumberPART
      I – FINANCIAL INFORMATIONItem
      1.
              Condensed
      Consolidated Financial Statements (unaudited)
              3Notes
      to Condensed Consolidated Financial Statements
              7Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              15Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              21Item
      4.
              Controls
      and Procedures
              21PART
      II – OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              22Item
      1A.
              Risk
      Factors
              22Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              22Item
      3.
              Defaults
      Upon Senior Securities
              22Item
      4.
              Reserved
              22Item
      5.
              Other
      Information
              22Item
      6.
              Exhibits
              22Signatures
              23Exhibit
      Index
              24





PART
1 – FINANCIAL INFORMATION





ITEM
1.             FINANCIAL
STATEMENTS





RBC
LIFE SCIENCES, INC. and SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





June 30,
                  2010
                
                
                December 31,
                  2009(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                3,697,159
                
                
                $
                3,972,111Accounts
      receivable, net
                
                
                801,027
                
                
                
                576,125Inventories
                
                
                4,804,042
                
                
                
                5,344,259Deferred
      income taxes
                
                
                408,792
                
                
                
                449,254Prepaid
      expenses
                
                
                792,350
                
                
                
                888,303Total
      current assets
                
                
                10,503,370
                
                
                
                11,230,052Property
      and equipment, net
                
                
                4,869,758
                
                
                
                5,037,890Goodwill,
      net
                
                
                2,264,967
                
                
                
                2,271,977Intangible
      assets, net
                
                
                58,830
                
                
                
                61,808Other
      assets
                
                
                13,315
                
                
                
                10,897$
                17,710,240
                
                
                $
                18,612,624LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable, trade
                
                $
                1,480,566
                
                
                $
                1,803,997Accrued
      liabilities
                
                
                963,719
                
                
                
                925,060Current
      maturities of long-term obligations
                
                
                162,137
                
                
                
                155,994Deferred
      revenue
                
                
                2,715,118
                
                
                
                3,668,907Total
      current liabilities
                
                
                5,321,540
                
                
                
                6,553,958Long-term
      obligations, less current maturities
                
                
                1,813,443
                
                
                
                1,896,077Deferred
      income taxes
                
                
                945,298
                
                
                
                943,235Shareholders’
      equity:Common
      stock, $0.001 par value; 50,000,000 shares authorized; 21,921,934 shares
      issued and outstanding at June 30, 2010 and December 31,
    2009
                
                
                21,922
                
                
                
                21,922Additional
      paid-in capital
                
                
                13,530,377
                
                
                
                13,504,874Accumulated
      deficit
                
                
                (4,055,797
                )
                
                
                (4,439,094
                )Accumulated
      other comprehensive income
                
                
                133,457
                
                
                
                131,6529,629,959
                
                
                
                9,219,354$
                17,710,240
                
                
                $
                18,612,624





See notes
to condensed consolidated financial statements.





- 3
-





RBC
LIFE SCIENCES, INC. and SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





For the Quarters Ended June 30,2010
                
                
                2009Net
      sales
                
                $
                7,838,364
                
                
                $
                6,759,219Cost
      of sales
                
                
                4,182,481
                
                
                
                3,238,206Gross
      profit
                
                
                3,655,883
                
                
                
                3,521,013Operating
      expenses:General
      and administrative
                
                
                2,431,944
                
                
                
                2,353,383Distributor
      commissions
                
                
                746,493
                
                
                
                567,395Depreciation
      and amortization
                
                
                120,546
                
                
                
                92,619Total
      operating expenses
                
                
                3,298,983
                
                
                
                3,013,397Operating
      profit
                
                
                356,900
                
                
                
                507,616Interest
      expense
                
                
                38,527
                
                
                
                41,417Earnings
      before income taxes
                
                
                318,373
                
                
                
                466,199Provision
      for income taxes
                
                
                146,400
                
                
                
                189,000Net
      earnings
                
                $
                171,973
                
                
                $
                277,199Earnings
      per share:Basic
                
                $
                0.01
                
                
                $
                0.01Diluted
                
                
                0.01
                
                
                
                0.01Weighted
      average common shares outstanding:Basic
                
                
                21,921,934
                
                
                
                21,921,934Diluted
                
                
                22,386,656
                
                
                
                22,477,317





See notes
to condensed consolidated financial statements.


- 4
-


RBC
LIFE SCIENCES, INC. and SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





For the Six Months Ended June 30,2010
                  
                  
                  2009Net
      sales
                  
                  $
                  14,819,893
                  
                  
                  $
                  12,775,097Cost
      of sales
                  
                  
                  7,775,216
                  
                  
                  
                  6,114,757Gross
      profit
                  
                  
                  7,044,677
                  
                  
                  
                  6,660,340Operating
      expenses:General
      and administrative
                  
                  
                  4,757,327
                  
                  
                  
                  4,930,380Distributor
      commissions
                  
                  
                  1,287,238
                  
                  
                  
                  1,202,426Depreciation
      and amortization
                  
                  
                  242,917
                  
                  
                  
                  180,794Total
      operating expenses
                  
                  
                  6,287,482
                  
                  
                  
                  6,313,600Operating
      profit
                  
                  
                  757,195
                  
                  
                  
                  346,740Interest
      expense
                  
                  
                  77,798
                  
                  
                  
                  83,521Earnings
      before income taxes
                  
                  
                  679,397
                  
                  
                  
                  263,219Provision
      for income taxes
                  
                  
                  296,100
                  
                  
                  
                  157,000Net
      earnings
                  
                  $
                  383,297
                  
                  
                  $
                  106,219Earnings
      per share:Basic
                  
                  $
                  0.02
                  
                  
                  $
                  0.00Diluted
                  
                  
                  0.02
                  
                  
                  
                  0.00Weighted
      average common shares outstanding:Basic
                  
                  
                  21,921,934
                  
                  
                  
                  21,919,624Diluted
                  
                  
                  22,322,362
                  
                  
                  
                  22,508,523





See notes
to condensed consolidated financial statements.


- 5
-


RBC
LIFE SCIENCES, INC. and SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





For the Six Months Ended June 30,2010
                  
                  
                  2009Cash
      flows from operating activities:Net
      earnings
                  
                  $
                  383,297
                  
                  
                  $
                  106,219Adjustment
      for non-cash items:Depreciation
      and amortization
                  
                  
                  274,072
                  
                  
                  
                  204,980Stock-based
      compensation
                  
                  
                  25,503
                  
                  
                  
                  70,080Deferred
      income taxes
                  
                  
                  41,742
                  
                  
                  
                  49,400Loss
      on disposition of equipment
                  
                  
                  22,868
                  
                  
                  
                  -Change
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (224,993
                  )
                  
                  
                  98,846Inventories
                  
                  
                  538,687
                  
                  
                  
                  105,125Prepaid
      expenses
                  
                  
                  94,742
                  
                  
                  
                  269,340Other
      assets
                  
                  
                  (2,594
                  )
                  
                  
                  -Accounts
      payable and accrued liabilities
                  
                  
                  (282,559
                  )
                  
                  
                  (688,923
                  )Deferred
      revenue
                  
                  
                  (953,713
                  )
                  
                  
                  (441,051
                  )Net
      cash used in operating activities
                  
                  
                  (82,948
                  )
                  
                  
                  (225,984
                  )Cash
      flows from investing activities:Purchase
      of property and equipment
                  
                  
                  (132,725
                  )
                  
                  
                  (753,574
                  )Proceeds
      from surrender of insurance policy
                  
                  
                  -
                  
                  
                  
                  194,277Proceeds
      from sale of equipment
                  
                  
                  7,031
                  
                  
                  
                  -Net
      cash used in investing activities
                  
                  
                  (125,694
                  )
                  
                  
                  (559,297
                  )Cash
      flows from financing activities:Payments
      of long-term obligations
                  
                  
                  (76,491
                  )
                  
                  
                  (70,804
                  )Proceeds
      from the exercise of stock options
                  
                  
                  -
                  
                  
                  
                  1,455Net
      cash used in financing activities
                  
                  
                  (76,491
                  )
                  
                  
                  (69,349
                  )Effect
      of exchange rate changes on cash flows
                  
                  
                  10,181
                  
                  
                  
                  (21,895
                  )Net
      decrease in cash and cash equivalents
                  
                  
                  (274,952
                  )
                  
                  
                  (876,525
                  )Cash
      and cash equivalents, beginning of period
                  
                  
                  3,972,111
                  
                  
                  
                  4,973,405Cash
      and cash equivalents, end of period
                  
                  $
                  3,697,159
                  
                  
                  $
                  4,096,880





See notes
to condensed consolidated financial statements.





- 6
-


RBC
LIFE SCIENCES, INC. AND SUBSIDIARIES





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Note
A – Unaudited Condensed Consolidated Financial Statements:





The
accompanying unaudited condensed consolidated financial statements of RBC Life
Sciences, Inc. (sometimes hereinafter referred to collectively as “we”, “our”,
“RBC” or the “Company”) have been prepared in accordance with accounting
principles generally accepted in the U.S. (“US GAAP”) 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 US GAAP 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, 2009 (the “2009 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 US GAAP 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.  Subsequent events were evaluated through
the issuance date of the consolidated financial statements.





Note
B – Nature of Operations and Organization:





The
Company is principally engaged in the marketing of nutritional supplements and
personal care products (collectively “Nutritional Products”) through
subsidiaries in the U.S. and Canada.  This product line is marketed
under the “RBC Life” brand name.  In certain markets, primarily the
U.S. and Canada, the Company markets its products through a network of
distributors that are referred to as “Associates.”  The Associates are
independent contractors who purchase products for personal use, purchase
products for resale to retail customers and sponsor other individuals as
Associates.  Accordingly, Associates can be product consumers only or
they can also 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 in accordance with a compensation plan similar to the one used by RBC
for its Associates in North America.





In
addition to its Nutritional Products, RBC also markets a line of wound care
products (“Medical Products”) under the MPM Medical brand name through a U.S.
subsidiary.  Medical Products are distributed primarily in the U.S. to
hospitals, nursing homes, clinics and pharmacies through traditional
medical/surgical supply dealers and pharmaceutical
distributors.  Medical Products are used to prevent and treat wounds,
and manage pain associated with wounds, in the acute care, long-term care and
oncology markets.





- 7
-


Note
C – Inventories:





Inventories
consist of the following:





June 30, 2010
                          
                          
                          December 31, 2009Raw
      materials and bulk products
                          
                          $
                          333,767
                          
                          
                          $
                          403,616Packaging
      materials
                          
                          
                          307,762
                          
                          
                          
                          488,545Finished
      goods
                          
                          
                          4,162,513
                          
                          
                          
                          4,452,098$
                          4,804,042
                          
                          
                          $
                          5,344,259





Note
D – Prepaid Expenses:





Prepaid
expenses consist of the following:





June 30, 2010
                        
                        
                        December 31, 2009Advance
      payment to suppliers
                        
                        $
                        217,900
                        
                        
                        $
                        177,415Prepaid
      income taxes
                        
                        
                        203,867
                        
                        
                        
                        453,177Certificates
      of deposit - restricted
                        
                        
                        80,147
                        
                        
                        
                        81,252Prepaid
      insurance and other
                        
                        
                        290,436
                        
                        
                        
                        176,459$
                        792,350
                        
                        
                        $
                        888,303





Note
E – Property and Equipment:





Property
and equipment consists of the following:





June 30, 2010
                      
                      
                      December 31, 2009Building
      and improvements
                      
                      $
                      3,523,428
                      
                      
                      $
                      3,523,428Computer
      software and office equipment
                      
                      
                      2,032,946
                      
                      
                      
                      2,314,849Warehouse
      equipment
                      
                      
                      219,030
                      
                      
                      
                      286,731Automotive
      equipment
                      
                      
                      15,228
                      
                      
                      
                      15,228Leasehold
      improvements
                      
                      
                      -
                      
                      
                      
                      20,8945,790,632
                      
                      
                      
                      6,161,130Less
      – accumulated depreciation
                      
                      
                      (2,062,047
                      )
                      
                      
                      (2,264,413
                      )3,728,585
                      
                      
                      
                      3,896,717Land
                      
                      
                      1,141,173
                      
                      
                      
                      1,141,173$
                      4,869,758
                      
                      
                      $
                      5,037,890





Note
F – Goodwill and Other Intangible Assets:





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





Gross Carrying Value
                    
                    
                    AccumulatedAmortizationBalance,
      December 31, 2009
                    
                    $
                    3,384,487
                    
                    
                    $
                    (1,112,510
                    )Currency
      translation adjustment
                    
                    
                    (13,678
                    )
                    
                    
                    6,668Balance,
      June 30, 2010
                    
                    $
                    3,370,809
                    
                    
                    $
                    (1,105,842
                    )


- 8
-


Other
intangible assets consist of the following:





June 30, 2010
                      
                      
                      December 31, 2009Average
                        Life
                        (years)
                      
                      
                      Gross
                        Carrying
                        Value
                      
                      
                      Accumulated
                        Amortization
                      
                      
                      Gross
                        Carrying
                        Value
                      
                      
                      Accumulated
                        AmortizationCopyrights,
      trademarks and other registrations
                      
                      19
                      
                      
                      $
                      99,100
                      
                      
                      $
                      (46,906
                      )
                      
                      $
                      99,100
                      
                      
                      $
                      (44,264
                      )Other
                      
                      19
                      
                      
                      
                      12,600
                      
                      
                      
                      (5,964
                      )
                      
                      
                      12,600
                      
                      
                      
                      (5,628
                      )$
                      111,700
                      
                      
                      $
                      (52,870
                      )
                      
                      $
                      111,700
                      
                      
                      $
                      (49,892
                      )


Amortization
expense related to other intangible assets totaled approximately $1,500 and
$5,400 for the quarters ended June 30, 2010 and 2009, respectively, and $3,000
and $13,200 for the six months ended June 30, 2010 and 2009,
respectively.  The aggregate estimated amortization expense for
intangible assets remaining as of June 30, 2010 is as follows:





Remainder
      of 2010
                  
                  $
                  2,9792011
                  
                  
                  5,9572012
                  
                  
                  5,9572013
                  
                  
                  5,9572014
                  
                  
                  5,957Thereafter
                  
                  
                  32,023Total
                  
                  $
                  58,830





Note
G – Accrued Liabilities:





Accrued
liabilities consist of the following:





June 30, 2010
                
                
                December 31, 2009Salaries
      and wages
                
                $
                397,797
                
                
                $
                436,916Distributor
      commissions
                
                
                367,419
                
                
                
                317,562Sales
      and property taxes
                
                
                50,866
                
                
                
                40,684Interest
                
                
                12,759
                
                
                
                13,253Other
                
                
                134,878
                
                
                
                116,645$
                963,719
                
                
                $
                925,060





Note
H – Share-Based Compensation:





The
Company records compensation expense for all share-based payments based on the
estimated grant date fair value.  As a result of the forfeiture of
certain stock options before the vesting date, the Company recorded a net
reversal of share-based compensation expense of approximately $7,700 during the
quarter ended June 30, 2010.  Share-based compensation expense was
approximately $35,400 for the quarter ended June 30, 2009 and $25,500 and
$70,100 for the six months ended June 30, 2010 and 2009,
respectively.  Share-based compensation is classified as a general and
administrative expense.  There were no material tax benefits related
to this expense because virtually all share-based compensation resulted from
grants of incentive stock options.


- 9
-


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





Quarters Ended June 30,
                
                
                Six Months Ended June 30,2010 (1)
                
                
                2009
                
                
                2010 (1)
                
                
                2009Weighted
      average expected life (years)
                
                
                -
                
                
                
                5.0
                
                
                
                -
                
                
                
                7.3Risk-free
      interest rate
                
                
                -
                
                
                
                2.31
                %
                
                
                -
                
                
                
                2.67
                %Expected
      volatility
                
                
                -
                
                
                
                97.75
                %
                
                
                -
                
                
                
                114.92
                %Expected
      dividend yield
                
                
                -
                
                
                
                0.0
                %
                
                
                -
                
                
                
                0.0
                %





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





A summary
of stock option activity for the six months ended June 30, 2010 is as
follows:




Options
                    
                    
                    Weighted-
                      Average Exercise
                      Price per Share
                    
                    
                    Weighted-Average
                      Remaining
                      Contractual Term
                      (in years)
                    
                    
                    Aggregate
                      Intrinsic
                      ValueOutstanding
      on January 1, 2010
                    
                    
                    2,130,440
                    
                    
                    $
                    0.40Granted
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Forfeited/canceled
                    
                    
                    (376,260
                    )
                    
                    
                    0.64Outstanding
      on June 30, 2010
                    
                    
                    1,754,180
                    
                    
                    $
                    0.35
                    
                    
                    
                    3.7
                    
                    
                    $
                    134,506Exercisable
      on June 30, 2010
                    
                    
                    1,325,520
                    
                    
                    $
                    0.29
                    
                    
                    
                    2.9
                    
                    
                    $
                    130,576




A summary
of the status of the Company’s non-vested stock options as of June 30, 2010 and
changes during the six months then ended are presented below:




Weighted-AverageGrant Date FairShares
                    
                    
                    Value per ShareNon-vested
      stock options at January 1, 2010
                    
                    
                    871,750
                    
                    
                    $
                    0.55Non-vested
      stock options granted
                    
                    
                    -
                    
                    
                    
                    -Vested
      stock options
                    
                    
                    (70,000
                    )
                    
                    
                    0.56Forfeited
      stock options
                    
                    
                    (373,090
                    )
                    
                    
                    0.61Non-vested
      stock options at June 30, 2010
                    
                    
                    428,660
                    
                    
                    
                    0.49





As of
June 30, 2010, there was approximately $177,000 of total unrecognized
compensation cost related to stock option grants.


- 10
-


Note
I – Long-Term Obligations and Credit Lines:





Long-term
obligations consist of the following:





June 30, 2010
                          
                          
                          December 31, 2009Mortgage
      note payable bearing interest at
                          
                          $
                          1,975,580
                          
                          
                          $
                          2,052,0717.75%,
      payable in monthly installments of$25,797
      through April 2019, collateralizedby
      land and building, and personally guaranteedby
      the Company’s Chairman of the Board ofDirectorsLess
      – current maturities
                          
                          
                          (162,137
                          )
                          
                          
                          (155,994
                          )$
                          1,813,443
                          
                          
                          $
                          1,896,077





The fair
value of long-term debt is estimated based on interest rates for the same or
similar instruments offered having the same or similar maturities and collateral
requirements.  At June 30, 2010, the fair value of fixed-rate
long-term debt was approximately $2,174,000, which was $198,000 above the
carrying value of approximately $1,976,000.  At December 31, 2009, the
fair value of fixed-rate long-term debt was approximately $2,139,000, which was
$87,000 above the carrying value of approximately $2,052,000.





Note
J – Segments and Geographic Area:





The
Company's segments are based on the organizational 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”
brand name through subsidiaries in the U.S. and Canada.  These
products are distributed by a network of independent Associates in certain
markets, primarily the U.S. and Canada, and by licensees in certain other
international markets.  For the most part, licensees also market the
Nutritional Products in their respective territories through a network of
independent Associates.





The
Medical Products segment markets a line of approximately 28 wound care products
under the MPM Medical brand name through a U.S. subsidiary operating primarily
in the U.S.  These wound care products are distributed to hospitals,
nursing homes, home health care agencies, clinics and pharmacies through a
network of medical/surgical supply dealers and pharmaceutical
distributors.  Medical Products are used to prevent and treat wounds,
and manage pain associated with wounds, in the acute care, long-term care and
oncology markets.





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


- 11
-


Segment
information is as follows (in thousands):





Nutritional Products
                    
                    
                    Medical Products
                    
                    
                    ConsolidatedQuarter
      Ended June 30, 2010Net
      sales
                    
                    $
                    6,187
                    
                    
                    $
                    1,651
                    
                    
                    $
                    7,838Depreciation
      and amortization
                    
                    
                    115
                    
                    
                    
                    21
                    
                    
                    
                    136Operating
      profit
                    
                    
                    214
                    
                    
                    
                    143
                    
                    
                    
                    357Capital
      expenditures
                    
                    
                    79
                    
                    
                    
                    -
                    
                    
                    
                    79Total
      assets
                    
                    
                    14,533
                    
                    
                    
                    3,177
                    
                    
                    
                    17,710Quarter
      Ended June 30, 2009Net
      sales
                    
                    $
                    5,301
                    
                    
                    $
                    1,458
                    
                    
                    $
                    6,759Depreciation
      and amortization
                    
                    
                    87
                    
                    
                    
                    18
                    
                    
                    
                    105Operating
      profit
                    
                    
                    432
                    
                    
                    
                    76
                    
                    
                    
                    508Capital
      expenditures
                    
                    
                    248
                    
                    
                    
                    7
                    
                    
                    
                    255Total
      assets
                    
                    
                    16,845
                    
                    
                    
                    1,956
                    
                    
                    
                    18,801Six
      Months Ended June 30, 2010Net
      sales
                    
                    $
                    11,601
                    
                    
                    $
                    3,219
                    
                    
                    $
                    14,820Depreciation
      and amortization
                    
                    
                    232
                    
                    
                    
                    42
                    
                    
                    
                    274Operating
      profit
                    
                    
                    583
                    
                    
                    
                    174
                    
                    
                    
                    757Capital
      expenditures
                    
                    
                    133
                    
                    
                    
                    -
                    
                    
                    
                    133Total
      assets
                    
                    
                    14,533
                    
                    
                    
                    3,177
                    
                    
                    
                    17,710Six
      Months Ended June 30, 2009Net
      sales
                    
                    $
                    9,821
                    
                    
                    $
                    2,954
                    
                    
                    $
                    12,775Depreciation
      and amortization
                    
                    
                    166
                    
                    
                    
                    39
                    
                    
                    
                    205Operating
      profit
                    
                    
                    227
                    
                    
                    
                    120
                    
                    
                    
                    347Capital
      expenditures
                    
                    
                    747
                    
                    
                    
                    7
                    
                    
                    
                    754Total
      assets
                    
                    
                    16,845
                    
                    
                    
                    1,956
                    
                    
                    
                    18,801





Financial
information summarized geographically is as follows (in thousands):





Quarter Ended June 30, 2010
                        
                        
                        Quarter Ended June 30, 2009Net sales
                        
                        
                        Long-Lived assets
                        
                        
                        Net sales
                        
                        
                        Long-Lived assetsDomestic
                        
                        $
                        2,811
                        
                        
                        $
                        6,687
                        
                        
                        $
                        2,649
                        
                        
                        $
                        6,721Russia/Eastern
      Europe
                        
                        
                        4,615
                        
                        
                        
                        -
                        
                        
                        
                        3,609
                        
                        
                        
                        -Canada
                        
                        
                        330
                        
                        
                        
                        520
                        
                        
                        
                        287
                        
                        
                        
                        499All
      others
                        
                        
                        82
                        
                        
                        
                        -
                        
                        
                        
                        214
                        
                        
                        
                        -Totals
                        
                        $
                        7,838
                        
                        
                        $
                        7,207
                        
                        
                        $
                        6,759
                        
                        
                        $
                        7,220





Six Months Ended June 30, 2010
                        
                        
                        Six Months Ended June 30, 2009Net sales
                        
                        
                        Long-Lived assets
                        
                        
                        Net sales
                        
                        
                        Long-Lived assetsDomestic
                        
                        $
                        5,410
                        
                        
                        $
                        6,687
                        
                        
                        $
                        5,377
                        
                        
                        $
                        6,721Russia/Eastern
      Europe
                        
                        
                        8,587
                        
                        
                        
                        -
                        
                        
                        
                        6,607
                        
                        
                        
                        -Canada
                        
                        
                        559
                        
                        
                        
                        520
                        
                        
                        
                        542
                        
                        
                        
                        499All
      others
                        
                        
                        264
                        
                        
                        
                        -
                        
                        
                        
                        249
                        
                        
                        
                        -Totals
                        
                        $
                        14,820
                        
                        
                        $
                        7,207
                        
                        
                        $
                        12,775
                        
                        
                        $
                        7,220


- 12
-


Significant
Customers





The
Company recorded sales of Nutritional Products to Coral Club International,
Inc., a licensee of the Company, in the amounts of $4,615,000 and $3,609,000
during the quarters ended June 30, 2010 and 2009, respectively, and $8,587,000
and $6,607,000 during the six months ended June 30, 2010 and 2009,
respectively.  The Company also recorded sales of Medical Products to
a medical/surgical dealer in the amounts of $1,011,000 and $870,000 during the
quarters ended June 30, 2010 and 2009, respectively, and $2,032,000 and
$1,888,000 during the six months ended June 30, 2010 and 2009,
respectively.  In no other case did a customer of the Company account
for more than 10% of net sales during the quarters or six months ended June 30,
2010 and 2009.





Note
K – Earnings Per Share:





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





Net Earnings
                                  
                                  
                                  Weighted
                                    Average
                                    Shares
                                  
                                  
                                  Per ShareQuarter
      Ended June 30, 2010Basic
      earnings per common share
                                  
                                  $
                                  171,973
                                  
                                  
                                  
                                  21,921,934
                                  
                                  
                                  $
                                  0.01Effect
      of dilutive stock options
                                  
                                  
                                  -
                                  
                                  
                                  
                                  464,722Diluted
      earnings per common share
                                  
                                  $
                                  171,973
                                  
                                  
                                  
                                  22,386,656
                                  
                                  
                                  $
                                  0.01Quarter
      Ended June 30, 2009Basic
      earnings per common share
                                  
                                  $
                                  277,199
                                  
                                  
                                  
                                  21,921,934
                                  
                                  
                                  $
                                  0.01Effect
      of dilutive stock options
                                  
                                  
                                  -
                                  
                                  
                                  
                                  555,383Diluted
      earnings per common share
                                  
                                  $
                                  277,199
                                  
                                  
                                  
                                  22,477,317
                                  
                                  
                                  $
                                  0.01Six
      Months Ended June 30, 2010Basic
      earnings per common share
                                  
                                  $
                                  383,297
                                  
                                  
                                  
                                  21,921,934
                                  
                                  
                                  $
                                  0.02Effect
      of dilutive stock options
                                  
                                  
                                  -
                                  
                                  
                                  
                                  400,428Diluted
      earnings per common share
                                  
                                  $
                                  383,297
                                  
                                  
                                  
                                  22,322,362
                                  
                                  
                                  $
                                  0.02Six
      Months Ended June 30, 2009Basic
      earnings per common share
                                  
                                  $
                                  106,219
                                  
                                  
                                  
                                  21,919,624
                                  
                                  
                                  $
                                  0.00Effect
      of dilutive stock options
                                  
                                  
                                  -
                                  
                                  
                                  
                                  588,899Diluted
      earnings per common share
                                  
                                  $
                                  106,219
                                  
                                  
                                  
                                  22,508,523
                                  
                                  
                                  $
                                  0.00





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 1,008,000 and 1,121,000 for the quarters ended June 30, 2010
and 2009, respectively, and 1,058,000 and 1,159,000 for the six months ended
June 30, 2010 and 2009, respectively.





Note
L – Comprehensive Income:





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


- 13
-





Quarters Ended June 30,
                
                
                Six Months Ended June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      earnings
                
                $
                171,973
                
                
                $
                277,199
                
                
                $
                383,297
                
                
                $
                106,219Other
      comprehensive income:Foreign
      currency translation adjustment
                
                
                647
                
                
                
                18,936
                
                
                
                1,805
                
                
                
                11,390Comprehensive
      income
                
                $
                172,620
                
                
                $
                296,135
                
                
                $
                385,102
                
                
                $
                117,609





Note
M – Legal Proceedings:





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


- 14
-


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 2009 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 2009 Form 10-K.  Many of these factors are beyond the Company’s
ability to control or predict. We caution you not to put undue reliance on forward-looking statements or to project any future results based on
such statements or on present or prior earnings levels. We do not undertake any
obligation to publicly release any revisions to any forward-looking statement to
reflect events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events.  Please consider our
forward-looking statements in light of those risks as you read this
report.





OVERVIEW




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




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




·
            Through
      the Medical Products segment, we distribute wound care
      products.  These products are distributed mainly in the U.S. to
      hospitals, nursing homes, clinics and pharmacies through traditional
      medical/surgical supply dealers and pharmaceutical
      distributors.  Medical Products are used to prevent and treat
      wounds, and manage pain associated with wounds, in the acute care,
      long-term care and oncology
markets.




- 15
-


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





Quarters Ended June 30,2010
                  
                  
                  2009(U.S. dollars in 000’s)Nutritional
      Products:Licensees
                  
                  $
                  4,642
                  
                  
                  
                  59
                  %
                  
                  $
                  3,823
                  
                  
                  
                  56
                  %Associate
      network
                  
                  
                  1,545
                  
                  
                  
                  20
                  %
                  
                  
                  1,478
                  
                  
                  
                  22
                  %6,187
                  
                  
                  
                  79
                  %
                  
                  
                  5,301
                  
                  
                  
                  78
                  %Medical
      Products
                  
                  
                  1,651
                  
                  
                  
                  21
                  %
                  
                  
                  1,458
                  
                  
                  
                  22
                  %$
                  7,838
                  
                  
                  
                  100
                  %
                  
                  $
                  6,759
                  
                  
                  
                  100
                  %





Six Months Ended June 30,2010
                  
                  
                  2009(U.S. dollars in 000’s)Nutritional
      Products:Licensees
                  
                  $
                  8,796
                  
                  
                  
                  59
                  %
                  
                  $
                  6,856
                  
                  
                  
                  54
                  %Associate
      network
                  
                  
                  2,805
                  
                  
                  
                  19
                  %
                  
                  
                  2,965
                  
                  
                  
                  23
                  %11,601
                  
                  
                  
                  78
                  %
                  
                  
                  9,821
                  
                  
                  
                  77
                  %Medical
      Products
                  
                  
                  3,219
                  
                  
                  
                  22
                  %
                  
                  
                  2,954
                  
                  
                  
                  23
                  %$
                  14,820
                  
                  
                  
                  100
                  %
                  
                  $
                  12,775
                  
                  
                  
                  100
                  %





Licensees. Our highest
revenue distribution channel is the licensee channel.  In this channel
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
98% and 96% of licensee net sales in the six months ended June 30, 2010 and
2009, respectively, distributes products in a territory comprised mainly of
Russia and Eastern Europe. The President of CCI is a former member of our Board
of Directors and beneficially owns approximately 18% of our outstanding common
stock.





Net sales
in this channel increased $1,940,000, or 28%, during the six months ended June
30, 2010 compared with net sales for the same period in 2009.  This
increase was attributable to an increase in net sales to CCI.  Net
sales to CCI increased $1,980,000, or 30%, for the six months ended June 30,
2010 compared with net sales for the same period in 2009.  CCI’s sales
in 2009 were negatively affected by the global economic recession; accordingly,
it significantly reduced its purchases from us in 2009 to reduce inventory
levels.  We believe that CCI completed this inventory reduction
process during the fourth quarter of 2009 and, as a result, increased its
shipping requests to maintain rather than reduce its inventory.  Net
sales in this channel represented 59% of consolidated net sales in the first six
months of 2010, which compares to 51%, 60% and 58% for the years ended December
31, 2009, 2008 and 2007, respectively.





Under the
Company’s arrangement with CCI, CCI orders products from the Company and pays
for the products when the product is segregated in the Company’s warehouse for
CCI’s account. Once segregated, products are not subject to return except in the
case of a manufacturing defect.  The Company stores the products until
CCI provides shipping instructions.  Because the Company does not
recognize revenue until products are shipped to CCI, the Company’s sales to CCI
fluctuate from quarter to quarter depending on a number of logistical
considerations, only one of which is the sales demand of CCI’s Associate
network.  Backlog related to CCI’s account was $6,403,000 at June 30,
2010 compared to $4,933,000 at June 30, 2009.


- 16
-





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





Quarters Ended June 30,
                    
                    
                    Six Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009United
      States
                    
                    
                    75
                    %
                    
                    
                    81
                    %
                    
                    
                    78
                    %
                    
                    
                    82
                    %Canada
                    
                    
                    21
                    
                    
                    
                    19
                    
                    
                    
                    20
                    
                    
                    
                    18Taiwan
                    
                    
                    4
                    
                    
                    
                    -
                    
                    
                    
                    2
                    
                    
                    
                    -100
                    %
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    
                    
                    100
                    %




Sales in
this channel are dependent upon the number and productivity of our
Associates.  Accordingly, growth in sales is dependent upon the
sponsorship of new Associates and retention of existing
Associates.  Net sales through the Associate network channel decreased
approximately 5% during the first six months of 2010 compared to the same period
in 2009.  This decrease was primarily attributable to a decrease in
the rate of sponsorship of new Associates by the current Associate network in
the North American market and increased Associate attrition. Sponsorship in the
first six months of 2009 was positively affected by the activities of a group of
new Associates that enrolled with the Company in late 2008.  The
sponsoring activities of this group began to decline in the fourth quarter of
2009; accordingly, the rate of sponsorship in the first six months of 2010
declined significantly.




In late
March 2010, we began selling selected nutritional supplement products in Taiwan
under a not-for-resale (“NFR”) program.  The NFR program allows
consumers in Taiwan to sign up as customers, purchase products, refer others to
our network marketing program and receive commissions. The NFR program also
allows our independent Associates in North America to expand their
distributorships into Taiwan.   Product orders from Taiwan
customers are currently fulfilled from our U.S. warehouse located in Irving,
Texas.  We plan to establish a product distribution facility in the
Taiwan region if sales increase sufficiently to justify a regional
facility.




In
addition to expansion into the Taiwan market, during the first six months of
2010, we undertook a number of other marketing and sales initiatives in an
effort to increase the rate of sponsorship of new Associates and/or reduce
Associate attrition in the Associate network channel.  However, no
assurance can be given that these initiatives will be effective in accomplishing
these objectives.




Medical Products. We sell
Medical Products primarily in the U.S. 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 63% and 64%
of Medical Products net sales during the six months ended June 30, 2010 and
2009, respectively.




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES




The
preparation of our financial statements and related disclosures in conformity
with US GAAP requires us to make estimates and judgments that affect the amounts
reported in our financial statements and accompanying footnotes. On an on-going
basis, we evaluate these estimates and assumptions based on historical
experience and various other factors and circumstances. Our management believes
that the estimates and assumptions are reasonable in the circumstances; however,
actual results may vary from these estimates and assumptions under different
future circumstances.




Management
believes that there have been no significant changes during the six months ended
June 30, 2010 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 2009 Form 10-K.


- 17
-





RESULTS
OF OPERATIONS




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





Quarters Ended June 30,
                
                
                Six Months Ended June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      sales
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %Cost
      of sales
                
                
                53.4
                
                
                
                47.9
                
                
                
                52.5
                
                
                
                47.9Gross
      profit
                
                
                46.6
                
                
                
                52.1
                
                
                
                47.5
                
                
                
                52.1Operating
      expenses:General
      and administrative
                
                
                31.0
                
                
                
                34.8
                
                
                
                32.1
                
                
                
                38.6Distributor
      commissions
                
                
                9.5
                
                
                
                8.4
                
                
                
                8.7
                
                
                
                9.4Depreciation
      and amortization
                
                
                1.5
                
                
                
                1.4
                
                
                
                1.6
                
                
                
                1.4Total
      operating expenses
                
                
                42.0
                
                
                
                44.6
                
                
                
                42.4
                
                
                
                49.4Operating
      profit
                
                
                4.6
                
                
                
                7.5
                
                
                
                5.1
                
                
                
                2.7Interest
      expense
                
                
                0.5
                
                
                
                0.6
                
                
                
                0.5
                
                
                
                0.7Earnings
      before income taxes
                
                
                4.1
                
                
                
                6.9
                
                
                
                4.6
                
                
                
                2.0Provision
      for income taxes
                
                
                1.9
                
                
                
                2.8
                
                
                
                2.0
                
                
                
                1.2Net
      earnings
                
                
                2.2
                %
                
                
                4.1
                %
                
                
                2.6
                %
                
                
                0.8
                %





Quarter
ended June 30, 2010 compared with quarter ended June 30, 2009 (000’s except per
share amounts)




Net sales.Net sales for the
quarter ended June 30, 2010 were $7,838 compared with net sales for the same
period in 2009 of $6,759, an increase of $1,079 or 16%.  The increase
in net sales resulted from an $886 increase in net sales of Nutritional Products
and a $193 increase in net sales of Medical Products. Net sales of Nutritional
Products to our licensees increased $819 while net sales of Nutritional Products
to our Associate network increased $67.




Licensees.  Net
sales to our licensees increased as a result of increased shipments to CCI.
While sales to CCI can vary from quarter to quarter due to various logistical
factors, sometimes significantly, irrespective of the sales demand of CCI’s
Associate network, sales of our products to CCI increased $1,006 during the
second quarter of 2010 for the reasons described above under the caption
Overview-Licensees.




Associate
Network.  Net sales to the Associate network increased
approximately $67, or 5%, during the quarter ended June 30,
2010.  This increase reflects the effects of a new Associate
compensation plan that became effective for the entire Associate network in
September 2009.  Under the new Associate compensation plan, the
portion of sales incentives classified as rebates, which are recorded as a
reduction of sales, decreased while the portion of sales incentives classified
as distributor commissions expense increased.  Accordingly, under the
new Associate compensation plan, the amounts of both net sales and distributor
commissions expense increased.




Medical products.  The
growth in net sales in this segment is mainly related to an increase in net
sales to the largest customer in this segment.  Sales to this
customer, which accounted for approximately 61% of Medical Products segment
sales, increased $141 to $1,011 during the second quarter of 2010 compared to
the second quarter of 2009.




Cost of sales.  Cost
of sales for the quarter ended June 30, 2010 was $4,182 compared with cost of
sales in the second quarter of 2009 of $3,238, an increase of $944 or 29%. As a
percentage of net sales, cost of sales was 53% in the second quarter of 2010 and
48% in the second quarter of 2009. As a percentage of net sales, gross profit
decreased 5% mainly because of a change in sales mix associated with sales to
our licensees.  During the second quarter of 2010, the sales mix
associated with sales to our licensees contributed a lower gross margin than the
corresponding sales mix in the second quarter of 2009.




General and administrative.
General and administrative expenses for the quarter ended June 30, 2010, were
$2,432 compared with expenses in the second quarter of 2009 of $2,353, an
increase of $79.  However, as a percentage of net sales, general and
administrative expenses decreased to 31% in the second quarter of 2010 compared
with 35% in the second quarter of 2009.  The increase in general and
administrative expenses in the second quarter of 2010 was mainly related to
expenses incurred in connection with the relocation of the Company’s Canadian
operations.  Upon expiration of the Company’s office/warehouse
facility lease in Canada on June 30, 2010, Canadian fulfillment operations were
relocated to the U.S. distribution facility located in Irving, Texas and
Canadian administrative offices were relocated to a new office complex in
Burnaby, B.C., Canada.


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Distributor commissions.
Distributor commissions were $746 for the quarter ended June 30, 2010 compared
with distributor commissions of $567 in the second quarter of 2009, an increase
of $179 or 32%.  With respect to the Associate network, distributor
commissions as a percentage of commissionable sales, exclusive of rebates, which
are recorded as a reduction of sales, increased to approximately 47% in the
second quarter of 2010 compared to 34% in the same period in
2009.  This increase in distributor commissions as a percentage of
commissionable sales primarily resulted from the adoption of a new Associate
compensation plan that became effective for the entire Associate network in
September 2009.  Under the new Associate compensation plan, the
portion of sales incentives classified as rebates decreased while the portion of
sales incentives classified as distributor commissions expense
increased.  Also contributing to the increase in distributor
commissions were additional commissions paid to certain Associates to facilitate
the transition from the previous Associate compensation plan to the new
plan.  On a consolidated basis, distributor commissions as a
percentage of net sales were 10% and 8% in the second quarter of 2010 and 2009,
respectively.




Income taxes.  We
recorded a provision for income taxes of $146 and $189 during the quarters ended
June 30, 2010 and 2009, respectively, based on our estimate of the effective
annual income tax rate for the applicable period.




Net earnings.  As a
result of the factors described above, net earnings for the quarter ended June
30, 2010 were $172, or $0.01 per share, compared with net earnings in the second
quarter of 2009 of $277, or $0.01 per share.




Six
months ended June 30, 2010 compared with six months ended June 30, 2009 (000’s
except per share amounts)




Net sales.Net sales for the
six months ended June 30, 2010 were $14,820 compared with net sales for the same
period in 2009 of $12,775, an increase of $2,045 or 16%. This increase resulted
from a $1,780 increase in net sales of Nutritional Products and a $265 increase
in net sales of Medical Products. Net sales of Nutritional Products to our
licensees increased $1,940 while net sales of Nutritional Products to our
Associate network decreased $160.




Licensees.  Net
sales to our licensees increased as a result of increased shipments to CCI.
While sales to CCI can vary from quarter to quarter due to various logistical
factors, sometimes significantly, irrespective of the sales demand of CCI’s
Associate network, sales of our products to CCI increased $1,980 during the
first six months of 2010 for the reasons described above under the caption
Overview-Licensees.




Associate
Network.  Net sales in the North American market decreased
approximately $160, or 5%, during the first six months of 2010.  We
attribute this decrease mainly to reduced levels of sponsorship of new
Associates and increased Associate attrition as described above under the
caption Overview-Associate Network.





Medical products.  The
growth in net sales of Medical Products resulted mainly from increased sales to
the largest customer in this segment.   Sales to this customer, which
distributes wound care products and provides services to the nursing home
market, increased $144 during the first six months of 2010 compared to the first
six months of 2009.  Sales to this distributor in the first six months
of 2010 were approximately $2,032.





Cost of sales.  Cost
of sales for the six months ended June 30, 2010 was $7,775 compared with cost of
sales in the first six months of 2009 of $6,115, an increase of $1,660 or 27%.
As a percentage of net sales, cost of sales was 53% in the first six months of
2010 and 48% in the first six months of 2009. As a percentage of net sales,
gross profit decreased 5% mainly because of a change in sales
mix.  During the first six months of 2010, the sales mix associated
with sales to our licensees contributed a lower gross margin than the
corresponding sales mix in the first six months of 2009.




General and administrative.
General and administrative expenses for the six months ended June 30, 2010, were
$4,757 compared with expenses in the first six months of 2009 of $4,930, a
decrease of $173 or 4%. This decrease was mainly attributable to decreased
Associate network sales and marketing expenses and facilities maintenance
expenses.  As a percentage of net sales, general and administrative
expenses were 32% and 39% in the six months ended June 30, 2010 and 2009,
respectively.


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Distributor commissions.
Distributor commissions were $1,287 for the six months ended June 30, 2010
compared with distributor commissions of $1,202 in the first six months of 2009,
an increase of $85 or 7%.  With respect to our Associate network,
distributor commissions as a percentage of commissionable sales exclusive of
rebates, which are recorded as a reduction of sales, increased to approximately
44% in the first six months of 2010 compared to 36% in the same period in
2009.  This percentage increase was mainly due to the adoption of a
new Associate compensation plan that became effective for the entire Associate
network in September 2009.  Under the new Associate compensation plan,
the portion of sales incentives classified as rebates decreased while the
portion of sales incentives classified as distributor commissions expense
increased.  On a consolidated basis, distributor commissions as a
percentage of net sales were 9% in the first six months of  2010 and
2009.




Income taxes.We
recorded a provision for income taxes of $296 and $157 during the six months
ended June 30, 2010 and 2009, respectively, based on our estimate of the
effective annual income tax rate for the applicable period.





Net earnings.  As a
result of the factors described above, net earnings for the six months ended
June 30, 2010 were $383, or $0.02 per share, compared with net earnings in the
first six months of 2009 of $106, or $0.00 per share.





LIQUIDITY
AND CAPITAL RESOURCES (000’s)




Cash and working capital. At
June 30, 2010, all of our cash and cash equivalents were maintained in accounts
that were either insured or secured by federal government
agencies.  During the first six months of 2010, we had a net decrease
in cash of $275 compared with a net decrease in cash of $877 in the first six
months of 2009.  At June 30, 2010, we had working capital of $5,182, a
$506 increase from working capital at December 31, 2009 of
$4,676.   The reasons for these changes in cash and working
capital are described below.




Operating activities. In the
first six months of 2010, our operating activities used cash flows of
$83.  In the first six months of 2009, our operating activities used
cash flows of $226.  The primary use of cash by operating activities
during the first six months of 2010 related to a $954 decrease in deferred
revenue, which was partially offset by a $539 decrease in
inventory.  The decrease in deferred revenue and the increase in
inventory were both related mainly to the timing of transactions with
CCI.  The balance of deferred revenue at any point in time is
dependent upon the timing of new CCI order deposits and the length of time we
hold CCI’s products prior to shipment.  The length of time we hold
CCI’s products prior to shipment also significantly affects the amount of
inventory on hand at a given point in time.  Also affecting cash flows
from operating activities during the first six months of 2010 was a $225
increase in accounts receivable, which is mainly related to the timing of
payments received from Medical Products customers, and a $283 decrease in
accounts payable and accrued liabilities, which is mainly related to the timing
of payments to suppliers.  In the first six months of 2010, net
earnings adjusted for non-cash activities, which include depreciation and
amortization, stock-based compensation, deferred income taxes and loss on
disposition of equipment, provided cash flows of $747 compared with providing
cash flows of $431 in the first six months of 2009.




Investing activities.During
the first six months of 2010, we used cash of $133 to purchase property and
equipment, most of which was for use in our warehouse or quality control
laboratory.




Financing activities. The
principle financing activity during the first six months of 2010 was the
repayment of long-term debt in the amount of $76.





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 or 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.  We have no plans or requirements for any significant
capital expenditures during the next 12 months.





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





ITEM
      3.
            Quantitative
      and Qualitative Disclosures 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 that could affect our future results of operations and
financial condition.  We manage our exposure to these risks through
our regular operating and financing activities.




Foreign
exchange




We have
foreign-based operations in Canada that accounted for 4% of net sales during the
first six months of 2010 and fiscal 2009.  We advance funds to and
from our foreign subsidiary denominated in U.S. dollars, exposing the foreign
subsidiary to the effect of changes in spot exchange rates of the Canadian
dollar relative to the U.S. dollar.  We do not regularly use
forward-exchange contracts to hedge these exposures.  Based on our
foreign currency exchange rate exposure for intercompany advances of
approximately $827,000 to our Canadian operations at June 30, 2010, a 10%
adverse change in the currency rate would reduce earnings before income taxes by
approximately $82,700.





All
transactions with our licensees are denominated in U.S. dollars so the licensee
bears the currency exchange risk.  Accordingly, exchange rate
fluctuations in international markets served by our licensees do not directly
affect our results of operations.  However, exchange rate fluctuations
in these markets may affect the ability of our licensees to conduct their
business operations profitably.




ITEM
      4.
            Controls
      and Procedures.





As
required by Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act
of 1934 (the "Exchange Act"), our management, including our Chief Executive
Officer and Chief Financial Officer, evaluated as of June 30, 2010, the
effectiveness of our disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures, as of June 30, 2010, were effective
for the purpose of ensuring that information required to be disclosed by us in
this report is recorded, processed, summarized and reported within the time
periods specified by the rules and forms of the Exchange Act and is accumulated
and communicated to management, including the Chief Executive Officer and Chief
Financial Officer as appropriate to allow timely decisions regarding required
disclosures.





There has
been no change in internal control over financial reporting that
occurred during the quarter ended June 30, 2010 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.


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PART
II – OTHER INFORMATION




ITEM
      1.
            Legal
      Proceedings.





None




ITEM
      1A.
            Risk
      Factors.




Our
business is subject to certain risks and events that, if they occur, could
adversely affect our financial condition and results of operations and the
trading price of our common stock. For a discussion of these risks, please refer
to the “Risk Factors” section of the 2009 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 2009 Form 10-K.




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




None




ITEM
      3.
            Defaults
      Upon Senior Securities.




None




ITEM
      4.
            Reserved.




ITEM
      5.
            Other
      Information.




None




ITEM
      6.
            Exhibits.





The
Exhibit Index filed herewith is incorporated herein by
reference.


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SIGNATURES





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





RBC Life Sciences, Inc.RegistrantAugust 11, 2010
                      
                      By:
                      /s/             Clinton
      H. HowardDate
                      
                      Its:
                      President
      and Chief Executive OfficerAugust 11, 2010
                      
                      By:
                      /s/             
      Steven E. BrownDate
                      
                      Its:
                      Vice
      President-Finance andChief
      Financial Officer(Principal
      Financial and Accounting Officer)





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-




RBC
LIFE SCIENCES, INC.





Exhibit
Index





Exhibit Number
            
            Description31.1
            
            Certification
      of Principal Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            
            Certification
      of Principal Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
            
            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
      200232.2
            
            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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