Attached files
file | filename |
---|---|
EX-32.2 - RBC LIFE SCIENCES, INC. | v165146_ex32-2.htm |
EX-32.1 - RBC LIFE SCIENCES, INC. | v165146_ex32-1.htm |
EX-31.1 - RBC LIFE SCIENCES, INC. | v165146_ex31-1.htm |
EX-31.2 - RBC LIFE SCIENCES, INC. | v165146_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
||
For
the quarterly period ended September 30, 2009
|
||
OR
|
||
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
||
For
the transition period from ________________ to
________________
|
Commission
file number: 000-50417
RBC Life Sciences,
Inc.
(Exact
name of registrant as specified in its charter)
Nevada
|
91-2015186
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
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 o
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 o No o
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
|
o
|
Non-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 o 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 October 15,
2009
|
|
Common
Stock, $0.001 par value per share
|
21,921,934
shares
|
TABLE OF
CONTENTS
Page Number
|
||||
PART
I – FINANCIAL INFORMATION
|
||||
|
Item 1.
|
Condensed
Consolidated Financial Statements (unaudited)
|
3
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|||
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
||
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20
|
||
Item 4.
|
Controls
and Procedures
|
21
|
||
PART
II – OTHER INFORMATION
|
||||
Item 1.
|
Legal
Proceedings
|
22
|
||
Item 1A.
|
Risk
Factors
|
22
|
||
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
22
|
||
Item 3.
|
Defaults
Upon Senior Securities
|
22
|
||
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
22
|
||
Item 5.
|
Other
Information
|
22
|
||
Item 6.
|
Exhibits
|
22
|
||
Signatures
|
23
|
|||
Exhibit
Index
|
24
|
PART
1 – FINANCIAL INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
RBC
LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
September 30,
2009
|
December 31,
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 3,517,955 | $ | 4,973,405 | ||||
Accounts
receivable, net
|
321,014 | 465,311 | ||||||
Inventories
|
4,886,019 | 5,706,613 | ||||||
Deferred
income taxes
|
363,956 | 405,286 | ||||||
Prepaid
expenses
|
1,443,332 | 1,374,805 | ||||||
Total
current assets
|
10,532,276 | 12,925,420 | ||||||
Property
and equipment, net
|
4,984,538 | 4,330,451 | ||||||
Goodwill,
net
|
2,259,575 | 2,197,082 | ||||||
Intangible
assets, net
|
90,718 | 109,347 | ||||||
Other
assets
|
10,672 | 203,816 | ||||||
$ | 17,877,779 | $ | 19,766,116 | |||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable, trade
|
$ | 1,738,363 | $ | 1,961,579 | ||||
Accrued
liabilities
|
1,007,821 | 1,266,167 | ||||||
Current
maturities of long-term obligations
|
153,010 | 144,397 | ||||||
Deferred
revenue
|
2,842,870 | 4,278,503 | ||||||
Total
current liabilities
|
5,742,064 | 7,650,646 | ||||||
Long-term
obligations, less current maturities
|
1,936,213 | 2,052,071 | ||||||
Deferred
income taxes
|
728,483 | 676,495 | ||||||
Shareholders’
equity:
|
||||||||
Common
stock, $0.001 par value; 50,000,000 shares authorized; 21,921,934 and
21,915,004 shares issued and outstanding at September 30, 2009 and
December 31, 2008, respectively
|
21,922 | 21,915 | ||||||
Additional
paid-in capital
|
13,467,795 | 13,364,308 | ||||||
Accumulated
deficit
|
(4,150,160 | ) | (4,104,241 | ) | ||||
Accumulated
other comprehensive income
|
131,462 | 104,922 | ||||||
9,471,019 | 9,386,904 | |||||||
$ | 17,877,779 | $ | 19,766,116 |
See notes
to condensed consolidated financial statements.
- 3
-
RBC
LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Quarters Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Net
sales
|
$ | 6,487,110 | $ | 9,925,196 | ||||
Cost
of sales
|
3,272,153 | 5,215,627 | ||||||
Gross
profit
|
3,214,957 | 4,709,569 | ||||||
Operating
expenses:
|
||||||||
General
and administrative
|
2,645,550 | 2,634,437 | ||||||
Distributor
commissions
|
637,389 | 601,302 | ||||||
Depreciation
and amortization
|
86,441 | 86,665 | ||||||
Total
operating expenses
|
3,369,380 | 3,322,404 | ||||||
Operating
profit (loss)
|
(154,423 | ) | 1,387,165 | |||||
Interest
expense
|
40,715 | 43,442 | ||||||
Earnings
(loss) before income taxes
|
(195,138 | ) | 1,343,723 | |||||
Provision
(benefit) for income taxes
|
(43,000 | ) | 498,000 | |||||
Net
earnings (loss)
|
$ | (152,138 | ) | $ | 845,723 | |||
Earnings
(loss) per share:
|
||||||||
Basic
|
$ | (0.01 | ) | $ | 0.04 | |||
Diluted
|
(0.01 | ) | 0.04 | |||||
Weighted
average common shares outstanding:
|
||||||||
Basic
|
21,921,934 | 21,587,224 | ||||||
Diluted
|
21,921,934 | 22,906,187 |
See notes
to condensed consolidated financial statements.
- 4
-
RBC
LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Net
sales
|
$ | 19,262,207 | $ | 23,159,662 | ||||
Cost
of sales
|
9,386,910 | 11,250,738 | ||||||
Gross
profit
|
9,875,297 | 11,908,924 | ||||||
Operating
expenses:
|
||||||||
General
and administrative
|
7,567,442 | 7,438,620 | ||||||
Distributor
commissions
|
1,839,814 | 1,719,049 | ||||||
Depreciation
and amortization
|
275,724 | 251,925 | ||||||
Total
operating expenses
|
9,682,980 | 9,409,594 | ||||||
Operating
profit
|
192,317 | 2,499,330 | ||||||
Interest
expense
|
124,236 | 132,276 | ||||||
Earnings
before income taxes
|
68,081 | 2,367,054 | ||||||
Provision
for income taxes
|
114,000 | 890,000 | ||||||
Net
earnings (loss)
|
$ | (45,919 | ) | $ | 1,477,054 | |||
Earnings
(loss) per share:
|
||||||||
Basic
|
$ | (0.00 | ) | $ | 0.07 | |||
Diluted
|
(0.00 | ) | 0.06 | |||||
Weighted
average common shares outstanding:
|
||||||||
Basic
|
21,920,394 | 21,314,775 | ||||||
Diluted
|
21,920,394 | 22,923,458 |
See notes
to condensed consolidated financial statements.
- 5
-
RBC
LIFE SCIENCES, INC. and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
earnings (loss)
|
$ | (45,919 | ) | $ | 1,477,054 | |||
Adjustment
for non-cash items:
|
||||||||
Depreciation
and amortization
|
317,091 | 277,587 | ||||||
Stock-based
compensation
|
102,039 | 90,764 | ||||||
Deferred
income taxes
|
101,493 | (87,000 | ) | |||||
Change
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
144,281 | 119,506 | ||||||
Inventories
|
838,697 | (169,313 | ) | |||||
Prepaid
expenses
|
(58,006 | ) | (377,464 | ) | ||||
Other
assets
|
- | (7,765 | ) | |||||
Accounts
payable and accrued liabilities
|
(495,464 | ) | (1,024,697 | ) | ||||
Deferred
revenue
|
(1,439,025 | ) | 753,647 | |||||
Net
cash provided by (used in) operating activities
|
(534,813 | ) | 1,052,319 | |||||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
(948,943 | ) | (356,406 | ) | ||||
Proceeds
from surrender of insurance policy
|
194,277 | - | ||||||
Net
cash used in investing activities
|
(754,666 | ) | (356,406 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Payments
of long-term obligations
|
(107,245 | ) | (101,038 | ) | ||||
Proceeds
from the exercise of stock options
|
1,455 | 157,600 | ||||||
Net
cash provided by (used in) financing activities
|
(105,790 | ) | 56,562 | |||||
Effect
of exchange rate changes on cash flows
|
(60,181 | ) | 9,031 | |||||
Net
increase (decrease) in cash and cash equivalents
|
(1,455,450 | ) | 761,506 | |||||
Cash
and cash equivalents, beginning of period
|
4,973,405 | 6,368,885 | ||||||
Cash
and cash equivalents, end of period
|
$ | 3,517,955 | $ | 7,130,391 |
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 United States of America (“U.S. 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 accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to these rules and regulations. These
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (the
“2008 Form 10-K”), previously filed with the Securities and Exchange
Commission.
In the
opinion of management, all adjustments (consisting solely of normal recurring
accruals) considered necessary for a fair presentation of the Company’s results
for the interim periods have been included. The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and reported
amounts of revenues and expenses during the period. Actual results
could differ from those estimates. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the full year.
In
connection with preparation of these condensed consolidated financial
statements, the Company evaluated subsequent events after the balance sheet date
of September 30, 2009 through November 9, 2009.
Recent Accounting
Pronouncement
In
June 2009, the Financial Accounting Standards Board (the “FASB”) issued the
FASB Accounting Standards Codification (the “ASC”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretative releases of the Securities
and Exchange Commission (the “SEC”) are also sources of authoritative U.S. GAAP
for SEC registrants. The ASC became effective for financial statements issued
for interim and annual periods ending after September 15, 2009 and
superseded all then-existing non-SEC accounting and reporting standards. All
other non-grandfathered non-SEC accounting literature not included in the ASC
became non-authoritative. The Company adopted the ASC effective
September 30, 2009, and, other than the manner in which new accounting
guidance is referenced, the adoption of the ASC had no impact on the Company’s
results of operations, financial position or notes to the condensed 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”) under the brand
name “RBC Life”. In certain markets, primarily the U.S. and Canada,
the Company markets its products through a network of distributors that are
referred to as “Associates.” The Associates are independent
contractors who purchase products for personal use, purchase products for resale
to retail customers and sponsor other individuals as
Associates. Associates can derive compensation both from the direct
sales of products and from sales generated by sponsored Associates.
RBC also
markets its Nutritional Products in certain international markets through
license arrangements. The licensees are third parties who are granted
exclusive rights to distribute RBC products in their respective territories and,
for the most part, distribute these products through an independent Associate
network in the licensed territory. Under these arrangements, the
independent Associate network in a licensed territory is compensated by the
licensee according to the same or a similar compensation plan as the one used by
RBC for its Associates in North America.
- 7
-
In
addition to its Nutritional Products, RBC also markets a line of wound care
products (“Medical Products”) under the MPM Medical brand
name. Medical 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.
Note
C – Inventories:
Inventories
at September 30, 2009 and December 31, 2008 consist of the
following:
September 30, 2009
|
December 31, 2008
|
|||||||
Raw
materials and bulk products
|
$ | 380,827 | $ | 384,376 | ||||
Packaging
materials
|
557,566 | 584,842 | ||||||
Finished
goods
|
3,947,626 | 4,737,395 | ||||||
$ | 4,886,019 | $ | 5,706,613 |
Note
D – Prepaid Expenses:
Prepaid
expenses at September 30, 2009 and December 31, 2008 consist of the
following:
September 30, 2009
|
December 31, 2008
|
|||||||
Advance
payment to suppliers
|
$ | 319,770 | $ | 415,699 | ||||
Certificates
of deposit - restricted
|
579,296 | 569,445 | ||||||
Prepaid
insurance and other
|
544,266 | 389,661 | ||||||
$ | 1,443,332 | $ | 1,374,805 |
Note
E – Property and Equipment:
Property
and equipment at September 30, 2009 and December 31, 2008 consists of the
following:
September 30, 2009
|
December 31, 2008
|
|||||||
Building
and improvements
|
$ | 3,523,428 | $ | 3,523,428 | ||||
Computer
software and office equipment
|
2,133,372 | 1,625,205 | ||||||
Warehouse
equipment
|
275,265 | 367,285 | ||||||
Automotive
equipment
|
15,228 | 55,392 | ||||||
Leasehold
improvements
|
20,391 | 17,858 | ||||||
5,967,684 | 5,589,168 | |||||||
Less
– accumulated depreciation
|
(2,124,319 | ) | (2,399,890 | ) | ||||
3,843,365 | 3,189,278 | |||||||
Land
|
1,141,173 | 1,141,173 | ||||||
$ | 4,984,538 | $ | 4,330,451 |
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
|
Accumulated Amortization
|
|||||||
Balance,
December 31, 2008
|
$ | 3,238,342 | $ | (1,041,260 | ) | |||
Currency
translation adjustment
|
121,945 | (59,452 | ) | |||||
Balance,
September 30, 2009
|
$ | 3,360,287 | $ | (1,100,712 | ) |
- 8
-
Other
intangible assets consist of the following:
September 30, 2009
|
December 31, 2008
|
||||||||||||||||||
Average
Life
(years)
|
Gross
Carrying
Value
|
Accumulated
Amortization
|
Gross
Carrying
Value
|
Accumulated
Amortization
|
|||||||||||||||
Distribution
contracts
|
8
|
$ | 277,369 | $ | (256,073 | ) | $ | 277,369 | $ | (244,536 | ) | ||||||||
Copyrights,
trademarks and other registrations
|
19
|
99,100 | (42,943 | ) | 99,100 | (38,979 | ) | ||||||||||||
Other
|
11
|
47,600 | (34,335 | ) | 47,600 | (31,207 | ) | ||||||||||||
$ | 424,069 | $ | (333,351 | ) | $ | 424,069 | $ | (314,722 | ) |
Amortization
expense related to other intangible assets totaled approximately $5,400 and
$10,600 for the quarters ended September 30, 2009 and 2008, respectively, and
$18,600 and $31,800 for the nine months ended September 30, 2009 and 2008,
respectively. The aggregate estimated amortization expense for
intangible assets remaining as of September 30, 2009 is as follows:
Remainder
of 2009
|
$ | 5,406 | ||
2010
|
21,626 | |||
2011
|
13,792 | |||
2012
|
5,957 | |||
2013
|
5,957 | |||
Thereafter
|
37,980 | |||
Total
|
$ | 90,718 |
Note
G – Accrued Liabilities:
Accrued
liabilities at September 30, 2009 and December 31, 2008 consist of the
following:
September 30, 2009
|
December 31, 2008
|
|||||||
Salaries
and wages
|
$ | 513,805 | $ | 798,913 | ||||
Distributor
commissions
|
307,986 | 297,570 | ||||||
Sales
and property taxes
|
75,997 | 32,759 | ||||||
Interest
|
13,493 | 14,186 | ||||||
Other
|
96,540 | 122,739 | ||||||
$ | 1,007,821 | $ | 1,266,167 |
Note
H – Share-Based Compensation:
The
Company records compensation expense for all share-based payments based on the
estimated grant date fair value. Share-based compensation expense for
the quarters ended September 30, 2009 and 2008 was approximately $32,000 and
$28,800, respectively, and for the nine months ended September 30, 2009 and 2008
was approximately $102,000 and $90,800. 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
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2009 (1)
|
2008 (1)
|
2009
|
2008
|
|||||||||||||
Weighted
average expected life (years)
|
— | — | 7.3 | 9.0 | ||||||||||||
Risk-free
interest rate
|
— | — | 2.67 | % | 3.77 | % | ||||||||||
Expected
volatility
|
— | — | 114.92 | % | 138.57 | % | ||||||||||
Expected
dividend yield
|
— | — | 0.0 | % | 0.0 | % |
(1) There
were no option grants during this period.
On May
13, 2009, the Company granted to certain key Associates, non-qualified stock
options to purchase an aggregate of 150,000 shares of the Company’s common stock
at an exercise price of $0.39 per share. The options expire five
years from the date of grant and are subject to vesting provisions based on
attaining certain performance goals. However, if the first
performance goal is not attained on or before May 13, 2011, the options will
expire on that date. The fair value of these options was estimated to
be $43,400 using the Black-Scholes pricing model. In September 2009,
one of these options to purchase 75,000 shares of common stock was cancelled
upon resignation of the Associate to whom the option was granted. As
of September 30, 2009, no compensation cost has been recognized with respect to
the remaining options as, based on available information, the Company does not
believe that the performance goals are probable of being achieved.
A summary
of stock option activity for the nine months ended September 30, 2009 is as
follows:
Options
|
Weighted-
Average Exercise
Price per Share
|
Weighted-Average
Remaining
Contractual Term
(in years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding
on January 1, 2009
|
2,292,885 | $ | 0.46 | |||||||||||||
Granted
|
351,485 | 0.47 | ||||||||||||||
Exercised
|
(6,930 | ) | 0.21 | |||||||||||||
Forfeited/canceled
|
(550,270 | ) | 0.67 | |||||||||||||
Outstanding
on September 30, 2009
|
2,087,170 | $ | 0.41 | 5.5 | $ | 131,253 | ||||||||||
Exercisable
on September 30, 2009
|
1,065,360 | $ | 0.23 | 4.0 | $ | 126,127 |
A summary
of the status of the Company’s non-vested stock options as of September 30, 2009
and changes during the nine months then ended are presented below:
|
Weighted-Average
|
|||||||
|
Grant Date Fair
|
|||||||
|
Shares
|
Value per Share
|
||||||
Non-vested
stock options at January 1, 2009
|
819,075 | $ | 0.60 | |||||
Non-vested
stock options granted
|
350,000 | 0.41 | ||||||
Vested
stock options
|
(40,000 | ) | 0.42 | |||||
Forfeited
stock options
|
(107,265 | ) | 0.40 | |||||
Non-vested
stock options at September 30, 2009
|
1,021,810 | 0.56 |
As of
September 30, 2009, there was approximately $571,000 of total unrecognized
compensation cost related to stock option grants.
- 10
-
Note
I – Long-Term Obligations and Credit Lines:
At
September 30, 2009 and December 31, 2008 long-term obligations consist of the
following:
September 30, 2009
|
December 31, 2008
|
|||||||
Mortgage
note payable bearing interest at 7.75%, payable in monthly installments of
$25,797 through April 2019, collateralized by land and building, and
personally guaranteed by the Company’s Chairman of the Board of
Directors
|
$ | 2,089,223 | $ | 2,196,468 | ||||
Less
– current maturities
|
(153,010 | ) | (144,397 | ) | ||||
$ | 1,936,213 | $ | 2,052,071 |
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 September 30, 2009, the fair value of fixed-rate
long-term debt was $2,259,000, which was $170,000 above the carrying value of
$2,089,000. At December 31, 2008, the fair value of fixed-rate
long-term debt was $2,386,000, which was $190,000 above the carrying value of
$2,196,000.
The
Company maintained a $500,000 bank line of credit that matured October 22, 2009
and was not renewed. Through the line of credit maturity date, the
Company maintained a $500,000 certificate of deposit at the bank to secure
borrowings under the line. There were no borrowings outstanding under
this line at September 30, 2009.
Note
J – Segments and Geographic Area:
The
Company's segments are based on the organization structure that is used by
management for making operating and investment decisions and for assessing
performance. Based on this management approach, the Company has two
operating segments: Nutritional Products and Medical Products.
The
Nutritional Products segment 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 brand name “RBC
Life”. 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
primarily in the U.S. under the MPM Medical brand name. The wound
care products are distributed to hospitals, nursing homes, home health care
agencies, clinics and pharmacies through a network of medical/surgical supply
dealers and pharmaceutical distributors. MPM’s Medical Products are
used to prevent and treat wounds, and manage pain associated with wounds, in the
acute care, long-term care 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
|
Consolidated
|
||||||||||
Quarter
Ended September 30, 2009
|
||||||||||||
Net
sales
|
$ | 4,982 | $ | 1,505 | $ | 6,487 | ||||||
Depreciation
and amortization
|
101 | 11 | 112 | |||||||||
Operating
profit (loss)
|
(214 | ) | 60 | (154 | ) | |||||||
Capital
expenditures
|
183 | 12 | 195 | |||||||||
Total
assets
|
15,065 | 2,813 | 17,878 | |||||||||
Quarter
Ended September 30, 2008
|
||||||||||||
Net
sales
|
$ | 8,284 | $ | 1,641 | $ | 9,925 | ||||||
Depreciation
and amortization
|
71 | 25 | 96 | |||||||||
Operating
profit
|
1,294 | 93 | 1,387 | |||||||||
Capital
expenditures
|
77 | 8 | 85 | |||||||||
Total
assets
|
18,411 | 2,001 | 20,412 | |||||||||
Nine
Months Ended September 30, 2009
|
||||||||||||
Net
sales
|
$ | 14,803 | $ | 4,459 | $ | 19,262 | ||||||
Depreciation
and amortization
|
267 | 50 | 317 | |||||||||
Operating
profit
|
12 | 180 | 192 | |||||||||
Capital
expenditures
|
930 | 19 | 949 | |||||||||
Total
assets
|
15,065 | 2,813 | 17,878 | |||||||||
Nine
Months Ended September 30, 2008
|
||||||||||||
Net
sales
|
$ | 18,631 | $ | 4,529 | $ | 23,160 | ||||||
Depreciation
and amortization
|
205 | 73 | 278 | |||||||||
Operating
profit
|
2,246 | 253 | 2,499 | |||||||||
Capital
expenditures
|
325 | 31 | 356 | |||||||||
Total
assets
|
18,411 | 2,001 | 20,412 |
Financial
information summarized geographically for the quarters and nine months ended
September 30, 2009 and 2008 is listed below (in thousands):
Quarter Ended September 30, 2009
|
Quarter Ended September 30, 2008
|
|||||||||||||||
Net sales
|
Long-Lived assets
|
Net sales
|
Long-Lived assets
|
|||||||||||||
Domestic
|
$ | 2,804 | $ | 6,806 | $ | 2,765 | $ | 6,225 | ||||||||
Former
Soviet Union
|
3,398 | - | 6,742 | - | ||||||||||||
Canada
|
262 | 540 | 281 | 552 | ||||||||||||
All
others
|
23 | - | 137 | - | ||||||||||||
Totals
|
$ | 6,487 | $ | 7,346 | $ | 9,925 | $ | 6,777 |
Nine Months Ended
September 30, 2009
|
Nine Months Ended
September 30, 2008
|
|||||||||||||||
Net sales
|
Long-Lived assets
|
Net sales
|
Long-Lived assets
|
|||||||||||||
Domestic
|
$ | 8,181 | $ | 6,806 | $ | 7,904 | $ | 6,225 | ||||||||
Former
Soviet Union
|
10,004 | - | 13,789 | - | ||||||||||||
Canada
|
804 | 540 | 876 | 552 | ||||||||||||
All
others
|
273 | - | 591 | - | ||||||||||||
Totals
|
$ | 19,262 | $ | 7,346 | $ | 23,160 | $ | 6,777 |
- 12
-
Significant
Customers
The
Company recorded sales of Nutritional Products to Coral Club International,
Inc., a licensee of the Company, in the amounts of $3,398,000 and $6,742,000
during the quarters ended September 30, 2009 and 2008, respectively, and
$10,004,000 and $13,789,000 during the nine months ended September 30, 2009 and
2008, respectively. The Company also recorded sales of Medical
Products to a medical/surgical dealer in the amounts of $855,000 and $1,058,000
during the quarters ended September 30, 2009 and 2008, respectively, and
$2,742,000 and $2,796,000 during the nine months ended September 30, 2009 and
2008, respectively. These sales accounted for more than 10% of net
sales in these periods. Other than these two customers, no customer
of the Company accounted for more than 10% of net sales during the quarters or
nine months ended September 30, 2009 and 2008.
Note
K – Earnings (Loss) Per Share:
Summarized
basic and diluted earnings (loss) per common share were calculated as
follows:
Net Earnings (Loss)
|
Weighted
Average
Shares
|
Per Share
|
||||||||||
Quarter
Ended September 30, 2009
|
||||||||||||
Basic
loss per common share
|
$ | (152,138 | ) | 21,921,934 | $ | (0.01 | ) | |||||
Effect
of dilutive stock options
|
- | - | ||||||||||
Diluted
loss per common share
|
$ | (152,138 | ) | 21,921,934 | $ | (0.01 | ) | |||||
Quarter
Ended September 30, 2008
|
||||||||||||
Basic
earnings per common share
|
$ | 845,723 | 21,587,224 | $ | 0.04 | |||||||
Effect
of dilutive stock options
|
- | 1,318,963 | ||||||||||
Diluted
earnings per common share
|
$ | 845,723 | 22,906,187 | $ | 0.04 | |||||||
Nine
Months Ended September 30, 2009
|
||||||||||||
Basic
loss per common share
|
$ | (45,919 | ) | 21,920,394 | $ | (0.00 | ) | |||||
Effect
of dilutive stock options
|
- | - | ||||||||||
Diluted
loss per common share
|
$ | (45,919 | ) | 21,920,394 | $ | (0.00 | ) | |||||
Nine
Months Ended September 30, 2008
|
||||||||||||
Basic
earnings per common share
|
$ | 1,477,054 | 21,314,775 | $ | 0.07 | |||||||
Effect
of dilutive stock options
|
- | 1,608,683 | ||||||||||
Diluted
earnings per common share
|
$ | 1,477,054 | 22,923,458 | $ | 0.06 |
The
number of stock options that were outstanding, but not included in the
computation of diluted earnings (loss) per common share because their exercise
price was greater than the average market price of the common stock, or were
otherwise anti-dilutive, was 2,087,000 and 905,000 for the quarters ended
September 30, 2009 and 2008, respectively, and 2,087,000 and 882,000 for the
nine months ended September 30, 2009 and 2008, respectively.
Note
L – Comprehensive Income (Loss):
Comprehensive
income (loss) is net earnings adjusted for other comprehensive income (loss),
which, for the periods presented, consists of the change in the foreign currency
translation adjustment. The following table provides information
regarding comprehensive income (loss):
- 13
-
Quarters Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
earnings (loss)
|
$ | (152,138 | ) | $ | 845,723 | $ | (45,919 | ) | $ | 1,477,054 | ||||||
Other
comprehensive income (loss):
|
||||||||||||||||
Foreign
currency translation adjustment
|
15,150 | (18,002 | ) | 26,540 | (35,438 | ) | ||||||||||
Comprehensive
income (loss)
|
$ | (136,988 | ) | $ | 827,721 | $ | (19,379 | ) | $ | 1,441,616 |
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 ofOperations.
|
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 2008 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 2008 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. MPM’s 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 September 30,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
(U.S. dollars in 000’s)
|
||||||||||||||||
Nutritional
Products:
|
||||||||||||||||
Licensees
|
$ | 3,421 | 53 | % | $ | 6,879 | 69 | % | ||||||||
Associate
network
|
1,561 | 24 | % | 1,405 | 14 | % | ||||||||||
4,982 | 77 | % | 8,284 | 83 | % | |||||||||||
Medical
Products
|
1,505 | 23 | % | 1,641 | 17 | % | ||||||||||
$ | 6,487 | 100 | % | $ | 9,925 | 100 | % |
Nine Months Ended September 30,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
(U.S. dollars in 000’s)
|
||||||||||||||||
Nutritional
Products:
|
||||||||||||||||
Licensees
|
$ | 10,277 | 54 | % | $ | 14,279 | 61 | % | ||||||||
Associate
network
|
4,526 | 23 | % | 4,352 | 19 | % | ||||||||||
14,803 | 77 | % | 18,631 | 80 | % | |||||||||||
Medical
Products
|
4,459 | 23 | % | 4,529 | 20 | % | ||||||||||
$ | 19,262 | 100 | % | $ | 23,160 | 100 | % |
Licensees. Our highest
revenue distribution channel is the licensee channel. In the licensee
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. Licensees are
generally 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
97% of licensee net sales in both the nine months ended September 30, 2009 and
2008, distributes products in a territory comprised mainly of the former Soviet
Union and Eastern Europe. The President of CCI is a former member of our Board
of Directors and beneficially owns approximately 18% of our outstanding common
stock.
Net sales
to our licensees declined $3,458,000, or 50%, and $4,002,000, or 28%, for the
quarter and nine months ended September 30, 2009, respectively, compared with
net sales for the same periods in 2008. These declines were mainly
related to declines in net sales to CCI. Net sales to CCI declined
$3,344,000, or 50%, and $3,785,000, or 27%, for the quarter and nine months
ended September 30, 2009, respectively, compared with net sales for the same
periods in 2008. The decline in net sales to CCI is attributable to a
decline in CCI’s sales to its independent Associates during this
period. CCI’s sales were negatively affected by the global economic
recession that began in late 2008. After several years of increasing
purchases of our products to support rapid growth, CCI was forced to
significantly reduce its purchases from us in 2009 to appropriately align its
inventories with the reduced sales volumes. We expect this trend to
continue through the fourth quarter of 2009 and into 2010 until economic
conditions improve.
Under our
arrangement with CCI, CCI orders products from us and pays for them when we
segregate them in our warehouse for CCI’s account. Once segregated, products are
not subject to return except in the case of a manufacturing
defect. We store the products until CCI provides shipping
instructions. Because we do not recognize revenue until we ship
products to CCI, our 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. Reflecting the reduction in CCI’s sales,
backlog related to CCI’s account was $4,979,000 at September 30, 2009 compared
to $8,698,000 at September 30, 2008.
- 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
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
United
States
|
83 | % | 80 | % | 82 | % | 80 | % | ||||||||
Canada
|
17 | 20 | 18 | 20 | ||||||||||||
100 | % | 100 | % | 100 | % | 100 | % |
Net sales
through the Associate network channel increased approximately 4% during the
first nine months of 2009 compared to the same period in 2008. This
increase is primarily attributable to an increase in the rate of sponsorship of
new Associates by the current Associate network in the U.S. market. 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.
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 62% of
Medical Products net sales during both the nine months ended September 30, 2009
and 2008.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
preparation of our financial statements and related disclosures in conformity
with accounting principles generally accepted in the U.S. 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 nine months
ended September 30, 2009 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 2008 Form
10-K.
RESULTS
OF OPERATIONS
The
following table sets forth our operating results as a percentage of net sales
for the periods indicated:
Quarters Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost
of sales
|
50.4 | 52.5 | 48.7 | 48.6 | ||||||||||||
Gross
profit
|
49.6 | 47.5 | 51.3 | 51.4 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative
|
40.8 | 26.5 | 39.3 | 32.1 | ||||||||||||
Distributor
commissions
|
9.9 | 6.1 | 9.6 | 7.4 | ||||||||||||
Depreciation
and amortization
|
1.3 | 0.9 | 1.4 | 1.1 | ||||||||||||
Total
operating expenses
|
52.0 | 33.5 | 50.3 | 40.6 | ||||||||||||
Operating
profit (loss)
|
(2.4 | ) | 14.0 | 1.0 | 10.8 | |||||||||||
Interest
expense
|
0.6 | 0.5 | 0.6 | 0.6 | ||||||||||||
Earnings
(loss) before income taxes
|
(3.0 | ) | 13.5 | 0.4 | 10.2 | |||||||||||
Provision
(benefit) for income taxes
|
(0.7 | ) | 5.0 | 0.6 | 3.8 | |||||||||||
Net
earnings (loss)
|
(2.3 | ) % | 8.5 | % | (0.2 | ) % | 6.4 | % |
- 17
-
Quarter
ended September 30, 2009 compared with quarter ended September 30,
2008
Net sales. Net sales for the
quarter ended September 30, 2009 were $6,487,000 compared with net sales for the
same period in 2008 of $9,925,000, a decrease of $3,438,000 or 35%. This decline
in net sales, along with the resulting decline in gross profit, is the primary
reason we incurred a net loss in the third quarter of 2009. The
decline in net sales resulted from a $3,302,000 decrease in net sales of
Nutritional Products and a $136,000 decrease in net sales of Medical Products.
Net sales of Nutritional Products to our licensees decreased $3,458,000 while
net sales of Nutritional Products to our Associate network increased
$156,000.
Licensees. Net
sales to our licensees decreased primarily as a result of decreased shipments to
CCI. Sales to CCI decreased $3,344,000 during the quarter ended September 30,
2009. While sales to CCI can vary significantly from quarter to
quarter due to various logistical factors irrespective of the sales demand of
CCI’s Associate network, in-territory sales of our products to CCI’s Associate
network declined during the third quarter of 2009 as described above under the
caption Overview-Licensees.
Associate
Network. Net sales in the North American market grew
approximately $156,000, or 11%, during the quarter ended September 30,
2009. Continuing the trend from the first half of 2009, the
sponsorship of new Associates by the current Associate network increased more
than 100% during the third quarter of 2009. While we believe the
marketing initiatives and other actions we have undertaken led to this increase
in the sponsorship of new Associates, we can give no assurance that the number
of active Associates will continue to increase.
Medical products. The
decline in net sales of Medical Products resulted from decreased 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, decreased $203,000 during the third quarter of 2009 compared to the
third quarter of 2008. We attribute the decline in sales to efforts
by this distributor to align inventory with projected demand. Sales
to this distributor in the third quarter of 2009 were approximately
$855,000.
Cost of sales. Cost
of sales for the quarter ended September 30, 2009 was $3,272,000 compared with
cost of sales in the third quarter of 2008 of $5,216,000, a decrease of
$1,944,000 or 37%. As a percentage of net sales, cost of sales was 50% in the
third quarter of 2009 and 53% in the third quarter of 2008. Gross profit as a
percentage of net sales increased 3% mainly because of a change in the sales mix
of Nutritional Products between sales to the Associate network and sales to
licensees. The gross profit for products sold to licensees is lower than the
gross profit for products sold to the Associate network because we sell to
licensees at lower prices. Sales prices to licensees are lower since we do not
pay Associate commissions or incur other expenses related to product
distribution in the licensed territory.
General and administrative.
General and administrative expenses for the quarter ended September 30, 2009,
were $2,646,000 compared with expenses in the third quarter of 2008 of
$2,634,000, an increase of $12,000. While the amount of general and
administrative expenses was relatively unchanged between quarters, as a
percentage of net sales, general and administrative expenses increased 14% to
41% in the third quarter of 2009 compared with 27% in the third quarter of 2008
due to the decline in net sales.
Distributor commissions.
Distributor commissions were $637,000 for the quarter ended September 30, 2009
compared with distributor commissions of $601,000 in the third quarter of 2008,
an increase of $36,000 or 6%. This increase is associated with the
increase in Associate Network sales during the third quarter of 2009 compared
with the third quarter of 2008. Distributor commissions as a
percentage of commissionable sales to the Associate network increased slightly
to approximately 37% in the third quarter of 2009 compared to 36% in the same
period in 2008. This percentage increase was mainly due to the
payment of extra commissions during the third quarter of 2009 in connection with
certain marketing and sales initiatives undertaken during the
quarter. On a consolidated basis, distributor commissions as a
percentage of net sales were 10% and 6% in the third quarter of 2009 and 2008,
respectively, mainly because a higher percentage of consolidated sales in the
third quarter of 2009 were Associate network sales.
Income taxes. We
recorded a benefit for income taxes of $43,000 during the quarter ended
September 30, 2009 based on our estimate of the effective annual income tax
rate. Our effective income tax rate was affected by an increase in
the valuation allowance related to net operating loss carryforwards in Canada,
which offset tax benefits related to the consolidated loss before income
taxes.
- 18
-
Net earnings
(loss). As a result of the factors described above, the net
loss for the quarter ended September 30, 2009 was $152,000, or $0.01 per share,
compared with net earnings in the third quarter of 2008 of $846,000, or $0.04
per share.
Nine
months ended September 30, 2009 compared with nine months ended September 30,
2008
Net sales. Net sales for the
nine months ended September 30, 2009 were $19,262,000 compared with net sales
for the same period in 2008 of $23,160,000, a decrease of $3,898,000 or 17%.
This decline in net sales, along with the resulting decline in gross profit, is
the primary reason for the substantial decline in 2009 operating results
compared to 2008. The decrease in net sales resulted from a
$3,828,000 decrease in net sales of Nutritional Products and a $70,000 decrease
in net sales of Medical Products. Net sales of Nutritional Products to our
licensees decreased $4,002,000 while net sales of Nutritional Products to our
Associate network increased $174,000.
Licensees. Net
sales to our licensees decreased primarily as a result of decreased shipments to
CCI. Sales to CCI decreased $3,785,000 in the first nine months of
2009. While sales to CCI can vary significantly from quarter to
quarter due to various logistical factors irrespective of the sales demand of
CCI’s Associate network, in-territory sales of our products to CCI’s Associate
network declined during the first nine months of 2009, as described above under
the caption Overview-Licensees.
Associate
Network. Net sales in the North American market increased
approximately $174,000 during the first nine months of 2009, a significant
change in the declining sales trend we have reported in this distribution
channel for several years. We attribute this increase mainly to an
increase in the number of active Associates, which resulted from higher levels
of sponsorship of new Associates by the current Associate network in the U.S.
market. While we believe the marketing initiatives and other actions
we have undertaken led to this increase in the sponsorship of new Associates, we
can give no assurance that the number of active Associates will continue to
increase.
Medical products. The
decline in net sales of Medical Products resulted mainly from decreased 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, decreased $54,000 during the first nine months of 2009 compared to the
first nine months of 2008. Sales to this distributor in the first
nine months of 2009 were approximately $2,742,000.
Cost of sales. Cost
of sales for the nine months ended September 30, 2009 was $9,387,000 compared
with cost of sales in the first nine months of 2008 of $11,251,000, a decrease
of $1,864,000 or 17%. As a percentage of net sales, cost of sales was 49% in
both the first nine months of 2009 and 2008.
General and administrative.
General and administrative expenses for the nine months ended September 30,
2009, were $7,567,000 compared with expenses in the first nine months of 2008 of
$7,439,000, an increase of $128,000 or 2%. This increase was mainly attributable
to increased expenses associated with the upgrade of our network marketing
computer software, regulatory compliance and support activities and facilities
maintenance. As a percentage of net sales, general and administrative
expenses were 39% and 32% in the nine months ended September 30, 2009 and 2008,
respectively.
Distributor
commissions. Distributor commissions were $1,840,000 for
the nine months ended September 30, 2009 compared with distributor commissions
of $1,719,000 in the first nine months of 2008, an increase of $121,000 or
7%. This increase is associated with the increase in Associate
Network sales during the first nine months of 2009 compared with the same period
in 2008. Distributor commissions as a percentage of commissionable
sales to the Associate network increased to approximately 36% in the first nine
months of 2009 compared to 34% in the same period in 2008. This
percentage increase was mainly due to the payment of extra commissions during
the first nine months of 2009 in connection with certain marketing and sales
initiatives undertaken during this period. On a consolidated basis,
distributor commissions as a percentage of net sales increased to 10% in the
nine months of 2009 compared with 7% in the nine months of 2008 mainly because a
higher percentage of our 2009 consolidated sales were Associate network
sales.
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Income taxes. We
recorded a provision for income taxes of $114,000 during the nine months ended
September 30, 2009 based on our estimate of the effective annual income tax rate
adjusted for an increase in the valuation allowance related to operating loss
carryforwards in Canada.
Net earnings
(loss). As a result of the factors described above, the net
loss for the nine months ended September 30, 2009 was $46,000, or $0.00 per
diluted share, compared with net earnings in the nine months of 2008 of
$1,477,000, or $0.06 per diluted share.
LIQUIDITY
AND CAPITAL RESOURCES
Cash and working capital. At
September 30, 2009, all of our cash and cash equivalents were maintained in
accounts that were fully insured by federal government
agencies. During the nine months ended September 30, 2009, we had a
net decrease in cash of $1,455,000 compared with a net increase in cash of
$762,000 in the first nine months of 2008. At September 30, 2009, we
had working capital of $4,790,000, a $485,000 decrease from working capital at
December 31, 2008 of $5,275,000. The reasons for these changes
in cash and working capital are described below.
Operating activities. In the
first nine months of 2009, our operating activities used cash flows of
$535,000. In the first nine months of 2008, our operating activities
provided cash flows of $1,052,000. The primary use of cash by
operating activities during the first nine months of 2009 related to a $495,000
reduction in accounts payable and accrued liabilities and a $1,439,000 decrease
in deferred revenue. The decreases in accounts payable and accrued
liabilities and deferred revenue were primarily associated with the decrease in
CCI sales. In the first nine months of 2009, the net loss adjusted
for non-cash activities, which include depreciation and amortization,
stock-based compensation and deferred income taxes, provided cash flows of
$475,000 compared with providing cash flows of $1,758,000 in the first nine
months of 2008.
Investing activities. During
the first nine months of 2009, we used cash of $949,000 to purchase property and
equipment. Of this amount, approximately $876,000 was associated with
the upgrade of our network marketing computer software. We expect
additional capital expenditures of approximately $200,000 to complete this
project. During the first nine months of 2009, we also received
$194,000 from the surrender of a life insurance policy covering our former Chief
Executive Officer who retired in December 2008.
Financing activities. The
principle financing activity during the first nine months of 2009 was the
repayment of long-term debt in the amount of $107,000. At September
30, 2009, we maintained a $500,000 line of credit arrangement with a bank, none
of which was used as of that date. We did not renew this line when it
matured on October 22, 2009.
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. Other than those described above, we have no plans
or requirements for any significant capital expenditures during the next 12
months.
Other
than those factors already described, we are not aware of any trends or
uncertainties that would significantly affect our liquidity or capital resources
in the future.
ITEM
3. Quantitative
and Qualitative 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.
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Foreign
exchange
We have
foreign-based operations in Canada that accounted for 4% of net sales during the
first nine months of 2009 and during fiscal 2008. 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 $593,000 to our Canadian operations at September 30, 2009, a 10%
adverse change in the currency rate would reduce earnings before income taxes by
approximately $59,300.
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 September 30, 2009, the
effectiveness of our disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures, as of September 30, 2009, 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 September 30, 2009 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 2008 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 2008 Form 10-K.
ITEM
2. Unregistered
Sales of Equity Securities and Use of Proceeds.
None
ITEM
3. Defaults
Upon Senior Securities.
None
ITEM
4. Submission
of Matters to a Vote of Security Holders.
None
ITEM
5. Other
Information.
None
ITEM
6. Exhibits.
The
Exhibit Index filed herewith is incorporated herein by
reference.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
RBC
Life Sciences, Inc.
|
|||
Registrant
|
|||
November
9, 2009
|
By:
|
/s/ John W. Price
|
|
Date
|
Its:
|
President
and Chief Executive Officer
|
|
November
9, 2009
|
By:
|
/s/ Steven E. Brown
|
|
Date
|
Its:
|
Vice
President-Finance and
|
|
Chief
Financial Officer
|
|||
(Principal
Financial and Accounting
Officer)
|
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RBC
LIFE SCIENCES, INC.
Exhibit
Index
Exhibit Number
|
Description
|
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
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