Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



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

	For the fiscal year ended December 31, 2014

	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 incorporation or organization)		(I.R.S. Employer Identification No.)

2301 Crown Court, Irving, Texas		75038
(Address of principal executive offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: None



Securities registered pursuant to Section 12(g) of the Act:	Common Stock, $0.001 par value
	(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No R.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No R.

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 R 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No R.

Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2014: $1,053,433

Number of shares of common stock outstanding as of March 9, 2015: 2,212,350

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement to be used in connection with its 2015 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

FORWARD LOOKING STATEMENTS

The statements included in this report, other than statements of historical or present facts, 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 generally can be identified by the use of forward-looking terminology such as, but not limited to, “may”, “will”, “expect”, “intend”, “estimate”, “anticipate” or “believe”. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. Although we believe that the expectations and assumptions reflected in the forward-looking statements are reasonable, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond our control. Our forward-looking statements speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse to our shareholders.

We may experience variations in our actual results, performance or achievements from quarter to quarter and/or year to year as a result of factors that include the following:


•	The level of recruiting and retention of our associates in the North America and Southeast Asia markets and territories served by our licensees;


•	Variations in the level of business activity generated by our key customers;


•	The opening of new markets;


•	The timing and efficacy of company-sponsored events, promotions and other marketing and sales initiatives;


•	New product introductions;


•	The negative impact of new regulations or changes in existing regulations domestically and/or internationally that may limit or restrict the sale of certain products;


•	The integration and operation of new information technology systems;


•	The inability to introduce new products or the introduction of new products by competitors;


•	Entry into one or more of our markets by competitors;


•	General conditions in the nutritional supplement industry, the network marketing industry and the wound care industry; and


•	General economic conditions globally and/or in markets where we or our licensees conduct business.

As a result of these and other risks and uncertainties, sales, expenses, and results of operations could vary significantly in the future, and period-to-period comparisons should not be relied upon as indications of future performance. The foregoing list of risks and uncertainties may not contain all of the risks and uncertainties that could affect us. Please consider our forward-looking statements in light of these risks and uncertainties as you read this report.

TABLE OF CONTENTS



		PAGE

PART I		2
Item 1.	Business	2
Item 2.	Properties	14
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15

PART II		16
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7.	Financial Statements and Supplementary Data	23
Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	23
Item 8A.	Controls and Procedures	23
Item 8B.	Other Information	24

PART III		25
Item 9.	Directors, Executive Officers and Corporate Governance	25
Item 10.	Executive Compensation	25
Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	25
Item 12.	Certain Relationships and Related Transactions, and Director Independence	25
Item 13.	Principal Accountant Fees and Services	25

PART IV		26
Item 14.	Exhibits and Financial Statement Schedules	26

SIGNATURES		29

PART I


Item 1.	Business

Overview

RBC Life Sciences, Inc., a Nevada corporation formed in 1999 (along with its subsidiaries, sometimes hereinafter referred to collectively as “we”, “our”, the “Company” or “RBC”), is principally engaged in the marketing and distribution of nutritional supplements and personal care products (collectively “Nutritional Products”) through subsidiaries in North America and Southeast Asia. This product line is marketed under the “RBC Life” brand name and may be broadly categorized as: (i) wellness products, (ii) fitness products and (iii) skin care products. The product line includes herbal formulas, vitamins, minerals, antioxidants and skin, hair and body care products.

We market Nutritional Products in North America, Southeast Asia and Australia through a network of independent distributors that we refer to as "Associates." We also market Nutritional Products in certain international markets through license arrangements. The licensees are third parties who are granted exclusive rights to distribute Nutritional Products in their respective territories and, for the most part, distribute these products through an independent network of Associates in the licensed territory.

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. The marketing effort of our Associates involves person-to-person communication of information related to our products and the system by which our products are sold. We believe this feature makes network marketing a more effective means of marketing our products than in-store retail sales where there is little or no direct explanation of product benefits. Network marketing provides financial opportunity to a broad cross-section of people, including those seeking to simply supplement other income as well as those who desire a full-time home-based business.

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

Our principal offices are located at 2301 Crown Court, Irving, Texas 75038. We can be reached by phone at 972-893-4000, by fax at 972-893-4111 and by email at webmaster@rbclifesciences.com. Our corporate information can be accessed at www.rbclifesciences.com or www.mpmmedicalinc.com.

Industry Overview

Nutritional Products. In the Nutritional Products business segment, we compete in two industries: nutrition and direct selling. The nutrition industry is highly fragmented and very competitive. Companies in this industry manufacture and distribute products generally intended to maintain and/or enhance the body's health and general well-being. Products manufactured and distributed include (i) nutritional supplements, (ii) natural and organic foods, (iii) functional foods and (iv) natural and organic personal care and household products. The majority of our net sales in this segment are sales of nutritional supplements.

According to the latest data published by the Nutrition Business Journal (“NBJ”) with respect to the global nutrition industry, global nutrition industry sales increased 7% to $347 billion in 2012. Of that $347 billion, nutritional supplements contributed $97 billion, while natural and organic foods contributed $101 billion, functional foods $112 billion, and natural and organic personal care and household products $37 billion. In 2012, total sales of nutritional supplements in our largest markets, the U.S, Russia/Eastern Europe and Asia grew 7%, 10% and 12%, respectively. NBJ projected that sales of nutrition supplements in 2013 would grow by 8% in the U.S., 10% in Russia/Eastern Europe and 12% in Asia.

We believe that there are a number of demographic, health care and lifestyle trends that continue to drive the growth of the nutrition industry, including:


•	The aging population, particularly the baby-boomer generation, combined with consumers' tendency to purchase more nutritional supplements as they age;


•	The general public's heightened awareness and understanding of the connection between diet and health, and its interest in healthier lifestyles and more proactive approaches in managing health care needs;


•	Rising health care costs that lead many consumers to take preventive measures, including alternative medicines and nutritional supplements; and


•	The publication of research findings supporting the positive health effects of certain nutritional supplements.

Nutritional products are distributed through various market participants, which include the following:


•	Mass market retailers, including mass merchandisers, drug stores, supermarkets, and discount stores;


•	Natural health food retailers;


•	Network marketing;


•	Mail order;


•	Health care professionals and practitioners; and


•	The internet.

Our primary distribution model is a network marketing system, which is a common form of direct selling. According to the latest data available from the World Federation of Direct Selling Associations (the "WFDSA"), the direct selling industry generated approximately $179 billion in worldwide retail sales in 2013, an increase of 8% over 2012, with approximately 96 million independent distributors. WFDSA statistics show that the U.S. continues to be the largest individual market for direct sales in the world while the Asia/Pacific region is the largest and fastest growing region. According to the Direct Selling Association (“DSA”), the U.S. member association of the WFDSA, the U.S. generated approximately $33 billion in retail sales in 2013, an increase of 6% over 2012, with approximately 17 million independent distributors. DSA statistics show that wellness products, which include nutritional supplements, comprised the largest product sales category and accounted for approximately 28% of 2013 U.S. retail sales while personal care products accounted for approximately 16%.

Medical Products. In the Medical Products business segment, we compete in the wound care industry. Industry participants in this multi-billion dollar market are companies of all sizes that manufacture and distribute a wide range of products related to the treatment and prevention of wounds. Products manufactured and distributed in this industry include:


•	Wound management products such as adhesive bandages and gauze;


•	Wound closure products such as staples, various clips and sutures;


•	Advanced wound care products, which are represented by a variety of moist wound healing dressings such as alginate dressings, film dressings, foam dressings, hydrocolloid dressings and hydrogel dressings;


•	Active wound healing products such as skin replacements, collagen dressings and growth factors;


•	Debriding products including various cleansers; and


•	Pressure relief devices such as beds, mattress overlays and other support devices.

Wounds requiring treatment can be either acute or chronic. Industry data indicates that acute wounds comprise a large majority of all wounds. These are wounds that follow the normal process of healing and generally include burns, traumatic wounds and surgical incisions. Chronic wounds are wounds that do not heal within a normally expected time frame under standard care and generally include venous, arterial, pressure and diabetic ulcers. The increasing prevalence of chronic wounds is driven by the large and growing elderly, diabetic and obese populations as these groups are more likely to suffer from conditions that compromise circulation, which is a primary cause of chronic wounds.

Our Medical Products generally fall into the advanced wound care and debriding product categories. These products are primarily used in the prevention and treatment of chronic wounds.

Competitive Strengths

Product Portfolio. We have developed a line of high-quality health products based on the demands of the industries in which we operate. Our product lines feature proprietary products, newly developed products and products that have been available for many years. We regularly review and, if necessary, improve our product formulations based on new scientific data, market demands and regulatory changes to ensure our product portfolio remains current and attractive to our customers, and satisfies regulatory requirements.

In-house Manufacturing. We manufacture certain proprietary raw materials for our exclusive use, including the key raw material used in certain of our top-selling products, Microhydrin^® and Microhydrin Plus^®, which are Nutritional Products. Together, these products accounted for 9% of consolidated net sales and 12% of Nutritional Products sales in 2014. We believe that our ability to manufacture these proprietary raw materials is a competitive advantage for us because it

allows us to better protect our proprietary technology and know-how, and better manage the quality of and costs associated with the production of our key raw materials.

Science-based Product Development. We emphasize science-based product development in the fields of nutrition and wound care. We have developed substantially all of our products utilizing scientific data as the basis of product formulation, including published research, in-house and third-party research and sponsored research. We maintain an on-going research and development effort that includes in-house personnel as well as third-party advisers, including medical professionals.

Operating Flexibility. Other than the production of certain proprietary raw materials, we contract the production of all our products to third-party contract manufacturers. This arrangement allows us to minimize capital expenditures, benefit from specialized expertise provided by the contract manufacturer and maintain operating overhead in line with sales. We have found the marketplace for quality contract manufacturers to be competitive and attractive. We have established an internal quality system, including the use of in-house quality control laboratories and personnel, to monitor the performance of our third-party manufacturers to ensure they maintain a high quality of service.

Experienced Management Team. Our management team includes individuals with expertise in various managerial disciplines including nutrition, wound care, international business development, marketing, sales, operations, quality assurance, finance and information technology.

Business Strategy

We seek to grow our business by pursuing the following strategies:

Expand Network Marketing into New Markets. We believe that significant growth opportunities for our Nutritional Products exist in new international markets. Before initiating sales in a new market, we consider a number of factors including anticipated demand for our products, market size, receptiveness to network marketing, and the market entry process, which includes consideration of possible regulatory restrictions on our products or our network marketing system. To the extent possible, we expect to seamlessly integrate our Associate compensation plan in each new market to allow Associates to receive commissions for global—not merely local—product sales. We believe the seamless integration of the Associate compensation plan significantly enhances our ability to expand internationally.

To test acceptance in the Southeast Asia market of our products and network marketing program, during 2010, we began selling selected Nutritional Products in certain countries in Southeast Asia, under a not-for-resale (“NFR”) program. The NFR program allows consumers in NFR markets to sign up as customers, purchase products, refer others to our network marketing program and receive commissions. Based on the results of our efforts under the NFR program, we opened an office in Taiwan in 2011 that was followed in July 2013, March 2014 and July 2014 by the opening of offices in Hong Kong, Malaysia and Indonesia, respectively. We also conduct our network marketing business in Singapore through the Malaysia office and continue to market our products in Brunei under the NFR program that began in 2010. The NFR program was expanded to include Australia in 2013, and we expect to open new offices in Southeast Asia in 2015.

Attract and Retain Network Marketing Associates. We believe that the network marketing model is the most effective way to sell our Nutritional Products. Our objective is to increase sales in this channel by increasing the attraction, recruitment, retention and productivity of our Associates. We seek to accomplish these objectives by (i) providing training and support to new and existing Associates through various means, including the sponsorship of meetings and events and providing sales tools and resources at low or no cost, (ii) maintaining effective communications with Associates, (iii) introducing new and/or improved products and (iv) providing financial incentives through the Associate compensation plan. In order to upgrade our ability to communicate with and train our Associates while also offering more effective sales tools and business information support, in late 2013, we contracted to implement a new computer system to support the network marketing business. We expect the new computer system to be deployed in the first quarter of 2015. Following deployment of the new computer system, we plan to upgrade our website and implement new training programs designed to increase the leadership and training skills of field Associates who are actively working to grow their distributorships. In addition to these initiatives, we also award our top performing Associates with an all-expenses paid trip to our annual Leadership Event. These conferences provide significant incentive to our Associates to grow their sales organizations while also serving to improve Associate retention.

Exploit New Product Opportunities; Develop New and Improved Products. As a distributor of health products, we believe that it is vital to continually evaluate ways to improve existing products and to introduce new and innovative products. We believe that our product line must remain current to effectively compete with other companies in our industry and to retain the interest and attention of our Associates. Accordingly, our marketing and sales activities emphasize products

in our line that have strong scientific support and are uniquely identified with us such as Stem-Kine^®, Microhdyrin and Microhydrin Plus, Vitaloe^®, OliViva^®, Organic Spirulina, Neurobright^®, Colo-Vada Plus^®, HydraCel^® and 24 Seven, each of which is described in further detail below under the caption "Products." Our product development activities center around the development and introduction of science-based products in response to newly released clinical and other scientific data, new technology and customer preferences.

We plan to use our existing resources and, to the extent we deem prudent, invest additional resources, to identify opportunities for new and improved products, and we expect to introduce new and improved products in 2015.

Expand Medical Products in Existing and New Markets. We believe there is significant opportunity to increase net sales of our Medical Products in the U.S. and international markets. We have developed and continue to develop new market opportunities in the U.S. based on our expertise in the wound care market. During 2015, we expect to (i) continue to enhance our product offering, (ii) provide specialized wound care training and other support to our field sales force and (iii) increase the body of clinical data supporting the safety and efficacy of our products. In addition, we continue to work with third parties to facilitate the expansion of Medical Products distribution into international markets, primarily focusing on Central and South America and the Caribbean.

Leverage and Expand our Relationship with CCI. Our largest customer is Coral Club International, Inc. (“CCI”), which is a licensee that distributes our Nutritional Products. Net sales to CCI accounted for approximately 38% of consolidated net sales in 2014. In August 2014, the Company entered into a two-year exclusive distributorship agreement with CCI. This Agreement replaced the ten-year exclusive distributorship agreement between the parties that automatically renewed for a one-year term following expiration of the initial term in July 2014. Pursuant to the new agreement, CCI’s exclusive territory now includes Russia and other countries located primarily in Europe and Central Asia, which represents an expansion of the territory set forth in the former agreement. Under the former agreement, CCI distributed products in a territory comprised mainly of Russia and Eastern Europe.

Our objective is to support CCI in this territory by supplying CCI with new products and providing operational and regulatory support. We will continue to implement initiatives to accomplish these objectives and seek other ways to facilitate growth in CCI's territory.

Products

The Nutritional Products segment, which accounted for 78% and 75% of consolidated net sales in 2014 and 2013, respectively, markets nutritional supplements and personal care products under the "RBC Life" brand name. The Medical Products segment markets wound care products under the "MPM Medical" brand name. For additional information related to these industry segments, please see Note N to the Company's consolidated financial statements included elsewhere in this report.

Nutritional Products. We currently market a line of approximately 100 nutritional supplements and personal care products, including herbs, vitamins and minerals, as well as natural skin, hair and body care products. These products may be broadly categorized as: (i) wellness products, (ii) fitness products and (iii) skin care products. Featured products include:


•	Stem-Kine – dietary supplement shown in published human clinical studies to nutritionally enable bone marrow and other stem cell-producing tissues, which form the natural repair and renewal system of the body, to increase their production of stem cells;


•	Microhydrin and Microhydrin Plus – powerful, broad-spectrum antioxidants;


•	VitAloe – a blend of research-backed ingredients designed to support the immune system and nutrients that support the growth of healthy bacteria in the digestive tract.


•	OliViva – made from freshly harvested olive leaves, an antioxidant beverage that supports the immune system, increases energy and supports the cardiovascular system;


•	Organic Spirulina – sold separately in powder and tablet forms as well as in combination with other ingredients, a nutritious algae that provides a complete range of vital nutrients and a higher percentage of easily digested protein than meat;


•	NeuroBright – introduced in August 2009 and patented in January 2013, this product supports healthy brain function and enhances energy and acuity;


•	Colo-Vada Plus – an effective 14-day colon cleansing program that has been widely used for more than 20 years;


•	HydraCel – a product that improves the quality of drinking water by reducing surface tension for increased hydration and making water more alkaline;


•	24 Seven – a daily multivitamin/mineral supplement;


•	Immune 360^® – a product to nourish and support the function of the immune system; and


•	Aloe Gelee – a Aloe-based, non-sticky gel that provides the soothing and moisturizing benefits of real Aloe vera gel and other natural botanicals.

Our top-selling products are Stem-Kine, which accounted for approximately 12% and 8% of consolidated net sales in 2014 and 2013, respectively, and Microhydrin and Microhydrin Plus, which collectively accounted for approximately 9% and 11% of consolidated net sales in 2014 and 2013, respectively. No other product accounted for more than 10% of our sales. With the exception of Stem-Kine, our finished products are produced according to our specifications and/or formulas; Stem-Kine is produced in accordance with the formula owned by its developer. In all cases, however, our finished products are produced by manufacturers and suppliers that we do not control. We maintain quality control of our products through the quality systems we have established, which include the use of in-house laboratories as well as the manufacturing and laboratory facilities of our third-party suppliers. We believe our manufacturing and distribution practices are in compliance with current good manufacturing practice regulations established by the FDA.

We produce and market Stem-Kine in accordance with an arrangement with the developer that permits the Company to manufacture and distribute both domestically and internationally. Under the original license agreement between the Company and the developer, we were granted certain exclusive marketing rights in the U.S. and all countries where our products were sold by us or our licensees at that time, except that the licensor retained the right to sell Stem-Kine to licensed health care practitioners in the U.S. The Company's exclusive rights under this agreement ended December 31, 2014. The Company and the developer are currently in negotiations, and have reached general agreement, regarding the terms of a new exclusivity arrangement that is better aligned with the current business strategies of each party. Although no assurance can be given, the Company expects to enter into a new licensing agreement with the developer during 2015.

Substantially all of our product line has been developed utilizing scientific data as the basis of product formulation. Scientific data includes published research, in-house and third-party research and sponsored research. Most of our product formulations feature one or more of the following key ingredients:


•	Silica mineral hydride, a nutritional antioxidant manufactured by us using our proprietary formula and process and used as an ingredient in the formulation of nutritional supplement and personal care products;


•	Organic Spirulina sourced from the highest quality producers, sold as a stand-alone product and combined as an ingredient in many other nutritional supplement formulations; and


•	Organic Aloe vera and certain aloe vera extracts specially processed to retain the benefits found in a fresh aloe vera leaf. These ingredients are used in the formulations of nutritional supplements, an aloe vera beverage and topical personal care products.

Our in-house manufacturing facility produces certain key raw materials for our product line. Through this facility and our own proprietary manufacturing processes, we ensure the quality of those key raw materials used in our product line. We provide raw materials manufactured by us to third-party manufacturers for their use in producing our finished products. Our proprietary raw materials represent key ingredients used in certain top-selling products including Microhydrin, Microhydrin Plus, NeuroBright and HydraCel.

Medical Products. As is the case with our Nutritional Products, substantially all of our Medical Products were developed utilizing scientific data as the basis of product formulation. Our Medical Products are produced according to our specifications and/or formulas by manufacturers and suppliers that we do not control. We maintain quality control of our products through the quality systems we have established, which include the use of in-house laboratories as well as the manufacturing and laboratory facilities of our third-party suppliers.

We currently market a line of over 35 wound care products. Certain wound care products, which accounted for approximately 84% of Medical Products sales in 2014, are for the treatment and healing of wounds such as pressure ulcers, leg ulcers, cuts, burns and abrasions. These products include cleansers, dressings, hydrogels, collagen, calcium alginates, moisture barriers, antimicrobials and a unique hydrogel wound dressing with Lidocaine. Our other wound care products, which represented approximately 16% of Medical Products sales in 2014, are designed to reduce destruction to skin and tissue caused by radiation, and to reduce pain and itching in the skin and the internal mucosa caused by radiation reactions or reactions to certain cancer medications.

Manufacturing and Product Sourcing

We manufacture certain proprietary raw materials used in the production of many of our Nutritional Products. Included in the raw materials we produce is silica mineral hydride, the key ingredient used in production of certain of our top-selling

products including Microhydrin and Microhydrin Plus. These raw materials are manufactured according to proprietary formulations and processes developed by us for our exclusive use. Our manufacturing operations are conducted at our headquarters located in Irving, Texas. We believe our current manufacturing operations have sufficient capacity to meet current and projected demand.

We source raw materials to manufacture Stem-Kine from its developer, which produces these raw materials in accordance with its own proprietary formulas and specifications. We supply these raw materials to a third-party manufacturer that produces the finished product in accordance with the formula and specifications of the developer. We believe that the developer is a high-quality raw material supplier and is capable of meeting our current and projected demand.

With regard to our finished products, we contract with third-party manufacturers and suppliers, such as Progressive Laboratories, Inc., Strukmyer, LLC, Merical Vita-Pak, Inc. and Pacific Nutritional, Inc., to produce the products according to the specifications and/or formulas provided to them. This strategy provides operating flexibility with minimum investment and helps us to control operating costs. We believe that our manufacturers and suppliers are high-quality and are capable of meeting our current and projected demand over the next several years. We do not have long-term supply contracts with any of these manufacturers or suppliers. Most of our products can be manufactured by a number of contract manufacturers at competitive prices.

Sales by Geographic Area

For information related to sales by geographic region for the years ended December 31, 2014 and 2013, please see Note N to the Company's consolidated financial statements included elsewhere in this report.

Independent Distributor Network

Overview. We distribute Nutritional Products in North America and certain countries in Southeast Asia through a network of independent distributors that we refer to as “Associates.” In using this distribution model, we sell substantially all of our Nutritional Products in these markets through individuals who are not our employees. Our Associates generally purchase products from us for personal consumption or for resale to consumers. The concept of network marketing is based on the strength of personal recommendations that frequently come from friends, neighbors, relatives and close associates. We believe that network marketing is an effective method of distribution because it allows person-to-person interaction about our products and business, which is not readily available through other distribution channels.

Our sales in these markets are dependent upon the number and productivity of our Associates. Growth in sales is dependent upon the sponsorship of new Associates and retention of existing Associates. We had approximately 16,700 and 11,100 active Associates at December 31, 2014 and 2013, respectively. We consider an Associate active if he/she has placed an order within the previous 12 months.

In Brunei and Australia, the Company sells certain Nutritional Products under our NFR program. The NFR program allows consumers in NFR markets to sign up as customers, purchase products, refer others to our network marketing program and receive commissions. The principle difference between an NFR program customer and an Associate is that an Associate may resell the products that they purchase from us whereas NFR program customers cannot. However, an NFR program customer can sponsor a new NFR program customer, who is then able to purchase products directly from us. Because of the similarities between Associates and NFR program customers, we consider an NFR program customer to be equivalent to an Associate.

We do not have any significant accounts receivable from our Associates because they are required to pay for purchases prior to shipment. Associates pay for products primarily by credit card, although orders can also be paid with cash, direct account withdrawal, money orders or checks. We are not dependent upon the sales of any individual Associate, the loss of whom would have a material adverse effect on our business.

Associates. A person who wishes to become an Associate must complete an application under the sponsorship of an existing Associate. Upon the Company's acceptance of the application, the new Associate then becomes part of the sponsoring Associate's organization. New Associates sign a written contract and agree to adhere to policies and procedures that govern the activities of Associates. Associates are independent contractors and not our employees. An Associate has the right to purchase products at wholesale, sponsor new Associates and earn compensation in accordance with the Associate compensation plan. While some Associates sell products and recruit new Associates on a full-time basis, most engage in these activities on a part-time basis or only purchase our products for personal consumption.

Sponsoring. We develop and sell sales materials and tools for use by our Associates, who have the primary responsibility for recruiting and educating new Associates with respect to our products, the Associate compensation plan and how to build a successful distributorship. Because new Associates are linked to their sponsor, sponsorship of new Associates creates multiple levels in the network marketing structure. Persons that an Associate sponsors are referred to as “downline” or sponsored Associates.

Sponsoring activities are not required of Associates and we do not pay any commissions for the act of sponsoring new Associates, although commissions are paid based on the product sales of downline Associates. Because of the financial incentives provided to those who succeed in building an Associate network that purchases and resells products, we believe that many of our Associates attempt, with varying degrees of effort and success, to sponsor new Associates.

Compensation. Our Associate compensation plan provides several opportunities for Associates to earn compensation. We believe our compensation plan provides financial rewards comparable to those offered by other compensation plans in the industry. There are generally two ways in which our Associates earn compensation:


•	Through retail markups on sales of products purchased at wholesale; and


•	Through a series of commissions on product sales generated by the Associate and his or her downline Associates.

Commissions are based on the total monthly sales by the Associate and his or her downline organization. As an Associate's business expands from successfully sponsoring new Associates into the business, who in turn expand their own businesses, an Associate can earn higher commissions. Most commissions are paid to Associates monthly.

Support. Associates are encouraged to assume responsibility for training and motivating other Associates within their respective downline organizations and to conduct meetings for potential new Associates. Associates can purchase sales and training materials from us, and they generally assume the costs of advertising and marketing our products to their customers, as well as the direct cost of sponsoring and training new Associates.

In addition to the development of sales and training materials for use by our Associates, we also periodically sponsor and conduct local, regional and international Associate events and training seminars. Attendance at these sessions is voluntary, although our experience indicates that the most effective and successful Associates are those that participate in training activities. These live events are supplemented by regular e-mail communications, materials available on our website and corporate conference calls.

We use the Internet to support our Associates and enhance communication with them. Through our website and various social media applications, Associates can obtain and share information about us and our products. They can also obtain other current information such as new product announcements, descriptions of product specials and sales promotions and other marketing and training materials. In addition, Associates have the ability to sponsor new Associates and to place orders through their "back office," which is a secured area of our website that requires a user name and password to access. To help our Associates effectively manage their businesses, we allow them to obtain a wide range of information related to their downline organization directly from our database, which can be accessed through their back office.

In order to increase the effectiveness of our website, social media outreach and Associate back office, in late 2013, we contracted to implement a new computer system to support the network marketing business. We expect the new computer system to be deployed in the first quarter of 2015. Following deployment of the new computer system, we plan to upgrade our website and Associate back office, and implement new training programs and communication tools designed to increase the leadership and training skills of field Associates who are actively working to grow their distributorships.

Compliance. On occasion, Associates fail to adhere to our Associate policies and procedures. We systematically review reports of alleged Associate misconduct. Infractions of the policies and procedures are reviewed by a compliance committee that determines what disciplinary action may be warranted in each case. If we determine that an Associate has violated any of our Associate policies and procedures, we may take a number of disciplinary actions. For example, we may terminate the Associate's purchase and distribution rights completely or impose sanctions, such as warnings or probation. We may also withdraw or deny awards, suspend privileges, withhold commissions until specific conditions are satisfied or take other appropriate actions at our discretion.

Returns. Our product return policy allows retail customers to return the unused portion of any product to the Associate who sold them the product for a full cash refund. We reimburse the Associate with a replacement product or a credit on account upon receipt of proper documentation and the return of the remaining product.

Nutritional Products returned by Associates that are unused and resalable are refunded up to one year from the date of purchase at 100% of the sales price less a 10% restocking fee and commissions paid. Returned product that is damaged during shipment to the customer is 100% refundable. Return of product that is not damaged at the time of receipt by the Associate may result in cancellation of the Associate’s distributorship according to the terms of the Associate agreement. For the years 2014 and 2013, returns were less than 1% of Nutritional Products sales.

Licensees

We have entered into exclusive license arrangements for distribution of our Nutritional Products in certain international markets. Under these arrangements, the licensees purchase products from us for distribution in their territories. Most of our sales under these arrangements are to CCI, which accounted for 99% of total licensee sales in 2014 and 2013 and 38% and 46% of consolidated net sales in 2014 and 2013, respectively. Under arrangements with other licensees, our products are also distributed in other international markets including Western Europe and United Arab Emirates.

In August 2014, the Company entered into a two-year exclusive distributorship agreement with CCI. This Agreement replaced the ten-year exclusive distributorship agreement between the parties that automatically renewed for a one-year term following expiration of the initial term in July 2014. Pursuant to the new agreement, CCI’s exclusive territory now includes Russia and other countries located primarily in Europe and Central Asia, which represents an expansion of the territory set forth in the former agreement. Under the former agreement, CCI distributed products in a territory comprised mainly of Russia and Eastern Europe. Also under the former agreement, in consideration of the grant of certain rights, CCI paid the Company a monthly royalty calculated as a percentage of its sales of the Company's products. Under the new agreement, in lieu of a royalty, the prices at which products are sold to CCI were marked up as of the effective date of the agreement to include the royalty so that no additional royalty is due upon the sale of the Company's products by CCI. In accordance with the terms of both the new agreement and previous agreement, CCI is required to pay a deposit at the time it places an order and then pay the balance when products are segregated in our warehouse for its account. Under the new agreement, CCI is required to pay a 25% deposit with each order. Under the previous agreement, CCI was required to pay a 50% deposit with each order.

Pursuant to these arrangements, the licensees, who are unaffiliated third parties, are granted exclusive rights to sell our products in their respective territories, which is generally accomplished through network marketing. The independent distributor networks of licensees using the network marketing distribution model have similar characteristics to our Associate network, and the distributors are compensated through a similar compensation plan as that used by us for our Associates. All of the license agreements with our licensees require the licensees to purchase minimum annual amounts from us in order to retain their exclusive rights.

Medical Products Distribution

Sales force. At December 31, 2014 and 2013, the MPM Medical sales force consisted of seven full-time sales representatives and one manufacturer representative assigned to specific geographic territories within the U.S.

Distribution. We distribute our wound care products primarily in the U.S. to hospitals, nursing homes, clinics, pharmacies and home health care agencies through a traditional, nationwide network of medical/surgical supply dealers and pharmaceutical distributors. Our sales force calls on the customers that use our wound care products, as well as the dealers and distributors through whom our customers purchase these products.

One medical/surgical dealer accounts for a significant portion of Medical Products sales. This dealer distributes our Medical Products and provides services primarily to nursing homes, and obtains reimbursement for the price of products from Medicare. This dealer accounted for 45% and 44% of Medical Products net sales in 2014 and 2013, respectively.

On February 27, 2012, we were notified that this dealer filed a voluntary petition for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Central District of California in Santa Ana, California on February 24, 2012. According to its bankruptcy petition, this dealer filed its petition as the most effective means of stabilizing its finances as it resolves a reimbursement guidelines dispute with Medicare, which the dealer believes is improperly withholding payments. The petition states that this dealer relies on Medicare payments for more than 90% of its revenue and that Medicare had suspended payments to the dealer. In a press release issued by the dealer at the time of the filing, the dealer stated that the Chapter 11 filing will allow it to continue operating without interruption while it resolves its payment dispute with Medicare as expeditiously as possible. As of December 31, 2013, this dealer owed to the Company approximately $240,000 in pre-petition accounts receivable. In July 2014, pursuant to an arrangement approved by the Bankruptcy Court, this pre-petition accounts receivable balance was paid in full. We continue to fill this dealer's post-petition orders, with payments received in accordance with our normal terms.

Third-Party Reimbursement. Most of our Medical Products are purchased by health care providers for use on patients in their care. In most cases, these health care providers obtain reimbursement for the cost of our products from various third-party payers, including Medicare, Medicaid, private insurance plans and managed care organizations. In response to national attention focused on health care, significant health care reform initiatives have been adopted and others have been proposed that may affect the availability and amount of third-party reimbursements. Also, in an effort to control rising health care costs, there have been, and may continue to be, proposals by legislators, regulators and third-party payers to curb these costs. We believe that presently available third-party reimbursement is adequate to support the market for our products; however, continued demand for our Medical Products is partially dependent upon the extent of available reimbursement for these products.

Returns. Generally, unused Medical Products may be returned up to six months from the date of purchase for a refund equal to 100% of the sales price less a 25% restocking fee. Returned product that was damaged during shipment to the customer is 100% refundable. For the years 2014 and 2013, returns were less than 2% of Medical Products sales.

Trademarks, Patents or Other Intellectual Property

We have trademark registrations in the U.S. and certain foreign jurisdictions of the Company name, RBC Life Sciences^®; our Nutritional Product brand name, RBC Life^®; our logo and certain key product names including Microhydrin^®, Colo-Vada Plus^®, Immune 360^® and OliViva^®. We also have trademark registrations in the U.S. of certain other key product and product ingredient names such as NeuroBright^®, Microhydrin^®Plus, HydraCel, Regenecare^®, OraMagic^®, RadiaPlex^® and NormlShield^®. In addition, we have trademark applications pending in the U.S. and certain foreign jurisdictions for other key trade dress used by us. As long as we continue to renew our trademarks when necessary, the trademark protection provided by them is perpetual. We also rely on common law trademark rights to protect our unregistered trademarks. Common law trademark rights do not provide the same level of protection as afforded by a U.S. federal registration of a trademark. Also, common law trademark rights are limited to the geographic area in which the trademark is actually used. These trademarks are useful in achieving brand recognition within our industries.

In January 2013, we were granted US Patent 8357422 for "Neurobright", which is a unique dietary supplement formulation that nutritionally supports cognitive function, learning and remembering. The basis for the patent was an 18-month controlled animal study conducted by Dr. Tres Thompson of the School of Behavioral and Brain Sciences at the University of Texas at Dallas. The study showed that Neurobright increased both cognitive function and psychomotor abilities in animals.

We utilize proprietary formulations and manufacturing processes to produce certain raw materials, which are principal ingredients in our leading products. We have not filed for patent protection related to all of our proprietary formulations or manufacturing processes. Therefore, there can be no assurance that another company will not replicate one or more of our products.

The developer of Stem-Kine has filed a patent application in the U.S. that covers compositions of matter, uses and formulations associated with Stem-Kine. There can be no assurance that this patent will be issued, that it will exclude competitors or provide us with competitive advantages or that others have not or will not develop similar products.

Seasonality

Our business is not subject to significant seasonal fluctuations. However, as a practical matter, CCI, whose principal office is located in Moscow, generally limits its shipping orders during the winter months due to unfavorable weather conditions.

Inventory Requirements, Backlogs

Distributors of our Nutritional Products, except for licensees, and distributors of our Medical Products generally do not maintain large inventories of our products. They depend on us to maintain our inventory at a level that will allow us to fill their orders or the orders of their customers, as the case may be, as they are placed. We generally ship orders within 24 to 72 hours after we receive them so there is no significant backlog of orders related to these distribution channels.

We do not maintain inventory in anticipation of product orders from our licensees. Under the terms of our license agreements, the licensee is generally required to make a cash deposit at the time the purchase order is placed with the balance due when products are available to fulfill the order. The licensees must generally allow a minimum of two to three months for delivery. In addition, under our agreement with CCI, we store products for CCI in our warehouse and then ship them at a later date to locations designated by CCI in accordance with its business needs. As part of this agreement, CCI accepts ownership of and pays for the products as they are segregated in our warehouse for CCI’s account. However, we do not recognize sales

until the products are shipped. Therefore, we define backlog as purchase orders received by us that are accompanied by the requisite deposit, plus the purchase price of CCI products that are stored in our warehouse pending shipment. Backlog fluctuates depending on licensee ordering patterns and the timing of CCI’s shipping requests. Backlog was approximately $3,654,000 and $6,298,000 at December 31, 2014 and 2013, respectively. We expect substantially all of the backlog at December 31, 2014 to be filled during 2015.

Industry/Competitors

We market our Nutritional Products in a highly competitive industry both domestically and internationally. We compete against companies that sell heavily advertised products through retail stores as well as other network marketing companies. Many of our competitors are significantly larger than we are, have far greater financial resources and have broader name recognition.

In the distribution of Nutritional Products, we compete with retail outlets, such as health food stores, supermarkets and department stores, and other network marketing companies. We endeavor to compete successfully by offering a wide selection of products that incorporate proprietary technology, are science-based and have a reputation for high quality. We believe that our products possess features and provide benefits that are desired by consumers looking for natural health products. We place a high degree of emphasis on new product development to ensure our product line remains current with developing trends in our industry and new scientific evidence. We generally do not attempt to compete based on price, although price is a consideration. Prices are justified through product quality and benefits and, to the extent possible, the proprietary ingredients and unique formulations.

We also compete against other network marketing companies for the time, attention and commitment of new and current Associates. The pool of individuals interested in the business opportunities presented by network marketing tends to be limited in each market and is reduced to the extent other network marketing companies successfully recruit these individuals into their businesses. Our ability to remain competitive depends, in significant part, on our success in sponsoring and retaining Associates. We endeavor to compete successfully by offering unique and effective products at prices competitive with other network marketing companies, a rewarding Associate compensation plan and attractive Associate support programs.

Our Medical Products also face heavy competition. In the wound care product market, we compete against a number of companies, most of which are significantly larger, have far greater financial resources and have broader name recognition. As with our Nutritional Products, we place a high degree of emphasis on new product development to ensure our product line remains current with developing trends and new scientific evidence. We endeavor to compete by offering a range of high quality products, which are unique and effective, at competitive prices.

Research and Development

From time to time, we have contracted with scientists at universities, medical colleges and private research organizations to conduct pilot studies to evaluate the safety and functions of our products. Most of these studies have been conducted to evaluate the safety and functions of Microhydrin or Microhydrin-based formulations. We have also engaged several studies to evaluate the efficacy of certain of our wound care products distributed to the oncology market. Amounts expended by us to fund these studies have not been significant.

We enhance our product line through the development of new products and the improvement of existing products. New product ideas are derived from a number of sources, including in-house personnel with significant experience in product formulation and development, medical and nutrition professionals, trade publications, scientific and health journals, product suppliers and other third parties. Prior to introducing new products, we investigate product formulations to ensure that they are backed by sound scientific research and are in compliance with applicable regulations.

Governmental Regulations

General. In both our U.S. and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints exist at the federal, state or local levels in the U.S. and at all levels of government in foreign jurisdictions, including regulations pertaining to: (1) the formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products; (2) product claims and advertising, including direct claims and advertising by us, as well as claims and advertising by distributors, for which we may be held responsible; (3) our network marketing program; and (4) transfer pricing and similar regulations that affect the level of U.S. and foreign taxable income and customs duties.

We cannot predict the nature of any future laws, regulations, interpretations or applications that may be administered by any federal, state, local or foreign regulatory authority, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. They could include, however, requirements that adversely affect our ability to market existing products or introduce new or improved products, or continue to use our existing network marketing program. Any or all of these requirements could have a material adverse effect on our business, financial condition and results of operations.

Products. One or more of the following agencies in the U.S. regulates the formulation, manufacture, packaging, labeling, advertising, distribution and sale of our products: the Food and Drug Administration (“FDA”); the Federal Trade Commission (“FTC”); the Consumer Product Safety Commission; the U.S. Department of Agriculture; the Environmental Protection Agency; and various agencies of the states and foreign countries into which our products are shipped or sold.

We market food, dietary supplements, cosmetics, over-the-counter drug products and medical devices. In the U.S., the FDA regulates our products under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and related regulations. To ensure compliance with the FDCA and FDA regulations, the FDA has numerous enforcement tools, including the ability to issue warning letters, initiate product seizures and injunctions, order product withdrawals and recalls and pursue fines and criminal penalties.

The majority of our products are classified as dietary supplements, which are defined in the FDCA as products intended to supplement the diet that contain one or more of certain dietary ingredients, such as vitamins, minerals, herbs or botanicals, amino acids and other dietary substances used to supplement diets. The FDCA has been amended several times with respect to dietary supplements, most significantly by the Nutrition Labeling and Education Act of 1990 and the Dietary Supplement Health and Education Act of 1994 (“DSHEA”). This legislation governs the formulation, manufacturing, marketing and sale of dietary supplements, including the content and presentation of health-related information included on the labels or labeling of dietary supplements. We believe DSHEA generally provides a favorable regulatory climate to consumers and the dietary supplement industry.

The FDCA permits dietary supplement products to include truthful, non-misleading and substantiated statements of nutritional support, which are claims that the products affect the structure or function of the body. These claims are often referred to as “structure/function” claims. A dietary supplement that includes a structure/function claim on its labeling is required to include a disclaimer stating that the FDA has not evaluated the claim, and the manufacturer must notify the FDA of the use of such claim. The FDCA requires that manufacturers possess substantiation demonstrating that structure/function claims made for dietary supplements are truthful and not misleading. The FDA distinguishes structure/function claims, which do not require prior FDA approval, and claims that a product is intended to prevent, treat, cure, mitigate or diagnose disease, otherwise known as “drug claims,” which do require prior FDA approval. We believe we possess competent and reliable scientific evidence to support structure/function claims made for our dietary supplement products and we do not make drug claims for any of our dietary supplements.

In June 2007, as authorized by DSHEA, the FDA adopted good manufacturing practice regulations (“GMPs”) specifically for dietary supplements, which regulations are applicable to those who manufacture, package, label or hold dietary supplements. These GMPs are designed to ensure, among other things, that dietary supplement products are not adulterated with contaminants or impurities, and are labeled to accurately reflect the active ingredients and other ingredients in the products. Under these regulations, we are responsible for complying with GMPs applicable to the activities in which we engage, i.e. the holding and distribution of dietary supplements. We believe our practices are in compliance with these GMPs, but there can be no assurance that our operations or the manufacturing and distribution practices of our suppliers will be in compliance in all respects at all times.

In December 2006, Congress passed the Dietary Supplement and Nonprescription Drug Consumer Protection Act, which amended the FDCA and became effective in December 2007. These regulations, among other things, require companies that manufacture, pack or distribute nonprescription drugs or dietary supplements to report serious adverse events allegedly associated with their products to the FDA and institute recordkeeping requirements for all adverse events whether serious or non-serious. We believe that we have the necessary systems in place to comply with these regulations.

Some of the products marketed by us are considered conventional foods and are currently labeled as such. Within the U.S., this category of products is subject to the federal Nutrition, Labeling and Education Act of 1990 ("NLEA"), and regulations promulgated under the NLEA. The NLEA regulates health claims, ingredient labeling and nutrient content claims characterizing the level of a nutrient in the product. The ingredients added to conventional foods must either be generally recognized as safe by experts or be approved as food additives under FDA regulations.

The Food Safety Modernization Act (FSMA), enacted in 2011, for which the FDA is promulgating rules, is also applicable to some of the Company's products and will require the development of a food safety plan and the implementation of preventative measures to protect against food contamination. Dietary supplements manufactured in accordance with GMP's, and foods manufactured in accordance with the low acid food regulations, are exempt.

Most of our Medical Products are regulated under the FDCA as medical devices. Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of control needed to ensure safety and effectiveness. The class to which a device is assigned determines, among other things, the type of premarket submission or application required for marketing. Device classification depends on the intended use of the device and upon a product's indications for use. Most of our medical devices are classified as Class I, and we do not now nor do we intend to market any Class III medical devices.

Class I devices are those for which safety and effectiveness can be assured by adherence to a set of regulatory guidelines called General Controls. General Controls are the only level of controls that apply to Class I devices and include provisions of the FDCA pertaining to adulteration, misbranding, device registration and listing, premarket notification, banned devices, notification and repair/replacement/refund, records and reports, restricted devices, and GMPs. Class II devices are those for which General Controls alone are insufficient to provide reasonable assurance of its safety and effectiveness and there is sufficient information to establish Special Controls the FDA deems necessary to provide such assurance. Special Controls may include special labeling requirements, mandatory performance standards and post market surveillance. Most Class I devices are exempt from premarket notification (510(k)) requirements, and while a few Class II devices are exempt, most Class II devices require 510(k) premarket notification. A 510(k) premarket notification requires demonstration of substantial equivalence to another legally U.S. marketed device. Substantial equivalence means that the new device is at least as safe and effective as the predicate device. The process of obtaining a 510(k) clearance typically can take several months to a year or longer and may involve the submission of limited clinical data supporting assertions that the product is substantially equivalent to an already approved device or to a device that was on the market before the enactment of the Medical Device Amendments of 1976. We believe that our medical devices are manufactured and marketed in accordance with these statutory requirements and the FDA’s related regulations.

In foreign markets, prior to commencing operations and prior to making or permitting sales of our products, we may be required to obtain an approval, license or certification from the relevant country’s ministry of health or comparable agency. Where a formal approval, license or certification is not required, we nonetheless seek a favorable opinion of knowledgeable experts regarding our compliance with applicable laws. Prior to entering a new market in which a formal approval, license or certificate is required, we work extensively with local authorities in order to obtain the requisite approvals. The approval process generally requires us to present each product and product ingredient to appropriate regulators and, in some instances, arrange for testing of products by local technicians for ingredient analysis. The approvals may be conditioned on reformulation of our products, or may be unavailable with respect to some products or some ingredients. We are currently seeking of approval to market certain products in certain Southeast Asia markets. While we can provide no assurance, we expect these approvals to granted within the next twelve months. A requirement that we reformulate a product or the inability to introduce some products or ingredients into a particular market may have an adverse effect on sales. We must also comply with product labeling and packaging regulations that vary from country to country. Our failure to comply with these regulations can result in a product being temporarily or permanently removed from sale in a particular market.

Prior to importing and distributing our products in international markets, our licensees are generally required to obtain approvals, licenses, or certifications from a country's ministry of health or comparable agency. Applications to request these approvals may require the submission of significant amounts of information related to product manufacturing processes and ingredients, which in many cases we must provide. After submission of the applications, final approvals may be conditioned on reformulation of our products for the market or may be withheld with respect to certain products or product ingredients. Licensees are also required to comply with local product labeling and packaging regulations that vary from country to country.

Advertising of products in the U.S. is subject to regulation by the FTC under the FTC Act. The FTC Act prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. The FTC Act also provides that the dissemination of any false advertisement pertaining to drugs or foods, which would include dietary supplements, is an unfair or deceptive act or practice. Under the FTC’s substantiation doctrine, an advertiser is required to have a “reasonable basis” for all objective product claims before the claims are made. Advertising of our products is also regulated by state and local authorities under the various state consumer protection and consumer fraud acts. We believe that we have the necessary documentation to support our advertising and promotional claims.

In October 2009, the FTC issued new Guides Concerning the Use of Endorsements and Testimonials in Advertising ("Guides"). These new Guides significantly extend the scope of potential liability associated with the use of testimonials, endorsements and new media methods, such as blogging, in advertising. As of the December 1, 2009 effective date of the Guides, advertisers are required either to substantiate that the experiences conveyed by testimonials or endorsements represent typical consumer experiences with the advertised product or clearly and conspicuously disclose the typical consumer experience with the advertised product.

Network Marketing. Our network marketing program is subject to laws and regulations in each country in which we operate. Certain foreign jurisdictions require network marketing operations to be licensed by a designated government agency prior to commencement. Generally laws and regulations governing network marketing programs are directed at ensuring that product sales ultimately are made to consumers and that advancement within a sales organization is based on sales of the enterprise's products, rather than investments in the organization or other non-retail sales-related criteria. These laws include anti-pyramiding, securities, lottery, referral selling, anti-fraud and business opportunity statutes, regulations and judicial decisions. In addition to federal regulation by the FTC in the U.S., each state has enacted its own “Little FTC Act” to regulate sales and advertising. We actively strive to comply with all applicable state, federal and foreign laws and regulations affecting this distribution channel. We believe that our network marketing system satisfies the standards and case law defining a legal marketing system; however, the regulatory and legal requirements concerning network marketing systems do not include “bright line” rules and are inherently fact-based.

Transfer Pricing. In the U.S. and other countries, we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of income are reported as earned by our U.S. or foreign entities and are taxed accordingly. In addition, our operations are subject to regulations designed to ensure that appropriate levels of customs duties are assessed on the importation of our products. We have adopted transfer pricing arrangements with respect to our foreign operations that we believe are in compliance with all applicable transfer pricing laws. If the U.S. Internal Revenue Service or the taxing authorities of any other jurisdiction were to successfully challenge these arrangements or require changes in our transfer pricing practices, we could be required to pay higher taxes and our results of operations would be adversely affected if our foreign tax credit was limited on our U.S. federal income tax return. There can be no assurance that we will continue to be found to be operating in compliance with transfer pricing laws, or that those laws will not be modified, which as a result, may require changes in our operating procedures.

Employees

As of December 31, 2014 and 2013, we had 89 and 76 employees, respectively, all but one of whom were full time employees. We do not foresee a significant change in the number of our employees during 2015.

Additional Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and, accordingly, file reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). We make available free of charge through our website at www.rbclifesciences.com, as soon as reasonably practicable after such material is electronically filed with the SEC, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports. This information may also be obtained from the SEC’s on-line database located at www.sec.gov, which contains material regarding issuers that file electronically with the SEC. You may also obtain copies of any of our reports filed with, or furnished to, the SEC, free of charge, at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549 on official business days during the hours of 10:00 am to 3:00 pm. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.


Item 2.	Properties.

We own an approximately 119,000 square foot facility that houses our executive offices, manufacturing and laboratory facilities and warehousing and distribution operations. This facility is located in Irving, Texas, and is subject to a deed of trust as collateral on a term loan with a balance of approximately $1.1 million as of December 31, 2014. We use this facility for both the Nutritional Products and Medical Products business segments.

We also lease facilities in various countries in Southeast Asia that house administrative offices and warehousing and distribution operations related to the Nutritional Products business segment as follows:

Taiwan. We lease facilities in Taipei, Taiwan at an annual rental of approximately $91,000. The lease agreement on this facility expires on April 30, 2016.

Hong Kong. We assumed responsibility for lease payments on a facility in Hong Kong at an annual rental of approximately $157,000. The lease agreement on this facility expires on May 16, 2016.

Malaysia. We lease facilities in Kuala Lumpur, Malaysia at an annual rental of approximately $48,000. The lease agreement on this facility expires on March 1, 2017.

Indonesia. We lease facilities in Jakarta, Indonesia at an annual rental of approximately $57,000. The lease agreement on this facility expires on June 1, 2016.

We believe these facilities are suitable and adequate in relation to our present and immediate future needs although we may consider relocating to other facilities if we determine that relocating better fits the long term interest of the Company.


Item 3.	Legal Proceedings.

Medical/Surgical Dealer. One medical/surgical dealer accounted for 45% and 44% of Medical Products net sales in 2014 and 2013, respectively. On February 27, 2012, we were notified that this dealer filed a voluntary petition for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Central District of California in Santa Ana, California on February 24, 2012. According to its bankruptcy petition, this dealer filed its petition as the most effective means of stabilizing its finances as it resolves a reimbursement guidelines dispute with Medicare, which the dealer believes is improperly withholding payments. The petition states that this dealer relies on Medicare payments for more than 90% of its revenue and that Medicare had suspended payments to the dealer. In a press release issued by the dealer at the time of the filing, the dealer stated that the Chapter 11 filing will allow it to continue operating without interruption while it resolves its payment dispute with Medicare as expeditiously as possible. As of December 31, 2013, this dealer owed to the Company approximately $240,000 in pre-petition accounts receivable. In July 2014, pursuant to an arrangement approved by the Bankruptcy Court, this pre-petition accounts receivable balance was paid in full. We continue to fill this dealer's post-petition orders, with payments received in accordance with our normal terms.

Environmental Research Center. On April 4, 2014, the Company received a notice from Environmental Research Center, a California non-profit corporation, alleging that the Company failed to include a warning notice related to lead content on labels of certain nutritional products sold in California as required under California's Safe Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65"). Sales of products identified in this notice totaled approximately $60,000 for the period covered by the notice.

This non-profit organization seeks an agreement from the Company to reformulate or label the listed products distributed in California in accordance with Proposition 65 and pay an appropriate civil penalty related to sales in California of allegedly improperly labeled products since April 4, 2011. The Company is continuing to assess this matter and has established a reserve for potential settlement in an amount deemed adequate by management based on the facts and circumstances of the case.

Other. From time to time we are involved in litigation arising out of our operations. We maintain liability insurance, including product liability coverage, in amounts we believe are adequate. We also believe that Associate compliance is critical to the integrity of our business; we therefore actively enforce our agreements with Associates. As a result, we periodically become involved in Associate compliance actions and consider these actions routine and incidental to our business. These compliance actions may from time to time involve litigation. We are not currently engaged in any legal proceedings that we expect would materially harm our business or financial condition.


Item 4.	Mine Safety Disclosures.

Not applicable.

PART II


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on the OTCQB, which is operated by OTC Markets Group Inc. The following reflects the range of high and low bid quotes for our common stock for each calendar quarter during each of the past two years. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The prices quoted below have been adjusted to reflect a one-for-500 reverse stock split and a 50-for-one forward stock split that were completed on August 9, 2013.



	Quarter Ended
	March 31		June 30		September 30		December 31
2014
HIGH	$	1.55	$	1.28	$	1.85	$	1.65
LOW	0.75		0.46		0.50		1.25

2013
HIGH	$	2.00	$	1.90	$	1.70	$	1.67
LOW	1.05		0.50		0.12		1.15

As of March 9, 2015, there were approximately 211 holders of record of our common stock. Since our inception, we have not paid dividends on our stock. We do not anticipate that we will pay dividends in the foreseeable future.

We did not sell any of our equity securities that were not registered under the Securities Act of 1933 during 2014. We also did not repurchase any of our equity securities during the fourth quarter of 2014.

For information concerning securities authorized for issuance under our equity compensation plans, refer to Part III, Item 11.


Item 6.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere in 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 North America, Southeast Asia and Australia, we distribute Nutritional Products directly through a network of independent Associates. In certain international 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.

Industry-wide factors that affect us and our competitors include the aging population, who tend to purchase more nutritional supplements as they age; the general public's heightened awareness and understanding of the connection between diet and long-term health; and a growing interest in natural alternatives related to prevention of illness. We expect these trends to continue. In addition, the economic challenges that have affected the U.S. and international markets have likely increased the desire of individuals to seek a second source of income through a network marketing opportunity, although potentially offsetting that trend is the economic downturn's negative impact on consumer spending and disposable income.


•	Through the Medical Products segment, we distribute wound care products. These 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.

Industry-wide factors affecting this segment include the increasing prevalence of chronic wounds, which is driven by the large and growing elderly, diabetic and obese populations as these groups are more likely to suffer from chronic wounds. However, the increasing national focus on rising health care costs continues to provide impetus for third-party payers, including government-related payers such as Medicare, to challenge the pricing of medical products and services. We expect these trends to continue.

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



	Years Ended December 31,
	2014				2013				2012
					(U.S. dollars in 000’s)
Nutritional Products:
Associate network	$	11,371	40	%	$	7,359	29	%	$	7,555	30	%
Licensees	10,702		38	%	11,725		46	%	11,281		45	%
	22,073		78	%	19,084		75	%	18,836		75	%
Medical Products	6,197		22	%	6,387		25	%	6,324		25	%
	$	28,270	100	%	$	25,471	100	%	$	25,160	100	%

Associate network. We sell Nutritional Products to Associates who purchase products for personal consumption or for resale to retail customers; Associates also sponsor new Associates who also engage in these activities. Associates pay for product purchases prior to shipment, mainly through the use of credit cards, and we recognize sales when we ship products to the Associates. We compensate Associates for their sales activities through our Associate compensation plan. This plan allows Associates to earn higher commissions as their sales and the sales of their downline Associates increase.

During 2010, we began selling Nutritional Products in certain countries in Southeast Asia, under a not-for-resale (“NFR”) program. The NFR program allows consumers in NFR markets to sign up as customers, purchase products, refer others to our network marketing program and receive commissions. Based on the results of the NFR program, we opened an office in Taiwan in 2011 that was followed in July 2013, March 2014 and June 2014, by the opening of offices in Hong Kong, Malaysia and Indonesia, respectively. We also conduct our network marketing business in Singapore through the Malaysia office and continue to market our products in Brunei under the NFR program that began in 2010. The NFR program was expanded to include Australia in 2013, and we expect to open new offices in Southeast Asia in 2015.

Sales in this distribution channel are dependent upon the number and productivity of our Associates. The opportunities and challenges that affect us in this channel include (i) global and regional economic conditions; (ii) our ability to attract new Associates and retain existing Associates to sell and consume products; and (iii) competition from other suppliers of nutritional supplements and other network marketing companies operating in these markets. We attempt to effectively address these opportunities and challenges by offering, among other things, (i) high-quality products, (ii) innovative new products, (iii) a financially rewarding, up-to-date Associate compensation plan, (iv) Company-sponsored meetings and sales tools, and (v) a website maintained exclusively for Associates where Associates can obtain sales and marketing materials, place orders, sign up new Associates and track and manage their business activity.

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



	Years Ended December 31,
	2014		2013		2012
U.S.	25	%	46	%	56	%
Canada	11	%	21	%	19	%
Southeast Asia	64	%	33	%	25	%
	100	%	100	%	100	%

Licensees. We sell Nutritional Products to third parties who purchase products from us in accordance with a license arrangement that gives the licensee exclusive rights to distribute our products in the licensed territory. For the most part, licensees are required to distribute our products in their territories through network marketing. We do not maintain inventory to fulfill licensee orders; licensees are generally required to pay us a deposit of 25% to 50% with their orders and then pay the balance when products are ready to ship. We recognize sales when we ship products to the licensees. Gross profit on net sales to licensees is significantly less than on sales to our Associate network because we do not pay Associate commissions or incur other expenses related to marketing or distribution in the licensed territory.

Our net sales in this distribution channel are dependent upon the licensee's success in building the market for our products in the licensed territory. Factors that may affect the success of our licensees include (i) global and regional economic conditions, which can impact customer spending practices and the licensee's ability to appropriately finance and operate its business; (ii) changes in currency exchange rates, which can impact licensee profit margins; (iii) the licensee's ability to attract new Associates and retain existing Associates to sell and consume products, which requires the implementation of effective marketing, sales and support programs by the licensee; and (iv) competition from other suppliers of nutritional supplements and other network marketing companies operating in the licensee's territory. We support the business of our licensees by making available to the licensee high-quality products, innovative new products, technical information required to obtain product approvals in the licensee's territory and materials related to marketing, sales and support programs we use to manage and market to our Associate network.

Our principal licensee is CCI. CCI accounted for 99% of licensee net sales in 2014, 2013 and 2012. The President of CCI is a former member of our Board of Directors and beneficially owns approximately 18% of our outstanding common stock. In August 2014, the Company entered into a two-year exclusive distributorship agreement with CCI. This agreement replaced the ten-year exclusive distributorship agreement between the parties that automatically renewed for a one-year term following expiration of the initial term in July 2014. Pursuant to the new agreement, CCI’s exclusive territory now includes Russia and other countries located primarily in Europe and Central Asia, which represents an expansion of the territory set forth in the former agreement. Under the former agreement, CCI distributed products in a territory comprised mainly of Russia and Eastern Europe. Also under the former agreement, in consideration of the grant of certain rights, CCI paid the Company a monthly royalty calculated as a percentage of its sales of the Company's products. Under the new agreement, in lieu of a royalty, the prices at which products are sold to CCI were marked up as of the effective date of the agreement to include the royalty so that no additional royalty is due upon the sale of the Company's products by CCI. In accordance with the terms of both the new agreement and previous agreement, CCI is required to pay a deposit at the time it places an order and then pay the balance when products are segregated in our warehouse for its account. Under the new agreement, CCI is required to pay a 25% deposit with each order. Under the previous agreement, CCI was required to pay a 50% deposit with each order.

Medical Products. We sell Medical Products primarily to wholesalers such as medical/surgical dealers and pharmaceutical distributors. These wholesalers supply various health care providers such as hospitals, nursing homes, clinics and pharmacies. Our sales force, which is comprised of employed sales representatives and independent manufacturer representatives, markets our products to both wholesalers and health care providers. In some cases, wholesalers maintain their own sales forces, including health care professionals, to market and provide services related to products that they supply, which include our products. We sell to wholesalers on terms that generally require payment within 30 to 60 days. We recognize sales when products are shipped. Manufacturer representatives receive a percentage of sales as compensation, which percentage varies by product.

In this segment we compete against a number of companies, most of which are significantly larger, have far greater financial resources and have broader name recognition. We endeavor to compete in this segment by offering products that have unique features and are high quality and competitively priced. We place a high degree of emphasis on identifying market needs and trends to ensure our product line remains current with developing trends and new scientific evidence. By offering unique products, we are able to service niche markets not serviced by our larger competitors.

One medical/surgical dealer accounts for a significant portion of our Medical Products sales. This dealer distributes our Medical Products primarily to nursing homes, and obtains reimbursement for the price of our products from Medicare. This dealer accounted for 45%, 44% and 53% of our Medical Products net sales in 2014, 2013 and 2012, respectively. On February 24, 2012, this dealer filed for Chapter 11 bankruptcy protection, as further described in Part I, Item 3. Legal Proceedings.

Cost of Sales. Cost of sales primarily consists of costs related to (i) raw materials, labor and overhead directly associated with in-house production activities, (ii) product components and products and sales materials purchased from third-party manufacturers and suppliers, (iii) quality control testing performed by our in-house quality control laboratory and by outside testing laboratories, (iv) import duties, (v) freight and (vi) provisions for slow moving or obsolete inventory. Cost of sales and gross profit vary based on the sales mix of products sold within a distribution channel as well as the mix of product sales among distribution channels.

Distributor Commissions. We pay sales incentives to Associates that are calculated in accordance with our Associate compensation plan. A portion of these sales incentives are rebates and, accordingly, are recorded as a reduction of sales. Associates earn rebates based on the amount of their personal monthly purchases.

Most sales incentives paid to Associates are classified as distributor commissions. These commissions are calculated based on the total monthly sales by the Associate and his or her downline organization, and Associates can qualify to receive additional commissions as sales in their organizations expand. Most commissions are paid to Associates monthly.

We also classify commissions paid to manufacturer representatives who sell Medical Products as distributor commissions. Total commissions to manufacturer representatives average less than 2% of Medical Products net sales.

General and Administrative. General and administrative expenses include wages and benefits, rents and utilities, travel, professional fees, promotion and advertising, along with other marketing and administrative expenses. Wages and benefits represent the largest component of selling, general and administrative expenses.

Casualty Gain. In 2012, the Company recognized a casualty gain in connection with the replacement of the roof of its facility in Irving, Texas and reimbursement for a related claim under a replacement cost insurance policy. The replacement of the roof was necessitated by a hailstorm which occurred in May 2011.

Critical Accounting Policies and Estimates

Our consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the U.S. (“US GAAP”). Our significant accounting policies are described in Note B to the consolidated financial statements included elsewhere in this report. The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying footnotes. Those estimates and assumptions are based on historical experiences and changes in the business environment. However, actual results may sometimes differ materially from estimates under different conditions. Critical accounting policies and estimates are defined as both those that are material to the portrayal of our financial condition and results of operations and that require management’s most subjective judgments. We believe our most critical accounting policies and estimates are as described in this section.

Revenue Recognition. We recognize revenue at the point products are shipped, which is the point the risks and rewards of ownership pass to the customer. Under the terms of our license agreements, our licensees are generally required to make a cash deposit equal to 25% to 50% of the purchase order amount at the time the purchase order is placed, and allow two to three months for delivery. In addition, under our agreement with CCI, we segregate and store products for CCI in our warehouse and then ship them at a later date to locations designated by CCI in accordance with its business needs. As part of this agreement, CCI accepts ownership of and pays for the products as they are segregated in our warehouse for CCI’s account; however, we do not recognize revenue until the products are shipped. Deposits and payments received for unshipped products are recorded as deferred revenue. Amounts billed to customers for shipping and handling are classified as sales. Also, sales are recorded net of the rebate portion of sales incentives paid to Associates.

Intangible Assets. We review the carrying value of our goodwill and other intangible assets at the end of each year and at other times if events and circumstances warrant such a review. In accordance with Accounting Standards Codification ("ASC") 350-20-35, an estimate of the fair value of the Nutritional Products reporting unit is compared to its carrying value. The methods used for estimating the fair value of the Nutritional Products reporting unit uses estimates of future sales and cash flows, as well as the enterprise values of other publicly traded network marketing companies engaged in the sale and distribution of Nutritional Products. If the carrying value of our goodwill or other intangible assets is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the goodwill or intangible assets exceeds its fair value. We believe that the estimates of future sales, cash flow and fair value are reasonable. Changes in estimates of sales, cash flow and fair value, however, could affect the evaluation. See Note L to the Company's consolidated financial statements included elsewhere in this report for a discussion of the fair value assumptions used to evaluate goodwill for impairment.

Income Taxes. The process by which we calculate income taxes in each of the jurisdictions in which we operate involves estimating the actual current tax liability together with assessing temporary differences in recognition of income (loss) for tax and accounting purposes. Based on our estimates of the expected future tax consequences related to these differences, we record deferred tax assets and liabilities in our consolidated balance sheet. We recognize in our financial statements the impact of a tax position if that position is “more likely than not” to be sustained on audit, based on the technical merits of the position. We then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance against the deferred tax asset.

Actual income taxes could differ significantly from these estimates due to future changes in income tax law or changes or adjustments resulting from the final review of our tax returns by taxing authorities. These differences could have an impact on the income tax provision and operating results in the period in which such determination is made.

Share-based Payments. We recognize share-based compensation expense based on the fair value of share-based awards. Share-based compensation is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award.

We use the Black-Scholes option-pricing model to estimate the fair value of share-based awards. Option valuation models require the input of assumptions, including the expected life of the share-based awards, the expected stock price volatility, the risk-free interest rate and the expected dividend yield. The expected life is based on the term of the award. The expected volatility is based on historical volatility rates. The risk-free interest rate is based on U.S. Treasury issues whose term is consistent with the expected life of the share-based award. The expected dividend yield is 0.0% since we do not pay dividends and have no current plans to do so in the future. We recognized share-based compensation expense of approximately $2,100, $20,600 and $38,300 for the years ended December 31, 2014, 2013 and 2012, respectively.

Stock Splits. On August 9, 2013, the Company completed a 1-for-500 reverse stock split (the "Reverse Split"), whereby each 500 shares of the Company's issued and outstanding shares of common stock was converted into one whole share of new Common Stock (the "New Common Stock"). No fractional shares were issued in connection with the Reverse Split. In lieu of issuing fractional shares to shareholders in connection with the Reverse Split, the Company paid $0.1691 per share to shareholders.

Immediately following the Reverse Split, the Company completed a 50-for-1 forward stock split (the "Forward Split" and together with the Reverse Split, the "Stock Splits") whereby each share of New Common Stock was converted into 50 shares of Common Stock.

Our common stock began trading at the split-adjusted price on August 12, 2013. All share numbers and per share amounts presented reflect the Stock Splits. Amounts recorded as common stock and additional paid in capital within shareholders' equity have been restated to reflect the impact of the Stock Splits.

Results of Operations

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



	Years Ended December 31,
	2014		2013
Net sales	100.0	%	100.0	%
Cost of sales	44.7	%	52.8	%
Gross profit	55.3	%	47.2	%
Operating expenses:
General and administrative	39.1	%	36.7	%
Distributor commissions	16.6	%	10.9	%
Depreciation and amortization	1.8	%	2.0	%
Casualty gain	—	%	—	%
Total operating expenses	57.5	%	49.6	%
Operating loss	(2.2	)%	(2.4	)%
Interest expense	0.3	%	0.5	%
Loss before income taxes	(2.5	)%	(2.9	)%
Income tax benefit	(0.4	)%	(1.0	)%
Net loss	(2.1	)%	(1.9	)%

2014 Compared with 2013 (000's except per share amounts)

Net sales. Net sales for the year ended December 31, 2014 were $28,270 compared with net sales for the prior year of $25,471, an increase of $2,799, or 11%. This increase was due to a $2,989 increase in net sales of Nutritional Products that was

partially offset by a decrease of $190 in net sales of Medical Products. The increase in net sales of Nutritional Products was attributable to an increase in net sales to our Associate network of $4,012 and a decrease in net sales to our licensees of $1,023.

Net sales in the Associate network channel are generally dependent on the number and productivity of our Associates. Net sales through the Associate network increased $4,012, or 55%, during 2014 compared with 2013. Net sales in Southeast Asia increased $4,791, or 195%, in 2014 while net sales in our North American markets decreased by approximately $779, or 16% in 2014. The sales increase in Southeast Asia was primarily attributable to our entry into the Hong Kong, Malaysia and Indonesia markets in July 2013, March 2014 and June 2014, respectively. The decline in North American sales resulted from a decrease in the average number of active Associates, which is attributed to a decline in the number of new Associates recruited in 2014.

The decrease in net sales to our licensees of $1,023, or 9%, was due to a decrease in sales to CCI. Net sales to CCI in 2014 were negatively affected by certain new product registration regulations adopted in Russia and the military conflict involving Ukraine and Russia.

The $190 decrease in net sales of Medical Products in 2014 was primarily attributable to changes in reimbursement policies adopted by Medicare that affected sales of certain collagen products. Sales to the largest customer in this segment, which accounted for 45% of Medical Products net sales, increased $7 in 2014 compared with sales in 2013. On February 24, 2012, this dealer filed for Chapter 11 bankruptcy protection as described above under the section "Overview - Medical Products Distribution".

Cost of sales. Cost of sales for the year ended December 31, 2014 was $12,632 compared with cost of sales in the prior year of $13,459, a decrease of $827 or 6%. As a percentage of net sales, cost of sales was 45% in 2014 and 53% in 2013. The decrease in cost of sales as a percentage of net sales was primarily the result of a shift in the mix of sales toward lower cost Associate network sales as well as decreased expense for product obsolescence and expirations.

General and administrative. General and administrative expenses for the year ended December 31, 2014 were $11,063 compared with 2013 expenses of $9,345, an increase of $1,718, or 18%. The increase in expenses was attributable to our entry into the Hong Kong, Malaysia and Indonesia markets in July 2013, March 2014 and June 2014, respectively, higher sales incentive and promotional expenses and foreign exchange losses. As a percentage of net sales, general and administrative expenses were 39% in 2014 compared with 37% in 2013.

Distributor commissions. Distributor commissions for the year ended December 31, 2014 were $4,698 compared with distributor commissions in 2013 of $2,786, an increase of $1,912 or 69%. With regard to our Associate network, distributor commissions as a percentage of commissionable sales, exclusive of rebates, which are recorded as a reduction of sales, were 41% in 2014 compared with 37% in 2013. This increase was primarily attributable to higher commissions paid in connection with the sales growth generated during the period. On a consolidated basis, distributor commissions as a percentage of net sales were 17% in 2014 compared with 11% in 2013.

Income taxes. We recorded income tax benefits of $118 and $236 in 2014 and 2013, respectively, based on our estimate of the effective annual income tax rate, giving effect to certain credits, deductions and tax rates in foreign jurisdictions. Our effective income tax rates in 2014 and 2013 were 16% and 32%, respectively. The difference in the effective tax rates between 2014 and 2013 was related to differing tax rates in various foreign jurisdictions where income and losses were reported.

Net loss. The net loss for the year ended December 31, 2014 was $603, or $0.27 per diluted share, compared with a net loss in the prior year of $500, or $0.23 per diluted share. This increase resulted from the factors described above.

Variations in Period-to-Period Results

We may experience variations in the results of operations from quarter to quarter and/or year to year as a result of factors that include the following:


•	The level of recruiting and retention of Associates in the North America and Southeast Asia markets and territories served by our licensees;


•	Variations in the level of business activity generated by our key customers;


•	The opening of new markets;


•	The timing and efficacy of Company-sponsored events, promotions and other marketing and sales initiatives;


•	New product introductions;


•	The negative impact of new regulations or changes in existing regulations domestically and/or internationally that may limit or restrict the sale of certain products;


•	The integration and operation of new information technology systems;


•	The inability to introduce new products or the introduction of new products by competitors;


•	Entry into one or more of our markets by competitors;


•	General conditions in the nutritional supplement industry, the network marketing industry and the wound care industry; and


•	General economic conditions globally and/or in markets where we or our licensees conduct business.

As a result of these and other factors, sales, expenses, and results of operations could vary significantly in the future, and period-to-period comparisons should not be relied upon as indications of future performance.

Liquidity and Capital Resources (000's)

Historically, our principal need for funds has been for operating expenses, working capital and capital expenditures. We have funded our cash requirements through equity financing, debt financing and cash flow from operations. We have also used operating leases to finance the use of certain buildings and equipment required for our operations. We require working capital primarily to fund inventory purchases and, to a lesser extent, accounts receivable balances associated with sales of our Medical Products. We do not rely on lines of credit or other similar short-term financing arrangements to finance working capital needs.

Cash and working capital. During the year ended December 31, 2014, we had a net decrease in cash of $1,824, which compares to a net decrease in cash in 2013 of $150. At December 31, 2014, we had working capital of $2,740, a $1,622 decrease from working capital at December 31, 2013 of $4,362. This decrease in working capital reflects a decrease in current assets of $2,170 and a decrease in current liabilities of $548. The reasons for the changes in cash and working capital are further described below.

Operating activities. In 2014, our operating activities used cash flows of $608 compared with providing cash flows of $294 in 2013. This decrease in operating cash flow of $902 was primarily attributable to a decrease in deferred revenue in 2014 of $1,531 compared to an increase in 2013 of $451, which resulted in a cash flow decrease of $1,982. The decrease in deferred revenue resulted from a reduction in the amount of CCI's order deposits and payments received for inventory held pending shipment to shipment to CCI. Cash flow generated by the $318 decrease in inventory in 2014 was also attributable to the reduction in inventory held for CCI. The decrease in operating cash flow resulting from the decline in deferred revenue was partially offset by cash flows provided by an increase in accounts payable and accrued liabilities. Accounts payable and accrued liabilities increased $1,003 in 2014 compared to a $172 increase in 2013, which resulted in a net cash flow increase of $831. Changes in accounts payable are largely driven by the timing of inventory purchases and payments while the increase in accrued liabilities resulted from increased accrued Associate commissions attributable to increased Associate network sales. Also in 2014, the net loss adjusted for non-cash activities, including depreciation and amortization, loss on disposition of assets, share-based compensation and deferred taxes, used cash flows of $146 compared to $124 in 2013, reducing cash flow by $22.

Operating activities include the management of working capital accounts such as accounts receivable, inventories, prepaid expenses and other current assets, accounts payable, accrued operating expenses and deferred revenues. Because net sales to licensees represent approximately 38% of consolidated net sales, one of the most significant factors that affects our working capital accounts is the arrangement we maintain with our licensees, principally CCI which accounts for 99% of licensee net sales. Our license agreement with CCI requires orders to be accompanied by a cash deposit. The amount of this deposit was reduced to 25% of the order amount in the new agreement that became effective August 1, 2014, compared with 50% of the order amount in the previous agreement. These deposits are used in part to make deposits with our suppliers against orders we place to fulfill licensee product orders. In addition, in accordance with our license agreement with CCI, we segregate and store finished products for CCI in our warehouse and then ship them at a later date based on CCI’s business needs. CCI pays the remaining amount due on its product orders when goods are segregated in our warehouse for CCI’s account. Accordingly, because we do not recognize a sale to CCI until products are shipped from our warehouse, there can be a significant difference in timing between the date we receive cash from CCI and the date we recognize the related gross profit in our consolidated statements of comprehensive income. Cash received as deposits for product orders and as payment for stored products are recorded as deferred revenue. Deposits we make with our suppliers are recorded as prepaid expenses. Inventory held in our warehouse for CCI’s account is reported as inventory in our consolidated financial statements until it is shipped to CCI.

Investing activities. During 2014, we used cash of $1,074 for capital expenditures, including $770 related to the development of a new system to support our Associates' sales and marketing efforts. The Company expects to deploy this new system in the first quarter of 2015. Capital expenditures in 2014 also included $298 for new office facilities in Malaysia and Indonesia, which opened in March 2014 and June 2014, respectively.

Financing activities. During 2014, financing activities used net cash flows of $212, which represented repayment of long-term debt.

Share repurchase program. On August 28, 2013, the Company announced that the Board of Directors had authorized a plan to repurchase, at management's discretion, up to 111,000 shares of our common stock, representing 5% of the Company's outstanding Common Stock. The Company's repurchase plan was effective as of that date, and expired on February 28, 2015. No common stock repurchase transactions were executed as a result of the share repurchase program.

General liquidity and cash flows. We believe that our working capital requirements 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 and other types of debt or equity financings. We can give no assurance, however, that we would be able to obtain any 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.

Off-Balance Sheet Arrangements

As of December 31, 2014, we had no material off-balance sheet arrangements, other than our operating leases and certain purchase commitments made in the ordinary course of business.

Recent Accounting Pronouncements

See Note B to the Company's consolidated financial statements included elsewhere in this report for information regarding recent accounting pronouncements.


Item 7.	Financial Statements and Supplementary Data.

The financial statements and supplementary data are listed in the Index to Financial Statements on Page F-1 of this report.


Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.


Item 8A.	Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of December 31, 2014, the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of December 31, 2014, 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.

Management's Annual Report on Internal Control over Financial Reporting

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

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014 based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated

Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2014.

Management's report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission. Accordingly, this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting that occurred during the year ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Item 8B.	Other Information.

None.

PART III

Certain information required by Part III is omitted from this report as we will file a definitive proxy statement for the Annual Meeting of Shareholders to be held on June 29, 2015, pursuant to Regulation 14A under the Exchange Act not later than 120 days after the end of the fiscal year covered by this report, and certain information included in such proxy statement is incorporated herein by reference. Only those sections of the proxy statement that specifically address the items set forth herein are incorporated by reference.


Item 9.	Directors, Executive Officers and Corporate Governance.

The information for this Item is incorporated herein by reference to our proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.


Item 10.	Executive Compensation.


Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.


Item 12.	Certain Relationships and Related Transactions, and Director Independence.


Item 13.	Principal Accounting Fees and Services.

PART IV


Item 14.	Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements. The following financial statements and related documents are filed as part of this report:

Report of Independent Registered Public Accounting Firm – Lane Gorman Trubitt, PLLC.

Consolidated Balance Sheets

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules. None.

(a)(3) Exhibits. The Exhibit Index in sub-item (b) below of this item is incorporated by reference.

(b) Exhibit Index.



Ex. No.		Description

3.1		Articles of Incorporation ⁽²⁾

3.2		Certificate of Amendment to the Articles of Incorporation, dated August 7, 2013 regarding the reverse stock split ⁽¹¹⁾

3.3		Certificate of Amendment to the Articles of Incorporation, dated August 7, 2013 regarding the forward stock split ⁽¹¹⁾

3.4		Bylaws ⁽²⁾

3.5		Amendment No. 1 to Bylaws ⁽⁴⁾

3.6		Amendment No. 2 to Bylaws ⁽⁸⁾

4.1		Specimen copy of Certificate for Common Stock⁽¹¹⁾

4.2		The 2003 Stock Incentive Plan ⁽³⁾

4.3		The 2006 Stock Incentive Plan ⁽⁶⁾

10.1		Form of Member Agreement and Policies with Distributors ⁽¹⁾

10.2		Form of Indemnification Agreement ⁽²⁾

10.3		Mortgage Note, dated March 15, 2001, in the principal amount of $3,000,000, executed by Royal BodyCare, Inc. and Clinton H. Howard in favor of Allstate Life Insurance Company⁽⁷⁾

10.4		Deed of Trust, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing, dated March 16, 2001, between Royal BodyCare, Inc., as Trustor, Robin R. Green, as Trustee and Allstate Life Insurance Company, as Beneficiary⁽⁷⁾

10.5		Exclusive Distributorship Agreement, dated as of August 1, 2014, between RBC Life Sciences, Inc. and Coral Club International Inc. ⁽¹⁰⁾

10.6		Employment Agreement, dated October 18, 2013, between RBC Life Sciences, Inc. and Clinton H. Howard ⁽⁹⁾

10.7		Employment Agreement, dated January 8, 2014, between RBC Life Sciences, Inc. and Richard S. Jablonski⁽¹¹⁾

10.8		Employment Agreement, dated January 8, 2014 between RBC Life Sciences, Inc. and Kevin B. Young ⁽¹¹⁾

10.9		Employment Agreement, dated December 30, 2014, between RBC Life Sciences, Inc. and Steven E. Brown ^*

10.10		Employment Agreement, dated December 29, 2014, between RBC Life Sciences, Inc. and Douglas R. Wheeler ^*

10.11		Proposal for Services and Statement of Work, dated December 1, 2013, between RBC Life Sciences, Inc. and GSAT, Inc. ⁽¹¹⁾

14.1		Code of Ethics⁽⁵⁾

21.1		List of company Subsidiaries^*

23.1		Consent of Lane Gorman Trubitt, PLLC, independent registered public accountants to incorporation of report by reference^*

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^*



101.INS		XBRL Instance Document **

101.SCH		XBRL Taxonomy Extension Schema Document **

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document **

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document **

101.LAB		XBRL Taxonomy Extension Label Linkbase Document **

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document **

* Filed herewith

** Filed electronically herewith

(1) Incorporated by reference to the Annual Report on Form 10-K/A filed May 7, 1999

(2) Incorporated by reference to the Annual Report on Form 10-K filed April 26, 2000

(3) Incorporated by reference to the Current Report on Form 8-K filed September 29, 2003

(4) Incorporated by reference to the Quarterly Report on Form 10-Q filed November 14, 2003

(5) Incorporated by reference to the Annual Report on Form 10-K filed April 14, 2004

(6) Incorporated by reference to the registration statement filed on Form S-8 filed December 22, 2006

(7) Incorporated by reference to the Annual Report on Form 10-K filed March 13, 2009

(8) Incorporated by reference to the Current Report on Form 8-K filed April 9, 2010

(9) Incorporated by reference to the Quarterly Report on Form 10-Q filed November 12, 2013

(10) Incorporated by reference to the Current Report on Form 8-K filed August 28, 2014

(11) Incorporated by reference to the Annual Report on Form 10-K filed March 27, 2014

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.,
		a Nevada corporation

Date:	March 31, 2015	By:	/s/ Steven E. Brown
			Steven E. Brown, Chief Executive Officer

Pursuant to the requirements to the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.



Signature	Title	Date

/s/ Steven E. Brown	Chief Executive Officer, President and
Steven E. Brown	Director	March 31, 2015
	(principal executive officer)

/s/ Daley L. Seeker	Vice President, Finance and Chief Financial
Daley L. Seeker	Officer	March 31, 2015
	(principal financial and accounting officer)

/s/ Clinton H. Howard	Chairman of the Board of Directors
Clinton H. Howard		March 31, 2015

/s/ Joseph. P. Philipp	Director
Joseph P. Philipp		March 31, 2015

/s/ Robert A. Kaiser	Director
Robert A. Kaiser		March 31, 2015

/s/ Andrew V. Howard	Director	March 31, 2015
Andrew V. Howard

/s/ Cynthia L. Tysinger	Director	March 31, 2015
Cynthia L. Tysinger

INDEX TO FINANCIAL STATEMENTS



	Page

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Financial Statements

Consolidated Balance Sheets	F-3

Consolidated Statements of Comprehensive Income (Loss)	F-4

Consolidated Statements of Shareholders’ Equity	F-5

Consolidated Statements of Cash Flows	F-6

Notes to Consolidated Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

RBC Life Sciences, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of RBC Life Sciences, Inc. and Subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income (loss), shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2014. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RBC Life Sciences, Inc. and Subsidiaries as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

LANE GORMAN TRUBITT, PLLC.

Dallas, Texas

March 31, 2015

F-2

RBC Life Sciences, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

December 31,



	2014			2013
ASSETS
Current assets
Cash and cash equivalents	$	1,921,349		$	3,745,684
Accounts receivable, net of allowance for doubtful accounts of $35,219 and $28,000, respectively	1,285,843			907,287
Inventories	4,799,083			5,141,509
Deferred income taxes	376,925			429,640
Prepaid expenses and other current assets	464,020			793,548
Total current assets	8,847,220			11,017,668
Property and equipment, net of accumulated depreciation	4,683,496			4,169,078
Goodwill	2,221,347			2,263,458
Other intangible assets, net of accumulated amortization	39,975			37,979
Other assets	203,906			45,327
	$	15,995,944		$	17,533,510
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable, trade	$	2,310,192		$	1,608,000
Accrued liabilities	1,420,050			1,156,818
Current maturities of long-term obligations	229,538			212,474
Deferred revenue	2,147,290			3,677,893
Total current liabilities	6,107,070			6,655,185
Long-term obligations, less current maturities	906,809			1,136,347
Deferred income taxes	556,440			727,660
Commitments and contingencies
Shareholders' equity
Common stock, $0.001 par value; authorized 50,000,000 shares; 2,212,350 shares issued and outstanding in 2014 and 2013, respectively (see Note B regarding Stock Splits)	2,212			2,212
Additional paid-in capital (see Note B regarding Stock Splits)	13,713,630			13,711,522
Accumulated deficit	(5,417,092		)	(4,814,281		)
Accumulated other comprehensive income	126,875			114,865
	8,425,625			9,014,318
	$	15,995,944		$	17,533,510

The accompanying notes are an integral part of these consolidated financial statements.

F-3

RBC Life Sciences, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,



	2014			2013
Net sales	$	28,270,448		$	25,470,934
Cost of sales	12,632,375			13,459,279
Gross profit	15,638,073			12,011,655
Operating expenses
General and administrative	11,062,649			9,344,628
Distributor commissions	4,697,802			2,785,568
Depreciation and amortization	502,888			506,083
Total operating expenses	16,263,339			12,636,279
Operating loss	(625,266		)	(624,624		)
Interest expense	95,719			111,617
Loss before income taxes	(720,985		)	(736,241		)
Income tax benefit	(118,174		)	(236,236		)
Net loss	$	(602,811	)	$	(500,005	)

Other comprehensive income (loss):
Foreign currency translation adjustment	12,010			(3,952		)
Comprehensive loss	$	(590,801	)	$	(503,957	)

Basic loss per share	$	(0.27	)	$	(0.23	)
Basic weighted average shares outstanding	2,212,350			2,218,757
Diluted loss per share	$	(0.27	)	$	(0.23	)
Diluted weighted average shares outstanding	2,212,350			2,218,757

The accompanying notes are an integral part of these consolidated financial statements.

F-4

RBC Life Sciences, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



						Additional						Accumulated other			Total
	Common stock					paid-in			Accumulated			comprehensive			shareholders’
	Shares		Amount			capital			deficit			income			equity
Balance at January 1, 2013	2,222,883		$	2,223		$	13,708,736		$	(4,314,278	)	$	118,817		$	9,515,498
Comprehensive loss
Net loss	—		—			—			(500,005		)	—			(500,005		)
Foreign currency translation adjustment	—		—			—			—			(3,952		)	(3,952		)
Total comprehensive loss															(503,957		)
Share-based compensation	—		—			20,648			—			—			20,648
Share repurchase and other	(10,533	)	(11		)	(17,862		)	2						(17,871		)
Balance at December 31, 2013	2,212,350		2,212			13,711,522			(4,814,281		)	114,865			9,014,318
Comprehensive income (loss)
Net loss	—		—			—			(602,811		)	—			(602,811		)
Foreign currency translation adjustment	—		—			—			—			12,010			12,010
Total comprehensive loss															(590,801		)
Share-based compensation	—		—			2,108			—			—			2,108
Balance at December 31, 2014	2,212,350		$	2,212		$	13,713,630		$	(5,417,092	)	$	126,875		$	8,425,625

The accompanying notes are an integral part of these consolidated financial statements.

F-5

RBC Life Sciences, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,



	2014			2013
Cash flows from operating activities
Net loss	$	(602,811	)	$	(500,005	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	579,900			588,287
Loss on disposition of assets	—			2,529
Deferred income taxes	(125,173		)	(235,460		)
Share-based compensation	2,108			20,648
Change in operating assets and liabilities
Accounts receivable	(378,667		)	(30,017		)
Inventories	317,630			(66,178		)
Prepaid expenses and other current assets	288,053			(91,918		)
Other assets	(161,606		)	(15,946		)
Accounts payable, trade	709,636			116,517
Accrued liabilities	293,731			55,086
Deferred revenue	(1,530,533		)	450,689
Net cash provided (used) by operating activities	(607,732		)	294,232
Cash flows from investing activities
Purchase of property and equipment	(1,074,436		)	(267,055		)
Net cash used in investing activities	(1,074,436		)	(267,055		)
Cash flows from financing activities
Redemption of common stock	—			(17,872		)
Payments of long-term obligations	(212,474		)	(196,678		)
Net cash used in financing activities	(212,474		)	(214,550		)
Effect of exchange rate changes on cash flows	70,307			36,970
Net decrease in cash and cash equivalents	(1,824,335		)	(150,403		)
Cash and cash equivalents at beginning of year	3,745,684			3,896,087
Cash and cash equivalents at end of year	$	1,921,349		$	3,745,684
Supplemental cash flow disclosures
Interest paid	$	97,092		$	112,887
Income taxes paid (refunded), net	39,760			(169,165		)

The accompanying notes are an integral part of these consolidated financial statements.

F-6

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – NATURE OF OPERATIONS AND ORGANIZATION

RBC Life Sciences, Inc. (along with its subsidiaries, sometimes hereinafter referred to collectively as “RBC” or the “Company”) is engaged in the marketing and distribution of nutritional supplements and personal care products (collectively “Nutritional Products”) through subsidiaries in North America and Southeast Asia. This product line is marketed under the “RBC Life” brand name and is sold in North America, Southeast Asia and Australia 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 may be product consumers only or they may also seek to 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 distributor network in a licensed territory. Under these arrangements, the independent distributor 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 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 primarily distributed 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 B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Reporting - The consolidated financial statements include the accounts of RBC and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Subsequent events were evaluated through the issuance date of the financial statements.

Cash and Cash Equivalents - The Company regularly holds cash deposits in foreign bank accounts in connection with its foreign operations. At December 31, 2014 and 2013, $833,000 and $1,164,000, respectively, were held in foreign banks. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company includes in its cash and cash equivalents credit card payments due from its credit card processors.

The Company maintains certain cash balances at a bank located in the U.S. which at times may exceed insured limits. The Company maintains an agreement with this bank that provides certain collateral as security against the possibility of losses in excess of insured limits. The Company has not experienced any losses with respect to these accounts and believes it is not exposed to any significant credit risk.

Accounts Receivable - The Company’s accounts receivable arise in the normal course of business and primarily relate to sales of Medical Products to various businesses and individuals. Accounts receivable are generally due within 30, 45 or 60 days and are stated at amounts due from customers net of an allowance for doubtful accounts.

Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors including the length of time accounts are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the industry as a whole. The Company charges accounts receivable against the allowance when they become uncollectible, and any payments subsequently received on such accounts are credited to the allowance for doubtful accounts.

Inventories - Inventories consisting of raw materials and bulk products, packaging materials and finished goods are stated at the lower of cost or market. The cost of inventories is determined using the first in, first out method.

Property and Equipment - Property and equipment are recorded at cost. Depreciation and amortization are provided over the estimated useful lives of the related assets, principally on the straight-line method, ranging from three to 25 years.

F-7

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets and Amortization - Goodwill and other intangible assets with indefinite useful lives are not amortized, but are reviewed annually for impairment or when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets with finite lives are amortized over their useful lives. At December 31, 2014 and 2013, the Company’s intangible assets with finite lives consisted of copyrights, trademarks and other registrations, a business license and other intangibles, all of which are amortized over an average life of 19 years except the business license, which is being amortized over a life of one year.

The Company has designated year end as the date of its annual goodwill impairment test. The Company tests goodwill for impairment by comparing the carrying value of a reporting unit, including goodwill, to the fair value of the unit. Fair value is determined by estimating the present value of future cash flows and the value of comparable companies based on sales multiples. An impairment loss would be recognized if the carrying value of a reporting unit exceeds the implied fair value. To date, the Company has not recognized any impairment losses related to the carrying value of its goodwill. See Note L for a discussion of the fair value assumptions used for assessing goodwill for impairment.

Impairment of Long-Lived Assets - Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Stock Splits - On August 9, 2013, the Company completed a 1-for-500 reverse stock split (the "Reverse Split"), whereby each 500 shares of the Company's issued and outstanding shares of common stock was converted into one whole share of new common stock (the "New Common Stock"). No fractional shares were issued in connection with the Reverse Split. In lieu of issuing fractional shares, the Company agreed to pay $0.1691 per share to shareholders upon presentation of documents evidencing ownership of the fractional shares.

The Company's common stock began trading at the split-adjusted price on August 12, 2013. All share numbers and per share amounts presented reflect the Stock Splits. Amounts recorded as common stock and additional paid in capital within the shareholders' equity section of the consolidated balance sheets have been restated to reflect the impact of the Stock Splits.

Revenue Recognition and Deferred Revenue - Sales are recorded when products are shipped, which is the point the risks and rewards of ownership pass to the customer. Sales include amounts billed to customers for shipping and handling and are recorded net of sales taxes. The Company generally requires a cash or credit card payment at the point of sale for Nutritional Products sold to its Associates. With regard to orders received from its third-party licensees, the Company generally requires the licensee to make a cash deposit equal to 25% to 50% of the order at the time an order is placed, and to pay the remaining balance when the products are segregated in the Company's warehouse and ready to ship; however, sales are not recognized until the products are shipped. Deposits and payments received for unshipped products are recorded as “deferred revenue.”

Prior to August 1, 2014, the Company’s agreement with its principle licensee, Coral Club International, Inc. ("CCI"), provided that CCI pay to the Company a monthly royalty, which was calculated as a specified percentage of its sales, as defined, in the territory covered by the license agreement. As more fully described in Note P, in August 2014, the Company entered into a new two-year license agreement with CCI that restructured the royalty calculations. Under the new arrangement, the prices at which products are sold to CCI were marked up to include the royalty; accordingly royalties are no longer due upon sale of the products by CCI. To affect this transition, the Company recognized royalties of $941,000 on a one-time basis, which royalties will be paid over an 18-month period beginning October 2014. Of this $941,000 in royalties, approximately $476,000 was recorded as royalty revenue in the third quarter of 2014 while the remainder was recorded as deferred revenue pending shipment of the related products. Royalty revenue recorded in connection with the Company's licensee agreements was recorded as sales and amounted to $1,444,000 and $1,801,000 in 2014 and 2013, respectively.

F-8

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Distributor Commissions - Distributor commissions consist primarily of commissions paid to Associates in accordance with the Associate compensation plan. These commissions are calculated based on the total monthly sales by the Associate and his or her downline organization. Most commissions are paid to Associates monthly. Sales incentives paid to Associates that represent rebates are recorded as a reduction of sales rather than distributor commission expense. Associates can earn rebates if the amount of their personal monthly sales exceeds a threshold amount set forth under the Associate compensation plan. Associate rebates recorded as a reduction of sales were $324,000 and $281,000 in 2014 and 2013, respectively.

Income Taxes - The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred income tax assets and liabilities are provided based on the difference between the financial statement and tax bases of assets and liabilities as measured by the currently enacted tax rates in effect for the years in which these differences are expected to reverse. Deferred tax expense or benefit is the result of changes in deferred tax assets and liabilities. An allowance against deferred tax assets is recorded in whole or in part when it is more likely than not that such tax benefits will not be realized.

At December 31, 2014 and 2013, the Company had no unrecognized tax benefits. The Company’s policy is to record any interest and penalties related to gross unrecognized tax benefits within its provision for income taxes.

Earnings (Loss) Per Share - Basic earnings (loss) per common share is based upon the weighted average number of common shares outstanding during each period presented. Diluted earnings (loss) per share is based upon the weighted average number of common shares outstanding and, when dilutive, common shares issuable for stock options.

Accounting Estimates - In preparing financial statements in conformity with accounting principles generally accepted in the U.S. ("US GAAP"), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues during the reporting period. Actual results could differ from those estimates.

Financial Instruments - The carrying value of cash, interest-bearing deposits, accounts receivable and payable, accrued liabilities and lines of credit approximate fair value due to the short-term maturities of these assets and liabilities. 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 December 31, 2014, fair value of fixed-rate long-term debt was $1,226,000, which was $90,000 above the carrying value of $1,136,000. At December 31, 2013, fair value of fixed-rate long-term debt was $1,469,000, which was $120,000 above the carrying value of $1,349,000. See Note L for a discussion of the fair value assumptions used to determine the fair value of our fixed-rate long-term debt.

Segment Information - The Company’s operations involve two operating segments: the Nutritional Products segment and the Medical Products segment. Nutritional Products are developed and distributed to a network of independent Associates operating primarily in North America, Southeast Asia and Australia and to licensees operating in certain other countries. Medical Products are developed and sold primarily throughout the U.S. through medical/surgical supply dealers and pharmaceutical distributors to medical institutions such as hospitals, nursing homes and pharmacies.

Product Return Policy - Up to one year from the date of purchase, Nutritional Products that are unused and resalable may be returned by an Associate for a refund equal to 100% of the sales price to the Associate less a 10% restocking fee and commissions paid. The return of product by an Associate, other than product damaged at the time of receipt, may result in cancellation of the distributorship. Generally, unused Medical Products may be returned up to six months from date of purchase for a refund equal to 100% of the sales price less a 25% restocking fee. Returned products damaged during shipment are replaced by the Company. Nutritional Products purchased by licensees may not be returned to the Company for a refund except in the case of a product defect.

Advertising - Advertising expense is charged to operations when incurred. Advertising expenses were $37,000 and $44,000 in 2014 and 2013, respectively.

Translation of Foreign Currencies - All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the consolidated balance sheet date. Revenue and expense accounts are translated at weighted average exchange rates. Translation gains and losses are reflected as a component of other comprehensive income in shareholders' equity. Gains and losses on foreign currency transactions are included in the consolidated statements of comprehensive income.

F-9

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 2014, the Company recorded a loss on foreign currency transactions of 220,000. In 2013, the Company recorded a loss on foreign currency transactions of 66,000, which loss was charged to general and administrative expenses.

Other Comprehensive Income (Loss) - Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under US GAAP are included in comprehensive income (loss) but are excluded from net earnings (loss) as the amounts are recorded directly as an adjustment to shareholders’ equity. The Company’s other comprehensive income is attributed to translation gains or losses of foreign currencies.

Share-Based Compensation - The Company recognizes share-based compensation expense based on the fair value of share-based awards. Share-based compensation is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award. The Company uses the Black-Scholes valuation model to estimate fair value of share-based awards, which requires various assumptions including estimating stock price volatility, risk-free interest rate and expected life.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance related to revenue from contracts with customers. This guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company does not believe ASU No. 2014-09 will have a material effect on its financial position and results of operations.

In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern. ASU No. 2014-15 provides guidance regarding management’s responsibility to evaluate whether there exists substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. ASU No. 2014-15 is effective for annual reporting periods beginning after December 15, 2016, and interim periods thereafter. The Company does not believe ASU No. 2014-15 will have a material effect on its financial position and results of operations.

NOTE C – ACCOUNTS RECEIVABLE

At December 31, 2014 and 2013, accounts receivable consist of the following:



	2014		2013
Accounts receivable
Trade	$	1,321,062	$	914,287
Other	—		21,000
Total	1,321,062		935,287
Less allowance for doubtful accounts	35,219		28,000
Net accounts receivable	$	1,285,843	$	907,287

Changes in the Company’s allowance for doubtful accounts for the years ended December 31, 2014 and 2013 are as follows:



	2014			2013
Beginning balance	$	28,000		$	27,417
Bad debt provision	7,263			9,926
Accounts written off	(44		)	(9,343		)
Ending balance	$	35,219		$	28,000

One medical/surgical dealer accounts for a significant portion of Medical Products sales. This dealer filed a voluntary petition for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Central District of California in Santa Ana, California on February 24, 2012. In accordance with an arrangement approved by the Bankruptcy Court, the pre-

F-10

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

petition accounts receivable balance of approximately $240,000 that was outstanding at December 31, 2013 was paid in full during 2014.

As more fully described in Note P, in August 2014, the Company entered into a new two-year exclusive distributorship agreement with CCI pursuant to which the royalty calculations were restructured. Under the previous agreement, CCI paid the Company a monthly royalty calculated as a percentage of its sales of the Company's products. Under the new agreement, in lieu of the monthly royalty, the prices at which products are sold to CCI were marked to include the royalty so that no additional royalty will be due upon the sale of the Company's products by CCI. To affect the transition of royalty calculations from the previous agreement to the new agreement, the Company recorded a royalty receivable of $941,000, which is to be paid over an 18-month period beginning October 2014 in the amount of approximately $52,000 per month. The portion of this royalty receivable due after December 31, 2015 is classified as "Other assets" in the accompanying consolidated balance sheet.

NOTE D – INVENTORIES

At December 31, 2014 and 2013, inventories, which are stated at the lower of cost or market, consist of the following:



	2014		2013
Raw materials and bulk products	$	370,333	$	371,863
Packaging materials	253,700		135,138
Finished goods	4,175,050		4,634,508
	$	4,799,083	$	5,141,509

NOTE E – PREPAID EXPENSES AND OTHER CURRENT ASSETS

At December 31, 2014 and 2013, prepaid expenses and other current assets consist of the following:



	2014		2013
Advances to Associate	$	—	$	339,603
Advance payments to suppliers	151,365		202,682
Certificates of deposit – restricted	73,270		79,909
Prepaid insurance and other	239,385		171,354
Total	$	464,020	$	793,548

In 2013, the Company entered into agreements with an Associate to market Nutritional Products in Australia and certain Southeast Asia markets (the "Asia Marketing Agreements"). Pursuant to the Asia Marketing Agreements, the Company made cash advances to this Associate to support marketing and sales activities and establish product distribution facilities. These advances did not bear interest and were to be recovered from monthly marketing fees calculated as a percentage of sales that were generated in the Associate's markets.

On July 30, 2013, in breach of Asia Marketing Agreements, the Associate notified the Company that he was unable to fulfill his financial obligations. At the date of the breach, the Company had advanced funds to this Associate totaling approximately $403,000. Following notice of the breach, the Company continued to fund the Asia operations initiated by this Associate and charged the funding to general and administrative expenses in the periods in which the expenses were incurred.

On March 31, 2014, the Company formally terminated the Asia Marketing Agreements and, in lieu of payment due from the Associate on the outstanding advances, took possession of property and equipment and lease deposits valued at approximately $104,000 and $43,000, respectively. The balance of the advances outstanding at March 31, 2014 was charged to general and administrative expenses.

At December 31, 2014 and 2013, the Company held certificates of deposit in the amount of approximately $73,000 and $80,000, respectively, which were pledged to secure surety bonds.

F-11

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F – PROPERTY AND EQUIPMENT

At December 31, 2014 and 2013, property and equipment consist of the following:



	2014		2013
Building and improvements	$	4,042,897	$	3,912,449
Computer software and office equipment	3,536,399		2,592,382
Warehouse equipment	254,034		254,034
Automotive equipment	14,717		14,717
	7,848,047		6,773,582
Less accumulated depreciation and amortization	4,305,724		3,745,677
	3,542,323		3,027,905
Land	1,141,173		1,141,173
	$	4,683,496	$	4,169,078

Depreciation expense totaled approximately $542,700 and $582,300 for the years ended December 31, 2014, and 2013, respectively.

NOTE G – 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. See Note L for a discussion of the fair value assumptions used for assessing goodwill for impairment.

Goodwill balances are summarized as follows:



	Gross Carrying Value			Accumulated Amortization
Balance, January 1, 2013	$	3,435,305		$	(1,137,285	)
Currency translation adjustment	(67,442		)	32,880
Balance, December 31, 2013	3,367,863			(1,104,405		)
Currency translation adjustment	(82,173		)	40,062
Balance, December 31, 2014	$	3,285,690		$	(1,064,343	)

At December 31, 2014 and 2013, other intangible assets consist of the following:



	2014						2013
	Average Life (years)	Gross Carrying Value		Accumulated Amortization			Average Life (years)	Gross Carrying Value		Accumulated Amortization
Copyrights, trademarks and other registrations	19	$	99,100	$	(70,690	)	19	$	99,100	$	(65,405	)
Business license	1	37,193		(29,240		)	0	—		—
Other	19	12,600		(8,988		)	19	12,600		(8,316		)
		$	148,893	$	(108,918	)		$	111,700	$	(73,721	)

F-12

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense related to other intangible assets totaled approximately $37,200 and $6,000 for the years ended December 31, 2014 and 2013. The aggregate estimated amortization expense for other intangible assets is as follows:



Year ended December 31,
2015	$	13,910
2016	5,957
2017	5,957
2018	5,957
2019	5,957
Thereafter	2,237
	$	39,975

NOTE H – ACCRUED LIABILITIES

At December 31, 2014 and 2013, accrued liabilities consist of the following:



	2014		2013
Distributor commissions	$	867,336	$	507,365
Salaries and wages	468,192		502,303
Sales and property taxes	73,954		83,159
Interest	7,339		8,711
Other	3,229		55,280
Total	$	1,420,050	$	1,156,818

NOTE I – LONG-TERM OBLIGATIONS

At December 31, 2014 and 2013, long-term obligations consist of the following:



	2014		2013
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	$	1,136,347	$	1,348,821
Less – current maturities	229,538		212,474
	$	906,809	$	1,136,347

Long-term obligation payments payable in the next five years are as follows:



Year ended December 31,
2015	$	229,538
2016	247,973
2017	267,889
2018	289,403
2019	101,544
	$	1,136,347

NOTE J – SHARE-BASED COMPENSATION

All share numbers and per share amounts presented below reflect the Stock Splits. See Note B for additional information regarding the Stock Splits.

F-13

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock incentive plans - On July 1, 1998, the Company’s shareholders adopted the 1998 Stock Option Plan and reserved 50,000 shares of common stock for issuance under this plan. Effective September 4, 2003, the Company’s shareholders adopted an amendment and restatement of this plan, which, among other things, increased the number of shares reserved under this plan to 350,000. This plan expired July 1, 2008 although options granted under this plan remain outstanding at December 31, 2014.

On June 1, 2006, the Company’s shareholders adopted the 2006 Stock Incentive Plan (the “2006 Plan”) under which 250,000 shares of common stock were reserved for issuance. The 2006 Plan provides for the issuance of non-qualified stock options, incentive stock options, restricted stock awards and stock appreciation rights, and permits grants to employees, non-employee directors and consultants of the Company.

Generally, stock options granted under these plans vest over a period from four to five years and have a term of nine years. Certain stock options granted under these plans were fully vested upon grant and certain options have terms of five years.

Stock Option Accounting - The Company recognizes share-based compensation expense based on the fair value of share-based awards as estimated at the grant date. Share-based compensation expense for 2014 and 2013 was approximately $2,100 and $20,600, respectively, and is classified as a general and administrative expense. Tax benefits related to this expense were immaterial because virtually all share-based compensation resulted from grants of ISOs. No tax benefit is recorded for an ISO unless upon exercise a disqualifying disposition occurs. The Company will prospectively record any excess tax benefits from the exercise of stock options as cash flows from financing activities. There were no material excess tax benefits in 2014 or 2013.

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



	Year Ended December 31,
	2014	2013
	(1)
Weighted average expected life (years)	0	4.5
Risk-free interest rate	—%	1.40%
Expected volatility	—%	261.00%
Expected dividend yield	—%	—%

______________________

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

The weighted average expected life is based on the option term. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option. The expected volatility is based on historical volatility rates. The expected dividend yield is 0.0% since the Company has no history of paying dividends and currently has no plans to do so.

F-14

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Option Activity - A summary of stock option activity for the two years ended December 31, 2014 is as follows:



	Options		Weighted- Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2013	86,126		$	4.00
Granted	2,160		1.17
Exercised	—		—
Forfeited/canceled	(18,890	)	3.47
Outstanding, December 31, 2013	69,396		4.00
Granted	—		—
Exercised	—		—
Forfeited/canceled	(18,500	)	3.29
Outstanding, December 31, 2014	50,896		$	4.35	2.8	$	—
Exercisable, December 31, 2014	50,896		$	4.35	2.8	$	—

A summary of the status of the Company’s non-vested stock options as of December 31, 2014 and 2013, and changes during the year then ended, is presented below:



	Year Ended December 31,
	2014				2013
	Shares		Weighted Average Grant Date Fair Value per Share		Shares		Weighted Average Grant Date Fair Value per Share
Non-vested stock options at January 1,	14,750		$	2.68	19,976		$	2.90
Non-vested stock options granted	—		—		2,160		1.14
Vested stock options	—		—		(7,386	)	2.92
Forfeited stock options	(14,750	)	2.68		—		—
Non-vested stock options at December 31,	—		$	—	14,750		$	2.68

Additional information related to stock options granted, vested and exercised for the two years ended December 31, 2014 is a follows:



	Year Ended December 31,
	2014		2013
Grant date fair value of stock options granted	$	—	$	2,471
Grant date fair value of stock options vested	—		21,586
Intrinsic value of stock options exercised	—		—

As of December 31, 2014, there was no unrecognized compensation cost related to stock option grants.

F-15

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K – INCOME TAXES

The income tax benefit reconciled to the tax computed at the statutory federal rate of 34% is as follows:



	Year Ended December 31,
	2014			2013
Federal income tax benefit at statutory rate	$	(245,135	)	$	(250,322	)
State income taxes, net of federal benefit	1,682			(755		)
Share-based compensation	716			6,759
Effect of foreign operations, net of foreign tax credits	114,232			42,340
R&D tax credits recognized	—			(35,417		)
Other, net	10,331			1,159
Income tax benefit	$	(118,174	)	$	(236,236	)

Deferred tax assets and liabilities at December 31, 2014 and 2013 are comprised of the following:



	December 31,
	2014			2013
Deferred tax assets related to:
Inventories	$	281,155		$	289,818
Accounts receivable and other assets	12,327			9,800
Accrued liabilities	83,443			89,816
Tax loss and tax credit carryforwards	603,018			583,787
Other	16,446			16,349
	996,389			989,570
Valuation allowance	(196,661		)	(214,479		)
Net deferred tax assets	799,728			775,091
Deferred tax liabilities related to:
Property and equipment	(363,119		)	(462,221		)
Intangible assets	(616,124		)	(610,890		)
Deferred tax liabilities	(979,243		)	(1,073,111		)
Net deferred tax liabilities	$	(179,515	)	$	(298,020	)

Net current deferred tax assets	$	376,925		$	429,640
Net long-term deferred tax liabilities	(556,440		)	(727,660		)
	$	(179,515	)	$	(298,020	)

At December 31, 2014, the Company has U.S. federal net operating loss carryforwards of approximately $73,000 and tax credit carryforwards of approximately $170,000 that begin to expire in 2020, if not utilized. The Company also has net operating loss carryforwards totaling approximately $1,986,000 related to various foreign jurisdictions that begin to expire in 2016 if not utilized.

The Company files federal income tax returns in the U.S. and certain foreign jurisdictions where the Company conducts operations and in certain U.S. state jurisdictions. The most significant taxing jurisdiction is the U.S. federal jurisdiction. The Company’s 2010 through 2014 tax years remain subject to examination by the IRS for U.S. federal tax purposes. As of December 31, 2014, no tax years were under examination in any taxing jurisdiction.

F-16

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income tax expense (benefit) consists of the following:



	Year Ended December 31,
	2014			2013
Current
Federal	$	6,999		$	2,941
Foreign	—			(3,717		)
Deferred
Federal	21,816			(196,484		)
Foreign	(146,989		)	(38,976		)
Income tax benefit	$	(118,174	)	$	(236,236	)

NOTE L - FAIR VALUE MEASUREMENTS

As defined in ASC 820, Fair Value Measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level valuation hierarchy for fair value measurements. These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect less transparent active market data, as well as internal assumptions. These two types of inputs create the following fair value hierarchy:

· Level 1-Quoted prices for identical instruments in active markets

· Level 2-Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable

· Level 3-Instruments with significant unobservable inputs

The fair value of the Company's fixed-rate long-term debt as described in the "Financial Instruments" section under Note B was determined based on quoted prices for similar instruments in active markets, which are considered to be Level 2 inputs within the fair value hierarchy.

The Company has also performed the required impairment review related to goodwill, as described in Note B. A fair value-based methodology is used in testing the carrying value of goodwill, utilizing assumptions including: (1) a long-term projection of revenues and expenses; (2) estimated discounted future cash flows; (3) weighted-average cost of capital; (4) expected tax rate and (5) the enterprise value of comparable companies as a percentage of sales. Factors used in the valuation of goodwill include, but are not limited to, management's plans for future operations, recent operating results and discounted projected future cash flows. These factors are considered Level 3 inputs within the fair value hierarchy.

NOTE M – COMMITMENTS AND CONTINGENCIES

Leases - The Company leases office and warehouse space and certain equipment using operating leases for various periods through 2018. Rental expense under non-cancelable operating leases totaled $415,000 and $193,000 in 2014 and 2013, respectively. Future minimum payments under non-cancelable operating leases are as follows:



Year ended December 31,
2015	$	452,354
2016	354,981
2017	135,813
2018	7,029
	$	950,177

Employee Arrangements - The Company has entered into employment agreements with certain of its key executives. In October, 2013, the Company entered into an employment agreement with the Company's then Chief Executive Officer. This agreement provided for employment through December 31, 2014, automatic renewal of employment for an additional one-year

F-17

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

term unless either party provided notice of non-renewal and, upon termination of employment, a three-year consulting arrangement to be compensated at a specified portion of salary. The employment agreement was not renewed as of December 31, 2014.

In December 2014, the Company entered into an employment agreement with the Company's current Chief Executive Officer with an initial term ending December 31, 2015. This agreement automatically renews for an additional one-year term at end of the initial term or any subsequent renewal term unless either party provides notice to the other 60 days prior to the last day of the then current term. Among other things, the agreement provides that if employment is terminated for certain reasons set forth in the agreement, which reasons do not include a change of control, the Company will be required to make a severance payment in an amount equal to the greater of (i) the remaining compensation due through the end of the current term or (ii) one-half of the annual base salary. In the event that the Company chooses not to renew the agreement, the Chief Executive Officer will be entitled to one-half of the annual base salary as severance.

In December 2014 and January 2015, the Company entered into employment agreements with six other officers or members of the executive team, expiring December 31, 2015. These agreements generally replaced agreements which expired December 31, 2014. Among other things, the agreements provide that if employment is terminated for certain reasons set forth in the agreements, which reasons do not include a change of control, the Company will be required to make a severance payment in an amount equal to the greater of (i) the remaining compensation due through the end of the current term or (ii) one-half of the annual base salary.

The Company’s employees can participate in an employee benefit plan under Section 401(k) of the Internal Revenue Code offered through its Professional Employer Organization. This plan covers employees in the U.S. who are at least 18 years of age and have been employed by the Company longer than three months. The Company makes discretionary matching contributions equal to 10% of the employees’ contributions. Total matching contributions made by the Company during 2014 and 2013 were approximately $10,000 and $13,000, respectively.

Litigation - 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.

One medical/surgical dealer accounts for a significant portion of Medical Products sales. This dealer accounted for 45% and 44% of Medical Products net sales in 2014 and 2013, respectively. On February 27, 2012, The Company was notified that this dealer filed a voluntary petition for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Central District of California in Santa Ana, California on February 24, 2012. According to its bankruptcy petition, this dealer filed its petition as the most effective means of stabilizing its finances as it resolves a reimbursement guidelines dispute with Medicare, which the dealer believes is improperly withholding payments. In a press release issued by the dealer at the time of the filing, the dealer stated that the Chapter 11 filing will allow it to continue operating without interruption while it resolves its payment dispute with Medicare as expeditiously as possible. As of December 31, 2013, this dealer owed to the Company approximately $240,000 in pre-petition accounts receivable. In July 2014, pursuant to an arrangement approved by the Bankruptcy Court, this pre-petition accounts receivable balance was paid in full. The Company continues to fill this dealer's post-petition orders, with payments received in accordance with our normal terms.

On April 4, 2014, the Company received a notice from Environmental Research Center, a California non-profit corporation, alleging that the Company failed to include a warning notice related to lead content on labels of certain nutritional products sold in California as required under California's Safe Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65"). Sales of products identified in this notice totaled approximately $60,000 for the period covered by the notice. This non-profit organization seeks an agreement from the Company to reformulate or label the listed products distributed in California in accordance with Proposition 65 and pay an appropriate civil penalty related to sales in California of allegedly improperly labeled products since April 4, 2011. The Company is continuing to assess this matter and has established a reserve in an amount deemed adequate by management based on the facts and circumstances of the case.

NOTE N – 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.

F-18

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Nutritional Products segment manufactures and distributes a line of approximately 100 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 North America and Southeast Asia. These products are distributed in North America and Southeast Asia by a network of independent Associates and by licensees operating 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 over 35 wound care products under the MPM Medical brand name through a U.S. subsidiary operating primarily in the U.S. 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. 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 accounting policies of the segments are the same as those described in Note B. 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 (loss) for these two segments, administrative expenses incurred that are common to the two segments are allocated on a usage basis.

Segment information is as follows (in thousands):



	Nutritional Products			Medical Products		Consolidated
Year ended December 31, 2014
Net sales	$	22,073		$	6,197	$	28,270
Depreciation and amortization	519			61		580
Operating profit (loss)	(734		)	109		(625		)
Capital expenditures	1,074			—		1,074
Total assets	13,192			2,804		15,996
Year ended December 31, 2013
Net sales	$	19,084		$	6,387	$	25,471
Depreciation and amortization	527			61		588
Operating profit (loss)	(792		)	167		(625		)
Capital expenditures	267			—		267
Total assets	13,861			3,673		17,534

F-19

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial information summarized geographically based on the customer’s ordering location for the years ended December 31, 2014 and 2013 is listed below (in thousands):



	Net Sales		Long-lived Assets
Year ended December 31, 2014
Domestic	$	8,974	$	6,309
Russia/Eastern Europe	10,633		—
Canada	1,223		465
Southeast Asia	7,245		375
All others	195		—
Totals	$	28,270	$	7,149
Year ended December 31, 2013
Domestic	$	9,656	$	5,862
Russia/Eastern Europe	11,657		—
Canada	1,530		511
Southeast Asia	2,454		143
All others	174		—
Totals	$	25,471	$	6,516

Significant Customers - The Company recorded sales to CCI, a licensee of the Company, in the amount of $10,633,000 and $11,657,000 for the years ended December 31, 2014 and 2013, respectively. The Company also recorded sales to a medical/surgical dealer (see Note M) in the amount of $2,814,000 and $2,807,000 for the years ended December 31, 2014 and 2013, respectively. In no other case did a customer of the Company account for more than 10% of net sales for the years ended December 31, 2014 or 2013.

NOTE O – LOSS PER SHARE

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



	Net Loss			Shares	Per Share
Year ended December 31, 2014
Basic loss per common share	$	(602,811	)	2,212,350	$(0.27)
Effect of dilutive stock options	—			—
Diluted loss per common share	$	(602,811	)	2,212,350	$(0.27)

Year ended December 31, 2013
Basic loss per common share	$	(500,005	)	2,218,757	$(0.23)
Effect of dilutive stock options	—			—
Diluted loss per common share	$	(500,005	)	2,218,757	$(0.23)

For 2014 and 2013, the number of stock options that were outstanding but not included in the computation of diluted loss per common share because their exercise price was greater than the average market price of our common stock or were otherwise anti-dilutive, was approximately 51,000 and 75,000, respectively.

NOTE P – RELATED PARTY TRANSACTIONS

Debt Guarantees – The Company’s Chairman of the Board has guaranteed a mortgage note of the Company. The balance of this note was $1,136,000 at December 31, 2014.

F-20

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Customer Arrangement - The Company's principle licensee is CCI. The president of CCI beneficially owned approximately 18% of the Company’s outstanding common stock at December 31, 2014 and was a member of the Company’s Board of Directors until June 2004. The Company recorded sales to CCI in the amount of $10,633,000 and $11,657,000 for the years ended December 31, 2014 and 2013, respectively.

In August 2014, the Company entered into a two-year exclusive distributorship agreement with CCI. This agreement replaced the 10-year exclusive distributorship agreement between the parties that automatically renewed for a one-year term following expiration of the initial term in July 2014. Pursuant to the new agreement, CCI’s exclusive territory now includes Russia and other countries located primarily in Europe and Central Asia, which represents an expansion of the territory set forth in the former agreement. Under the former agreement, CCI distributed products in a territory comprised mainly of Russia and Eastern Europe.

Also under the former agreement, in consideration of the grant of certain rights, CCI paid the Company a monthly royalty calculated as a percentage of its sales of the Company's products. Under the new agreement, in lieu of a royalty, the prices at which products are sold to CCI were marked up as of the effective date of the agreement to include the royalty so that no additional royalty is due upon the sale of the Company's products by CCI. To affect the transition of royalty calculations from the previous agreement to the new agreement, the Company recognized royalties of $941,000 on a one-time basis, which royalties will be paid over an 18-month period beginning October 2014. Of this $941,000 in royalties, approximately $476,000 was recorded as royalty revenue in the third quarter of 2014 while the remainder was recorded as deferred revenue pending shipment of the related products. Pursuant to the previous agreement, CCI paid royalties to the Company for the years ended December 31, 2014 and 2013 in the amount of $1,444,000 and $1,801,000, respectively, which are included in sales.

In accordance with the terms of both the new agreement and previous agreement, CCI is required to pay a deposit at the time it places an order and then pay the balance when products are segregated in the Company's warehouse for its account. Under the new agreement, CCI is required to pay a 25% deposit with each order. Under the previous agreement, CCI was required to pay a 50% deposit with each order. Deferred revenue associated with CCI’s account, which primarily includes deposits for orders placed with he Company and payments for products held by the Company for shipment to CCI at a later date, totaled $2,138,000 and $3,682,000 at December 31, 2014 and 2013, respectively.

Associate Sales and Marketing System - In December 2013, the Company engaged GSAT, Inc. ("GSATi") to develop a new Associate sales and marketing system, which the Company expects to be deployed during the first quarter of 2015. The Company has made payments to GSATi under the contract totaling approximately $740,000, which represents the full amount due for the contracted system. The founder and CEO of GSATi is a member of the Company's Board of Directors.

F-21

RBC Life Sciences, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE Q – QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data for the years ended December 31, 2014 and 2013 is summarized as follows:



	Quarter Ended
	March 31			June 30			September 30			December 31
	(Unaudited - In thousands, except per share data)
2014
Net sales	$	5,713		$	7,885		$	7,515		$	7,157
Gross profit	3,182			4,122			4,282			4,052
Net loss	(378		)	(7		)	(124		)	(94		)
Loss per share:
Basic	$	(0.17	)	$	(0.00	)	$	(0.06	)	$	(0.04	)
Diluted	(0.17		)	(0.00		)	(0.06		)	(0.04		)

2013
Net sales	$	5,691		$	6,694		$	6,640		$	6,446
Gross profit	2,973			2,971			3,036			3,032
Net loss	(8		)	(147		)	(142		)	(203		)
Loss per share:
Basic	$	(0.00	)	$	(0.07	)	$	(0.06	)	$	(0.09	)
Diluted	(0.00		)	(0.07		)	(0.06		)	(0.09		)

F-22

Exhibit Index



Exhibit Number		Description

10.9		Employment Agreement, dated December 30, 2014, between RBC Life Sciences, Inc. and Steven E. Brown

10.10		Employment Agreement, dated December 29, 2014, between RBC Life Sciences, Inc. and Douglas R. Wheeler

21.1		List of company subsidiaries

23.1		Consent of Lane Gorman Trubitt, PLLC, independent registered public accountants to incorporation of report by reference

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
101.INS		XBRL Instance Document **

101.SCH		XBRL Taxonomy Extension Schema Document **

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document **

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document **

101.LAB		XBRL Taxonomy Extension Label Linkbase Document **

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document **

** Filed electronically herewith

EXHIBIT 10.9

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 30th day of December, 2014, by and between RBC Life Sciences, Inc. (“Employer”), located at 2301 Crown Court, Irving, Texas 75038, and Steven E. Brown (“Employee”), residing at 2128 Tomahawk Dr., Plano, Texas 75023.

W I T N E S S E T H:

WHEREAS, Employer is engaged in, among other businesses, the international distribution of nutritional supplements and personal care products through the network marketing distribution model, and the distribution of wound care and oncology care products; and

WHEREAS, Employer desires to employ Employee, and Employee desires to accept employment with Employer, on the terms and conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and promises set forth in this Agreement, Employer and Employee hereby agree as follows:


Section 1.	Effective Date and Purpose. The effective date of this Agreement shall be January 1, 2015 (the “Effective Date”). This Agreement sets forth the terms and conditions of Employee’s employment with Employer on and after the Effective Date during the term hereof.

Section 2. Employment Title and Duties. Employer shall employ Employee in the capacity of Chief Executive Officer and President. In this capacity, Employee shall have the responsibility to perform all duties that are customarily performed by one holding that position in other, same, or similar businesses or enterprises as that engaged in by Employer. Employee accepts this employment, subject to the general supervision and pursuant to the orders and direction of Employer’s Board of Directors (the “Board”). Employee shall also render such other services and duties, consistent with such capacity, as may be assigned from time to time by the Board.

Section 3. Compensation of Employee. Employer shall pay Employee, in full payment for Employee’s services and covenants under this Agreement, the following compensation:

(a)

Salary. During his employment pursuant to this Agreement, Employee’s annual base salary shall be $304,990.40 payable bi-weekly in equal payments of $11,730.40 in accordance with Employer’s customary payroll practices. Employee’s annual base salary may be increased during the term of this Agreement subject to business conditions and Employee’s performance by the Compensation Committee (the “Compensation Committee”) of the Board. The Compensation Committee shall review and make a joint decision in accordance with the Compensation Committee Charter.

(b)

Incentive Bonus. The Compensation Committee will maintain a discretionary annual cash incentive bonus program each year during the Term. The Compensation Committee shall determine in its sole discretion whether any annual incentive bonus will be payable for any year to Employee based on business-related factors deemed appropriate by the Compensation Committee for a particular year. Any annual incentive bonus payable to Employee will be paid in a lump sum payment between January 1 and April 30 of the calendar year immediately following the calendar year to which the bonus relates pursuant to the terms of the bonus plan adopted by the Compensation Committee provided that Employee remains continuously employed by Employer until the date the bonus is paid.


(c)	Health and Welfare Benefits. During his employment, Employee shall be eligible to participate in the health and welfare benefit plans and programs offered from time to time by Employer for its similarly situated employees, upon the terms and subject to conditions of such plans and programs.


(d)	Automobile Allowance. Employer shall pay to Employee an automobile allowance in an amount equal to $1,000 per month, payable in accordance with Employer’s customary payroll practices.


(e)	Club Dues. Subject to approval by the Compensation Committee, Employer shall pay the cost of Employee’s membership at a local club for business use by Employee in the performance of duties contemplated by this Agreement.

Section 4. Best Efforts of Employee. Employee agrees to perform all of the duties and responsibilities pursuant to the express and implicit terms of this Agreement to the reasonable satisfaction of Employer. Employee further agrees to perform such duties and responsibilities faithfully and to the best of his ability, talent, and experience.

Section 5. Place of Employment. Employee shall render such duties and responsibilities at 2301 Crown Court, Irving, Texas 75038 and at such other places as Employer shall in good faith require or as the interest, needs, business, or opportunity of Employer shall require.

Section 6. Non-Competition with Employer during Employment. Employee shall devote all his time, attention, knowledge, and skills solely to the business and interest of Employer, and Employer shall be entitled to all of the benefits and profits arising from the work of Employee. Employee shall not, during his employment under this Agreement, perform services for or be interested directly or indirectly, in any manner, as partner, officer, director, shareholder, advisor, consultant, employee, or in any other capacity in any other business similar to Employer’s business, any allied trade, or any business offering a competing or alternative product or service. However, nothing contained in this section shall prevent or limit Employee from continuing to receive the benefits of relationships previously disclosed and approved by the Chair of the Audit Committee of the Board in writing or investing in the capital stock or other securities of any corporation whose stock or securities are publicly owned and traded on any public exchange, nor shall anything contained in this Section 6. prevent or limit Employee from investing in real estate.

Section 7. Confidentiality and Nondisclosure. Employer shall disclose to Employee, and Employee acknowledges that in and as a result of his employment by Employer, he will receive, be making use of, acquiring, and/or adding to, confidential information of a special and unique nature and value relating to such matters as Employer’s trade secrets and proprietary and confidential business information, including but not limited to, its unique business methods and strategies, processes, product and design development, programs and programming codes, pricing methods, operating techniques and practices, operating and production costs, corporate financial information, customer requirements, customer and supplier information, potential customer lists and marketing techniques, systems, procedures, manuals, confidential reports, the equipment and methods used and preferred by its customers and the fees paid by them, and compilations of information, records, and specifications (all of which are referred to collectively herein as “Confidential Matters”). Employee further agrees that if a third party (e.g., vendors, customers and manufacturers) contracts with Employer, the information obtained or received from a third party including, but not limited to, its patents, copyrights, proprietary information, trade secrets, systems, product development, procedures, manuals, and confidential reports will be treated in the same manner and subject to the same protection as other Confidential Matters.

Employee acknowledges that Employer does not voluntarily disclose Confidential Matters, but rather takes precautions to prevent their dissemination except pursuant to suitable confidentiality safeguards. Employee further acknowledges that Confidential Matters (i) are secret and not known in Employer’s industry; (ii) have been and will be entrusted to Employee because Employee is a fiduciary of Employer; (iii) have been and will be developed by Employer and/or Employee for and on behalf of Employer through substantial expenditures of time, effort, and money and are and will be used in Employer’s business; (iv) give Employer an opportunity to obtain an advantage over competitors who do not know or use the Confidential Matters; and (v) are of such value and nature as to make it reasonable and necessary for Employee and Employer to protect and preserve the confidentiality and secrecy of the Confidential Matters.

Employee acknowledges and agrees that the Confidential Matters are valuable, special, and unique assets of Employer, the disclosure of which could cause substantial injury and loss of profits and goodwill to Employer. The Confidential Matters to be prepared or compiled by Employee and/or Employer or furnished to Employee prior to or during Employee’s employment with Employer shall be the sole and exclusive property of Employer. Upon the termination of Employee’s employment with Employer, all documents and materials related to Confidential Matters shall be returned to Employer upon termination of employment, and none shall be retained by Employee, including any copies.

As a condition of employment and continued employment, Employee shall keep confidential all Confidential Matters that Employee learns or acquires as a result of his employment with Employer, and shall not at any time, except as necessary to conduct the business of Employer, directly or indirectly make known, divulge, use, furnish, or reveal to any person, firm, company, corporation, or anyone else any of the Confidential Matters or any knowledge or information with respect thereto, or otherwise use such information for any purpose whatsoever. Employee shall take all steps necessary to safeguard all Confidential Matters and to prevent their use, disclosure, or dissemination to any other person or entity except as necessary to conduct the business of Employer.

If Employee is subpoenaed, served with any legal process or notice, or otherwise requested to produce or divulge, directly or indirectly, any Confidential Matters by any entity, agency, or person in any formal or informal proceeding, including, but not limited to, any interview, deposition, administrative or judicial hearing, and/or trial, upon Employee’s receipt of such subpoena, process, notice, or request, Employee shall immediately notify and deliver a copy of the subpoena, process, notice, or request to the Board. Employee further irrevocably nominates, constitutes, and appoints Employer (specifically including any attorney retained by Employer) as Employee’s true and lawful attorney-in-fact, to act in Employee’s name, place, and stead to do and perform any act which Employee might perform, including to institute, prosecute, defend, quash, compromise, settle, arbitrate, release, and dispose of any and all legal, equitable, or administrative hearings, actions, suits, attachments, subpoenas, claims, levies, or other proceedings, or otherwise engage in or defend any and all litigation in connection with or relating to any request to disclose, directly or indirectly, any Confidential Matters; provided, however, that Employer shall be under no obligation to act as Employee’s attorney-in-fact and may decline to do so upon written notice to Employee.

Section 8.

Term. The term of this Agreement (the “Term”) shall be effective for a period of one (1) year beginning on January 1, 2015 and ending on December 31, 2015. This agreement will be automatically renewed for an additional one-year period upon expiration of its initial term and each subsequent term thereafter, unless either Employer or Employee gives written notice to the other party at least sixty (60) days prior to the last day of the then current term of the Agreement.

Section 9. Termination of Employment.

(a)

Termination by Employer for Cause. Employer may immediately terminate the employment of Employee under this Agreement for Cause (as defined below) at any time by giving written notice of termination to Employee without prejudice to any other remedy to which Employer may be entitled either at law, in equity, or under this Agreement. In the event Employee’s employment under this Agreement is terminated for Cause pursuant to this Section 9(a), Employer shall pay to Employee his monthly base salary up to the date of his termination of employment (the “Termination Date”) in a single lump sum payment on the first regularly scheduled payroll date of Employer following the Termination Date and Employee shall not be entitled to any other compensation or benefits under this Agreement.

For purposes of this Agreement, “Cause” shall mean, in each case, as reasonably determined by the Board: (i) indictment for, conviction of, or entry of a pleading of guilty or no contest by, Employee with respect to a felony or any lesser crime of which fraud or dishonesty is a material element, (ii) Employee’s willful and continued failure to perform his duties with Employer, or a failure to follow the lawful direction of the Board after the Board delivers a written demand for performance and Employee neglects to cure such a failure to the reasonable satisfaction of the Board within 15 days after receipt of the demand, (iii) Employee’s failure to comply with applicable laws with respect to the execution of Employer’s business operations or his material breach of Sections 6 or 7 of this Agreement, (iv) Employee’s theft, fraud, embezzlement, dishonesty, or similar conduct which has resulted or is reasonably likely to result in damage to the business or reputation of Employer or any of its affiliates or subsidiaries, or (v) Employee’s habitual intoxication or continued abuse of illegal drugs which interferes with Employee’s ability to perform his assigned duties and responsibilities.

(b)

Termination by Employee for Good Reason or Termination by Employer Without Cause. Employee may terminate his employment under this Agreement for “Good Reason” (as defined below) at any time by giving written notice of termination to Employer without prejudice to any other remedy to which Employee may be entitled either at law or in equity under this Agreement, and Employer may terminate Employee’s employment under this Agreement at any time for any reason other than Cause by giving written notice of such termination to Employee. In the event Employee’s employment under this Agreement is terminated by Employee for Good Reason or by Employer for a reason other than Cause pursuant to this Section 9(b), Employer shall pay to Employee (i) his monthly base salary up to the Termination Date plus an amount equal to his accrued, unused vacation and personal time off (“PTO”), not to exceed 520 hours, paid in a single lump sum payment on the first regularly scheduled payroll date of Employer following the Termination Date and (ii) an amount equal to the greater of (A) his monthly base salary through the last day of the Term or (B) his monthly base salary for a period of six (6) months as severance pay following the Termination Date, payable, in each case, for a period of twelve (12) months in substantially equal payments in accordance with Employer’s normal payroll practices measured from the Termination Date, but commencing, subject to the payment timing provisions of Section 10(b), on the 60^th day following the Termination Date (the “Payment Commencement Date”), provided that on or before the Payment Commencement Date, Employee shall have executed a general release of employment-related claims in a form reasonably satisfactory to Employer (the “Release”) (the form of such Release shall be provided to Employee by Employer within five (5) days following the Termination Date) and the revocation period applicable to the Release shall have expired; and provided further, that the first payment will include an amount equal to all payments that would have been made between the Termination Date and the Payment Commencement Date if the payments had commenced on the Termination Date. The amounts paid pursuant to this Section 9(b) shall be reduced by all amounts withheld and deducted pursuant to Section 18. No benefits, bonuses, PTO, or other forms of compensation, except for the severance payments and accrued PTO described in this Section 9(b), will be paid to Employee or accrued for the severance payment period. Payments under this Section 9(b) shall immediately cease if at any time during which such payments are being made Employee violates the provisions of Section 7 or Section 11.

For purposes of this Agreement, “Good Reason” shall mean: (i) a material breach by Employer of this Agreement; or (ii) a material diminution of Employee’s authority, duties, or responsibilities as in effect immediately after the Effective Date; provided, however that Employee must provide written notice to Employer of the condition described in clause (i) or (ii) above, as applicable, within ninety (90) days of the initial existence of the condition, and Employer shall have a thirty (30) day period following its receipt of Employee’s notice during which it may remedy the condition.

(c)

Death of Employee. This Agreement shall be deemed terminated as of the date of Employee’s death. In the event of Employee’s death, Employer shall pay to employee’s estate Employee’s monthly base salary up to the Termination Date, plus an amount equal to Employee’s accrued, unused PTO, not to exceed 520 hours, paid in a single sum payment on the first regularly scheduled payroll date of Employer following the Termination Date, and Employee (and Employee’s estate) shall not be entitled to any other compensation or benefits under this Agreement. The amounts paid pursuant to this Section 9(c) shall be reduced by all amounts withheld and deducted pursuant to Section 18.

(d)

Disability of Employee. Should Employee be unable to perform his duties under this Agreement by reason of Employee’s inability to perform the essential functions of the position for a period of six (6) months, as determined by the Board in its sole discretion, Employer shall have the right to terminate this Agreement upon written notice to Employee. During the six (6) month period that Employee fails to perform his duties as a result of his inability to perform the essential functions of the position, Employer will continue to pay Employee Employee’s monthly base salary based on its customary payroll practices, reduced by any disability payments received by Employee from a disability program made available by Employer, and Employee shall be treated as on a bona fide leave of absence. In the event Employee’s employment under this Agreement is terminated by reason of Employee’s disability pursuant to this Section 9(d), Employer shall pay to Employee his monthly base salary up to the termination Date, plus an amount equal to Employee’s accrued, unused PTO, not to exceed 520 hours paid in a single sum payment on the first regularly scheduled payroll date of Employer following the Termination Date, and Employee shall not be entitled to any other compensation or benefits under this Agreement. The amounts paid pursuant to this Section 9(d) shall be reduced by all amounts withheld and deducted pursuant to Section 18.

(e)

Early Termination by Employee. In the event Employee terminates his employment prior to the end of the Term, other than for Good Reason, death or disability, Employer shall pay to Employee shall his monthly base salary up to the Termination Date, plus an amount equal to Employee’s unused, accrued PTO, not to exceed 520 hours paid in a single sum payment on the first regularly scheduled payroll date of Employer following the Termination Date, and Employee shall not be entitled to any other compensation or benefits under this Agreement. The amounts paid pursuant to this Section 9(e) shall be reduced by all amounts withheld and deducted pursuant to Section 18.

(f)

Non-renewal of Agreement by Employer. If Employer elects not to renew employment under this Agreement pursuant to the terms of Section 8, Employee, unless otherwise requested by Employer, shall continue to render services, and Employer shall pay to Employee his monthly base salary up to the Termination Date, plus an amount equal to Employee’s unused, accrued PTO, not to exceed 520 hours paid in a single sum payment on the first regularly scheduled payroll date of Employer following the Termination Date. Employee shall also be paid any incentive bonus awarded pursuant to Section 3(b) that he would have been entitled to receive if he was employed by Employer through the date such incentive bonus would have been paid. In addition, Employer shall pay to Employee an amount equal to his monthly base salary for a period of six (6) months as severance pay following the Termination Date, payable for a period of twelve (12) months in substantially equal payments in accordance with Employer’s normal payroll practices measured from the Termination Date, but commencing, subject to the payment timing provisions of Section 10(b), on the Payment Commencement Date, provided that on or before the Payment Commencement Date, Employee shall have executed a Release (the form of such Release shall be provided to Employee by Employer within five (5) days following the Termination Date) and the revocation period applicable to the Release shall have expired; and provided further, that the first payment will include an amount equal to all payments that would have been made between the Termination Date and the Payment Commencement Date if the payments had commenced on the Termination Date. The amounts paid pursuant to this Section 9(f) shall be reduced by all amounts withheld and deducted pursuant to Section 18. No benefits, bonuses, PTO, or other forms of compensation, except for the severance payments and accrued PTO described in this Section 9(f), will be paid to Employee or accrued for the severance payment period. Payments under this Section 9(f) shall immediately cease if at any time during which such payments are being made Employee violates the provisions of Section 7 or Section 11. If Employer offers to continue Employee’s employment on a non-contractual basis following the Employer’s non-renewal of this Agreement and Employee elects to continue his employment on that basis, Employee will not be entitled to the severance pay referred to in this Section 9.f.

(g)

Non-renewal of Agreement by Employee. If Employee elects not to renew employment under this Agreement pursuant to the terms of Section 8, Employee, unless otherwise requested by Employer, shall continue to render services through the last day of the then current term of the Agreement, and Employer shall pay to Employee his monthly base salary up to the Termination Date, plus an amount equal to Employee’s unused, accrued PTO, not to exceed 520 hours paid in a single sum payment on the first regularly scheduled payroll date of Employer following the Termination Date.

Section 10. Section 409A.

(a)

Separation from Service. Notwithstanding anything to the contrary in this Agreement, with respect to any amounts payable to Employee under this Agreement in connection with a termination of Employee’s employment that would be considered “non-qualified deferred compensation” under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), in no event shall a termination of employment be considered to have occurred under this Agreement for purposes of the time of payment of such amounts unless such termination constitutes Employee’s “separation from service” with Employer as such term is defined in Treasury Regulation Section 1.409A-1(h), and any successor provision thereto (“Separation from Service”).

(b)

Section 409A Compliance; Payment Delays. Notwithstanding anything contained in this Agreement to the Contrary, to the maximum extent permitted by applicable law, the severance payments payable to Employee pursuant to Section 9 shall be made in reliance upon Treasury Regulation Section 1.409A-1(b)(9)(iii) (relating to separation pay plans) and/or Treasury Regulation Section 1.409A-1(b)(4) (relating to short-term deferrals). However, to the extent any such payments are treated as “non-qualified deferred compensation” subject to Section 409A of the Code, and if Employee is deemed at the time of his Separation from Service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, then to the extent delayed commencement of any portion of the benefits to which Employee is entitled under this Agreement is required in order to avoid a prohibited payment under Section 409A(a)(2)(B)(i) of the Code, such portion of Employee’s termination benefits shall not be provided to Employee prior to the earlier of (i) the expiration of the six-month period measured from the date of Employee’s Separation from Service or (ii) the date of Employee’s death. Upon the earlier of such dates, all payments deferred pursuant to this Section 10(b) shall be paid in a lump sum to Employee. The determination of whether Employee is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his Separation from Service shall made by Employer in accordance with the terms of Section 409A of the Code and applicable guidance thereunder (including, without limitation, the default provisions Treasury Regulation Section 1.409A-1(i) and any successor provision thereto).

(c)

Construction and Interpretation; Separate Payments. This Agreement is intended to be written, administered, interpreted and construed in a manner such that no payment or benefits provided under the Agreement become subject to (i) the gross income inclusion set forth within Section 409A(a)(1)(A) of the Code or (ii) the interest and additional tax set forth within Section 409A(a)(1)(B) of the Code (collectively, “Section 409A Penalties”), including, where appropriate, the construction of defined terms to have meanings that would not cause the imposition of Section 409A Penalties. Notwithstanding the foregoing, no particular tax result for Employee with respect to any income recognized by Employee in connection with this Agreement is guaranteed and in no event shall Employer be required to provide a tax gross-up payment to Employee or otherwise reimburse Employee with respect to any Section 409A Penalties. For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), each payment that Employee may be eligible to receive under this Agreement shall be treated as a separate and distinct payment and shall not collectively be treated as a single payment.

(d)

In-kind Benefits and Reimbursements. Notwithstanding anything to the contrary in this Agreement or in any Employer policy with respect to such payments, in-kind benefits and reimbursements provided under this Agreement during any tax year of Employee shall not affect in-kind benefits or reimbursements to be provided in any other tax year of Employee and are not subject to liquidation or exchange for another benefit. Notwithstanding anything to the contrary in this Agreement, reimbursement requests must be timely submitted by Employee and, if timely submitted, reimbursement payments shall be made to Employee as soon as administratively practicable following such submission in accordance with Employer’s policies regarding reimbursements, but in no event later than the last day of Employee’s taxable year following the taxable year in which the expense was incurred. This Section shall only apply to in-kind benefits and reimbursements that would result in taxable compensation income to Employee.

Section 11. Post Employment Non-Compete. As a material inducement for receiving the trade secrets and confidential and proprietary information described in Section 7 and other good and valuable consideration, Employee agrees that during the term of his employment and for a period of twelve (12) months after the termination of Employee’s employment with Employer, for whatever reason:


(a)	Employee shall not, directly or indirectly, without written approval of the Chair of the Audit Committee, solicit or induce, or attempt to solicit or induce, any employee of Employer or other person providing services to Employer to alter, leave or cease his employment or other service relationship with Employer, for any reason whatsoever;


(b)	In an executive, financial, sales, or operational capacity, Employee shall not, directly or indirectly, without written approval of the Chair of the Audit Committee, accept employment from or provide competitive services or assistance to any current customer of Employer with whom Employee has had any contact during his employment with Employer; and


(c)	Employee shall not solicit or attempt to solicit Employer’s current customers (defined as all customers of Employer within the 12 months preceding Employee’s termination of employment) with respect to which

Employee had confidential information or with whom Employee had any contact during his employment with Employer to purchase services or products that are competitive with those marketed, offered for sale and/or under any stage of development by Employer as of the date of Employee’s termination of employment with Employer.

Notwithstanding the foregoing provisions, Employer shall not unreasonably restrict Employee’s ability to serve on boards of directors of other companies.

Section 12.

Indemnity. Employer shall indemnify Employee and hold Employee harmless for any acts or decisions made by Employee in good faith and that were reasonably believed to be in the best interest of Employer while performing services for Employer. Employer will use its reasonable best efforts to maintain Director and Officer insurance coverage in the amount of not less than $1,000,000 for Employee under an insurance policy covering the officers and directors of Employer against lawsuits. Employer shall pay all reasonable expenses, including attorney’s fees, actually and necessarily incurred by Employee in connection with any appeal thereon, including the cost of court settlements. Notwithstanding the preceding sentence, (i) the obligations of Employer shall be subject to the condition that the Board shall not have determined based on advice from its legal counsel that Employee would not be permitted to be indemnified under applicable law, and (ii) the obligation of Employer to make an expense or fee advance pursuant to this Section 12 shall be subject to the condition that, if, when and to the extent that the Board determines that Employee would not be permitted to be so indemnified under applicable law, Employer shall be entitled to be reimbursed by Employee (who hereby agrees to reimburse Employer) for all such amounts theretofore paid (it being understood and agreed that the foregoing agreement by Employee shall be deemed to satisfy any requirement that Employee provide Employer with an undertaking to repay any advancement of fees or expenses if it is ultimately determined that Employee is not entitled to indemnification under applicable law); provided, however, that if Employee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Employee should be indemnified under applicable law, any determination made by the Board that Employee would not be permitted to be indemnified under applicable law shall not be binding and Employee shall not be required to reimburse Employer for any expense advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or have lapsed). This undertaking by Employee to repay such expense advance shall be unsecured and interest-free.

Section 13. Effect of Partial Invalidity. The invalidity of any portion of this Agreement shall not affect the validity of any other provision. In the event that any provision of this Agreement is held to be invalid, the parties agree that the remaining provisions shall remain in full force and effect.

Section 14. Entire Agreement. This Agreement contains the complete agreement between the parties and shall supersede all other agreements, either oral or written, between the parties, including, without limitation, the Prior Agreement. The parties stipulate that neither of them has made any representations except as are specifically set forth in this Agreement, and each of the parties acknowledges that they have relied on their own judgment in entering into this Agreement.

Section 15. Successors and Assigns; Survival of Rights and Obligations.

(a)

Binding Agreement; Employee’s Personal Agreement. This Agreement shall be binding upon and inure to the benefit of Employee and Employee’s heirs and legal representatives and Employer and its successors and assigns. Employee’s rights and obligations under this Agreement are personal and may not be assigned or transferred in whole or in part by Employee (except that his rights may be transferred upon his death by will, trust, or the laws of intestacy).

(b)

Employer’s Successor. Employer will require any successor to all or substantially all of the business and assets of Employer (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place; except that no such assumption and agreement will be required if the successor is bound by operation of law to perform this Agreement. In this Agreement, “Employer” shall include any successor to Employer’s business and assets that assumes and agrees to perform this Agreement (either by agreement or by operation of law).


(c)	Survival. The respective rights and obligations of Employer and Employee under this Agreement (including Sections 7, 9, 10, 11, 12, 15 and 17) shall survive the expiration or termination of the Term to the extent necessary to give full effect to those rights and obligations.

Section 16. Notices. All notices, requests, demands, and other communications shall be in writing and shall be given by registered or certified mail, postage prepaid, to the addresses shown on the first page of this Agreement, or to such subsequent addresses as the parties shall so designate in writing.

Section 17. Dispute Resolution.

(a)

or protect its rights under Sections 6, 7 and 11. Any arbitration may be requested or initiated by a party to the Dispute by written notice to the other party or parties to the Dispute specifying the subject of the requested arbitration and preparing the name of an arbitrator (“Arbitration Notice”).


(b)	Arbitrators. Arbitration shall be before a single arbitrator agreed upon by Employer and Employee (collectively, the “Parties”). If the Parties are unable to agree upon the selection of an arbitrator, then the Parties shall request that the American Arbitration Association in Dallas, Texas appoint an arbitrator.

(c)

Award and Costs. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The costs of arbitration (exclusive of the expense of a party to the Dispute in obtaining and presenting evidence and attending the arbitration and of the fees and expenses of legal counsel to a party to the dispute, all of which shall be borne by that party to the Dispute) shall be borne by Employer if Employee receives substantially the relief sought by him in the arbitration, whether by settlement, award, or judgment; otherwise, the costs shall be borne one-half by Employer and one-half by Employee. The arbitration determination or award shall be final and conclusive on the parties to the Dispute, and judgment upon such award may be entered and enforced in any court of competent jurisdiction.

Section 18. Tax Withholding. Employer shall be entitled to deduct and withhold from payments made under this Agreement all amounts required to satisfy its withholding obligations with respect to income, employment and any other applicable taxes.

Section 19. Limitation on Payments. Notwithstanding anything in this Agreement to the contrary, if the total of the payments and benefits under this Agreement, together with any other payments or benefits received by Employee from Employer, will be an amount that would cause them to be a “parachute payment” within the meaning of Section 280G(b)(2)(A) of the Code (the “Parachute Payment Amount”), then such payments under this Agreement shall be reduced so that the total amount thereof is $1 less than the Parachute Payment Amount.

Section 20. Attorney’s Fees. If any arbitration proceeding or any action for injunctive or declaratory relief is brought to enforce or interpret the provisions of this Agreement, attorney’s fees shall be borne by Employer if Employee is the prevailing party (or receives substantially the relief sought by Employee), otherwise each party will be responsible for its own attorney’s fees.

Section 21. Additional Obligations. During and after the Term, Employee shall, upon reasonable notice from Employer, furnish Employer with such information as may be in Employee’s possession, and cooperate with Employer as may reasonably be requested by Employer, in connection with any legal or governmental proceedings in which Employer or any of its affiliates is or may become a party. Employer shall reimburse Employee for his reasonable expenses in fulfilling his obligations under this Section 21 promptly, but in no event later than the last day of the calendar year following the calendar year in which Employee incurs the expense.

Section 22. Amendment. Any modification, amendment or change of this Agreement will be effective only if it is in a writing signed by both parties.

Section 23. Governing Law; Interpretation. This Agreement, and all transactions contemplated by this Agreement, shall be governed by, construed, and enforced in accordance with the laws of the State of Texas. This Agreement shall be construed and interpreted by the Board and such determination shall be final, binding and conclusive on all parties.

Section 24. Interpretive Matters. Whenever required by the context, pronouns and any variation thereof shall be deemed to refer to the masculine, feminine, or neuter, and the singular shall include the plural, and vice versa. The terms “include” and “including” do not denote or imply any limitation. The captions and headings used in this Agreement are inserted for convenience of the parties and shall not be deemed a part of this Agreement for construction or interpretation purposes.

IN WITNESS WHEREOF, the parties have executed this Agreement on this 30th day of December, 2014.

EMPLOYEE: EMPLOYER:

RBC LIFE SCIENCES, INC.

/s/ Steven E. Brown By: /s/ Daley L. Seeker

Steven E. Brown Daley L. Seeker

Chief Financial Officer and Vice

President-Finance

EXHIBIT 10.10

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 29th day of December, 2014, by and between RBC Life Sciences, Inc. (“Employer”), located at 2301 Crown Court, Irving, Texas 75038, and Douglas R. Wheeler (“Employee”), residing at 2703 Shadow Drive West, Arlington, Texas 76006.

W I T N E S S E T H:

WHEREAS, Employer desires to employ Employee, and Employee desires to accept employment with Employer, on the terms and conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and promises set forth in this Agreement, Employer and Employee hereby agree as follows:


Section 1.	Effective Date and Purpose. The effective date of this Agreement shall be January 1, 2015 (the “Effective Date”). This Agreement sets forth the terms and conditions of Employee’s employment with Employer on and after the Effective Date during the term hereof.

Section 2. Employment Title and Duties. Employer shall employ Employee in the capacity of Vice President - Operations. In this capacity, Employee shall have the responsibility to perform all duties that are customarily performed by one holding that position in other, same, or similar businesses or enterprises as that engaged in by Employer. Employee accepts this employment, subject to the general supervision and pursuant to the orders and direction of Employer’s Chief Executive Officer (the “CEO”). Employee shall also render such other services and duties, consistent with such capacity, as may be assigned from time to time by the CEO.

Section 3. Compensation of Employee. Employer shall pay Employee, in full payment for Employee’s services and covenants under this Agreement, the following compensation:

(a)

Salary. During his employment pursuant to this Agreement, Employee’s annual base salary shall be $138,000 payable bi-weekly in equal payments of $5,307.69 in accordance with Employer’s customary payroll practices. Employee’s annual base salary may be increased during the term of this Agreement subject to business conditions and Employee’s performance, as recommended by the CEO to the Compensation Committee (the “Compensation Committee”) of Employer’s Board of Directors (the “Board”). The Compensation Committee and the CEO shall review and make a joint decision in accordance with the Compensation Committee Charter.

(b)


(c)	Health and Welfare Benefits. During his employment, Employee shall be eligible to participate in the health and welfare benefit plans and programs offered from time to time by Employer for its similarly situated employees, upon the terms and subject to conditions of such plans and programs.

or in any other capacity in any other business similar to Employer’s business, any allied trade, or any business offering a competing or alternative product or service. However, nothing contained in this section shall prevent or limit Employee from continuing to receive the benefits of relationships previously disclosed and approved by the CEO in writing or investing in the capital stock or other securities of any corporation whose stock or securities are publicly owned and traded on any public exchange, nor shall anything contained in this Section 6. prevent or limit Employee from investing in real estate.


Section 8.	Term. The term of this Agreement (the “Term”) shall be effective for a period of one (1) year beginning on January 1, 2015 and ending on December 31, 2015.

Section 9. Termination of Employment.


(a)	Termination by Employer for Cause. Employer may immediately terminate the employment of Employee under this Agreement for Cause (as defined below) at any time by giving written notice of termination to Employee without prejudice to any other remedy to which Employer may be entitled either at law, in equity, or under this

Agreement. In the event Employee’s employment under this Agreement is terminated for Cause pursuant to this Section 9(a), Employer shall pay to Employee his monthly base salary up to the date of his termination of employment (the “Termination Date”) in a single lump sum payment on the first regularly scheduled payroll date of Employer following the Termination Date and Employee shall not be entitled to any other compensation or benefits under this Agreement.

(b)

(c)


(d)	Disability of Employee. Should Employee be unable to perform his duties under this Agreement by reason of Employee’s inability to perform the essential functions of the position for a period of six (6) months, as determined

by the Board in its sole discretion, Employer shall have the right to terminate this Agreement upon written notice to Employee. During the six (6) month period that Employee fails to perform his duties as a result of his inability to perform the essential functions of the position, Employer will continue to pay Employee Employee’s monthly base salary based on its customary payroll practices, reduced by any disability payments received by Employee from a disability program made available by Employer, and Employee shall be treated as on a bona fide leave of absence. In the event Employee’s employment under this Agreement is terminated by reason of Employee’s disability pursuant to this Section 9(d), Employer shall pay to Employee his monthly base salary up to the termination Date, plus an amount equal to Employee’s accrued, unused PTO, not to exceed 520 hours paid in a single sum payment on the first regularly scheduled payroll date of Employer following the Termination Date, and Employee shall not be entitled to any other compensation or benefits under this Agreement. The amounts paid pursuant to this Section 9(d) shall be reduced by all amounts withheld and deducted pursuant to Section 18.

(e)

Section 10. Section 409A.

(a)

(b)

(c)

(d)

Notwithstanding anything to the contrary in this Agreement, reimbursement requests must be timely submitted by Employee and, if timely submitted, reimbursement payments shall be made to Employee as soon as administratively practicable following such submission in accordance with Employer’s policies regarding reimbursements, but in no event later than the last day of Employee’s taxable year following the taxable year in which the expense was incurred. This Section shall only apply to in-kind benefits and reimbursements that would result in taxable compensation income to Employee.


(a)	Employee shall not, directly or indirectly, without written approval of the CEO, solicit or induce, or attempt to solicit or induce, any employee of Employer or other person providing services to Employer to alter, leave or cease his employment or other service relationship with Employer, for any reason whatsoever;


(b)	In an executive, financial, sales, or operational capacity, Employee shall not, directly or indirectly, without written approval of the CEO, accept employment from or provide competitive services or assistance to any current customer of Employer with whom Employee has had any contact during his employment with Employer; and

(c)

Employee shall not solicit or attempt to solicit Employer’s current customers (defined as all customers of Employer within the 12 months preceding Employee’s termination of employment) with respect to which Employee had confidential information or with whom Employee had any contact during his employment with Employer to purchase services or products that are competitive with those marketed, offered for sale and/or under any stage of development by Employer as of the date of Employee’s termination of employment with Employer.

Notwithstanding the foregoing provisions, Employer shall not unreasonably restrict Employee’s ability to serve on boards of directors of other companies.

Section 12.

Section 15. Successors and Assigns; Survival of Rights and Obligations.

(a)

(b)


(c)	Survival. The respective rights and obligations of Employer and Employee under this Agreement (including Sections 7, 9, 10, 11, 12, 15 and 17) shall survive the expiration or termination of the Term to the extent necessary to give full effect to those rights and obligations.

Section 17. Dispute Resolution.

(a)

Arbitration. The exclusive remedy or method of resolving all disputes or questions arising out of or relating to this Agreement (including its expiration or termination) or the expiration or termination of Employee’s employment hereunder (“Disputes”) shall be arbitration held in Dallas, Texas. Nevertheless, although disputes or questions arising out of or relating to Sections 6, 7 and 11 shall be subject to arbitration, Employer shall not be precluded from also seeking and obtaining injunctive relief from any court of proper jurisdiction to enforce or protect its rights under Sections 6, 7 and 11. Any arbitration may be requested or initiated by a party to the Dispute by written notice to the other party or parties to the Dispute specifying the subject of the requested arbitration and preparing the name of an arbitrator (“Arbitration Notice”).


(b)	Arbitrators. Arbitration shall be before a single arbitrator agreed upon by Employer and Employee (collectively, the “Parties”). If the Parties are unable to agree upon the selection of an arbitrator, then the Parties shall request that the American Arbitration Association in Dallas, Texas appoint an arbitrator.

(c)

Section 22. Amendment. Any modification, amendment or change of this Agreement will be effective only if it is in a writing signed by both parties.

IN WITNESS WHEREOF, the parties have executed this Agreement on this 29th day of December, 2014.

EMPLOYEE: EMPLOYER:

RBC LIFE SCIENCES, INC.

/s/ Douglas R. Wheeler By: /s/ Steven E. Brown

Douglas R. Wheeler Steven E. Brown

President

EXHIBIT 21.1

List of Company Subsidiaries



Subsidiary	Jurisdiction of Incorporation/Organization

RBC Life Sciences USA, Inc.		Texas
MPM Medical, Inc.		Texas
RBC Life Sciences Canada, Inc.		Canada
RBC Life Sciences Hong Kong Limited		Hong Kong

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We have issued our report dated March 31, 2015, relating to the consolidated financial statements included in the Annual Report of RBC Life Sciences, Inc. and Subsidiaries on Form 10-K for the year ended December 31, 2014. We hereby consent to the incorporation by reference of said report in the Registration Statements of RBC Life Sciences, Inc. and Subsidiaries on Form S-8 (File No. 333-109723 and File No. 333-139606.



/s/ Lane Gorman Trubitt, PLLC.
LANE GORMAN TRUBITT, PLLC.

Dallas, Texas
March 31, 2015

EXHIBIT 31.1

SECTION 302 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Steven E. Brown, certify that:


1.	I have reviewed this annual report on Form 10-K of RBC Life Sciences, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 31, 2015



	/s/ Steven E. Brown
	Steven E. Brown
	Chief Executive Officer

EXHIBIT 31.2

SECTION 302 - CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Daley L. Seeker, certify that:


1.	I have reviewed this annual report on Form 10-K of RBC Life Sciences, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 31, 2015



	/s/ Daley L. Seeker
	Daley L. Seeker
	Vice President - Finance and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of RBC Life Sciences, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven E. Brown, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



	/s/ Steven E. Brown
	Steven E. Brown
	Chief Executive Officer
	March 31, 2015

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of RBC Life Sciences, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daley L. Seeker, Vice President - Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



	/s/ Daley L. Seeker
	Daley L. Seeker
	Vice President - Finance and Chief Financial Officer
	March 31, 2015

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