FITLIFE BRANDS, INC. quarterly report, Q1 FY2012

Business Context and Reporting Period

The supplied filing is a Form 10-Q for Bond Laboratories, Inc., not FitLife Brands, Inc. It covers the quarter ended March 31, 2012 and was filed May 21, 2012. Bond Laboratories, through NDS Nutrition Products, Inc., develops and distributes nutritional supplements, primarily through GNC franchise locations. The company reported more than 50 products across over 750 GNC franchise locations, compared with approximately 600 locations in the prior-year period.

The interim financial statements are unaudited and omit certain disclosures required for complete GAAP financial statements. Management stated that results for the quarter are not necessarily indicative of full-year results.

Financial Performance and Position

Metric	Q1 2012	Q1 2011
Revenue	$4.956 million	$2.989 million
Gross profit	$1.748 million	$1.066 million
Gross margin	35.3%	35.6%
Operating income	$720,378	$106,572
Operating margin	14.5%	3.6%
Net income	$719,906	$97,115
Net margin	14.5%	3.2%
Basic earnings per share	$0.01	$0.00
Diluted earnings per share	$0.01	$0.00
Cash provided by operating activities	$532,182	$141,047

• Revenue increased approximately 65.8%, primarily due to more GNC locations, higher sales per location, and new products.
• Gross profit increased approximately 64.0%, while gross margin declined modestly from 35.6% to 35.3%.
• General and administrative expense declined to $521,306 from $584,278. Selling and marketing expense increased to $443,425 from $307,228.
• Cash increased to $887,111 at March 31, 2012 from $354,929 at December 31, 2011. Accounts receivable increased to $1.706 million and inventory to $2.009 million.
• Total assets were $6.092 million and total liabilities were $2.156 million at March 31, 2012. The current ratio was approximately 2.15.
• The company had a $437,089 revolving line of credit, classified as current, bearing interest at 3.5% plus one-month LIBOR and maturing May 15, 2012. It was secured by specified receivables and inventory.
• Operating cash flow benefited from net income and increased accounts payable, but was reduced by a $663,315 increase in accounts receivable and a $131,954 increase in inventory.
• No investing cash flows occurred. Financing cash flow was zero in Q1 2012, compared with a $47,510 use in Q1 2011.

Material Changes Versus the Prior Comparable Period

• Net income increased approximately 642%, from $97,115 to $719,906, primarily reflecting higher sales and operating leverage.
• Operating income increased approximately 576%, from $106,572 to $720,378.
• Operating expenses increased approximately 7.1% overall, despite the revenue growth, because lower general and administrative costs partly offset higher selling and marketing spending.
• Operating cash flow increased approximately 277% to $532,182.
• Basic weighted-average shares increased to 74.3 million from 72.2 million, while diluted weighted-average shares increased to 94.8 million from 93.7 million.
• The accumulated deficit improved to $24.419 million from $25.139 million, although Series B preferred stock dividends accumulated to $629,251.

Guidance, Outlook, Risks, Contingencies, and Unusual Items

• Management expected existing cash resources and anticipated operating cash flow to support liquidity through at least December 31, 2012, but noted that additional financing could be required if positive operating cash flow is not sustained.
• Approximately 35% of Q1 2012 revenue came from products containing DMAA. The company planned to introduce reformulated products excluding DMAA in Q2 2012 and warned that weaker sales of the reformulated products could materially affect revenue.
• The FDA had questioned the safety and regulatory status of DMAA. The company identified potential product-liability exposure and stated that insurance may be insufficient.
• The company had objected to an OSHA order related to former President Eric Schick, which included potential damages and reinstatement. It recorded a $250,000 litigation reserve, but stated that the reserve could be inadequate if the matter resulted in an adverse judgment or settlement.
• A separate CycloBolan product-liability lawsuit sought approximately $500,000 in damages. The insurer assumed the defense, and management characterized the company’s risk as minimal.
• The company restored $283,000 of deferred-tax valuation allowance based on expected use of net operating losses, but retained a full valuation allowance against remaining deferred tax assets. The filing does not provide a clear amount of recognized income-tax benefit from this action.
• During the quarter, 127,007 common shares were issued for services, recorded at $10,161. Subsequent to quarter-end, additional restricted shares and options were issued to officers and directors.
• Management reported effective disclosure controls and internal control over financial reporting as of March 31, 2012. The filing was submitted by a small reporting company and did not include an independent auditor attestation on internal controls.

Important Facts for Investors to Verify

• Confirm the issuer identity: the supplied filing is for Bond Laboratories, Inc. with trading symbol BNLB, while the request identifies FitLife Brands, Inc.
• Verify the status and renewal or repayment terms of the $437,089 line of credit maturing May 15, 2012.
• Assess the effect of replacing DMAA-containing products on revenue, margins, regulatory compliance, and product-liability exposure.
• Review the OSHA litigation, potential damages, reinstatement order, and whether the $250,000 reserve remains adequate.
• Monitor working-capital conversion, particularly the sharp increases in accounts receivable and inventory relative to year-end.
• Evaluate dilution from 15.0 million warrants, 500,000 options, Series C preferred shares convertible into 5.0 million common shares, and subsequent equity awards.
• Confirm the availability and Section 382 limitations of net operating loss carryforwards and the potential for future changes in the tax valuation allowance.