Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended March 31, 2013. Although the request identifies FitLife Brands, Inc., the filing names the registrant as Bond Laboratories, Inc. (OTCQB: BNLB), headquartered in Omaha, Nebraska. The company develops, manufactures, and markets nutritional supplements through NDS Nutrition Products, Inc., primarily to GNC franchise locations in the United States and to international markets.
The interim consolidated financial statements are unaudited and should be read with the company’s 2012 Form 10-K. Management states that results for the quarter are not necessarily indicative of full-year 2013 results.
Key Financial Metrics
| Metric | Three Months Ended March 31, 2013 | Three Months Ended March 31, 2012 |
|---|---|---|
| Revenue | $6.061 million | $4.956 million |
| Gross profit | $2.270 million | $1.748 million |
| Gross margin | 37.4% | 35.3% |
| Operating income | $603,286 | $720,378 |
| Operating margin | 10.0% | 14.5% |
| Net income | $587,415 | $719,906 |
| Net margin | 9.7% | 14.5% |
| Basic diluted EPS | $0.01 / $0.01 | $0.01 / $0.01 |
| Cash from operating activities | $(127,540) | $532,182 |
- Liquidity: Cash was $709,370 at March 31, 2013, down from $936,911 at December 31, 2012. Current assets were $6.903 million and current liabilities were $1.481 million, producing working capital of $5.423 million.
- Debt: The company had $437,089 outstanding under a revolving line of credit bearing interest at 3.0% plus one-month LIBOR. The line was secured by specified receivables and inventory and matured May 15, 2013. No long-term debt was reported.
- Cash flow: Operating cash flow was negatively affected by a $1.070 million increase in accounts receivable and a $418,000 reduction in accounts payable. Investing cash flow included a $100,000 long-term investment. There were no financing cash flows.
- Balance sheet: Total assets were $8.223 million, including $2.039 million of accounts receivable, $3.392 million of inventory, and $1.202 million of net intangible assets. Stockholders’ equity was $6.742 million.
- Share count and dilution: 77,753,482 common shares were outstanding as of May 10, 2013. Diluted weighted-average shares were 90.111 million, including potential shares from Series C preferred stock, warrants, and options.
Material Changes Versus the Prior Comparable Period
- Revenue increased 22.3% to $6.061 million, attributed to strong sales of recently introduced products, higher average sales per retail location, and initial international expansion.
- Gross profit increased 29.9%, and gross margin improved by approximately 2.2 percentage points.
- Operating income declined 16.3% because operating expenses rose faster than gross profit. General and administrative expense increased 91.4% to $997,743, while selling and marketing expense increased 37.6% to $610,089.
- Net income declined 18.4% to $587,415. Management states that excluding non-cash stock-based compensation, adjusted net income would have been approximately $937,085 versus $730,067 in the prior-year quarter; this is a management-presented measure and is not a GAAP metric.
- The company issued 3.0 million common shares for services and recorded $330,000 of expense. It also issued 600,000 options to employees and directors and recorded $19,670 of expense.
- Operating cash flow changed from $532,182 provided in the prior-year quarter to $127,540 used, primarily because of higher receivables and lower accounts payable.
- Inventory declined from $3.685 million at December 31, 2012 to $3.392 million at March 31, 2013, while accounts receivable increased from $969,111 to $2.039 million.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects existing cash resources and anticipated operating cash flow to support liquidity through at least December 31, 2013, but provides no assurance. Management also expects positive operating cash flow for the quarter ending June 30, 2013 and for full-year 2013.
- Management expects continued store expansion, additional approved products, and international expansion to support future revenue growth. Selling and marketing expense is expected to rise with sales, although management expects it to increase at a lower rate.
- The company expects to pay an additional $60,000 through December 31, 2013 under the settlement of former President Eric Schick’s employment litigation. The total settlement was $360,000, with $180,000 paid upfront and the balance payable over twelve months.
- A product-liability lawsuit involving discontinued CycloBolan products seeks damages believed to exceed $500,000. The insurer has assumed the defense at no cost to the company, and management considers the company’s overall risk minimal; the potential loss could not yet be evaluated.
- The company has approximately $22 million of federal net operating loss carryforwards available through 2031, but a valuation allowance has been recorded against the related deferred tax benefits because their realization is uncertain. A $689,000 deferred tax asset remained on the balance sheet.
- Key stated risks include dependence on key customers, competition, market demand, product performance, supplier relationships, personnel retention, international expansion, and changes in accounting requirements.
- On May 8, 2013, the company terminated its consulting agreement with Burnham Hill Advisors LLC and entered into a three-year employment agreement with CFO Michael Abrams, effective May 1, 2013. Burnham Hill Advisors received $40,500 during the quarter and is related to company insiders.
- Management reported effective disclosure controls and internal control over financial reporting as of March 31, 2013. The filing was not subject to an external auditor attestation of internal controls.
Important Facts for Investors to Verify
- Confirm the registrant’s identity and ticker, because the supplied company name is FitLife Brands, Inc., while the filing identifies Bond Laboratories, Inc.
- Verify whether the $437,089 revolving credit balance was refinanced, repaid, or renewed after its May 15, 2013 maturity date.
- Monitor collection of the sharply higher accounts receivable balance and the resulting effect on operating cash flow.
- Assess the impact of the 3.0 million shares issued for services, outstanding options, warrants, and convertible preferred stock on future dilution.
- Evaluate whether revenue growth and gross-margin improvement can offset higher general and administrative and selling and marketing costs.
- Review subsequent filings for developments in the CycloBolan litigation, the Schick settlement payments, the related-party CFO arrangements, and the deferred tax asset valuation allowance.