Business Context and Reporting Period
Company: Bond Laboratories, Inc. (trading as BNLB on OTCQB)
Reporting Period: Fiscal Year Ended December 31, 2010
Business Overview: Bond Laboratories is a national provider of nutritional supplements, primarily marketed through its subsidiary NDS Nutrition Products, Inc. The company distributes sports, weight loss, and general nutrition products to over 600 General Nutrition Centers (GNC) franchise locations. Management is currently evaluating plans to divest its Fusion Premium Beverages division, which contributed minimal revenue but significant write-offs in 2010.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Revenue | $8,148,053 | $8,734,590 |
| Gross Profit | $2,028,682 | $2,243,223 |
| Gross Margin | 24.9% | 25.7% |
| Net Loss | $(3,178,031) | $(10,782,715) |
| Operating Loss | $(3,100,780) | $(10,783,603) |
| Cash Used in Operating Activities | $(1,854,018) | $(1,554,452) |
| Cash and Equivalents (Ending) | $445,662 | $1,036,213 |
| Total Debt (Current) | $631,807 | $1,058,564 |
| Working Capital | $1,193,209 | $1,799,938 |
Note: 2009 results included $8.78 million in non-cash, non-recurring expenses. Adjusted net loss for 2010 was approximately $448,706.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by 6.7% to $8.15 million. However, excluding discontinued product lines and the Fusion Premium Beverages division, core revenue increased from $6.51 million in 2009 to $7.64 million in 2010.
- Significant Write-offs: The company recorded $509,943 in write-offs for expired inventory and receivables related to the Fusion Premium Beverages division.
- Expense Reduction: General and administrative expenses dropped significantly from $12.14 million in 2009 to $3.17 million in 2010, largely due to the absence of $8.78 million in non-cash, non-recurring charges recorded in the prior year.
- Debt Reduction: Total notes payable decreased by approximately $426,000, driven by the conversion of bridge notes into common stock and repayments.
- Inventory Reduction: Inventory levels decreased by $612,511 (from $2.09M to $1.47M), reflecting the write-down of the Fusion division assets.
Guidance, Outlook, Risks, and Contingencies
Outlook and Strategy: Management intends to focus working capital on the NDS product line and is evaluating the sale, spin-off, or liquidation of the Fusion Premium Beverages division. The company raised $1.67 million in gross proceeds during 2010 (including $1.25 million from Series C Preferred Stock) to fund operations through at least June 30, 2011.
Material Risks:
- Litigation (OSHA): OSHA issued a preliminary report finding reasonable cause to believe the company violated the Sarbanes-Oxley Act regarding the termination of a former President. OSHA estimated damages at approximately $440,000. The company has refuted these findings, but a final determination could result in significant costs.
- Customer Concentration: Sales to GNC franchisees represented 95% of NDS Nutrition Products sales. Loss of this channel would materially impact revenue.
- Liquidity: The company has a history of operating losses and an accumulated deficit of $25.58 million. Continued operations depend on achieving positive cash flow or securing additional financing.
- Regulatory: The company is subject to extensive FDA and FTC regulations regarding product formulation, labeling, and advertising claims.
Investor Verification Checklist
- OSHA Litigation Status: Verify the final outcome of the OSHA complaint regarding the former President and the potential $440,000 liability.
- Fusion Division Disposition: Confirm the timeline and terms for the planned sale or liquidation of the Fusion Premium Beverages division.
- GNC Contract Stability: Assess the security of the distribution agreement with GNC franchisees, given the 95% revenue concentration.
- Cash Runway: Monitor cash burn rates to determine if the company will require additional equity or debt financing before achieving profitability.
- Non-Recurring Adjustments: Review the specific nature of the "non-cash, non-recurring" expenses excluded from management's adjusted loss figures to ensure they are truly one-time items.