FTLF

Business Context and Reporting Period

Company: Bond Laboratories, Inc. (trading as FITLIFE BRANDS, INC. in metadata, but identified as Bond Laboratories, Inc. in filing text; Symbol: BNLB).
Reporting Period: Fiscal Year Ended December 31, 2009.
Business Overview: A national provider of nutritional supplements and functional beverages operating through two primary divisions: NDS Nutrition Products, Inc. (supplements distributed via GNC) and Fusion Premium Beverages, Inc. (energy and anti-hangover drinks). The company is headquartered in Omaha, Nebraska, with a sales office in Dallas, Texas.

Key Financial Metrics

Cash Flow Summary: Net cash used in operating activities was $1,554,452 (2009) compared to $5,551,144 (2008). Net cash provided by financing activities was $2,356,091 (2009) compared to $7,059,727 (2008).

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 245% to $8.73 million, primarily driven by the acquisition of NDS Nutrition Products, Inc. (reflected since Oct 2008) and the launch of the "Resurrection" anti-hangover beverage.
• Margin Compression: Gross margin declined from 36% to 26%. Management attributes this to non-recurring expenses and the cost structure of the new product lines.
• Expense Surge: General and administrative expenses increased to $12.14 million from $4.28 million. This includes $8.78 million in non-cash, non-recurring expenses related to warrant issuances and stock issued for services.
• Adjusted Loss: Management notes that excluding non-cash/non-recurring expenses, the adjusted loss was $(1.86) million in 2009 compared to $(2.04) million in 2008.
• Debt Restructuring: In September 2009, various acquisition-related notes and earn-out obligations were consolidated into a new secured promissory note of $621,775.

Guidance, Risks, and Unusual Items

• Unusual Items: The reported net loss is heavily impacted by non-cash charges. Specifically, $4.15 million was recorded for stock issued for services and $5.29 million for warrant issuances (per cash flow statement adjustments).
• Liquidity: The company maintains a minimum of three months of working capital. It raised approximately $3.02 million in 2009 through private placements of common and preferred stock.
• Legal Proceedings: An OSHA complaint filed by former President Eric Schick alleges retaliatory termination for "whistleblowing." The company denies the allegations, but a finding in favor of the plaintiff could result in substantial penalties.
• Risk Factors:
  • Stock Liquidity: Shares trade on the OTC Bulletin Board (OTCBB) and are subject to "penny stock" regulations, limiting liquidity and increasing volatility.
  • Competition: The nutritional supplement industry is highly fragmented and competitive.
  • Internal Controls: The company is working to comply with Section 404 of the Sarbanes-Oxley Act; failure to do so could impact investor confidence.
  • Dividends: The company does not intend to pay cash dividends in the foreseeable future.
• Subsequent Events: In April 2010, the company converted the remaining 5,148,646 shares of Series A Preferred Stock to common stock.

Investor Verification Checklist

• Non-Cash Expense Impact: Verify the sustainability of operations by analyzing cash burn rates excluding the $13M+ in non-cash stock/warrant expenses.
• OSHA Litigation: Monitor the status of the OSHA complaint regarding former President Eric Schick for potential financial liability.
• Capital Requirements: Assess the need for future capital raises given the continued net loss and reliance on private placements.
• Stock Dilution: Review the impact of 15.4 million outstanding warrants and the recent conversion of Series A preferred stock on future earnings per share.
• Revenue Quality: Confirm the concentration of revenue among GNC franchise locations and the success of the new "Resurrection" beverage line.