Business Context and Reporting Period
Company: Bond Laboratories, Inc. (trading as FITLIFE BRANDS, INC. in metadata, but identified as Bond Laboratories in filing)
Reporting Period: Quarter and nine months ended September 30, 2009
Business Overview: A national provider of nutritional supplements and beverages operating through two primary divisions: NDS Nutrition (supplements) and Fusion Premium Beverages (energy and functional drinks, including "Resurrection" and "6+ Hour Energy Boost"). The company also established Vista Bottlers, Inc. in March 2009 for private label bottling.
Market Status: Small Business Issuer; trades on OTC:BB under symbol BNLB.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 2009 | 9 Months Ended Sep 30, 2008 | 3 Months Ended Sep 30, 2009 |
|---|---|---|---|
| Revenue | $6,961,317 | $1,126,659 | $2,204,650 |
| Cost of Goods Sold | $5,225,967 | $598,803 | $1,829,187 |
| Gross Profit | $1,735,350 | $527,856 | $375,463 |
| Gross Margin | 24.9% | 46.9% | 17.0% |
| Operating Loss | $(6,443,258) | $(3,755,432) | $(5,497,481) |
| Net Loss | $(6,437,378) | $(3,709,622) | $(5,536,657) |
| Cash Flow from Operations | $(1,273,306) | $(2,345,697) | N/A |
| Cash Balance (End of Period) | $1,290,219 | $1,490,068 | $1,290,219 |
| Total Debt (Current + Long Term) | $1,058,564 | $1,103,732 | $1,058,564 |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased significantly by 518% for the nine months ended September 30, 2009, compared to the prior year. This is attributed to the acquisition of NDS Nutrition (reflected since Oct 2008) and the launch of the "Resurrection" beverage.
- Expense Surge: General and Administrative (G&A) expenses skyrocketed to $7.44 million for the nine months (vs. $1.62 million in 2008). Management attributes $4.54 million of this increase to non-cash, non-recurring expenses related to the issuance of warrants in private placement transactions.
- Adjusted Performance: Excluding non-cash warrant expenses and other non-recurring items, the adjusted net loss for the nine months was $(731,953), a significant improvement over the reported loss of $(6.44 million).
- Debt Restructuring: The company consolidated several secured promissory notes into a new secured promissory note dated September 30, 2009, totaling $621,775, and established a $500,000 revolving line of credit with US Bank.
- Equity Dilution: Significant issuance of common stock and warrants occurred during the period to raise capital and settle debt. Outstanding warrants increased to 13,977,017.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items: The reported net loss is heavily distorted by a $4.25 million non-cash charge for warrant issuance in the third quarter alone. Additionally, the company recorded a valuation allowance against deferred tax assets in Q3 2009 due to continued operating losses, negating potential tax benefits.
- Liquidity: The company raised $2.75 million in gross proceeds from equity issuances during the nine-month period. Management states they have maintained a minimum of three months of working capital since 2005.
- Risk Factors:
- Penny Stock Status: Shares trade under $5.00, subjecting them to strict "penny stock" regulations that may limit liquidity and broker-dealer recommendations.
- Capital Needs: The company explicitly states it has limited capital and requires additional financing to pursue growth plans; failure to secure this could materially adversely affect the business.
- Internal Controls: The company lacks an independent audit committee and notes inherent limitations in internal controls due to its small size.
- Subsequent Events: Post-period settlements were reached regarding legal claims with Fusion Packaging I, LP and Stan Pate. Additional equity was issued in October/November 2009 to raise $171,950 and eliminate $34,500 of debt.
Investor Verification Checklist
- Non-Cash Charges: Verify the impact of the $4.54 million warrant issuance expense on the reported net loss; the company claims this is non-recurring.
- Warrant Overhang: Assess the dilution risk from 13.9 million outstanding warrants with exercise prices ranging from $0.14 to $1.50.
- Debt Covenants: Review the terms of the new $621,775 secured note and the $500,000 US Bank line of credit for repayment schedules and potential default triggers.
- Revenue Quality: Confirm the sustainability of the revenue spike driven by the NDS acquisition and "Resurrection" product launch.
- Related Party Transactions: Scrutinize the $100,000 note payable to an affiliate and the conversion of affiliate debt to equity.