Business Context and Reporting Period
This Form 10-Q, filed August 12, 2011, covers the three and six months ended June 30, 2011. The filing identifies the registrant as Bond Laboratories, Inc., although the request metadata identifies FitLife Brands, Inc. The company develops and markets nutritional supplements, primarily through NDS Nutrition Products, Inc., with products distributed predominantly through GNC franchise locations. Management is focusing resources on NDS and evaluating a sale, spin-off, liquidation, or other disposition of the Fusion Premium Beverages division.
The interim consolidated financial statements are unaudited and were prepared under GAAP. Management stated that the results for the six months ended June 30, 2011 are not necessarily indicative of full-year results.
Financial Performance and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $3.169 million, versus $2.028 million | $6.159 million, versus $4.401 million |
| Gross profit | $1.127 million, versus $0.609 million | $2.192 million, versus $1.309 million |
| Operating income/(loss) | $0.405 million, versus $(0.416) million | $0.511 million, versus $(0.975) million |
| Net income/(loss) | $0.395 million, versus $(0.466) million | $0.492 million, versus $(1.021) million |
| Basic EPS | $0.01, versus $(0.01) | $0.01, versus $(0.02) |
- Revenue increased approximately 56% for the quarter and 40% for the six-month period.
- Gross margin was approximately 35.6% for both the quarter and six-month period, compared with approximately 30.0% for the corresponding 2010 periods.
- Operating margin was approximately 12.8% for the quarter and 8.3% for the six months; net margin was approximately 12.5% and 8.0%, respectively.
- At June 30, 2011, cash was $263,932, accounts receivable were $1.269 million, inventory was $1.975 million, and total current assets were $3.561 million.
- Total liabilities were $1.770 million, consisting entirely of current liabilities. Debt included a $98,500 secured promissory note and a $437,089 revolving line of credit. The note matures December 1, 2011; the line of credit matures May 15, 2012 and is secured by NDS receivables and inventory.
- Stockholders’ equity was $3.441 million. Series B preferred stock had accumulated dividends of $510,567.
- Cash used in operating activities was $(86,712) for the six months. Investing activities provided $1,200, while financing activities used $96,218. Cash declined by $181,730 from December 31, 2010.
Material Changes Versus the Prior Comparable Period
- Growth was attributed to increased GNC franchise distribution, more products approved for sale, and launches including Cardio Cuts and Intensify Xtreme. The company marketed approximately 50 products through more than 600 GNC franchise locations.
- Gross margin improved because of the strategic emphasis on higher-margin NDS products and the discontinuation of Fusion Premium Beverages product sales.
- General and administrative expense declined 34% for the quarter and 34% for the six months, while selling and marketing expense declined 38% and 20%, respectively.
- The company shifted from operating losses to profitability, primarily due to higher NDS sales and lower operating expenses.
- Accounts receivable increased from $574,616 at December 31, 2010 to $1.269 million, and inventory increased from $1.474 million to $1.975 million, contributing to negative operating cash flow.
- Accounts payable increased from $508,146 to $1.124 million, while the note payable declined from $194,718 to $98,500.
- Common shares outstanding increased from 72,198,246 at December 31, 2010 to 72,824,496 at June 30, 2011. The filing also disclosed 15,999,832 warrants and 500,000 options outstanding.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected existing cash resources and anticipated operating cash flow to provide liquidity through at least December 31, 2011, but stated that additional financing could be required if positive operating cash flow is not achieved.
- Management believed the company could generate sufficient operating cash flow for working capital needs beyond December 31, 2011, but provided no assurance.
- Principal business risks include reliance on key customers, competition, market demand, product performance, supplier relationships, retention of personnel, and changes in accounting rules.
- An OSHA matter involving a former president resulted in a preliminary finding of reasonable cause and an estimated damages assessment of approximately $440,000. The company disputed the conclusions; no liability was recorded in the balance sheet.
- A product-liability lawsuit related to the discontinued CycloBolan product sought initial damages of $500,000. The insurer assumed the defense, and management considered the company’s overall risk minimal.
- The company restored $125,000 of valuation allowance related to deferred tax assets but maintained a full valuation allowance overall because realization of net operating losses was not considered more likely than not. The NOLs may be limited under Internal Revenue Code Section 382.
- During the quarter, the company issued shares and options for employee, management, and consultant services and cancelled certain previously issued shares and warrants, resulting in related expense reversals and charges.
- Management evaluated disclosure controls and internal control over financial reporting as effective as of June 30, 2011. The filing contained no independent auditor attestation of internal control effectiveness.
Important Facts for Investors to Verify
- Confirm the correct registrant identity, because the filing text names Bond Laboratories, Inc., while the request metadata names FitLife Brands, Inc.
- Review the company’s dependence on GNC distribution and the sustainability of recent NDS revenue growth and improved gross margins.
- Assess liquidity, including the $263,932 cash balance, negative operating cash flow, rising receivables and inventory, and debt maturities in December 2011 and May 2012.
- Evaluate dilution from Series C preferred stock, approximately 16.0 million warrants, options, and other equity issuances.
- Monitor the potential disposition of Fusion Premium Beverages and any resulting operational, accounting, or impairment consequences.
- Follow the OSHA proceeding, including any final determination, settlement, damages, or related cash requirement.
- Verify the company’s ability to use its federal and state net operating losses given the Section 382 limitations and the continuing valuation allowance.