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Bond Labs Interview

Participants

• Dominick Bianco
• Scott Landow

Dominick Bianco:This is Dominick Bianco, Senior Financial Analyst of SmallCapProfits.com. I am here today with the Directors of Bond Labs, BNLB on the OTC Bulletin Board, Elorian Landers - Director and Scott Landow, Chairman of the Board, CFO and founder. Gentlemen, thank you for joining me here today. Would you begin by telling us a little about your company and what you expect over the next couple of months with some of your products?

Scott Landow: Bond Labs is a brand development and marketing company. What I mean by that is we set Bond up about 5 years ago to recognize the opportunity in the fortified foods and beverages category. Basically, instead of taking vitamins for the sake of taking vitamins, scientists were going to get smart but putting them into your food or drinks because today people move at a faster pace. Nobody likes to take pills anyhow. We set out to find different products that would enable us to become endeared to distributors like the direct store delivery companies. Bond would continuously feed products to build the brand, supported with marketing. We basically wanted to develop cross-country distribution. With that, we began to recognize early on the energy market. Our first product in was a 2 oz. shot called Fusion, which would be similar to 5-hour Energy. The first year, Fusion we went to #7 in the category. We looked at the category and determined it was getting overcrowded. So we quietly moved Fusion Energy to the sidelines while developing other opportunities.

In September 2008 Bond acquired NDS Nutrition, a sports nutrition dietary supplement business. We found the innovation in this sector, which was coming from the sports nutrition market, something we wanted to become part of. People who are athletes, who are very conscious of their body and want to improve what they do and excel at what they do, are always looking for new ingredients which will reduce recovery time and enable them workout longer.

From time to time you will see products migrate from sports nutrition into the main distribution network of mass consumers. Therefore, it offered two things for us: an incubator to develop new and exciting things; and a great business. When we acquired NDS it revenue about $6 million, dropping 10% to the bottom line. The first year, we were able to grow it by 29%. We see a tremendous opportunity in this business. Bond Labs makes about 50 products, primarily to help people workout longer and feel less fatigue while working out or losing weight, etc. NDS has also given us access to distribution in specialty retail, primarily in the GNC franchise system, but also in vitamin stores and gyms. These are great testing grounds because those are people who are very demanding on their products. They know the difference between good and bad supplements. They don’t just buy store brands – they buy specific brands. They’re very brand loyal to a product that works. We combine that with what we’ve achieved in the energy drink category which is distributed in convenience and drug stores, like Duane Reade who we have a relationship with as well as Big Y Grocery stores. We have the attention and relationships with some very strong distributors of high quality products. Bond’s goal to stay in the forefront and continue to incubate and develop new products that fit a niche to the highest quality possible. In GNC, three of the top five productssold in their system are ours. They’re not the cheapest by far, but the customer and the proprietor of the store recognize that ours are the ones that work. Ours are the ones that have the highest quality ingredients. We are a rapidly growing company and we expect to continue to grow but in a controlled fashion. We have gone out specifically and looked for the best talent to do the job we required from companies like Coca Cola, Pepsi Cola, Dr. Pepper, Monster, Rock Star. These are people who understand manufacturing, sales and distribution.

Dominick Bianco:Do you manufacture yourself or do you outsource the manufacturing?

Scott Landow: Everything is done by contract manufacturing. We don’t believe in owning hard assets because there is so much capacity out there. It’s a very competitive landscape.

Elorian Landers: The company is divided into 2 divisions – Fusion Premium Beverages, which produces functional beverages, and NDS, which produces sports nutrition and weight loss supplements. Each of those companies have designers and developers of nutritional supplements and functional beverages. We use sources in the U.S. to blend and package.

Dominick Bianco: Who are your top competitors concerning the Fusion beverage?

Scott Landow: It’s a new category which is a big advantage and also a challenge because we haveto educate the distributor, retailer, and consumer. But, if you look out there, nobody else has successfully launched a beverage of this nature.

Elorian Landers: Scott Landow is referring to a beverage called Resurrection, which is an anti-hangover drink. In the process of doing that we created a new category. So currently, we are it in that category.

Scott Landow: Our competitor is the history of pills that people have taken in the past that don’twork. Our competitor is the thought in someone’s mind that there is nothing that can prevent a hangover. There is not another drink out there that actually works. So when we go into a retailer, we are not fighting for space with a product that already provides hangover prevention. We are creating a space for new revenue that the retailer would not have gotten otherwise.

Dominick Bianco:So Resurrection is the only product in Fusion beverage?

Scott Landow: Correct.Elorian Landers:There were 2. There was an energy shot. We still sell it, but we backed off in order to focus our attention on Resurrection the anti-hangover drink.

Dominick Bianco: How do you plan on marketing this Resurrection?
Elorian Landers:We currently have 82 Anheuser-Busch and Miller-Coors distributors in 20 states. If you drew a line from Texas to Chicago and east to Virginia, that would roughly be the area we distribute into. We just started shipping to New York and will start ourmarketing in New York soon. Primarily it will be through social networking. We’ll also be introducing the drink into some very trendy nightclubs and bars in New York City.

Scott Landow: When you bring a product to market, you distribute it through brokers or DSD. Brokers basically carry a couple hundred products that have a relationship with retailers. They go to the retailers where they try to sell the product and get an order placed. The company then ships to the warehouse and then to the stores. And then you’re on your own because brokers don’t really have the means to follow up on sales levels because they really don’t touch the stores. DSD, which is called Direct Store Delivery, have their own trucks and go to every location of every customer once or twice a month and sometimes more if it’s very active.

You’ll find DSD is the most effective but they’re also the hardest to get in to because they do deliver best service. They’re the cream of the crop. The premium DSD would be beer distributors, followed by soda distributors, and finally candy, cigarettes, and snacks. Any of the three have the ability to take an order, go in the store, and stock. They make sure your product is front and center. So that’s how we have gone into 20 states.

Successfully, we have gone in with a new category (Anti-Hangover) and a new brand (Resurrection). Our distributors are among the best ones which are the beer guys, Anheuser-Busch and Miller-Coors. However, that doesn’t work in New York City because liquor stores in New York City cannot sell beer. They can sell wine and liquor but not beer. So, if we stayed exclusively with a beer distributor, we’d miss where 30% of our consumers purchase their alcohol. Instead what we have decided to do is a top- down and bottom-up approach to New York City.

We go into the trendiest bars in New York City, some of which do $20-30 million/ year. When a trend is set in these bars it moves very quickly outward. These early adopters use Twitter and YouTube to build the buzz about your brand which immediately reaches the masses. At the same time, you need distribution that is going to touch the bodegas, convenient stores, grocery stores, as well as the bars and hotels. We have hired an NYC group to be our initial broker that in a very short time is having great success with the retailers. They have access to liquor stores, convenient stores, and bars. With 17 million people in the metro area, New York City, is a country unto itself. We are excited about NYC and expect to duplicate our plan in other destinations where people also look for trends i.e. New York City, Las Vegas, Miami, and Las Angeles.

Dominick Bianco: What is the price of Resurrection?

Scott Landow: In a typical convenient store like 7-Eleven, Resurrection would go for $2.49 a can.

Dominick Bianco:How soon after someone starts drinking should they drink Resurrection?

Scott Landow: This is the important thing. There is no such thing as a cure for a hangover. Oncethe alcohol toxins start to hit your liver, you’re already on the road to a hangover. That’s why we differentiate between a hangover cure which doesn’t exist, and a hangover prevention which can be obtained with the right herbs. Ours happen to be Chinese herbs formulated at the University of Beijing. If you drink a can of Resurrection before you start drinking, which has been made to taste good will gin, vodka, rum, etc., we guarantee you will not get a hangover or your money back. If you were to drink one after your first drink you would probably avoid 85-90% of a hangover. That is to say, as soon as you drink Resurrection you will stop the process that could cause a hangover. Once the process starts in the body it will continue, so it is better to have a Resurrection with your next drink than to not have one at all. And it tastes really good. People use it as a mixer all night long.

Dominick Bianco: How many flavors are there?

Scott Landow: It comes in one taste. It’s kind of like a lightly carbonated passion fruit flavor. Similar to how Red Bull does not have multiple flavors, Resurrection is Resurrection. We decided we had a great flavor and the product was more about the results we were trying to deliver than a variety of flavors.

Dominick Bianco:What kind of testing have you done to prove the effectiveness of the product?

Elorian Landers: We have put about 1 million cans in the market so far. There has only been a hand full of people that have said there has been no effect on them. However, when you dig into it, you realize they had the flu, cold or some other issue. We spent a year developing the product. The best thing to do is to put it in somebody’s hands and let them go drink.

Scott Landow: After we had launched Fusion and NDS we built some very good distribution relationships. We became known as a distribution company for what I call orphan brands that need the advantage of a product development and distribution company like Bond. Resurrection is a great example. Over the course of 6-8 months our science team performed a lot of test on the ingredients and effectiveness. All sorts People from 21-60 were eager to test Rez. At the conclusion and after months of working through all the bugs, we were convinced we had the first drink in the marketplace that would truly prevent a hangover time and time again. One million cans later and we’re right.

Dominick Bianco: You said you currently have one million cans in the marketplace. What are your projections for the marketplace this year?

Elorian Landers: We could double that at least. We’ve had some very fortunate things happen to us. At the time when we were first starting to manufacture Resurrection, Monster pulled out of Anheuser-Busch which left a huge void that we filled immediately. A beer distributor will make about $2.50/case on beer. On functional beverages, i.e. Monster or Resurrection, they’ll make $8-9/case. So, they had lost their most profitable product. Then we showed up with something that was more complementary to their business, Rez which is an anti-hangover drink. We were then able to grab 82 distributors very rapidly, roughly 10/month. We have access to 80,000 retail outlets. However, there’s a time lag of 90-120 days from the time the distributor is signed to when the product actually ends up in about 10% of their accounts. Even though we’ve created that nice channel, we’re probably only in about 35,000-45,000 retail outlets now and growing. So when you ask what we’ll do, it’s inversely proportional. We could suddenly jump to more retail outlets but we’ll certainly sell another million cans before the year is over.

Scott Landow: You’ll never know when you’ll reach that classical tipping point when something starts to move on its own momentum. We hit the first level with some of our beer distributors. We started getting calls from friends of theirs. Other beer distribution companies would call to say they heard of Resurrection and wondered how to get it. The ultimate tipping point on a product to become a real brand is obviously at the consumer level. We have very effectively built the distributor channel. We are now knee-deep into educating the retailer which is two-fold. We not only have to educate the owner of a 7- Eleven or a liquor store, but also the bartender or the cocktail waitress at a club. We do this while getting the consumer to try it.
Rez Teams go to clubs or events and the series of reactions is like clockwork. First, somebody says they don’t believe it. The second comment after that is “Boy, this taste great!” The third is, “If this product works as good as you say it does, come tomorrow I’ll never be without it.” We have 8 out of 10 people come back to tell us that it is amazing. Eight out of ten is a remarkable number.
We’re preventing one hangover and building one customer at a time. One million cans in the first 8 months is not huge in the beverage world. But, for a new brand in a new category in the beverage world, it could do $1 billion in its 5th or 6th year. The last big category that was built in beverage was the energy drinks. Red Bull did $4.3 billion last year and they entered 13 years ago. Monster was second to market and they did $1.2 billion in 2009. Rock Star, which is #3 did $500 million. Coffee drinks in another category has really only arrived in the U.S. in the past 5-6 years. It’s a $1 billion category with Starbucks probably doing three-quarters of it. 5-hour energy entered the 2 oz. shot sub-category 5 years ago and will do $500 million this year. If you are the first to enter the market you probably get 50% market share and you’ll probably be a $1 billion brand within 5-8 years.
Dominick: How many shares are outstanding on a fully diluted basis?

Elorian Landers: 75 million

Dominick: What percentage of that is owned by officers and directors?

Scott Landow: About 15% percent between Directors and Officers. We have an institutional partner that owns about 30%. Officers, Directors, Management and four original investors as a group still retain about 60% of Bond.

Dominick Bianco: Do you have a patent on Resurrection or just the distribution rights?

Scott Landow:We have the worldwide rights for raw ingredients to be made into a hangover prevention product in perpetuity as long as our purchase increases every year.

Dominick Bianco: Are you in compliance with that agreement?

Scott Landow: Yes. Resurrection was one of those orphan products they were trying to bring to market for over 5 years but could never get it done. Bond has fulfilled their original goal.

Dominick Bianco: Are you in default or have any compliance issues with that agreement?

Scott Landow: No.

Dominick Bianco:About the short-term debt on the books, which is roughly $1 million – When does that come due?

cott Landow:The debt is a continuous revolving line for inventory with U.S. Bank for $500,000and the acquisition of NDS. We purchased NDS for four times EBITDA - half in cash and half in restricted stock. Half of the cash was paid at closing with the other half paid over 24 months. NDS has thrown off enough cash flow to cover the monthly payments. The final payment on the purchase of NDS is December.

Dominick Bianco: What was the lockup period in the stock during the acquisition?

Elorian Landers: Standard lockup time frames.

Scott Landow: Every time they’ve sold they’ve come to us to find a buyer. They haven’t hurt thestock at all.

Dominick: As of March 31, 2010 your cash equivalence is roughly $600,000. Is that enough capital to run your business or will you be looking in the marketplace for capital and potentially diluting your stock?

Scott Landow: We’re going to be in the marketplace. We have enough cash to operate the business. That’s not the issue. The issue in a place like New York is you have to make a pretty large marketing spend to just begin your development. We need to prep for that.

Dominick: Are you looking for an investment banking firm or an institutional partner?

Elorian Landers: We’re primarily looking for an investment banking firm. Actually there are several that are extremely interested in us. We’ll nail down one in the next few weeks.

Dominick:Do you have any plans to get off the OTC Bulletin Board and move on to NASDAQ small cap or Amex?

Scott Landow: Yes, in our short-term game plan. You got to start some place but it’s not where you want to stay forever.

Dominick:How long have you been public?

Scott Landow: We started trading in November 2007.

Dominick:Did you go through a reverse merger?

Scott Landow:It was not a reverse merger.

Dominick:You did an S1?

Scott Landow:yes

Dominick:Did you raise any capital in advance of going public?

Scott Landow:We had raised about $1.5 million at that point.

Dominick:How much have you raised from the time you went public until now?

Scott Landow:$11 million

Dominick:What challenges have you or your company faced since going public?

Scott Landow:The biggest challenge is recognizing you’re in 2 businesses. 24/7 you have a business to run – that’s why people invest in your company. At the same time, 24/ 7 you’re a public company which is a business unto itself. You’re always looking to get people aware of what you’re doing and what we believe the opportunity is. That’s a challenge every day. You also got to create golden handcuffs before you lose good people. I think every employee we have is a part of a stock program and are already investing into stock. The hardest part of the business is good people. When you start looking at the personalities and the operations, you don’t want to start from scratch. You want to go in with people who have experience and their own business relationships.

Dominick:Before we conclude, is there anything you would like to say to our subscribers.

Scott Landow:Recently, we did two things that were really cool. NDS tends to get overlooked because of the recognition that Resurrection could be a $1 billion brand. But, it’s a wonderful category to be in. We’re making really good money and expanding at the operations. We bought a business that was up to $25 million and went down to $6- $7 million. It was still profitable but the owner had taken his eye off of it for 2 years. We have plans to build it back to $25 million and above. John Wilson, our CEO is running that division and doing a wonderful job. The products they’re coming out with are cutting edge. The other thing we did that people should know is you can’t just go into the market immediately with a new product, especially a new category, unless you’re Coca Cola and we’re certainly not. We’re very proud of being in 20 states and our 82 distributors. But, that really doesn’t take care of the people in a market we’re not in, that are suffering from hangovers. About three weeks ago we launched a website where people can order Resurrection for the same retail price without paying any cost for shipping or handling. It is free home delivery. That website is http://www.gottahavemyrez.com/. I just wanted to give kudos to my guys for pulling that together.

Elorian Landers : The other thing is we are a very rapid growth company. It will not be unusual to watch Bond double in growth every year for many years.

Scott Landow: It might be organic or through strategic acquisition, but we’ve shown the ability to absorb an acquisition and not lose pace. In fact, normally the first year you make an acquisition you break even if you’re lucky. We increased ours better than 20%.

Dominick:What is the website for NDS?

Scott Landow: http://ndsnutrition.com. If you go to http://bond-labs.com, this corporate website will take you to NDS and all of our products.

Dominick:Thank you for your time and I look forward to speaking to you in the future. On behalf on SmallCapProfits.com we look forward to good things from your company.

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