FITLIFE BRANDS, INC. - Quarter Report: 2010 March (Form 10-Q)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
____________________
FORM 10-Q
____________________
(Mark One)
x Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2010
o Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
For the transition period from N/A to N/A
____________________
Commission File No. 333-137170
____________________
Bond Laboratories, Inc.
(Name of small business issuer as specified in its charter)
| Nevada | 20-3464383 |
| State of Incorporation | IRS Employer Identification No. |
11011 Q Street Building A Suite 106 Omaha, NE 68137
(Address of principal executive offices)
(402) 884-1894
(Issuer’s telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days: Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨ Non–Accelerated filer ¨ Smaller
reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).
Yes ¨ No x
Transitional Small Business Disclosure Format (check one): Yes o No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
Class |
Outstanding at April 29, 2010 | |
|
Common stock, $0.001 par value |
60,901,965 |
BOND LABORATORIES, INC.
INDEX TO FORM 10-Q FILING
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION PAGE
|
|
Page | |||
|
|
||||
|
|
|
1 | ||
|
|
|
2 | ||
|
|
|
3 | ||
|
|
|
4 | ||
|
|
|
5 | ||
|
|
|
16 | ||
|
|
|
19 | ||
|
|
|
20 | ||
|
|
||||
|
|
|
21 | ||
|
|
|
21 | ||
|
|
|
25 | ||
|
|
|
25 | ||
|
|
|
25 | ||
|
|
|
25 | ||
|
|
|
25 | ||
CERTIFICATIONS
Exhibit 31 – Management certification
Exhibit 32 – Sarbanes-Oxley Act
PART I – FINANCIAL INFORMATION
|
Item 1. |
Interim Consolidated Financial Statements and Notes to Interim Consolidated Financial Statements |
General
The accompanying reviewed interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity
with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2009. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring
nature. Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results that can be expected for the year ending December 31, 2010.
BOND LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
March 31, |
December 31, |
||||||
| ASSETS: |
2010 |
2009 |
||||||
|
CURRENT ASSETS |
||||||||
|
Cash |
$ | 588,659 | $ | 1,036,213 | ||||
|
Accounts receivables - net |
741,893 | 452,263 | ||||||
|
Inventory |
1,727,787 | 2,086,116 | ||||||
|
Notes receivables |
10,000 | 10,000 | ||||||
|
Prepaid expenses and other current assets |
63,329 | 57,902 | ||||||
|
Total current assets |
3,131,668 | 3,642,494 | ||||||
|
PROPERTY AND EQUIPMENT, net |
202,334 | 232,954 | ||||||
|
Intangibles assets, net |
1,861,175 | 1,916,112 | ||||||
|
Deposits |
8,330 | 9,511 | ||||||
|
TOTAL ASSETS |
$ | 5,203,507 | $ | 5,801,071 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY: |
||||||||
|
CURRENT LIABILITIES: |
||||||||
|
Accounts payable |
$ | 308,434 | $ | 510,539 | ||||
|
Disputed accounts payables |
179,894 | 179,894 | ||||||
|
Accrued expenses and other liabilities |
249,282 | 93,559 | ||||||
|
Note payable - affiliate |
617,920 | 621,775 | ||||||
|
Note payable - current |
436,789 | 436,789 | ||||||
|
Total current liabilities |
1,792,319 | 1,842,556 | ||||||
|
TOTAL LIABILITIES |
1,792,319 | 1,842,556 | ||||||
|
CONTINGENCIES AND COMMITMENTS |
||||||||
|
STOCKHOLDERS' EQUITY: |
||||||||
|
Preferred stock series A, $.01 par value, 10,000,000 shares |
||||||||
|
authorized; 5,148,646 and 5,659,477 issued and outstanding |
||||||||
|
as of March 31, 2010 and December 31, 2009, respectively |
51,486 | 51,486 | ||||||
|
Preferred stock series B, $.01 par value, 1,000 shares authorized; 219.3 and |
||||||||
|
0 issued and outstanding, including accretion of liquidation preferences price |
||||||||
|
differential of $2,090,300, 10% Cumulative Perpetual with a Stated Value |
||||||||
|
of $10,000 per share and has dividend cumulated of $274,125 |
||||||||
|
as of March 31, 2010 and December 31, 2009, respectively |
670,094 | 615,269 | ||||||
|
Common stock, $.01 par value, 75,000,000 shares authorized; |
||||||||
|
56,178,319 and 56,165,820 issued and outstanding |
||||||||
|
as of March 31, 2010 and December 31, 2009, respectively |
561,783 | 561,658 | ||||||
|
Additional paid-in capital |
25,142,146 | 25,134,272 | ||||||
|
Accumulated deficit |
(23,014,321 | ) | (22,404,170 | ) | ||||
|
Total stockholders' equity |
3,411,188 | 3,958,515 | ||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ | 5,203,507 | $ | 5,801,071 | ||||
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
BOND LABORATORIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
|
Three Months Ended
March 31, |
||||||||
|
2010 |
2009 |
|||||||
|
Revenue |
$ | 2,372,663 | $ | 2,507,893 | ||||
|
Total |
2,372,663 | 2,507,893 | ||||||
|
Cost of Goods Sold |
1,673,406 | 1,801,034 | ||||||
|
Gross Profits |
699,257 | 706,859 | ||||||
|
OPERATING EXPENSES: |
||||||||
|
General and administrative |
914,146 | 546,475 | ||||||
|
Selling and marketing |
277,466 | 551,930 | ||||||
|
Depreciation and amortization |
66,455 | 68,515 | ||||||
|
Total operating expenses |
1,258,067 | 1,166,920 | ||||||
|
OPERATING LOSS |
(558,810 | ) | (460,061 | ) | ||||
|
OTHER (INCOME) AND EXPENSES |
||||||||
|
Interest expense |
26,096 | 9,771 | ||||||
|
Loss on the sale of assets |
682 | 3,264 | ||||||
|
Other income |
(30,262 | ) | - | |||||
|
Total other (income) expense |
(3,484 | ) | 13,035 | |||||
|
NET LOSS |
$ | (555,326 | ) | $ | (473,096 | ) | ||
|
NET LOSS PER SHARE: |
||||||||
|
Basic |
$ | (0.01 | ) | $ | (0.01 | ) | ||
|
Diluted |
$ | (0.01 | ) | $ | (0.01 | ) | ||
|
Basic |
56,175,958 | 34,865,795 | ||||||
|
Diluted |
56,175,958 | 41,227,670 | ||||||
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
BOND LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
Three Months Ended
March 31, |
||||||||
|
2010 |
2009 |
|||||||
|
Net loss |
$ | (555,326 | ) | (473,096 | ) | |||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
|
Depreciation and amortization |
68,403 | 68,515 | ||||||
|
Loss on the sale of assets |
682 | (1,765 | ) | |||||
|
Common stock issued for services |
7,999 | (2,083 | ) | |||||
|
Warrants issued |
- | 47,907 | ||||||
|
Foreign translation |
- | (164 | ) | |||||
|
Changes in operating assets and liabilities: |
||||||||
|
Accounts receivables |
(289,630 | ) | (288,589 | ) | ||||
|
Inventory |
358,329 | 195,492 | ||||||
|
Prepaid expenses |
(5,427 | ) | (143,730 | ) | ||||
|
Deposits |
1,181 | (3,783 | ) | |||||
|
Accounts payables |
(202,105 | ) | 238,231 | |||||
|
Accrued liabilities |
155,723 | (15,860 | ) | |||||
|
Net cash used in operating activities |
(460,171 | ) | (378,925 | ) | ||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
|
Proceeds from the sale of assets |
16,472 | - | ||||||
|
Net cash provided from investing activities |
16,472 | - | ||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
|
Proceeds from the issuances of common stock |
- | 463,000 | ||||||
|
Proceeds from affiliated note payable |
- | 52,000 | ||||||
|
Repayments of note payable |
(3,855 | ) | (155,258 | ) | ||||
|
Net cash provided by financing activities |
(3,855 | ) | 359,742 | |||||
|
INCREASE (DECREASE) IN CASH |
(447,554 | ) | (19,183 | ) | ||||
|
CASH, BEGINNING OF PERIOD |
1,036,213 | 263,379 | ||||||
|
CASH, END OF PERIOD |
$ | 588,659 | $ | 244,196 | ||||
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
||||||||
|
Income Taxes |
$ | - | $ | - | ||||
|
Interest Paid |
$ | 26,096 | $ | 9,771 | ||||
|
Supplemental disclosure of non-cash investing and financing activities |
||||||||
|
Common shares issued for cost of raising capital |
$ | - | $ | 17,430 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
BOND LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
NOTE 1 - DESCRIPTION OF BUSINESS
Bond Laboratories (the “Company”) is a national provider of innovative and proprietary nutritional supplements and beverage products for health conscious consumers. The Company produces and markets its products through its two primary operating divisions – NDS Nutrition Products, Inc., a Florida corporation, (“NDS”)
and Fusion Premium Beverages, Inc., a Florida corporation, (“Fusion Premium Beverages”). NDS manufactures and distributes a full line of nutritional supplements to support healthy living predominantly through GNC franchise locations throughout the United States. Fusion Premium Beverages distributes a line of health and energy beverages to support and promote an active lifestyle.
The Company was incorporated in the State of Nevada on July 26, 2005. Fusion Premium Beverages, (formally Got Fusion, Inc.), a wholly owned subsidiary of the Company, was incorporated in June of 2007. In October 2008, the Company acquired the assets of NDS Nutritional Products, Inc., a Nebraska corporation, and moved those assets
into its wholly owned subsidiary NDS. The Company established a third wholly owned subsidiary Vista Bottlers, Inc., a Nevada corporation, in March of 2009 to expand its operations to include private label bottling capabilities. The Company’s operating subsidiaries are led by a team of highly experienced sales and marketing executives with considerable expertise in the development, launch and distribution of branded products in the nutritional supplement and beverage sector. Bond Laboratories
is headquartered in Omaha, Nebraska and maintains a sales operation in Dallas, TX. For more information on the Company, please go to http://www.bond-labs.com.
Bond Laboratories, Inc. trades under the symbol BNLB on the OTC:BB market.
NOTE 2 - BASIS OF PRESENTATION
Interim Financial Statements
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month periods ended March 31, 2010 and 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. While management of the Company believes that the disclosures presented herein and adequate and not misleading, these
interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2009 as filed with the Securities and Exchange Commission as an exhibit to our Form 10-K.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:
Principle of Consolidation
The condensed consolidated financial statements include the accounts of Bond Laboratories, Inc., Fusion Premium Beverages, Inc. NDS Nutrition Products, Inc. and Vista Bottlers, Inc. Intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known
to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.
These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Revenue Recognition
Revenue includes product sales. The Company recognizes revenue from product sales in accordance with Topic 605 “Revenue Recognition in Financial Statements” which is at the time customers are invoiced at shipping point, provided title and risk of loss has passed to the customer, evidence of an arrangement exists, fees are
contractually fixed or determinable, collection is reasonably assured through historical collection results and regular credit evaluations, and there are no uncertainties regarding customer acceptance.
Accounts Receivable
Substantially all of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable.
The Company will maintain allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments for products. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the amount of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged off against
the allowance when it is probable the receivable will not be recovered. The Company wrote off $0 and $110,781 related to bad debt and doubtful accounts, respectively, during the quarter ended March 31, 2010 and year ended December 31, 2009.
Allowance for Doubtful Accounts
The determination of collectibility of the Company’s accounts receivable requires management to make frequent judgments and estimates in order to determine the appropriate amount of allowance needed for doubtful accounts. The Company’s allowance for doubtful accounts is estimated to cover the risk of loss related to accounts
receivable. This allowance is maintained at a level we consider appropriate based on historical and other factors that affect collectibility. These factors include historical trends of write-offs, recoveries and credit losses, the careful monitoring of customer credit quality, and projected economic and market conditions. Different assumptions or changes in economic circumstances could result in changes to the allowance.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At March 31, 2010, cash and cash equivalents include cash on hand and cash in the bank.
Inventory
The Company’s inventory is carried at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. The Company evaluates the need to record adjustments for inventory on a regular basis. Company policy is to evaluate all inventories including raw material and finished goods for all of its product
offerings across all of the Company’s operating subsidiaries. At March 31, 2010, the value of the Company’s inventory was $1,727,787 and at December 31, 2009, the value of the Company’s inventory was $2,086,116.
Property and Equipment
Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized. Ordinary maintenance and repairs are charged
to expense as incurred, and replacements and betterments are capitalized.
The range of estimated useful lives used to calculated depreciation for principal items of property and equipment are as follow:
|
Asset Category |
Depreciation/
Amortization Period | |
|
Furniture and Fixture |
3 Years | |
|
Office equipment |
3 Years | |
|
Leasehold improvements |
5 Years |
Goodwill and Other Intangible Assets
The Company adopted Statement of Financial Accounting Standard (“FASB”) Accounting Standards Codification (“ASC”) Topic 350 Goodwill and Other Intangible Assets, effective July 1, 2002. In accordance with (“ASC Topic 350”) "Goodwill and Other Intangible
Assets," goodwill, which represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method, acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized. The Company assesses goodwill
and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred in accordance with ASC Topic 350. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. ASC Topic 350 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company
recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value.
Impairment of Long-Lived Assets
In accordance with ASC Topic 3605, long-lived assets, such as property, plant, and equipment, and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill and other
intangible assets are tested for impairment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no events or changes in circumstances that necessitated an impairment
of long lived assets.
Income Taxes
Deferred income taxes are provided based on the provisions of ASC Topic 740, "Accounting for Income Taxes", to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company adopted the provisions of FASB Interpretation No. 48; "Accounting For Uncertainty In Income Taxes-An Interpretation Of ASC Topic 740 ("FIN 48"). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight
of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At March 31, 2010, the Company did not record
any liabilities for uncertain tax positions.
Concentration of Credit Risk
The Company maintains its operating cash balances in banks located in Nebraska, California and Texas. The Federal Depository Insurance Corporation (FDIC) insures accounts at each institution up to $250,000.
Earnings Per Share
Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issue common stock
were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. Diluted loss per share is the same as basic loss per share, because the effects of the additional securities, a result of the net loss would be anti-dilutive.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation.
The carrying amounts of the Company’s financial instruments, including cash, accounts payable and accrued liabilities, income tax payable and related party payable, if any, approximate fair value.
Reclassification
Certain prior period amounts have been reclassified to conform to current year presentations.
Recent Accounting Pronouncements
Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.
In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for
identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for us with the reporting period beginning January 1, 2010, except for
the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for us with the reporting period beginning July 1, 2011. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on our financial statements. See Note 6 – Fair Value Measurements.
On July 1, 2009, we adopted guidance issued by the FASB on business combinations. The guidance retains the fundamental requirements that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in
the way assets and liabilities are recognized and measured as a result of business combinations. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. We have applied this guidance to business combinations completed since July 1, 2009.
On July 1, 2009, we adopted guidance issued by the FASB that changes the accounting and reporting for non-controlling interests. Non-controlling interests are to be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control are
to be accounted for as equity transactions. In addition, net income attributable to a non-controlling interest is to be included in net income and, upon a loss of control, the interest sold, as well as any interest retained, is to be recorded at fair value with any gain or loss recognized in net income. Adoption of the new guidance did not have a material impact on our financial statements.
On July 1, 2009, we adopted guidance on fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Adoption of the new guidance did not have a material impact on our financial statements.
Recent Accounting Guidance Not Yet Adopted
In October 2009, the FASB issued guidance on revenue recognition that will become effective for us beginning July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible
product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of
the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption of this new guidance will not have a material impact on our financial statements.
In June 2009, the FASB issued guidance on the consolidation of variable interest entities, which is effective for us beginning July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable
interests. We believe adoption of this new guidance will not have a material impact on our financial statements.
NOTE 4 – INVENTORIES
The Company inventories as of March 31, 2010 and December 31, 2009 consists as follows:
|
March 31,
2010 |
December 31, 2009 |
|||||||
|
Finished goods |
$ | 1,200,573 | $ | 1,566,931 | ||||
|
Components |
527,214 | 519,185 | ||||||
|
Total |
$ | 1,727,787 | $ | 2,086,116 | ||||
NOTE 5 - PROPERTY AND EQUIPMENT
The Company has fixed assets as of March 31, 2010 and December 31, 2009 consists as follows:
| March 31, |
December 31, |
|||||||
|
2010 |
2009 |
|||||||
|
Equipment |
$ | 396,864 | $ | 416,860 | ||||
|
Accumulated depreciation |
(194,530 | ) | (183,906 | ) | ||||
|
Total |
$ | 202,334 | $ | 232,954 | ||||
Depreciation Expense is $13,466 for March 31, 2010 compared to $13,578 for March 31, 2009.
NOTE 6 – NOTE PAYABLES
Notes payable consist of the following as of March 31, 2010 and December 31, 2009:
|
2010 |
2009 |
|||||||
|
Secured Promissory Note dated September 30, 2009, matures December 31, 2010 at an interest rate of 8% per annum. This note replaces the Fixed Asset Note, Component Inventory Note, Installment Note, and Earn Out Provision noted above. The Company is required to make $25,000 payments per month deferred for 5 months
with a payment of $50,000 in the month of March 2010 |
$ | 617,920 | $ | 621,775 | ||||
|
Revolving Line of Credit of $500,000 from US Bank dated July 15, 2009 at an interest rate of 3.5% plus the one-month LIBOR rated quoted by US Bank from Reuters Screen LIBOR01 page. The Company pays interest only on this Line of Credit |
436,789 | 436,789 | ||||||
|
Total of Notes Payable and advances |
1,054,709 | 1,058,564 | ||||||
|
Less Current Portion |
(1,054,709 | ) | (1,058,564 | ) | ||||
|
Long-Term Portion |
$ | - | $ | - | ||||
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company has entered into various consulting agreements with outside consultants. However, certain of these agreements included additional compensation on the basis of performance. The consulting agreements are with key shareholders and advisers that are instrumental to the success of the Company and its development of its products.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company did not have any affiliated note receivables or other related party transactions as of March 31, 2010 other than the affiliate note through the acquisition of NDS Nutrition Products, Inc.
NOTE 9 - NET LOSS PER SHARE
Basic loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share for the three months ended March 31, 2010 and 2009 is the same as basic loss per share. For the three months ended March 31, 2010 and 2009,
the following potential shares of common stock that would have been issuable have been excluded from the calculation of diluted loss per share because the effects, as a result of our net loss, would be anti-dilutive.
|
March 31, |
||||||||
|
2010 |
2009 |
|||||||
|
Warrants |
15,411,191 | 9,697,752 | ||||||
|
Options |
- | - | ||||||
|
Total |
15,411,191 | 9,697,752 | ||||||
The following table represents the computation of basic and diluted losses per share at March 31, 2010 and 2009.
|
March 31, |
||||||||
|
2010 |
2009 |
|||||||
|
Losses available for common shareholders |
(555,326 | ) | (473,096 | ) | ||||
|
Basic and diluted weighted average common shares outstanding |
56,175,958 | 34,865,795 | ||||||
|
Basic and diluted loss per share |
$ | (0.01 | ) | $ | (0.01 | ) | ||
Net loss per share is based upon the weighted average shares of common stock outstanding.
NOTE 10- EQUITY
Common and Preferred Stock
The Company is authorized to issue 75,000,000 shares of common stock, at $0.001 par value, of which 56,178,319 common shares were issued and outstanding as of March 31, 2010. The Company is authorized to issue 10,000,000 shares of Series A Convertible Preferred Stock at $0.001 par value, of which 5,148,646 were issued and outstanding as
of March 31, 2010. The Company is authorized to issue 1,000 shares of its 10% Cumulative Perpetual Series B Preferred Stock, of which 219.3 were issued and outstanding as of March 31, 2010. The Company recorded an accumulated dividend of $274,125 as of March 31, 2010, which was recorded against accumulated deficit. The outstanding 10% Cumulative Perpetual Series B Preferred has a liquidation preference of $10,000 per share.
Options
As of March 31, 2010, no options to purchase common stock of the Company were issued and outstanding.
Warrants
The Company values all warrants using the Black-Scholes option-pricing model. Critical assumptions for the Black-Scholes option-pricing model include the market value of the stock price at the time of issuance, the risk-free interest rate corresponding to the term of the warrant, the volatility of the Company’s stock price,
dividend yield on the common stock, as well as the exercise price and term of the warrant. The Black Scholes option-pricing model was the best determinable value of the warrants that the Company “knew up front” when issuing the warrants in accordance with Topic 505. 50. 30. Other than as expressly noted below, the warrants are not subject to any form of vesting schedule and, therefore, are exercisable by the holders anytime at their discretion during the life of the warrant. No
discounts were applied to the valuation determined by the Black Scholes option-pricing model; provided, however, that in determining volatility the Company utilized the lesser of the 90-day volatility as reported by Bloomberg or other such nationally recognized provider of financial markets data and 40.0%.
As of March 31, 2010, 15,411,191 warrants to purchase common stock of the Company were issued and outstanding, additional information on which is included in the following table:
|
Issued |
Exercise Price |
Issuance Date |
Expiration Date |
Vesting | |||||
| 2,520,000 | $ | 1.50 |
01/31/08 |
01/31/13 |
No | ||||
| 974,026 | $ | 0.77 |
12/31/09 |
12/31/14 |
Yes | ||||
| 3,711,540 | $ | 0.75 |
09/30/09 |
10/01/12 |
No | ||||
| 100,000 | $ | 0.70 |
12/31/09 |
12/31/14 |
No | ||||
| 1,000,000 | $ | 0.50 |
08/20/09 |
08/20/14 |
No | ||||
| 50,000 | $ | 0.50 |
11/01/09 |
11/01/12 |
No | ||||
| 65,000 | $ | 0.50 |
12/21/09 |
12/21/12 |
No | ||||
| 1,050,000 | $ | 0.375 |
01/31/08 |
01/31/13 |
No | ||||
| 500,000 | $ | 0.375 |
12/31/08 |
12/31/13 |
No | ||||
| 200,000 | $ | 0.375 |
10/09/09 |
10/09/12 |
No | ||||
| 60,000 | $ | 0.35 |
07/01/09 |
07/01/12 |
No | ||||
| 1,000,000 | $ | 0.35 |
08/20/09 |
08/20/14 |
No | ||||
| 2,280,625 | $ | 0.35 |
09/01/09 |
09/01/12 |
No | ||||
| 50,000 | $ | 0.35 |
11/01/09 |
11/01/12 |
No | ||||
| 100,000 | $ | 0.35 |
12/31/09 |
12/31/14 |
No | ||||
| 1,750,000 | $ | 0.15 |
12/31/08 |
12/31/13 |
Yes | ||||
| 15,411,191 | |||||||||
|
Expected Dividend yield |
None |
|||
|
Volatility |
40% |
|||
|
Weighted average risk free interest rate |
1.68 |
% | ||
|
Weighted average expected life(in years) |
3.17 years |
|||
Private Placements, Other Issuances and Cancellations
The Company periodically issues shares of its common stock and warrants to purchase shares of common stock to investors in connection with private placement transactions, as well as, to advisors and consultants for the fair value of services rendered. Absent an arm’s length transaction with an independent third-party, the value of
any such issued shares is based on the trading value of the stock at the date on which such transactions or agreements are consummated. The Company expenses the fair value of all such issuances in the period incurred.
During the period ended March 31, 2010, the Company issued 12,499 shares of its common stock as consideration to consultants for the fair value of services rendered. The Company did not issue or cancel any other shares of common stock, preferred stock, common stock purchase options, or warrants during the quarter ended March 31, 2010.
NOTE 11 - INCOME TAXES
The provision (benefit) for income taxes from continued operations for the three months ended March 31, 2010 and 2009 consist of the following:
|
March 31, 2010 |
March 31, 2009 |
|||||||
|
Current: |
||||||||
|
Federal |
$ | $ | ||||||
|
State |
||||||||
|
Deferred: |
||||||||
|
Federal |
$ | 171,818 | 146,376 | |||||
|
State |
49,979 | 42,579 | ||||||
| 221,797 | 188,955 | |||||||
|
Benefit from operating loss |
(221,797 | ) | (188,955 | ) | ||||
|
Change in valuation allowance |
221,797 | 188,955 | ||||||
|
(Benefit) provision for income taxes, net |
$ | - | - | |||||
The difference between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax expense is as follows:
|
March 31, 2010 |
March 31, 2009 |
|||||||
|
Statutory federal income tax rate |
34.0 | % | 34.0 | % | ||||
|
State income taxes and other |
9.0 | % | 9.0 | % | ||||
|
Valuation Allowance |
(43.0 | %) | (43.0 | %) | ||||
|
Effective tax rate |
- | - | ||||||
Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes.
The Company has a net operating loss carryforward of approximately $23,014,321 available to offset future taxable income through 2030.
The year-to-date provision is primarily due to the recording of a valuation allowance on the Company’s U.S. deferred tax assets as of March 31, 2010. The valuation allowance was recorded at the end of the first quarter of 2010 to reduce certain U.S. federal and state net deferred tax assets to their anticipated realizable value.
ASC 740 requires the consideration of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, the Company considered available
positive and negative evidence, giving greater weight to its recent cumulative losses and its ability to carry-back losses against prior taxable income and lesser weight to its projected financial results due to the challenges of forecasting future periods. The Company also considered, commensurate with its objective verifiability, the forecast of future taxable income including the reversal of temporary differences. The Company performed this evaluation as of the year ended December 31, 2009 and the quarters
ended March 31, 2010. At that time the Company continued to have sufficient positive evidence, including recent cumulative profits, a reduction in operating expenses, the ability to carry-back losses against prior taxable income and an expectation of improving operating results, showing a valuation allowance was not required. At the end of the quarter ended March 31, 2010, changes in previously anticipated expectations and continued operating losses necessitated a valuation allowance against the tax benefits
recognized in this quarter and prior quarters since they are no longer “more-likely-than-not” realizable. Under current tax laws, this valuation allowance will not limit the Company’s ability to utilize U.S. federal and state deferred tax assets provided it can generate sufficient future taxable income in the U.S.
The Company anticipates it will continue to record a valuation allowance against the losses of certain jurisdictions, primarily federal and state, until such time as we are able to determine it is “more-likely-than-not” the deferred tax asset will be realized. Such position is dependent on whether there will be sufficient
future taxable income to realize such deferred tax assets The Company’s effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction.
NOTE 12 – SUBSEQUENT EVENTS
In April of 2010, the Company converted the remaining 5,148,646 shares of Series A Preferred Stock to shares of common stock.
* * * * * * * *
In this Quarterly Report on Form 10-Q, “Company,” “our company,” “us,” “Bond Laboratories” and “our” refer to Bond Laboratories, Inc. and our subsidiaries, unless the context requires otherwise.
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis contains various “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this
Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition
in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company adopted at management’s discretion, the most conservative recognition of revenue based on the most astringent guidelines of the SEC in terms of recognition of software licenses and recurring revenue. Management will elect
additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.
Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ
from those contained in the forward-looking statements include those identified in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.
In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.
Overview
Bond Laboratories is a national provider of innovative and proprietary nutritional supplements and beverage products for health conscious consumers. Our company produces and markets its products through its two primary operating divisions – NDS Nutrition Products, Inc., a Florida corporation, (“NDS”) and Fusion Premium
Beverages, Inc., a Florida corporation, (“Fusion Premium Beverages”).. NDS manufactures and distributes a full line of nutritional supplements to support healthy living predominantly through GNC franchise locations throughout the United States. Fusion Premium Beverages distributes a line of health and energy beverages to support and promote an active lifestyle.
We were was incorporated in the State of Nevada on July 26, 2005. Fusion Premium Beverages, (formally Got Fusion? Inc.), a wholly owned subsidiary of the Company, was incorporated in June of 2007. In October 2008, we acquired the assets of NDS Nutritional Products, Inc., a Nebraska corporation, and moved those assets into our
wholly owned subsidiary NDS. We established a third wholly owned subsidiary Vista Bottlers, Inc., a Nevada corporation, in March of 2009 to expand our operations to include private label bottling capabilities. We believe to our operating subsidiaries are led by a team of highly experienced sales and marketing executives with considerable expertise in the development, launch and distribution of branded products in the nutritional supplement and beverage sector. Bond Laboratories is headquartered in Omaha, Nebraska
and maintains a sales office in Dallas, TX. For more information on our company, please go to http://www.bond-labs.com.
Bond Laboratories, Inc. trades under the symbol BNLB on the OTC:BB market.
Fusion Premium Beverages, Inc.
Fusion Premium Beverages is focused on the development, production and distribution of unique and differentiable functional beverages targeted at active and health conscious consumers. Current products include:
|
● |
Resurrection™ Anti-Hangover drink, and |
|
● |
6+ Hour Energy Boost |
Resurrection™ Anti-Hangover drink
Management believes that Resurrection™ Anti-Hangover dink is the first ever “pretox” beverage with a proprietary herbal compound that helps eliminate the internal body processes that cause a hangover. Management contends that we are a leading innovator in the industry and seeks to leverage our strong “first to market”
position to drive the rapid adoption of Resurrection™, as well as to facilitate the introduction of other high-quality proprietary functional beverages to the market.
6+ Hour Energy Boost
Fusion Premium Beverages has developed an exclusive portfolio of energy products, including our 2oz. 6+ Hour Energy Boost shot, targeted at prevailing consumer trends and needs.
NDS Nutrition Products, Inc.
NDS markets a full line of sports, weight loss and general nutrition products on national basis. NDS currently markets and distributes more than 60 different products to over 400 GNC franchise locations, as well as other distribution channels, throughout the United States. A complete product list is available on our website at www.ndsnutrition.com.
Key brands include:
|
· |
Release, a complete suite of products that support weight loss and increase metabolism, examples include Censor, Complete and Intensify; |
|
· |
Professional Muscular Development, a comprehensive line of sports nutrition products, examples include Amplify XL, Pump Fuel and Xplode; and, |
|
· |
Doctor Health, a diverse line of products that promote general health and well-being, examples include Dr. Detox, Dr. Cholesterol and Dr. Joints. |
NDS utilizes several contract manufacturers to produce its various products and product forms including capsules, tablets and powders. All of our manufacturers abide by current Good Manufacturing Practices (“cGMPs”) to ensure quality and consistency, and nearly all are certified through a governing body such as the National
Products Association or NSF International. Raw materials are sourced and supplied by the respective contract manufacturer, and tested for accuracy and purity. The materials are blended according to specific and proprietary formula specifications and subjected to comprehensive testing prior to store placement.
Competition
Management anticipates that we will encounter competition in each market that we enter. Patent and trademark applications that cover new embodiments of technology will be pursued whenever possible. While we cannot assure that such measures will block competitive products, we believe our continued emphasis on innovation
and new product development targeted at the needs of the consumer will enable the Company to effectively compete in the marketplace.
Results of Operations
Revenues for the three months ended March 31, 2010 were $2,372,663 as compared to $2,507,893 for the period ended March 31, 2009. Results from operations for the three months ended March 31, 2009 included sales of $421,049 related to certain product lines that the Company abandoned and stopped producing in the third quarter of 2009.
Therefore revenue from operations for the three months ended March 31, 2010 increased with the exclusion of the abandoned product line for the three months ended March 31, 2010 were $2,372,663 as compared to revenues excluding the abandoned product line of $2,086,844 for March 31, 2009 therefore an increase of 13.7%. This increase was primarily attributable to divesting of a product line during the quarter and the increase and our focus on other more profitable products
Cost of goods sold for the three months ended March 31, 2010 decreased to $1,673,406 as compared to $1,801,034 for the three months ended March 31, 2009. Cost of goods sold for the three months ended March 31, 2009 included $403,869 related to certain product lines abandoned by our company in the third quarter of 2009. Therefore cost
of goods sold from operations for period ended March 31, 2010 increased with the exclusion of the abandoned product line for the three months ended March 31, 2010 were 1,673,406 as compared to cost of goods sold again excluding the abandoned product line were $1,397,165 for the period ended March 31, 2009. The increase was primarily attributable to higher revenue from product lines that were more profitable and have less costs associated with their production.
General and administrative expense for the three months ended March 31, 2010 increased to 914,146 from $546,475 for the three months ended March 31, 2009.
Selling and marketing expense for the three months ended March 31, 2010 decreased] to $277,466 from $551,930 for the three months ended March 31, 2009.
Depreciation and amortization for the three months ended March 31, 2010 was $66,455 compared to $68,515 for the three months ended March 31, 2009.
Net loss for the three months ended March 31, 2010 increased to $555,326 as compared to a $473,096 loss for the three months ended March 31, 2009.
Liquidity and Capital Resources
We strive to maintain a minimum of three months of working capital as a means to allow adequate reserves and time to secure additional funds from investors as needed. To date, management has succeeded in securing capital to fund operations as needed. During the three months ended March 31, 2010, we did not sell
any shares of common stock or preferred stock, or otherwise issue any securities or financial instruments that provided the Company with additional capital.
Our cash used in operating activities was ($460,171) and $(378,925) for the three months ended March 31, 2010 and March 31, 2009, respectively. The increase was primarily attributable to the costs associated with Fusion Premium Beverages new product launch.
Our cash provided by investing activities was ($16,472 and ($0.00) for the three months ended March 31, 2010 and March 31, 2009, respectively. The increase was related to the sale of fixed assets of $16,472 for the three months ended.
Our cash (used in) provided by financing activities was ($3,855) and $359,742 for the three months ended March 31, 2010 and 2009, respectively.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly
from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.
|
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We do not hold any derivative instruments and do not engage in any hedging activities. Most of our activity is the sale of our nutraceutical products.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and
communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective at the reasonable assurance level.
Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment,
including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Management has used the framework set forth in the report entitled Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our Chief Executive Officer and Chief Financial Officer have concluded that our internal control over financial reporting was effective as
of March 31, 2010. This Quarterly Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Quarterly Report. There has been no change in our internal controls over financial reporting during
our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Changes in Internal Controls
There have been no changes in our internal controls over financial reporting or in other factors that could materially affect, or are reasonably likely to affect, our internal controls over financial reporting during the quarter ended March 31, 2010. There have not been any significant changes in the Company's critical accounting policies
identified since the Company filed its Form 10-K as of December 31, 2010.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently not involved in any litigation except noted below that we believe could have a material adverse effect on our financial condition or results of operations. Other than described below, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
On February 19, 2009, we received a letter from the U.S. Department of Labor, Occupational Safe and Health Administration ("OSHA"), notifying us that a complaint had been filed by Eric Schick, our former President, alleging that we had committed certain unlawful employment practices, including retaliatory termination of his
employment for “whistle blowing,” in connection with his separation from the company in October 2008. On March 30, 2009, we sent a response to OSHA setting forth our position that Mr. Schick had voluntarily resigned and denying the allegations set forth in the February 19, 2009 letter. Although we have had written and telephonic communications with OSHA since the time of our response letter, we have not received any official
communications from OSHA regarding the disposition of its review of Mr. Schick's complaint. Should OSHA proceed with the complaint, we may be required to allocate substantial financial and human resources to defense of this complaint (including significant amounts of our management's time and attention), which in turn could materially and adversely affect our business, operations and financial condition. In addition, if there was an ultimate finding in favor
of Mr. Schick on his allegations, we may be required to pay Mr. Schick substantial amounts of cash and other potential penalties. Any such payments could materially and adversely affect our financial condition, business and prospects, and could prevent us from executing our business plan as currently contemplated.
ITEM 1A - Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this Quarterly Report on Form 10-Q, before investing in our common stock. If any of the events
anticipated by the risks described below occur, our results of operations and financial condition could be adversely affected which could result in a decline in the market price of our common stock, causing you to lose all or part of your investment. We have updated the risk factors previously disclosed in our registration statement on Form SB-2, filed November 22, 2006 (the “Form SB-2”) and in our Annual Report on Form 10–K for the year ended December 31, 2009, which was filed
with the Securities and Exchange Commission on April 15, 2010 (the “Fiscal 2009 10–K”). We believe there are no changes that constitute material changes from the risk factors previously disclosed in the Fiscal 2009 10–K and the Form SB-2 including but not limited, to the following:
Our Common Stock Is Subject To Penny Stock Regulation
Our shares are subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock
as that used in Rule 3a51-1 of the Exchange Act. The Commission generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on the NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the registrant's net tangible assets; or exempted from the definition by the Commission. Since our shares are deemed to be "penny stock", trading in the shares will be subject to additional sales practice requirements on broker/dealers who sell penny stock to persons other than established customers and accredited investors.
FINRA Sales Practice Requirements May Also Limit A Stockholder's Ability To Buy And Sell Our Stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending
speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Because We Are Quoted On The OTCBB Instead Of An Exchange Or National Quotation System, Our Investors May Have A Tougher Time Selling Their Stock Or Experience Negative Volatility On The Market Price Of Our Stock.
Our common stock is traded on the OTCBB. The OTCBB is often highly illiquid, in part because it does not have a national quotation system by which potential investors can follow the market price of shares except through information received and generated by a limited number of broker-dealers that make markets in particular stocks. There
is a greater chance of volatility for securities that trade on the OTCBB as compared to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience high fluctuations in the market price and volume of the trading market for our securities. These fluctuations,
when they occur, have a negative effect on the market price for our securities. Accordingly, our stockholders may not be able to realize a fair price from their shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our common stock improves.
Failure To Achieve And Maintain Effective Internal Controls In Accordance With Section 404 Of The Sarbanes-Oxley Act Could Have A Material Adverse Effect On Our Business And Operating Results.
It may be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal auditing and other finance staff in order to develop and implement appropriate additional
internal controls, processes and reporting procedures. If we are unable to comply with these requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications that the Sarbanes-Oxley Act requires of publicly traded companies.
If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors
to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, beginning with our annual report on Form 10-K for our fiscal period ending December 31, 2009, we will be required to prepare assessments regarding internal controls over financial reporting and beginning with our annual report on Form 10-K for our fiscal
period ending December 31, 2009, furnish a report by our management on our internal control over financial reporting. We have begun the process of documenting and testing our internal control procedures in order to satisfy these requirements, which is likely to result in increased general and administrative expenses and may shift management time and attention from revenue-generating activities to compliance activities. While our management is expending significant resources in an effort to complete this important
project, there can be no assurance that we will be able to achieve our objective on a timely basis. There also can be no assurance that our auditors will be able to issue an unqualified opinion on management’s assessment of the effectiveness of our internal control over financial reporting. Failure to achieve and maintain an effective internal control environment or complete our Section 404 certifications could have a material adverse effect on our stock price.
In addition, in connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant
deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected.
In the event that a material weakness is identified, we will employ qualified personnel and adopt and implement policies and procedures to address any material weaknesses that we identify. However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to
changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures we will take will remediate any material weaknesses that we may identify or that we will implement and maintain adequate controls over our financial process and reporting in the future.
Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we may identify or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result
in material misstatements in our financial statements. Any such failure could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we may identify, would adversely affect the annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could also cause
investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
We May Not Have Access To Sufficient Capital To Pursue Our Business And Therefore Would Be Unable To Achieve Our Planned Future Growth.
We intend to pursue a growth strategy that includes development of the Company business. Currently we have limited capital which is insufficient to pursue our plans for development and growth. Our ability to implement our growth plans will depend primarily on our ability to obtain additional private or public equity or debt
financing. We are currently seeking additional capital. Such financing may not be available at all, or we may be unable to locate and secure additional capital on terms and conditions that are acceptable to us. Our failure to obtain additional capital will have a material adverse effect on our business.
Nevada Law And Our Articles Of Incorporation Protect Our Directors From Certain Types Of Lawsuits, Which Could Make It Difficult For Us To Recover Damages From Them In The Event Of A Lawsuit.
Nevada law provides that our directors will not be liable to our company or to our stockholders for monetary damages for all but certain types of conduct as directors. Our Articles of Incorporation require us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided
or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require our company to use our assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.
The nutritional supplements industry is intensely competitive. We have many well-established competitors with substantially greater financial and other resources than it. These factors may make it more difficult for us to successfully implement its business plan and may adversely affect its results
of operations.
The nutritional supplements industry is a large, highly fragmented and growing industry, with, to management’s knowledge, no single industry participant accounting for more than 10% of total industry retail sales. Participants include specialty retailers, supermarkets, drugstores, mass merchants (wholesalers), multi-level marketing
organizations, mail order companies and a variety of other smaller participants. The market is also highly sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. Increased competition from companies that distribute through retail or wholesale channels could have a material adverse effect on our financial condition and results of operations. We are a development stage business and the only revenues we have received from
product sales since inception were nominal. Accordingly, we have not been operational long enough to experience any of the above problems. However, since we are a development stage business, most, if not all companies in our industry have greater financial and other resources available to them and possess manufacturing, distribution and marketing capabilities greater than ours. In addition, our competitors may be more effective and efficient in integrating new products. We may not be able to compete effectively
and any of the factors listed above may cause price reductions, reduced margins and difficulties in gaining market share.
SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES
During the three months ended March 31, 2010 the Company issued 12,499 shares of common stock to consultants for the fair value of services rendered and expensed $7,999. The offer and sale of such shares of our common stock were effected in reliance on the exemptions for sales of securities not involving a public offering,
as set forth in Rule 506 promulgated under the Securities Act and in Section 4(2) of the Securities Act. A legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequent registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the period ended March 31, 2010.
ITEM 4. Removed and Reserved.
ITEM 5. OTHER INFORMATION
There is no information with respect to which information is not otherwise called for by this form.
ITEM 6. EXHIBITS
|
31.1 |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act |
|
31.2 |
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. |
|
32.1 |
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. |
|
32.2 |
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Registrant
Date: May 17, 2010 |
Bond Laboratories, Inc.
By: /s/ John Wilson | |
|
John Wilson | ||
|
Chief Executive Officer (Principal Executive Officer) |
|
Registrant
Date: May 17, 2010 |
Bond Laboratories, Inc.
By: /s/ Michael Abrams | |
|
Michael Abrams | ||
|
Chief Financial Officer (Principal Financial Officer) |