bond10q_mar312013.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
For the transition period from N/A to N/A
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Commission File No. 333-137170
BOND LABORATORIES, INC.
(Name of small business issuer as specified in its charter)
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Nevada
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20-3464383
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(State or other jurisdiction of incorporation)
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(IRS Employer Identification No.)
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4509 S. 143rd Street, Suite 1, Omaha, NE 68137
(Address of principal executive offices)
(402) 884-1894
(Issuer’s telephone number)
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 [X] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non–accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b–2 of the Exchange Act. (Check one):
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non–Accelerated filer
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[ ]
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Small reporting company
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[X]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class
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Outstanding at May 10, 2013
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Common stock, $0.01 par value
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77,753,482
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INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED MARCH 31, 2013
TABLE OF CONTENTS
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PAGE
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19 |
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CERTIFICATIONS
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31.1
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
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31.2
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
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32.2
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Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
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32.2
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Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
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PART I
Item 1. Financial Statements
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, 2012. 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, 2013 are not necessarily indicative of the results that can be expected for the year ending December 31, 2013.
BOND LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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(Unaudited)
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ASSETS:
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March 31,
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December 31,
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2013
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2012
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CURRENT ASSETS
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Cash
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$ |
709,370 |
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$ |
936,911 |
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Accounts receivable, net
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2,039,040 |
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969,111 |
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Inventory
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3,392,245 |
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3,684,991 |
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Deferred tax asset
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689,000 |
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689,000 |
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Prepaid expenses and other current assets
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73,601 |
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117,059 |
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Total current assets
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6,903,256 |
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6,397,072 |
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PROPERTY AND EQUIPMENT, net
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14,724 |
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18,577 |
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Intangibles assets, net
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1,201,929 |
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1,256,866 |
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Long-term investments
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100,000 |
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- |
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Deposits
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3,048 |
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3,048 |
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TOTAL ASSETS
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$ |
8,222,957 |
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$ |
7,675,563 |
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LIABILITIES AND STOCKHOLDERS' EQUITY:
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CURRENT LIABILITIES:
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Accounts payable
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$ |
791,752 |
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$ |
1,209,380 |
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Accrued expenses and other liabilities
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202,724 |
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191,787 |
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Income tax payable
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49,000 |
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32,000 |
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Line of Credit
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437,089 |
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437,089 |
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Total current liabilities
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1,480,565 |
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1,870,256 |
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TOTAL LIABILITIES
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1,480,565 |
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1,870,256 |
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CONTINGENCIES AND COMMITMENTS
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- |
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- |
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STOCKHOLDERS' EQUITY:
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Preferred stock series B, $.01 par value, 1,000 shares authorized; 103.3 and 103.3 issued and outstanding of its 10% Perpetual Preferred with a Stated Value of $10,000 per share with a cumulative dividend of $801,815 and $757,063 as of March 31, 2013 and December 31, 2012, respectively
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801,816 |
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757,064 |
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Preferred stock series C, $.01 par value, 500 shares authorized; 125 and 125 issued and outstanding of its convertible preferred stock with a Stated Value of $10,000 per share with a $0.25 conversion price and a cumulative dividend of $63,763 and $50,755 as of March 31, 2013 and December 31, 2012, respectively
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63,764 |
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50,756 |
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Common stock, $.01 par value, 150,000,000 shares authorized; 77,753,482 and 74,753,482 issued and outstanding as of March 31, 2012 and December 31, 2011, respectively
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777,535 |
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747,535 |
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Additional paid-in capital
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27,126,586 |
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26,864,676 |
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Accumulated deficit
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(22,027,309 |
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(22,614,724 |
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Total stockholders' equity
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$ |
6,742,392 |
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$ |
5,805,307 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ |
8,222,957 |
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$ |
7,675,563 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
BOND LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
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(Unaudited)
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2013
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2012
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Revenue
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$ |
6,061,141 |
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$ |
4,955,897 |
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Total
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6,061,141 |
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4,955,897 |
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Cost of Goods Sold
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3,791,233 |
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3,208,257 |
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Gross Profit
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2,269,908 |
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1,747,640 |
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OPERATING EXPENSES:
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General and administrative
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997,743 |
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521,306 |
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Selling and marketing
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610,089 |
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443,425 |
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Depreciation and amortization
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58,791 |
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62,531 |
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Total operating expenses
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1,666,623 |
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1,027,262 |
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OPERATING INCOME
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603,286 |
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720,378 |
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OTHER (INCOME) AND EXPENSES
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Interest expense
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4,371 |
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4,972 |
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Other income
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- |
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(4,500 |
) |
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Gain on extinguishment of debt
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- |
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- |
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Loss on the sale of assets
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- |
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- |
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Total other (income) expense
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4,371 |
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472 |
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INCOME TAXES (BENEFIT)
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11,500 |
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- |
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NET INCOME
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$ |
587,415 |
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$ |
719,906 |
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NET INCOME PER SHARE:
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Basic
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$ |
0.01 |
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$ |
0.01 |
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Diluted
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$ |
0.01 |
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$ |
0.01 |
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Basic
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76,520,149 |
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74,293,358 |
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Diluted
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90,110,733 |
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94,811,940 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
BOND LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
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(Unaudited)
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2013
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2012
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Net income
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$ |
587,415 |
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$ |
719,906 |
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Adjustments to reconcile net loss to net cash
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used in operating activities:
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Depreciation and amortization
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58,791 |
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62,532 |
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Common stock and options issued for services
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349,670 |
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10,161 |
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Changes in operating assets and liabilities:
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Accounts receivables
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(1,069,929 |
) |
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(663,315 |
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Inventory
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292,746 |
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(131,954 |
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Prepaid expenses
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43,458 |
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(8,179 |
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Deposits
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- |
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3,782 |
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Accounts payable
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(417,628 |
) |
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560,141 |
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Accrued liabilities
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10,937 |
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(20,892 |
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Income tax payable
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17,000 |
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- |
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Net cash provided by / (used in) operating activities
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(127,540 |
) |
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532,182 |
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Purchase of property and equipment
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- |
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- |
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Long-term investment
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(100,000 |
) |
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- |
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Proceeds from sale of assets
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- |
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- |
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Net cash provided by / (used in) investing activities
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(100,000 |
) |
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- |
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Repayments of note payable
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- |
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- |
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Net cash provided by / (used in) financing activities
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- |
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- |
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INCREASE (DECREASE) IN CASH
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(227,540 |
) |
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532,182 |
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CASH, BEGINNING OF PERIOD
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936,911 |
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354,929 |
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CASH, END OF PERIOD
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$ |
709,370 |
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$ |
887,111 |
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Supplemental disclosure operating activities
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Cash paid for interest
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$ |
4,371 |
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$ |
4,972 |
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Cash paid for income tax
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$ |
- |
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$ |
- |
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| |
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Supplemental disclosure for non cash investing and financing activities
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| |
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Common shares and options issued for services
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$ |
349,670 |
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$ |
10,161 |
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Common shares issued for debt
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$ |
- |
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$ |
- |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
BOND LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
NOTE 1 - DESCRIPTION OF BUSINESS
Summary
Bond Laboratories, Inc. (the “Company”) is a national provider of innovative and proprietary nutritional supplements for health conscious consumers. The Company produces and markets its products through NDS Nutrition Products, Inc., a Florida corporation (“NDS”). NDS manufactures and distributes a full line of nutritional supplements to support healthy living predominantly through franchisees of General Nutrition Centers, Inc. (“GNC”) located throughout the United States.
The Company was incorporated in the State of Nevada on July 26, 2005. 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.
Bond Laboratories is headquartered in Omaha, Nebraska. For more information on the Company, please go to http://www.bond-labs.com. The Company’s common stock currently trades under the symbol BNLB on the OTCQB market.
NOTE 2 - BASIS OF PRESENTATION
Interim Financial Statements
The accompanying interim condensed unaudited 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 are included. Operating results for the three-month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. While management of the Company believes the disclosures presented herein are adequate and not misleading, these interim condensed consolidated financial statements should be read in conjunction with the audited condensed consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2012 as filed with the Securities and Exchange Commission as an exhibit to our Annual Report on 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 consolidated financial statements include the accounts of Bond Laboratories, Inc. and NDS Nutrition Products, Inc. Intercompany accounts and transactions have been eliminated in the consolidated condensed financial statements.
Use of Estimates
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 is derived from product sales. The Company recognizes revenue from product sales in accordance with Accounting Standards Codification ("ASC") Topic 605 “Revenue Recognition in Financial Statements” which assesses revenue upon: (i) the time customers are invoiced at shipping point provided title and risk of loss has passed to the customer, (ii) evidence of an arrangement exists, (iii) fees are contractually fixed or determinable, (iv) collection is reasonably assured through historical collection results and regular credit evaluations, and (v) there are no uncertainties regarding customer acceptance.
Accounts Receivable
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, estimating 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 recorded $1,656 related to bad debt and doubtful accounts during the quarter ended March 31, 2013.
Allowance for Doubtful Accounts
The determination of collectability 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 factors that affect collectability. 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, 2013, 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, 2013 and December 31, 2012, the value of the Company’s inventory was $3,392,245 and $3,684,991, respectively.
Property and Equipment
Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using 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 calculate depreciation for principal items of property and equipment are as follows:
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Asset Category
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Depreciation/
Amortization Period
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The Company adopted Statement of Financial Accounting Standard (“FASB”) ASC Topic 350 Goodwill and Other Intangible Assets. In accordance with ASC Topic 350, 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, plants, 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 in 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, 2013, the Company did not record any liabilities for uncertain tax positions.
Concentration of Credit Risk
The Company maintains its operating cash balances in a bank located in Nebraska. The Federal Depository Insurance Corporation (“FDIC”) insures accounts 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. In the event of a loss, diluted loss per share is the same as basic loss per share, because of the effect 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.
Recent Accounting Pronouncements
None.
NOTE 4 – INVENTORIES
The Company’s inventories as of March 31, 2012 and December 31, 2012 are as follows:
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March 31,
2013
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December 31, 2012
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NOTE 5 - PROPERTY AND EQUIPMENT
The Company’s fixed assets as of March 31, 2013 and December 31, 2012 are as follows:
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March 31,
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December 31,
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2013
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2012
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Depreciation and amortization expense for the three months ended March 31, 2013 was $58,791 compared to $62,531 for March 31, 2012.
NOTE 6 – NOTE PAYABLES
Notes payable consist of the following as of March 31, 2013 and December 31, 2012:
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March 31,
2013
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December 31,
2012
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Revolving line of credit of $2,000,000 from US Bank, dated April 9, 2009, as amended July 15, 2010, May 25, 2011, and August 22, 2012, at an interest rate of 3.0% plus the one-month LIBOR quoted by US Bank from Reuters Screen LIBOR. The line of credit matures May 15, 2013 and is secured by 80% of the receivables and 25% of the inventory of NDS Nutrition Products, Inc. The Company pays interest only on this line of credit.
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Total of notes payable and advances
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NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company does not have a commitment and contingency liability associated with any third party consulting agreements.
Effective August 3, 2012, without admitting any wrongdoing or liability, the Company settled all pending litigation with Eric Schick, the Company’s former President, related to allegations that the Company had committed certain unlawful employment practices (the “Schick Litigation”). The settlement provides for certain payments to Mr. Schick totaling $360,000, of which $180,000 was paid as a lump sum and $180,000 is payable over a twelve-month period in equal monthly installments of $15,000 each. As a result of the settlement of the Schick Litigation, all claims by Mr. Schick were dismissed, with prejudice. The Company had previously established a reserve of $250,000 in anticipation of the costs and expenses associated with defending the Schick Litigation, and believes that the settlement allows the Company to focus on the execution of its business plan without the costs, expenses and uncertainty of continued litigation.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company paid Burnham Hill Advisors LLC ("BHA") $40,500 during the quarter ended March 31, 2013 for advisory and consulting fees pursuant to the terms of a Consulting Agreement for Services ("Agreement") by and between the Company and BHA, dated August 25, 2012. Mr. Abrams, the Company’s Chief Financial Officer, is a partner in Burnham Hill Capital Group LLC (“BHCG”), of which BHA is a 100% wholly-owned entity. In addition, Mr. Adelman, a shareholder that beneficially owns in excess of 5% of the Company’s common stock, is a partner is BHCG. The fees paid to BHA under the terms of the Agreement, $13,500 per month, include the services provided by Mr. Abrams to the Company in his capacity as its Chief Financial Officer. Additionally, Mr. Abrams receives $1,500 per month directly from the Company in consideration for his services provided to the Company.
NOTE 9 - NET INCOME / (LOSS) PER SHARE
Basic net income per share is calculated by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share also includes the weighted average number of outstanding warrants and options in the denominator, as well as the weighted average number of shares of Series C Convertible Preferred Stock on an as converted basis. In the event of a loss, the diluted loss per share is the same as basic loss per share. The weighted average number of diluted shares of common stock outstanding for the three months ended March 31, 2013 included 76,520,149 shares of common stock, 5,000,000 shares of common stock issuable upon the conversion of the Series C Convertible Preferred Stock at $0.25 per share, 6,950,584 shares of common stock issuable upon the exercise of outstanding common stock purchase warrants (all of which are presently out of the money), and 1,640,000 shares of common stock issuable upon the exercise of outstanding options to purchase common stock. The following table represents the computation of basic and diluted income and (losses) per share for the three months ended March 31, 2013 and 2012.
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March 31,
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March 31,
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2013
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2012
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Income / (Losses) available for common shareholders
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Basic weighted average common shares outstanding
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Basic income / (loss) per share
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Diluted weighted average common shares outstanding
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Diluted income / (loss) per share
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Net income / (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 150,000,000 shares of common stock, $0.01 par value, of which 77,753,482 common shares were issued and outstanding as of March 31, 2013. The Company is authorized to issue 10,000,000 shares of Series A Convertible Preferred Stock, $0.01 par value, none of which were issued and outstanding as of March 31, 2013. The Company is authorized to issue 1,000 shares of its 10% Cumulative Perpetual Series B Preferred Stock, $0.01 par value, of which 103.3 were issued and outstanding as of March 31, 2013. The Company recorded an accumulated dividend of $801,815 as of March 31, 2013, which was recorded against the par value of the 10% Cumulative Perpetual Series B Preferred Stock and Additional Paid in Capital. The outstanding 10% Cumulative Perpetual Series B Preferred Stock has a liquidation preference of $10,000 per share. The Company is authorized to issue 500 shares of its Series C Convertible Preferred Stock, par value $0.01, of which 125 shares were issued and outstanding as of March 31, 2013. The Company recorded an accumulated dividend of $63,763 as of March 31, 2013, which was recorded against the par value of the Series C Convertible Preferred Stock and Additional Paid in Capital. The Series C Convertible Preferred Stock is convertible at $0.25 per share and has a liquidation preference of $10,000 per share.
Options
As of March 31, 2012, 1,800,000 options to purchase common stock of the Company were issued and outstanding, 600,000 of which had an exercise price equal to $0.10 per share, and 1,200,000 of which had an exercise price equal to $0.09 per share.
Warrants
The Company values all warrants using the Black-Scholes option-pricing model. Critical assumptions for the Black-Scholes option-pricing model include the market value of the stock price at the time of issuance, the risk-free interest rate corresponding to the term of the warrant, the volatility of the Company’s stock price, dividend yield on the common stock, as well as the exercise price and term of the warrant. The Black Scholes option-pricing model was the best determinable value of the warrants that the Company “knew up front” when issuing the warrants in accordance with Topic 505. Other than as expressly noted below, the warrants are not subject to any form of vesting schedule and, therefore, are exercisable by the holders anytime at their discretion during the life of the warrant. No discounts were applied to the valuation determined by the Black-Scholes option-pricing model; provided, however, that in determining volatility the Company utilized the lesser of the 90-day volatility as reported by Bloomberg or other such nationally recognized provider of financial markets data and 40.0%.
As of March 31, 2013, 5,993,917 warrants to purchase common stock of the Company were issued and outstanding, additional information about which is included in the following table:
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Issued
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Exercise Price
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Issuance Date
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Expiration Date
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Vesting
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175,864 |
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$ |
0.770 |
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12/31/09
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12/31/14
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No
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100,000 |
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$ |
0.700 |
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12/31/09
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12/31/14
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No
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375,000 |
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$ |
0.500 |
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08/20/09
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08/20/14
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No
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500,000 |
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$ |
0.375 |
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12/31/08
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12/31/13
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No
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142,593 |
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$ |
0.360 |
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05/14/10
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05/14/15
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Yes
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175,000 |
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$ |
0.350 |
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08/20/09
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08/20/14
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No
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100,000 |
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$ |
0.350 |
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12/31/09
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12/31/14
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No
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2,500,000 |
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$ |
0.300 |
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11/15/10
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11/15/15
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No
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20,833 |
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$ |
0.300 |
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04/01/09
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04/01/14
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Yes
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206,400 |
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$ |
0.200 |
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06/29/10
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06/29/15
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No
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212,400 |
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$ |
0.200 |
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07/21/10
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07/21/15
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No
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90,000 |
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$ |
0.200 |
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09/03/10
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09/03/15
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No
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1,395,827 |
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$ |
0.150 |
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12/31/08
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12/31/13
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Yes
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5,993,917 |
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Expected Dividend Yield
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0.0 |
% |
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Volatility
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40.0 |
% |
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Weighted average risk free interest rate
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0.2 |
% |
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Weighted average expected life (in years)
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1.8 |
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Private Placements, Other Issuances and Cancellations
The Company periodically issues shares of its common stock, as well as options and warrants to purchase shares of common stock to investors in connection with private placement transactions, and to advisors, consultants and employees 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 quarter ended March 31, 2013 the Company issued 3,000,000 shares of common stock for services and recorded an expense of $330,000 for the fair value of services rendered. In addition to the above, during the quarter ended March 31, 2013 the Company issued 600,000 common stock purchase options to employees and directors for services and recorded an expense of $19,670 for the fair value of services rendered.
NOTE 11 - INCOME TAXES
The provision (benefit) for income taxes from continued operations for the quarter ended March 31, 2013 consisted of the following:
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March 31, 2012
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Current:
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Change in valuation allowance
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Provision benefit for income taxes, net
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Deferred income taxes result from temporary differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The components of deferred tax assets consist principally from the following:
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March 31, 2012
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Net operating loss carryforwards
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Deferred income tax asset
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The Company has a net operating loss carryforwards of approximately $22,000,000 for federal purposes available to offset future taxable income through 2031, which expire in various years through 2031, The Company has provided a valuation reserve against the full amount of the net operating loss benefit, because in the opinion of management the benefits from net operating losses carried forward may be impaired or limited on certain circumstances. Events which may cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, limitations imposed under Section 382 of the Internal Revenue Code, as amended, from change of more than 50% over a three-year period. The impact of any limitations that may be imposed for future issuances of equity securities, including issuances with respect to acquisitions have not been determined.
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. 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 year ended December 31, 2012, 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.
NOTE 12 – SUBSEQUENT EVENTS
In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events, and have determined that no subsequent events are reasonably likely to impact the financial statements other than as provided below.
On May 8, 2013, the Company and BHA agreed to terminate the existing Consulting Agreement for Services ("Agreement") by and between the Company and BHA, dated August 25, 2012, in accordance with its terms. Concurrent with such termination, the Company entered into a three year employment agreement with Michael Abrams to serve as its Chief Financial Officer, a position he has held on an interim basis since August 2009, which agreement was effective as of May 1, 2013.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
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. 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. 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, 2012, 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, Inc. (the “Company”) is a national provider of innovative and proprietary nutritional supplements for health conscious consumers. The Company produces and markets its products through NDS Nutrition Products, Inc., a Florida corporation (“NDS”). NDS manufactures and distributes a full line of nutritional supplements to support healthy living predominantly through franchisees of General Nutrition Centers, Inc. (“GNC”) located throughout the United States.
The Company was incorporated in the State of Nevada on July 26, 2005. 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.
Bond Laboratories is headquartered in Omaha, Nebraska. For more information on the Company, please go to http://www.bond-labs.com. The Company’s Common Stock currently trades under the symbol BNLB on the OTCQB market.
Results of Operations
Net Sales. Revenue for the three months ended March 31, 2013 increased to $6,061,141 as compared to $4,955,897 for the three months ended March 31, 2012. This increase was primarily driven by continued strong sales of recently introduced products, greater average sales per retail location, and the recent introduction of our products in international markets. We currently market approximately 50 products to over 800 GNC franchise locations nationwide, as well as to eight other countries. The Company continually seeks to increase both the number of stores and number of approved products that comprise its distribution footprint and, while no assurances can be given, anticipates that such efforts will continue to drive future revenue growth. While not a material component of revenue for this quarter, management anticipates that continued international expansion will be a major driver of future growth.
Cost of Goods Sold. Cost of goods sold for the three months ended March 31, 2013 increased to $3,791,233 as compared to $3,208,257 for the three months ended March 31, 2012. The increase was primarily attributable to increased sales volume during the quarter.
General and Administrative Expense. General and administrative expense for the three months ended March 31, 2013 increased to $997,743 as compared to $521,306 for the three months ended March 31, 2012. The increase in general and administrative expense is primarily attributable to the expense recognized in connection with the Company’s issuance of equity to certain employees and advisors for the fair value of services rendered during the quarter ended March 31, 2013. Absent non-cash charges related to stock issued for services, general and administrative expense for the three months ended March 31, 2013 would have increased to $648,073 as compared to $511,145 for the prior comparable quarter. This increase is primarily attributable to higher personnel costs during the current quarter.
Selling and Marketing Expense. Selling and marketing expense for the three months ended March 31, 2013 increased to $610,089 as compared to $443,425 for the three months ended March 31, 2012. The increase in selling and marketing expense is principally attributable to expanded marketing activities designed to support current and expected future revenue growth, which includes costs driven by increased product sales made in connection with the Company’s participation in GNC’s annual franchise convention as well as incremental expense attributable to the Company’s ongoing international expansion. As net sales increase, selling and marketing expense is anticipated to simultaneously increase, although management anticipates that selling and marketing expense will increase at a lower rate.
Depreciation and Amortization. Depreciation and amortization for the three months ended March 31, 2013 decreased to $58,791 as compared to $62,531 for the three months ended March 31, 2012.
Net Income/(Loss). We generated a profit of $587,415 for the three months ended March 31, 2013 as compared to a profit of $719,906 for the three months ended March 31, 2012. The decrease was principally attributable to charges related to the fair value of stock issued for services during the quarter ended March 31, 2013. Excluding such non-cash charges, net income for the quarter ended March 31, 2013 increased 28.4% in connection with 22.3% revenue growth to $937,085 from $730,067. The net increase, while partially offset by higher operating expenses, was driven by greater sales volume and a higher gross margin.
Liquidity and Capital Resources
The Company has historically financed its operations primarily through equity and debt financings, and more recently, cash flow from operations. The Company has also provided for its cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees. The Company did not engage in any financing activities during the year ended December 31, 2012 or the three month period ended March 31, 2013. Together with anticipated cash derived from operations, our existing cash resources are expected to provide for the Company’s liquidity through at least December 31, 2013. Although no assurances can be given, management currently believes the Company will generate sufficient cash from operations to provide for its working capital needs beyond December 31, 2013.
Cash Provided by/(Used in) Operations. Our cash used in operating activities for the three months ended March 31, 2013 was $(127,540) as compared to cash provided by operating activities of $532,182 for the three months ended March 31, 2012. The decrease is attributable to fluctuations in working capital accounts most notably higher accounts receivable driven by increased sales volume and lower accounts payable net income. Notwithstanding the foregoing, net working capital increased to $5,422,691 as of the quarter ended March 31, 2013 from $4,526,816 as of March 31, 2012. Cash provided by operations during the three months ended March 31, 2013 included $45,000 in payments in connection with the settlement of the Schick Litigation. We anticipate using an additional $60,000 in cash through December 31, 2013 in connection with the settlement of the Schick Litigation; however, management nevertheless anticipates reporting positive cash provided by operations during the quarter ended June 30, 2013, and for the year ended December 31, 2013.
Cash Provided by/(Used in) Investing Activities. Cash used in investing activities for the three months ended March 31, 2013 was $(100,000) as compared to $0 for the three months ended March 31, 2012.
Cash Provided by/(Used in) Financing Activities. Our cash provided by financing activities for the three months ended March 31, 2013 was $0 as compared to cash provided by financing activities of $0 for the three months ended March 31, 2012. While no assurances can be given, we remain cash flow positive have not needed to seek or secure additional working capital to operate and grow the business since the fourth quarter of 2010.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Quarterly Report on 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
Our business is currently conducted principally in the United States. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. We do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although if the geographical scope of our business broadens, we may do so in the future.
Our exposure to risk for changes in interest rates relates primarily to our investments in short-term financial instruments. Investments in both fixed rate and floating rate interest earning instruments carry some interest rate risk. The fair value of fixed rate securities may fall due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Partly as a result of this, our future interest income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that have fallen in estimated fair value due to changes in interest rates. However, as substantially all of our cash equivalents consist of bank deposits and short-term money market instruments, we do not expect any material change with respect to our net income as a result of an interest rate change.
We do not hold any derivative instruments and do not engage in any hedging activities.
(a) 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 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, 2013. 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.
(b) Changes in Internal Controls Over Financial Reporting
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, 2013. There have not been any significant changes in the Company's critical accounting policies identified since the Company filed its Annual Report on Form 10-K as of December 31, 2012.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CycloBolan Matter
On October 7, 2010, Infinite Labs LLC ("Infinite Labs") was served with a complaint filed in the State of New York, Supreme Court, County of Onondaga, alleging numerous physical and psychological injuries by an individual in connection with his ingestion of CycloBolan, a supplement manufactured by NDS. Infinite Labs was a product line previously marketed by NDS, which was discontinued in September 2009. The parties are currently engaged in written discovery and no depositions have been taken to date. Because there has been no discovery done with respect to causation, it is impossible to currently evaluate the likelihood of any outcome or potential loss, if any. The plaintiff is seeking damages currently believed to be in excess of $500,000. The lawsuit was tendered to the Company’s insurance carrier, which has assumed the defense of the case at no cost to the Company. Management currently believes the overall risk to the Company in connection with this matter is minimal.
We are currently not involved in any litigation except noted above that we believe could have a material adverse effect on our financial condition or results of operations. Other than described above, 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 the Company or any of our subsidiaries, threatened against or affecting the Company, our common stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
There are no risk factors identified by the Company in addition to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the period ended March 31, 2013.
ITEM 5. OTHER INFORMATION
There is no information with respect to which information is not otherwise called for by this form.
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Employment Agreement with Michael Abrams, entered into on May 8, 2013, effective as of May 1, 2013. |
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
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Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
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Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
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XBRL Taxonomy Extension Schema
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XBRL Taxonomy Extension Calculation Linkbase
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XBRL Taxonomy Extension Definition Linkbase
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XBRL Taxonomy Extension Label Linkbase
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XBRL Taxonomy Extension Presentation Linkbase
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Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
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.
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Registrant
Date: May 14, 2013
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Bond Laboratories, Inc.
By: /s/ John Wilson
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John Wilson
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Chief Executive Officer
(Principal Executive Officer)
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Registrant
Date: May 14, 2013
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Bond Laboratories, Inc.
By: /s/ Michael Abrams
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Michael Abrams
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Chief Financial Officer
(Principal Financial Officer)
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