UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________
| |
| |
Commission file number:000-54586
BOSTON THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 27-0801073 | |
(State or other jurisdiction of | ||
incorporation or organization) | (I.R.S. Employer Identification No.) | |
354 Merrimack Street #4, Lawrence, MA | 01843 | |
(Address of principal executive offices) | (Zip Code) |
603-935-9799
(Registrant’s telephone number, including area code)
(Former address)Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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 ☒ 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 ☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, a smaller reporting company, or an emerging growth company. See definitiondefinitions of “accelerated filer and large“large accelerated filer” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller Reporting Company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No☒
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING FIVE YEARS;
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 | |
Common Stock, $0.001 par value per share |
BOSTON THERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
Except as otherwise required by the context, all references in this report to “we”, “us”, “our”, “BTI” or “Company” refer to the operations of Boston Therapeutics, Inc., a Delaware corporation, formerly called Avanyx Therapeutics, Inc.
i
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Boston Therapeutics, Inc.
Condensed Consolidated Balance Sheets
September 30, | December 31, | |||||||||||||||
2017 | 2016 | September 30, 2020 | December 31, 2019 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 296,907 | $ | 687,185 | ||||||||||||
Accounts receivable | 873 | 5,011 | ||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 118,286 | $ | 6,701 | ||||||||||||
Prepaid expenses and other current assets | 319,460 | 82,710 | 21,780 | 12,662 | ||||||||||||
Inventory, net | 41,564 | 55,116 | 2,648 | 3,909 | ||||||||||||
Total current assets | 658,804 | 830,022 | 142,714 | 23,272 | ||||||||||||
Property and equipment, net | 2,690 | 1,577 | — | 509 | ||||||||||||
Intangible assets, net | 455,357 | 503,571 | ||||||||||||||
Goodwill | 69,782 | 69,782 | ||||||||||||||
Total assets | $ | 1,186,633 | $ | 1,404,952 | $ | 142,714 | $ | 23,781 | ||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
Current liabilities: | �� | |||||||||||||||
Accounts payable | $ | 270,667 | $ | 319,474 | $ | 498,188 | $ | 458,175 | ||||||||
Accounts payable – related party | 282,302 | 152,302 | ||||||||||||||
Accrued expenses and other current liabilities | 447,603 | 347,405 | 1,181,197 | 1,361,194 | ||||||||||||
Deferred revenue | 112,162 | 112,162 | ||||||||||||||
Notes payable – related party, current portion | 281,532 | 297,820 | ||||||||||||||
Convertible notes payable, related party, net of discount, current portion | 1,268,137 | — | ||||||||||||||
Convertible notes payable, net of discount, current portion | 989,985 | |||||||||||||||
Derivative liability, current portion | 798,503 | — | ||||||||||||||
Accrued expenses – related party | 1,294,450 | 1,097,974 | ||||||||||||||
Deferred revenue – related party | 104,782 | 104,782 | ||||||||||||||
Convertible note payable, related party, net of discount | 1,402,000 | 1,402,000 | ||||||||||||||
Convertible note payable | 200,000 | 250,000 | ||||||||||||||
Notes payable – related parties | 2,758,429 | 1,948,429 | ||||||||||||||
Note payable – marketing agreement | 450,000 | 450,000 | ||||||||||||||
Derivative liability | 2,703 | 9,451 | ||||||||||||||
Warrant liability | 193,108 | 461,744 | ||||||||||||||
Total current liabilities | 4,168,589 | 1,076,861 | 8,367,159 | 7,696,051 | ||||||||||||
Convertible notes payable, related party, net of discount | — | 754,461 | ||||||||||||||
Convertible notes payable, net of discount | — | 364,619 | ||||||||||||||
Warrant liability | 1,474,139 | 1,093,765 | ||||||||||||||
Derivative liability | — | 1,234,106 | ||||||||||||||
Total liabilities | 5,642,728 | 4,523,812 | 8,367,159 | 7,696,051 | ||||||||||||
COMMITMENTS AND CONTINGENCIES (Note 9) | — | — | ||||||||||||||
COMMITMENTS AND CONTINGENCIES (Note 13) | — | — | ||||||||||||||
Stockholders’ deficit: | ||||||||||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized: | ||||||||||||||||
Series A Preferred stock, 150,000 shares authorized, 45,000 and 0 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively. | 45 | — | ||||||||||||||
Common stock, $0.001 par value, 200,000,000 shares authorized, 49,937,163 and 46,702,836 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively. | 49,937 | 46,703 | ||||||||||||||
Series A preferred stock, 150,000 shares designated, 82,500 shares issued and outstanding at September 30, 2020 and December 31, 2019. | 83 | 83 | ||||||||||||||
Common stock, $0.001 par value, 2,000,000,000 shares authorized, 111,131,373 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively. | 111,131 | 111,131 | ||||||||||||||
Additional paid-in capital | 15,289,281 | 15,060,616 | 19,322,864 | 19,322,864 | ||||||||||||
Accumulated deficit | (19,795,358 | ) | (18,226,179 | ) | (27,658,523 | ) | (27,106,348 | ) | ||||||||
Total stockholders’ deficit | (4,456,095 | ) | (3,118,860 | ) | (8,224,445 | ) | (7,672,270 | ) | ||||||||
Total liabilities and stockholders’ deficit | $ | 1,186,633 | $ | 1,404,952 | $ | 142,714 | $ | 23,781 |
See accompanying notes to unaudited condensed consolidated financial statements
Boston Therapeutics, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
Revenue | $ | 2,217 | $ | 3,658 | $ | 8,247 | $ | 13,114 | ||||||||
Operating expenses: | ||||||||||||||||
Direct expenses | 5,541 | 7,588 | 15,327 | 20,395 | ||||||||||||
Research and development | 55,405 | 386,715 | 126,004 | 1,258,259 | ||||||||||||
Sales and marketing | — | 30,357 | 844 | 92,657 | ||||||||||||
General and administrative | 151,299 | 227,080 | 378,551 | 636,888 | ||||||||||||
Total operating expenses | 212,245 | 651,740 | 520,726 | 2,008,199 | ||||||||||||
Operating loss | (210,028 | ) | (648,082 | ) | (512,479 | ) | (1,995,085 | ) | ||||||||
Other income (expenses): | ||||||||||||||||
Interest expense | (111,295 | ) | (82,241 | ) | (315,080 | ) | (251,864 | ) | ||||||||
Change in fair value of warrant liability | 129,255 | 421,476 | 268,636 | 658,111 | ||||||||||||
Change in fair value of derivative liabilities | 3,124 | 5,410 | 6,748 | 51,900 | ||||||||||||
Total other income (expenses) | 21,084 | 344,645 | (39,696 | ) | 458,147 | |||||||||||
Net loss | $ | (188,944 | ) | $ | (303,437 | ) | $ | (552,175 | ) | $ | (1,536,938 | ) | ||||
Net loss per share- basic and diluted | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.01 | ) | ||||||
Weighted average shares outstanding basic and diluted | 111,131,373 | 111,131,373 | 111,131,373 | 111,131,373 |
See accompanying notes to unaudited condensed consolidated financial statements
Boston Therapeutics, Inc.
Condensed Consolidated Statement of Stockholders’ Deficit
For the Nine Months Ended September 30, 2020
Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||||||||||
Balance, December 31, 2019 | 111,131,373 | $ | 111,131 | 82,500 | $ | 83 | $ | 19,322,864 | $ | (27,106,348 | ) | $ | (7,672,270 | ) | |||||||||||||||
Net loss for the nine months ended September 30, 2020 | — | — | — | — | — | (552,175 | ) | (552,175 | ) | ||||||||||||||||||||
Balance, September 30, 2020 (unaudited) | 111,131,373 | $ | 111,131 | 82,500 | $ | 83 | $ | 19,322,864 | $ | (27,658,523 | ) | $ | (8,224,445 | ) |
Boston Therapeutics, Inc.
Condensed Consolidated Statement of Stockholders’ Deficit
Condensed Statements of Operations (Unaudited)For the Nine Months Ended September 30, 2019
For the Three Months Ended | For the nine Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
Revenue | $ | 4,400 | $ | 11,695 | $ | 14,092 | $ | 40,283 | ||||||||
Cost of goods sold | 17,783 | 17,233 | 33,875 | 41,862 | ||||||||||||
Gross deficit | (13,383 | ) | (5,538 | ) | (19,783 | ) | (1,579 | ) | ||||||||
Operating expenses: | ||||||||||||||||
Research and development | 17,639 | 16,071 | 81,242 | 57,772 | ||||||||||||
Sales and marketing | 3,301 | 22,705 | 17,606 | 94,219 | ||||||||||||
General and administrative | 260,605 | 471,944 | 698,602 | 798,717 | ||||||||||||
Total operating expenses | 281,545 | 510,720 | 797,450 | 950,708 | ||||||||||||
Operating loss | (294,928 | ) | (516,258 | ) | (817,233 | ) | (952,287 | ) | ||||||||
Interest expense | (493,829 | ) | (1,176,014 | ) | (1,458,665 | ) | (1,523,026 | ) | ||||||||
Other income (expense) | — | (1 | ) | — | (4,010 | ) | ||||||||||
Financing cost | — | (350,000 | ) | — | (350,000 | ) | ||||||||||
Change in fair value of warrant liability | (163,891 | ) | — | 171,184 | — | |||||||||||
Change in fair value of derivative liabilities | (18,961 | ) | (2,577,655 | ) | 535,535 | (2,577,655 | ) | |||||||||
Net loss | $ | (971,609 | ) | $ | (4,619,928 | ) | $ | (1,569,179 | ) | $ | (5,406,978 | ) | ||||
Net loss per share- basic and diluted | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.13 | ) | ||||
Weighted average shares outstanding basic and diluted | 48,336,915 | 45,107,792 | 47,557,779 | 42,615,867 |
Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance, December 31, 2018 | 110,131,373 | $ | 110,131 | 82,500 | $ | 83 | $ | 19,156,138 | $ | (23,412,269 | ) | $ | (4,145,917 | ) | ||||||||||||||
Stock based compensation | — | — | — | — | 40,779 | — | 40,779 | |||||||||||||||||||||
Issuance of common stock in exchange for consulting services | 1,000,000 | 1,000 | — | — | 21,900 | — | 22,900 | |||||||||||||||||||||
Net loss for the nine months ended September 30, 2019 | — | — | — | — | — | (1,536,938 | ) | (1,536,938 | ) | |||||||||||||||||||
Balance, September 30, 2019 (unaudited) | 111,131,373 | $ | 111,131 | 82,500 | $ | 83 | $ | 19,218,817 | $ | (24,949,207 | ) | $ | (5,619,176 | ) |
See accompanying notes to unaudited condensed consolidated financial statements
Boston Therapeutics, Inc.
Condensed Consolidated Statement of Stockholders’ Deficit
For the three Months Ended September 30, 2020
Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||||||||||
Balance, June 30, 2020 | 111,131,373 | $ | 111,131 | 82,500 | $ | 83 | $ | 19,322,864 | $ | (27,469,579 | ) | $ | (8,035,501 | ) | |||||||||||||||
Net loss for the three months ended September 30, 2020 | — | — | — | — | — | (188,944 | ) | (188,944 | ) | ||||||||||||||||||||
Balance, September 30, 2020 (unaudited) | 111,131,373 | $ | 111,131 | 82,500 | $ | 83 | $ | 19,322,864 | $ | (27,658,523 | ) | $ | (8,224,445 | ) |
Boston Therapeutics, Inc.
Condensed Consolidated Statement of Stockholders’ (Deficit) (Unaudited)Deficit
For the Ninethree Months Ended September 30, 20172019
Preferred Stock | Common Stock | Additional Paid- | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | In Capital | (Deficit) | Total | ||||||||||||||||||||||
Balance at December 31, 2016 | — | $ | — | 46,702,836 | $ | 46,703 | $ | 15,060,616 | $ | (18,226,179 | ) | $ | (3,118,860 | ) | ||||||||||||||
Conversion of convertible note payable and accrued interest into common stock | 1,704,968 | 1,705 | 115,770 | 117,475 | ||||||||||||||||||||||||
Conversion of accrued interest into common shares | 1,507,989 | 1,508 | 77,661 | 79,169 | ||||||||||||||||||||||||
Conversion of related party accrued interest into common shares | 21,370 | 21 | 2,116 | 2,137 | ||||||||||||||||||||||||
Issuance of Series A Preferred Stock for cash | 45,000 | 45 | 449,955 | 450,000 | ||||||||||||||||||||||||
Reclassification of derivative liability | (454,154 | ) | (454,154 | ) | ||||||||||||||||||||||||
Stock based compensation | 37,317 | 37,317 | ||||||||||||||||||||||||||
Net loss | (1,569,179 | ) | (1,569,179 | ) | ||||||||||||||||||||||||
Balance at September 30, 2017 | 45,000 | $ | 45 | 49,937,163 | $ | 49,937 | $ | 15,289,281 | $ | (19,795,358 | ) | $ | (4,456,095 | ) |
Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance, June 30, 2019 | 111,131,373 | $ | 111,131 | 82,500 | $ | 83 | $ | 19,205,224 | $ | (24,645,770 | ) | $ | (5,329,332 | ) | ||||||||||||||
Stock based compensation | — | — | — | — | 13,593 | — | 13,593 | |||||||||||||||||||||
Net loss for the three months ended September 30, 2019 | — | — | — | — | — | (303,437 | ) | (303,437 | ) | |||||||||||||||||||
Balance, September 30, 2019 (unaudited) | 111,131,373 | $ | 111,131 | 82,500 | $ | 83 | $ | 19,218,817 | $ | (24,949,207 | ) | $ | (5,619,176 | ) |
See accompanying notes to unaudited condensed consolidated financial statements
Boston Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended | ||||||||
September 30, 2020 | September 30, 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (552,175 | ) | $ | (1,536,938 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 509 | 114,168 | ||||||
Stock-based compensation | — | 40,779 | ||||||
Amortization of discount on debt and deferred financing costs | — | 30,332 | ||||||
Change in fair value of warrant liability | (268,636 | ) | (658,111 | ) | ||||
Change in fair value of derivative liabilities | (6,748 | ) | (51,900 | ) | ||||
Issuance of common stock for consulting services | — | 22,900 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | — | 24 | ||||||
Inventory | 1,261 | (4,600 | ) | |||||
Prepaid expenses and other current assets | (9,118 | ) | 584,021 | |||||
Accounts payable | 40,013 | 82,089 | ||||||
Accounts payable-related party | 130,000 | — | ||||||
Accrued expenses | (179,997 | ) | 532,959 | |||||
Accrued expenses-related party | 196,476 | — | ||||||
Net cash used in operating activities | (648,415 | ) | (844,277 | ) | ||||
Cash flows from investing activities: | ||||||||
Net cash provided by investing activities | — | — | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of related party notes payable | 810,000 | 841,171 | ||||||
Payments on convertible notes payable | (50,000 | ) | — | |||||
Net cash provided by financing activities | 760,000 | 841,171 | ||||||
Net increase (decrease) in cash | 111,585 | (3,106 | ) | |||||
Cash, beginning of period | 6,701 | 12,467 | ||||||
Cash, end of period | $ | 118,286 | $ | 9,361 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 7,627 | $ | — | ||||
Income taxes | $ | — | $ | — |
Boston Therapeutics, Inc. | ||||||||
Condensed Statements of Cash Flows (Unaudited) | ||||||||
For the nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,569,179 | ) | $ | (5,406,978 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 50,415 | 53,093 | ||||||
Stock-based compensation | 37,317 | 225,877 | ||||||
Amortization of discount on debt | 1,250,980 | 500,626 | ||||||
Provision for inventory obsolescence | 9,338 | — | ||||||
Non-cash interest expense and derivative costs | — | 526,036 | ||||||
Change in fair value of warrant liability | (171,184 | ) | — | |||||
Change in fair value of derivative liabilities | (535,535 | ) | 2,577,655 | |||||
Stock issuance for financing costs | — | 350,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 4,138 | (7,608 | ) | |||||
Inventory | 4,214 | 9,300 | ||||||
Prepaid expenses and other current assets | (236,750 | ) | 4,817 | |||||
Other assets | — | 3,625 | ||||||
Accounts payable | (48,807 | ) | 180,356 | |||||
Accrued expenses | 184,377 | (30,681 | ) | |||||
Net cash used in operating activities | (1,020,676 | ) | (1,013,882 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (3,314 | ) | — | |||||
Net cash used in investing activities | (3,314 | ) | — | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of convertible notes payable, related party (net of issuance discounts and fees) | 200,000 | 552,000 | ||||||
Proceeds from issuance of convertible notes payable (net of issuance discounts and fees) | — | 1,600,000 | ||||||
Proceeds from the issuance of preferred stock | 450,000 | — | ||||||
Payment of deferred financing costs | — | (256,186 | ) | |||||
Repayment of notes payable to related party | (16,288 | ) | — | |||||
Net cash provided by financing activities | 633,712 | 1,895,814 | ||||||
Net (decrease) increase in cash and cash equivalents | (390,278 | ) | 881,932 | |||||
Cash and cash equivalents, beginning of period | 687,185 | 40,995 | ||||||
Cash and cash equivalents, end of period | $ | 296,907 | $ | 922,927 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 7,699 | $ | — | ||||
Income taxes | $ | — | $ | — | ||||
Non-cash financing activities: | ||||||||
Issuance of common stock in exchange for settlement of outstanding payables | $ | — | $ | 468,889 | ||||
Conversion of convertible notes payable plus accrued interest into common stock | $ | 117,475 | $ | — | ||||
Derivative liabilities associated with convertible notes payable and preferred stock | $ | 454,154 | $ | — | ||||
Conversion of accrued interest into common stock | $ | 81,306 | $ | — |
See accompanying notes to unaudited condensed consolidated financial statements
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 20172020 and 20162019
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company OverviewGENERAL ORGANIZATION AND BUSINESS
Boston Therapeutics, Inc. (the “Company”) was formed as a Delaware corporation on August 24, 2009 under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., headquartereda New Hampshire corporation (“BTI”) providing for the merger of BTI into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of BTI in Lawrence, MA, (OTC: BTHE)exchange for 100% of the outstanding common stock of BTI, and the change of the Company’s name to Boston Therapeutics, Inc. On February 12, 2018, the Company acquired CureDM Group Holdings LLC (“CureDM”), for 47,741,140 shares of common stock of which 25,000,000 were delivered at closing and 22,741,140 were to be delivered in four equal tranches of 5,685,285 each upon the achievement of specific milestones. See Note 12.
The Company’s primary business is the development, manufacture and commercialization of therapeutic drugs with a leader in the field offocus on complex carbohydrate chemistry. The Company’schemistry to address unmet medical needs in diabetes and inflammatory diseases. We have brought one product, SUGARDOWN®, to market and have begun to make initial product pipeline issales. We are currently focused on developing and commercializing therapeutic molecules for pre-diabetes and diabetes:the development of two additional drug products: BTI-320, a non-systemic, non-toxic, therapeutic investigative material designed to reduce post-meal immediate glucose elevations which according to recent findings, is important in prediabetes and diabetes sugar management. In addition, a formulationtablet for reduction of the material, SUGARDOWN®, falls within the regulatory dietary supplement guidelines and is designed to reduce immediate post-meal blood sugar increases “sugar spikes” which can only be significantly controlled by prescription insulin. In its patent portfolio,glucose in people living with diabetes that is fully developed, and IPOXYN, an injectable anti-necrosis, anti-hypoxia drug that we are currently developing. Due to the lack of adequate funding, the Company has considered laboratory proof of concept development of a combination material callednot done any work with respect to IPOXYN a complex carbohydrate with an oxygen carrier protein of unique characteristics. In its initial phase, IPOXYN presents as a continuous intravenous drug for the prevention of necrosis, and event pending in many traumatic injuries and similarly, for possible treatment of ischemia with a possible target indication for assisting in the treatment of lower limb ischemic disorders often associated with diabetic neuropathies. The Company has been granted patents in the Ipoxyn and in the BTI-320 compound formulations.to date.
Going Concern
The accompanying unaudited condensed financial statements have been prepared assuming the Company will continue as a going concern. The Company has limited cash resources, recurring cash used in operations and primarily a CRO/CMO contracted operating losses history. For the last few years, BTI has been largely supported by its Asia development license holder, who is also a Director of the Company and a significant shareholder. The license holder has participated in the ongoing development of the Sugardown related technologies. As shown in the accompanying unaudited condensedconsolidated financial statements, the Company has an accumulated deficit of approximately $19.8$27.7 million and $297,000 cash on hand as of September 30, 2017.2020 and used cash in operations of $648,415 during the nine months ended September 30, 2020. These factors among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The Company has incurred recurring operating losses since inception as it has worked to bring its SUGARDOWN® product to market and develop BTI-320 and IPOXYN. Management expects such operating losses will continue until such time that substantial revenues are received from SUGARDOWN® or the regulatory and clinical development of BTI-320 or IPOXYN is completed. The Company has $118,286 cash on hand at September 30, 2020. Management is currently seeking additional capital through private placements and public offerings of its common stock and more recently through corporate alliances and strategic merger opportunities.stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financings as well as collaboration activities in order to fund our operations. The Company was advanced $250,000 through the issuance of 10% notes payable to a related party during the first quarter of 2020. The Company was advanced $330,000 through the issuance of 10% notes payable to a related party during the second quarter of 2020. The Company was advanced $230,000 through the issuance of 10% notes payable to a related party during the third quarter of 2020. The Company was advanced $25,000 through the issuance of 10% notes payable to a related party during the fourth quarter of 2020. Management anticipates that the current cash availableresources will be sufficient to fund our planned operations into the first quarter of 2018.2021. The future of the Company is dependent upon its ability to obtain continued financing and upon future profitable operations from the partnering, development and development for clarificationclarity of its new business opportunities.
There can be no assurance that the Companywe will be successful in accomplishing itsour objectives. Without such additional capital, the Companywe may be required to cease operations.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the eventresult should the Company cannotbe unable to continue operations.as a going concern.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordanceconformity with accounting principles generally acceptedaccepting in the United States of America (“U.S.US GAAP”) for interim financial information and the rules.
Principles of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. These condensed financial statements should be read in conjunction with the Company’s financial statements for its year ended December 31, 2016 included in its Form 10-K filed with the SEC on March 28, 2017. In the opinion of management, the statements contain all adjustments, including normal recurring adjustments necessary in order to present fairly the financial position as of September 30, 2017 and the results of operations for the three and nine month periods ended September 30, 2017 and 2016.Consolidation
The condensed balance sheet, as of December 31, 2016, was derivedconsolidated financial statements include the Company and its wholly owned subsidiary, CureDM, from the audited financial statements but does not include all disclosures required by accounting principles generally accepteddate of acquisition. All significant intercompany transactions are eliminated in the United States of America. The results disclosed in the statements of operations for the three and nine month periods ended September 30, 2017 are not necessarily indicative of the results to be expected for the full fiscal year.consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of 90 days or less at the time of acquisition to be cash equivalents. The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation. The Company had no cash equivalents at September 30, 2020 and December 31, 2019.
Revenue Recognition
For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 (“ASC 606”). A five-step analysis must be met as outlined in ASC 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
The Company generates revenues from sales of SUGARDOWN®. In practice, the Company has not experienced or granted significant returns of product. Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales.
The Company generates revenue from royalties pursuant to a licensing and manufacturing agreement with Advance Pharmaceutical Company Limited (“APC”), whereby the licensee sells and distributes territory licensed products, excluding those manufactured and supplied by the Company in the territory. APC is a related party as a director and significant stockholder of the Company is an owner and director of APC. The Company did not recognize any revenue from royalties from APC during the three or nine months ended September 30, 2020 and 2019 respectively.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 20172020 and 20162019
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- continued
Accounts Receivable
Accounts receivable is stated at the amount management expects to collect from outstanding balances. Management establishes a reserve for doubtful accounts based on its assessment of the current status of individual accounts. Balances that remain outstanding after management has used reasonable collection efforts are written off against the allowance. There were no allowances for doubtful accounts as of September 30, 20172020 and December 31, 2016.2019.
Inventory
Inventory consists of raw materials, work-in-process and finished goods of SUGARDOWN®. Inventories are stated at the lower of cost (first-in, first-out)(weighted average cost method) or market, not in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. The Company continues to monitor the valuation of its inventory.
Revenue RecognitionProperty and Equipment
Property and equipment is depreciated using the straight-line method over the following estimated useful lives:
Asset Category | Estimated Useful Life | |
Office Furniture and Equipment | 5 years | |
Computer Equipment and Software | 3 years |
The Company begins to depreciate assets when they are placed in service. The costs of repairs and maintenance are expensed as incurred; major renewals and betterments are capitalized. Upon sale or retirement, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of operations. For the three months ended September 30, 2020 and 2019, the Company recorded depreciation expense of $0 and $404, respectively. For the nine months ended September 30, 2020 and 2019, the Company recorded depreciation expense of $509 and $1,217, respectively.
Intangible Assets
Intangible assets consist of identifiable finite-lived assets acquired in business acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition and are amortized over their economic useful lives on a straight line basis.
Impairment of Long-lived Assets
The Company generates revenues from salesreviews long-lived assets, which include the Company’s intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amounts of SUGARDOWN®. Revenuethe assets may not be fully recoverable. Future undiscounted cash flows of the underlying assets are compared to the assets’ carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash flows is less than book value. To date, no adjustments for impairment have been made.
The Company performed its impairment review of intangible assets for the year ended December 31, 2019 and concluded that intangibles were impaired at December 31, 2019. The Company recorded impairment of intangibles in the amount of $367,181 for the year ended December 31, 2019. The Company has no intangible assets at September 30, 2020.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
Loss per Share
Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The weighted average number of common shares for the three and nine months ended September 30, 2020 did not include 9,184,000, 38,208,320, 40,399,987 and 8,250,000 for options, warrants and shares to be issued upon conversion of notes payable and Series A Preferred Stock, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the three and nine months ended September 30, 2019 did not include 9,494,000, 38,458,320, 38,445,167 and 8,250,000 for options, warrants and shares to be issued upon conversion of notes payable and Series A Preferred Stock, respectively, because of their anti-dilutive effect.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or be settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when thereit is persuasive evidencemore likely than not that an arrangement exists,some portion of the price is fixedgross deferred tax asset will not be realized. The Company records interest and determinable,penalties related to income taxes as a component of provision for income taxes. The Company did not recognize any interest and penalty expense for the product is shippedthree or nine months ended September 30, 2020 and 2019.
Advertising Costs
Advertising costs are expensed as incurred and are reported as a component of operating expenses in accordancethe sales and marketing expenses in the statements of operations. The Company did not incur any advertising costs for either three or nine month period ended September 30, 2020 and 2019, respectively.
Research and Development Costs
Research and development expenditures are charged to the statement of operations as incurred. Such costs include proprietary research and development activities, purchased research and development, and expenses associated with the customers’ Free On Board (FOB) shipping point termsresearch and collectability is reasonably assured. In practice,development contracts, whether performed by the Company has not experienced or granted significant returns of product. Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales.contracted with independent third parties.
Fair Value of Financial Instruments
Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions. The Company’s financial instruments consist of cash, and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses, and notes payable. The carrying value of cash, and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued expenses approximates fair value due to their short-term nature.nature using level 1 and level 2 inputs as defined above. The carrying value of the notes payable as of September 30, 20172020 and December 31, 2016,2019, evaluated using level 32 inputs defined above based on quoted market prices on rates available to the Company for debt with similar terms and maturities, approximates the fair value. The carrying value of, Derivative liability and warrant liability as of September 30, 2020 and December 31, 2019 were determined using Level 3 inputs as defined above.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash. The Company places its cash and cash equivalents in highly rated financial institutions. The Company maintains cash balances with financial institutions that occasionally exceed federally insured limits. The Company has not experienced any losses related to these balances, and management believes its credit risk to be minimal.
Convertible Instruments
U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable ASC 480-10.
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Nine Months Ended September 30, 2017 and 2016
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -continued
Common Stock Purchase Warrants and Other Derivative Financial Instruments
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
The Company’s free standing derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and of embedded conversion options with senior convertible debentures. The Company evaluated these derivatives to assess their proper classification in the balance sheet as of September 30, 20172020 and December 31, 2019 using the applicable classification criteria enumerated under ASC 815-Derivatives and Hedging. The Company determined that certain embedded conversion and/or exercise features do not contain fixed settlement provisions. The convertible debentures contain a conversion feature such that the Company could not ensure it would have adequate authorized shares to meet all possible conversion demands.
As such, the Company was required to record the debt and warrant derivatives which do not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at the end of each reporting period.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
Stock-Based Compensation
Stock–based compensation, including grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statement based on the estimated fair value of the awards.The Company uses the Black-Scholes option pricing model to determine the fair value of options granted and recognizes the compensation cost of share-based awards on a straight-line basis over the requisite service period, which is generally the vesting period of the award.
The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company has a limited history of market prices of the common stock, and as such volatility is estimated using historical volatilities over the prior three years. The expected life of the awards is estimated based on the simplified method. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense is recognized in the financial statements on a straight-line basis over the vestingrequisite service period, based on awards that are ultimately expected to vest.
The Company grants stock options to non-employee consultants from time to time in exchange for services performed for the Company. Equity instruments granted to non-employeesnon- employees are subject to periodic revaluation over their vesting terms. In general, the options vest over the contractual period of the respective consulting arrangement and, therefore, the Company revalues the options periodically and records additional compensation expense related to these options over the remaining vesting period.
Loss per ShareRecent Accounting Pronouncements
Basic net loss per share is computed basedIn February 2016, the FASB established ASC Topic 842, Leases (Topic 842), by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the net loss forbalance sheet. Leases will be classified as finance or operating, with classification affecting the period divided bypattern and classification of expense recognition in the weighted average actual shares outstanding duringstatement of operations. The Company adopted the period. Diluted net loss per sharenew standard on January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is computed basednot applicable to the Company.
The new standard did not have a material effect on the net loss forCompany’s consolidated Financial statements as the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The weighted average number of common shares for the nine month period ended September 30, 2017Company does not include 64,624,013, and 12,094,000 and 39,404,669have any leases that meet the requirements for convertible notes payable and accrued interest, options and warrants, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the three and nine month period ended September 30, 2016 did not include 54,495,233, 12,289,000 and 28,424,669 for convertible notes payable and accrued interest, options and warrants, respectively, because of their anti-dilutive effect.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Nine Months Ended September 30, 2017 and 2016
Recent Adopted Accounting Pronouncementsrecognition.
There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
2. INVENTORIESReclassification
InventoriesCertain prior period amounts have been reclassified to conform to current period presentation.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
3. INVENTORY
Inventory consist of material, labor and manufacturing overhead and are recorded at the lower of cost, using the weighted average cost method, or net realizable value.
The components of inventoriesinventory at September 30, 20172020 and December 31, 2016,2019, net of inventory reserves, were as follows:
2017 | 2016 | |||||||
Raw materials | $ | 32,781 | $ | 34,919 | ||||
Finished goods | 8,783 | 20,197 | ||||||
$ | 41,564 | $ | 55,116 |
2020 | 2019 | |||||||
Finished goods | $ | 2,648 | $ | 3,909 |
The Company periodically reviews quantities of inventory on hand and compares these amounts to expected usage of each particular product or product line. The Company records, as a charge to cost of sales, any amounts required to reduce the carrying value to net realizable value.
3.4. INTANGIBLE ASSETS
The SUGARDOWN® technology and patent applications, arewhich were obtained through the acquisition of BTI in 2010, were being amortized on a straight-line basis over their estimated useful lives of 14 years. Goodwill is notThe BTI-420 technology and patent applications, which were obtained through the acquisition of CureDM in 2018, were being amortized but is evaluated annually for impairment.on a straight-line basis over their estimated useful lives of 5 years.
Intangible assets consist of the following at September 30, 20172020 and December 31, 2016:2019:
2017 | 2016 | 2020 | 2019 | |||||||||||||
SUGARDOWN® technology and patent applications | $ | 900,000 | $ | 900,000 | $ | 1,134,122 | $ | 1,134,122 | ||||||||
Less accumulated amortization | (444,643 | ) | (396,429 | ) | (1,134,122 | ) | (1,134,122 | ) | ||||||||
Intangible assets, net | $ | 455,357 | $ | 503,571 | $ | — | $ | — |
Amortization expense was $16,071$0 and $36,625 for the three months ended September 30, 20172020 and 2016.2019, respectively. Amortization expense was $48,214$0 and $112,951 for the nine months ended September 30, 20172020 and 2016.2019, respectively.
The Company performed its impairment review of intangible assets for the year ended December 31, 2019 and concluded that intangibles were impaired at December 31, 2019. The Company recorded impairment of intangibles in the amount of $367,181 for the year ended December 31, 2019.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The following table represents the major components of accrued expenses and other current liabilities at September 30, 2020 and December 31, 2019:
2020 | 2019 | |||||||
Accrued payroll | $ | 188,716 | $ | 188,716 | ||||
Professional fees | 67,273 | 145,358 | ||||||
Accrued consulting fees | 741,600 | 741,600 | ||||||
Interest | 121,501 | 92,003 | ||||||
Accrued expense reimbursement and other | 62,107 | 193,517 | ||||||
Total | $ | 1,181,197 | $ | 1,361,194 |
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 20172020 and 2016
2019
4.6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 | quoted prices in active markets for identical assets or liabilities |
Level 2 | quoted prices for similar assets and liabilities in active markets or inputs that are observable |
Level 3 | inputs that are unobservable based on an entity’s own assumptions, as there is little, if any, related market activity (for example, cash flow modeling inputs based on assumptions) |
Financial liabilities as of September 30, 20172020 measured at fair value on a recurring basis are summarized below:
September 30, 2017 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||
September 30, 2020 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||
Derivative liability | $ | 798,503 | $ | — | $ | — | $ | 798,503 | $ | 2,703 | $ | — | $ | — | $ | 2,703 | ||||||||||||||||
Warrant liability | 1,474,139 | — | — | 1,474,139 | 193,108 | — | — | 193,108 | ||||||||||||||||||||||||
Total | $ | 2,272,642 | $ | — | $ | — | $ | 2,272,642 | $ | 195,811 | $ | — | $ | — | $ | 195,811 |
Financial liabilities as of December 31, 20162019 measured at fair value on a recurring basis are summarized below:
December 31, 2016 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||
December 31, 2019 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||
Derivative liability | $ | 1,234,106 | $ | — | $ | — | $ | 1,234,106 | $ | 9,451 | $ | — | $ | — | $ | 9,451 | ||||||||||||||||
Warrant liability | 1,093,765 | — | — | 1,093,765 | 461,744 | — | — | 461,744 | ||||||||||||||||||||||||
Total | $ | 2,327,871 | $ | — | $ | — | $ | 2,327,871 | $ | 471,195 | $ | — | $ | — | $ | 471,195 |
The Company determined that certain conversion/exercise option related to a convertible note and issued warrants did not have fixed settlement provisions and are deemed to be derivative financial instruments, since the conversion/exercise prices was subject to reset adjustment should the Company issue any option to acquire the Company’s common stock lower than the conversion /exercise price. Accordingly, the Company was required to record such conversion/exercise options as a liability and mark such derivative to fair value each reporting period. Such instrument was classified within Level 3 of the valuation hierarchy.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 20172020 and 2016
4. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued2019
The fair value of the conversion/exercise options were calculated using a binomial latticeBlack-Scholes formula with the following weighted average assumptions during the nine months ended September 30, 2017:2020 and the year ended December 31, 2019. No options were converted or exercised during the year ended December 31, 2019 or for the nine month period ended September 30, 2020.
Conversion option:
Exercise option:
The risk-free interest rate is the United States Treasury rate on the measurement date having a term equal to the remaining contractual life of the instrument. The volatility is a measure of the amount by which the Company’s share price has fluctuated or is expected to fluctuate. The dividend yield is 0% as the Company has not made any dividend payment and has no plans to pay dividends in the foreseeable future.
Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the derivative liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s Chief Financial Officer, who reports to the Chief Executive Officer, determine its valuation policies and procedures.
The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s Chief Financial Officer and are approved by the Chief Executive Officer.
Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Nine Months Ended September 30, 2017 and 2016
4. FAIR VALUE OF FINANCIAL INSTRUMENTS – continued
Significant observable and unobservable inputs include stock price, exercise price, annual risk free rate, term, and expected volatility, and are classified within Level 3 of the valuation hierarchy. An increase or decrease in volatility or interest free rate, in isolation, can significantly increase or decrease the fair value of the derivative liabilities. Changes in the values of the derivative liabilities are recorded as a component of other income (expense) on the Company’s condensed statements of operations.
The following table setstables set forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis using significant unobservable input for the nine months ended September 30, 2017:2020 and 2019:
Debt | Warrant | Debt | Warrant | |||||||||||||
Derivative | Liability | Derivative | Liability | |||||||||||||
Balance, December 31, 2016 | $ | 1,234,106 | $ | 1,093,765 | ||||||||||||
Balance, December 31, 2019 | $ | 9,451 | $ | 461,744 | ||||||||||||
Aggregate amount of derivative instruments issued | 85,381 | 551,558 | — | — | ||||||||||||
Transferred in due to conversions | 14,551 | — | — | — | ||||||||||||
Change in fair value of derivative liabilities | (535,535 | ) | (171,184 | ) | (6,748 | ) | (268,636 | ) | ||||||||
Balance, September 30, 2017 | $ | 798,503 | $ | 1,474,139 | ||||||||||||
Balance, September 30, 2020 | $ | 2,703 | $ | 193,108 |
The Company’s sequencing policy requires that
Debt | Warrant | |||||||
Derivative | Liability | |||||||
Balance, December 31, 2018 | $ | 54,242 | $ | 925,806 | ||||
Aggregate amount of derivative instruments issued | — | — | ||||||
Transferred in due to conversions | — | — | ||||||
Change in fair value of derivative liabilities | (51,900 | ) | (658,111 | ) | ||||
Balance, September 30, 2019 | $ | 2,342 | $ | 267,695 |
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the instruments prioritized based on issued options, warrants, preferred stock, convertible debtThree and other convertible instruments would be settled first. The sequencing policy also considers contingently issuable additional shares, such as the convertible notes; which have variable terms based upon the Company’s common stock price, to have an issuance date to coincide with the event giving rise to the additional shares. Using this sequencing policy, debt instruments convertible into common stock are derivative liabilities.Nine Months Ended September 30, 2020 and 2019
In accordance with the sequencing policy and based on ASC 815-10-15-74, stock warrants issued in connection with debt and other convertible securities are considered by the company as a derivative, as the put option underlying these warrants are “tainted” derivatives after considering the Company’s outstanding convertible notes and its sequencing policy.
5.7. CONVERTIBLE NOTES PAYABLE
In August and September 2016, the Company issued senior convertible debentures for an aggregate of $1,600,000 (the “Convertible Debentures”) in exchange for an aggregate net cash proceeds of $1,327,300, net of financing costs. The Convertible Debentures have a stated interest rate of 6% per annum payable quarterly beginning June 30, 2017 and arewere due two years from the date of issuance, the latest due September 15, 2018 and are convertible into shares of the Company’s common stock at the option of the holder at a conversion price of $0.075 with certain anti-dilutive (reset) provisions and are subject to forced conversion if either i) the volume weighted average common stock price for each of any 10 consecutive trading days equals or exceeds $0.50, or (ii) the CompanyCompany’s elects to lists a class of securities on a national securities exchange.
As long as the convertible notes remain outstanding, the Company is restricted from incurring any indebtedness or liens, except as permitted (as defined), amend its charter in any matter that materially effects rights of noteholders, repay or repurchase more than de minimis number of shares of common stock other than conversion or warrant shares, repay or repurchase all or any portion of any indebtedness or pay cash dividends.
In connection with the issuance of the Convertible Debentures, the Company issued an aggregate of 16,000,000 warrants to purchase the Company’s common stock at $0.10 per share, expiring five years from the date of issuance, the latest being September 15, 2021. These warrants contain a cashless exercise and certain anti-dilutive (reset) provisions.
The Company determined that certain conversion/exercise option related to a convertible note and issued warrants did not have fixed settlement provisions and are deemed to be derivative financial instruments due to price protection features present in the conversion/ exercise price that are not consistent with a fixed for fixed model.
The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivative as of the issuance date of the debenture and warrants and to re-measure the derivatives at fair value as of each subsequent reporting date.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Nine Months Ended September 30, 2017 and 2016
5. CONVERTIBLE NOTES PAYABLE – continued
The Company recognized the value attributable to the conversion feature of the convertible debenture and issued warrants of $2,203,336 and together with financing costs of $272,700 (aggregate of $2,476,036) as a discount against the notes up to $1,600,000 with the excess of $876,036 charged to interest during the three months ended September 30, 2016.current period interest. The Company valued the conversion option and the warrants using the Binomial LatticeBlack-Scholes pricing model as described in Note 4.6. The debt discount iswas fully amortized over the note’s maturity period as interest expense.
On April 11, 2017, one investor converted his Convertible Debenture of $75,000 plus accrued interest of $2,873, into 1,038,301 shares of the Company’s common stock.
On July 14, 2017, one investor converted his Convertible Debenture of $50,000 plus accrued interest of $2,482, into 711,755 shares of the Company’s common stock.Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the threeThree and nine months endedNine Months Ended September 30, 2017,2020 and 2019
During the first quarter of 2020, the Company amortized $239,338 and $696,323, respectively debt discount to operations aspaid the note of one of the two remaining investors of $50,000. The Company also paid accrued interest expense.on that note totaling $7,627
Convertible notes payable consist of the following at September 30, 20172020 and December 31, 2016:2019:
2017 | 2016 | 2020 | 2019 | |||||||||||||
Principal balance | $ | 1,475,000 | $ | 1,600,000 | $ | 200,000 | $ | 250,000 | ||||||||
Debt discount | (375,065 | ) | (1,031,183 | ) | — | — | ||||||||||
Deferred finance costs | (109,950 | ) | (204,198 | ) | — | — | ||||||||||
Outstanding, net of debt discount | $ | 989,985 | $ | 364,619 | $ | 200,000 | $ | 250,000 |
6. STOCKHOLDERS’ EQUITY8. MARKETING AGREEMENT
On June 26, 2018, the Company entered into a License Agreement with Level Brands, Inc. (NYSE: LEVB), an innovative licensing, marketing and brand management company with a focus on lifestyle-based products which includes an exclusive license to the kathy ireland® Health & Wellness™ brand. Under the terms of the License Agreement, the Company received a non-exclusive, non-transferrable license to use the kathy ireland Health & Wellness™ trademark in the marketing, development, manufacture, sale and distribution of the Sugardown® product domestically and internationally. The initial term of the License Agreement is seven years, with an automatic two-year extension unless either party notifies the other of non-renewal at least 90 days prior to the end of the then current term. Level Brands has agreed to use its commercially reasonable efforts to perform certain promotional obligations, including: (i) producing four branded videos to promote the licensed product and/or the Company; (ii) creation of an electronic press kit; (iii) making their media and marketing teams available for use in creating the video content for which the Company will separately compensate; and (iv) curate social media posts in multiple social media channels.
As compensation, the Company will provide Level Brands with the following:
● | A marketing fee of $850,000, for development of video content and an electronic press kit which will be used ongoing to support product marketing. This fee is paid with a promissory note of $450,000 and a number of shares of stock of the Company valued at $400,000, based on the closing price on the day prior to the effective date; |
● | Quarterly fees for the first two years of up to $100,000 and issuance of 100,000 shares each quarter, based on sales volumes. The Company has the right to make all the stock payments in cash; and |
● | a royalty of 5% of the gross licensed marks sales up to $10,000,000, 7.5% royalty on sales from $10,000,000 to $50,000,0000 and 10% on sales over $50,000,000, payable monthly as well as a 1% of all revenue for all Company products as of the date hereof. |
The Note Payable of $450,000 bears interest at 8% and matures December 31, 2019, unless the Company raises $750,000 through Level Brands prior to that date in which case the Note is to be repaid in full including accrued interest. Accrued interest at September 30, 2020 and December 31, 2019 totaled $81,493 and $54,493, respectively.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
As of September 30, 2020, the Company has not issued the $400,000 of common stock.
Level Brands sued the Company for non-performance under the contract. The matter was taken to arbitration with both parties claiming non performance under the contract. In October 2019, the arbitration was dismissed without prejudice. See Note 12.
9. STOCKHOLDERS’ EQUITY
The Company is authorized to issue up to 5,000,000 shares of its $0.001 par value preferred stock and up to 200,000,0002,000,000,000 shares of its $0.001 par value common stock. During the year ended December 31, 2013, the Company amended its certificate of incorporation to increase the number of common shares from 100,000,000 to 200,000,000. The amendment went into effect on September 7, 2013.
On August 3, 2017,January 9, 2018, the Company’s Board of Directors voted to approve an increase in authorized common stock shares outstanding from 200,000,000200 million shares to 750,000,0002 billion shares of the Company’s common stock. This increase is subject to shareholder approval.was approved by the shareholders in the first quarter of 2018.
Series A Preferred Stock
The Company has designated 150,000 shares of its preferred stock as Series A Preferred Stock. Each share of Series A Preferred Stock has a stated value of $10. The Series A Preferred Stock is convertible into shares of the Company’s common stock by dividing the stated value by a conversion price of $0.10 per share. The Series A Preferred Stock shall have voting rights on an as converted basis (subject to limitations) and liquidation preference for each share of Series A Preferred Stock at an amount equal to the stated value per share. As of SeptemberSepember 30, 2017,2020 and December 31, 2019, the Company has 45,00082,500 shares of Series A Preferred Stock outstanding.
On August 14, 2017, the Company entered into Securities Purchase Agreements with two accredited investors. In connection with these agreements, the Company issued 45,000 shares of Series A Preferred Stock and warrants to acquire 9,000,000 shares of common stock. The shares of Series A Preferred Stock are convertible, at any time at the option of the holder, into an aggregate of 4,500,000 shares of the Company’s common stock. The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per share.
The Company recognized the value attributable to the conversion feature of the issued warrants of $650,421 as a charge against additional paid in capital up to $450,000 with the excess of $200,421 charged to change in fair value of warrant liability during the nine monthsyear ended September 30,December 31, 2017. The Company valued the warrants using the Binomial LatticeBlack-Scholes pricing model as described in Note 4.6.
On October 24, 2017, the Company entered into Securities Purchase Agreements with an accredited investor. In connection with the agreement, the Company issued 10,000 shares of Series A Preferred Stock and warrants to acquire 2,000,000 shares of common stock. The shares of Series A Preferred Stock are convertible, at any time at the option of the holder, into an aggregate of 1,000,000 shares of the Company’s common stock. The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per share.
The Company recognized the value attributable to the conversion feature of the issued warrants of $93,312 as a charge against additional paid in capital. The Company valued the warrants using the Black-Scholes pricing model as described in Note 6.
On February 2, 2018, the Company entered into Securities Purchase Agreements with four accredited investors. In connection with these agreements, the Company issued 27,500 shares of Series A Preferred Stock and warrants to acquire 5,500,000 shares of common stock in consideration of $275,000. The shares of Series A Preferred Stock are convertible, at any time at the option of the holder, into an aggregate of 2,750,000 shares of the Company’s common stock. The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per share.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 20172020 and 20162019
The Company recognized the value attributable to the conversion feature of the issued warrants of $226,833 as a charge against additional paid in capital. The Company valued the warrants using the Black-Scholes pricing model as described in Note 6.
Common Stock
On April 11, 2017,January 10, 2019, the Company issued a total of 1,038,3011,000,000 shares of its common stock in conjunction withexchange for consulting services amounting to $22,900 pursuant to a consulting agreement entered into and approved by the conversionBoard of one of the 6% Convertible Debentures plus accrued interest (See Note 5). Of the total amount of shares issued, 1,000,000 were for the conversion of a Note for $75,000 and 38,301 shares were issued for the conversion of accrued interest of $2,873.Directors on November 23, 2018.
On July 14, 2017, in accordance with the terms of a Securities Purchase Agreement, the Company issued 666,667 shares to an investor upon conversion of a note payable held by the investor for $50,000. The cost basis for the shares issued was $0.075.
On July 31, 2017, in accordance with the terms of a Securities Purchase Agreement, the Company issued 21,370 shares to a related party in lieu of cash for payment of accrued interest of $2,130. The cost basis for the shares issued was $0.10.
On September 29, 2017, in accordance with the terms of a Securities Purchase Agreement, the Company issued 1,507,989 shares to investors in lieu of cash for payment of accrued interest of $79,169. The cost basis for the shares issued was $0.0525.
Common Stock Warrants
The Company accounts for warrants as either equity instruments or liabilities depending on the specific terms of the warrant agreement. As of September 30, 2017,2020, the Company had 39,404,66938,208,320 warrants outstanding which are all classified as equity instruments and are fully exercisable as of September 30, 2017.exercisable.
The following table summarizestables summarize the Company’s common stock warrantwarrants activity duringfor the nine months ended September 30, 2017:2020 and 2019:
Warrants | Weighted Average Exercise Price | |||||||||
Outstanding as of December 31, 2016 | 28,424,669 | $ | 0.29 | |||||||
Granted | 11,000,000 | 0.14 | ||||||||
Exercised | — | — | ||||||||
Forfeited/cancelled | (20,000 | ) | 1.15 | |||||||
Outstanding as of September 30, 2017 | 39,404,669 | $ | 0.25 |
Warrants | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||
Outstanding as of December 31, 2019 | 38,458,320 | $ | 0.16 | $ | — | ||||||||
Granted | — | — | — | ||||||||||
Exercised | — | — | — | ||||||||||
Forfeited/Canceled | (250,000 | ) | 0.10 | — | |||||||||
Outstanding as of September 30, 2020 | 38,208,320 | $ | 0.16 | $ | — |
7.
Warrants | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||
Outstanding as of December 31, 2018 | 38,999,990 | $ | 0.17 | $ | — | ||||||||
Granted | — | — | — | ||||||||||
Exercised | — | — | — | ||||||||||
Forfeited/Canceled | (541,670 | ) | 0.91 | — | |||||||||
Outstanding as of September 30, 2019 | 38,458,320 | $ | 0.16 | $ | — |
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
The aggregate intrinsic value represents the pretax intrinsic value, based on the warrants with an exercise price less than the Company’s stock price of $0.01 as of September 30, 2020, which would have been received by the warrant holders had those warrant holders exercised their warrants as of that date.
10. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
During the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (“2010 Plan”)(2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. On September 7, 2013, the 2010 plan was amended to increase the number of shares of common stock issuable under the 2010 Plan to 7,500,000. As of September 30, 20172020, and December 31, 2016,2019, there were 250,000 and 250,000 options outstanding under the 2010 Plan, respectively.
During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (“2011 Plan”)(2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock. In December 2012, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 12,000,000 shares. During the period ended March 31, 2013, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 17,500,000. As of September 30, 20172020 and December 31, 2016,2019, there were 11,844,0008,934,000 and 12,039,0008,934,000 options outstanding under the 2011 Plan, respectively.Plan.
Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically onethree to four years and the options typically expire in five to ten years.
On March 1, 2018 the Board of Directors approved a reduction in the exercise price of 6,000,000 stock options issued to the Company’s CEO on August 22, 2016. The First tranche of 2,000,000 will be exercisable at $0.10 per share and the second and third tranches of 2,000,000 will be exercisable at $0.15 per share. The remainder of the terms remain unchanged. On August 22, 2016, the Company granted 6,000,000 options to purchase its common shares to its new CEO as a part of his employment agreement. The options consist of 3 separate tranches with different exercise prices and vest upon reaching certain milestones. All 6 million options have a five year life. The first 2,000,000 shares have an exercise price of $0.20 per share and vest upon the Company raising at least $1 million in financing. The second 2,000,000 shares carry an exercise price of $0.40 per share and vest upon the Company raising $5 million in financing. The third 2,000,000 shares carry an exercise price of $0.60 per share and vest upon the Company entering into a significant corporate alliance for substantial marketing and selling of the Company’s product portfolio.
In addition, the Company amended 1,500,000 stock options previously granted to the new CEO to extend the expiration date to August 22, 2026. These options were all previously vested.
No stock options were granted inissued under either plan during the three or nine month period endingmonths ended September 30, 20172020 or 2016.2019.
The Company recognized $12,439 and $37,317 ofrecorded $0 stock-based compensation costs in the accompanying statement of operationsexpense for the three and nine months ended September 30, 2017, respectively. The Company recognized $225,877 of stock-based compensation costs2020, in the accompanying statement of operations forconnection with share-based payment awards. For the three and nine months ended September 30, 2016.2019, the Company recorded stock-based compensation expense of $13,593 and $40,779, respectively, in connection with share-based payment awards. As of September 30, 2017,2020 and 2019, there was $194,878$0 and $104,212, respectively of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized in future periods.
awards.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 20172020 and 20162019
The following table summarizes the Company’s stock option activity duringfor the nine months ended September 30, 2017:2020:
Shares | Exercise Price per Share | Weighted Average Exercise Price per Share | Shares | Exercise Price per Share | Weighted Average Exercise Price per Share | |||||||||||||||||||
Outstanding as of December 31, 2016 | 12,289,000 | $ | 0.10-1.21 | $ | 0.39 | |||||||||||||||||||
Outstanding as of December 31, 2019 | 9,184,000 | $ | 0.10 – 1.21 | $ | 0.36 | |||||||||||||||||||
Granted | — | — | — | — | — | — | ||||||||||||||||||
Exercised | — | — | — | — | — | — | ||||||||||||||||||
Options forfeited/cancelled | (195,000 | ) | 0.10 | 0.10 | — | — | — | |||||||||||||||||
Outstanding as of September 30, 2017 | 12,094,000 | $ | 0.10-1.21 | $ | 0.39 | |||||||||||||||||||
Outstanding as of September 30, 2020 | 9,184,000 | $ | 0.10 – 1.21 | $ | 0.36 |
There were noThe following table summarizes the Company’s stock option exercises duringactivity for the nine months ended September 30, 2017 or September 30, 2016.2019:
Shares | Exercise Price per Share | Weighted Average Exercise Price per Share | ||||||||||
Outstanding as of December 31, 2018 | 9,594,000 | $ | 0.10 – 1.21 | $ | 0.20 | |||||||
Granted | — | — | — | |||||||||
Exercised | — | — | — | |||||||||
Options forfeited/cancelled | 100,000 | 0.10 | 0.10 | |||||||||
Outstanding as of September 30, 2019 | 9,494,000 | $ | 0.10 – 1.21 | $ | 0.20 |
The following table summarizes information about stock options that are vested or expected to vest at September 30, 2017:2020:
Vested or Expected to Vest | Exercisable Options | |||||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||||||||||||
Exercise | Remaining | Aggregate | Number | Exercise | Remaining | Aggregate | ||||||||||||||||||||||||||||
Exercise | Number of | Price Per | Contractual | Intrinsic | of | Price | Contractual | Intrinsic | ||||||||||||||||||||||||||
Price | Options | Share | Life (Years) | Value | Options | Per Share | Life (Years) | Value | ||||||||||||||||||||||||||
$ | 0.10 | 1,600,000 | $ | 0.10 | 8.45 | $ | — | 1,600,000 | $ | 0.10 | 8.45 | $ | — | |||||||||||||||||||||
0.18 | 934,000 | 0.18 | 5.75 | — | 934,000 | 0.18 | 5.75 | — | ||||||||||||||||||||||||||
0.20 | 2,150,000 | 0.20 | 4.16 | — | 2,150,000 | 0.20 | 4.16 | — | ||||||||||||||||||||||||||
0.37 | 58,000 | 0.37 | 4.92 | — | 58,000 | 0.37 | 4.92 | — | ||||||||||||||||||||||||||
0.40 | 2,000,000 | 0.40 | 3.92 | — | — | 0.40 | 3.92 | — | ||||||||||||||||||||||||||
0.42 | 63,000 | 0.42 | 3.25 | — | 63,000 | 0.42 | 3.25 | — | ||||||||||||||||||||||||||
0.50 | 2,810,000 | 0.50 | 0.30 | — | 2,810,000 | 0.50 | 0.30 | — | ||||||||||||||||||||||||||
0.60 | 2,000,000 | 0.60 | 3.92 | — | — | 0.60 | 3.92 | — | ||||||||||||||||||||||||||
0.69 | 100,000 | 0.69 | 6.50 | — | 100,000 | 0.69 | 6.50 | — | ||||||||||||||||||||||||||
1.21 | 379,000 | 1.21 | 6.28 | — | 379,000 | 1.21 | 6.28 | — | ||||||||||||||||||||||||||
$ | 0.10-1.21 | 12,094,000 | $ | 0.39 | 3.96 | $ | — | 8,094,000 | $ | 0.39 | 3.96 | $ | — |
Options Outstanding | Exercisable Options | |||||||||||||||||||||||||||||||||
Exercise Price | Number of Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | Number of Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||||||||
$ | 0.10 | 3,500,000 | $ | 0.10 | 3.04 | $ | — | 3,500,000 | $ | 0.10 | 3.04 | $ | — | |||||||||||||||||||||
0.15 | 4,000,000 | 0.15 | 0.90 | — | — | 0.15 | — | |||||||||||||||||||||||||||
0.18 | 934,000 | 0.18 | 2.73 | — | 934,000 | 0.18 | 2.73 | — | ||||||||||||||||||||||||||
0.20 | 150,000 | 0.20 | 4.49 | — | 150,000 | 0.20 | 4.49 | — | ||||||||||||||||||||||||||
0.37 | 58,000 | 0.37 | 1.93 | — | 58,000 | 0.37 | 1.93 | — | ||||||||||||||||||||||||||
0.42 | 63,000 | 0.42 | 0.25 | — | 63,000 | 0.42 | 0.25 | — | ||||||||||||||||||||||||||
0.69 | 100,000 | 0.69 | 3.45 | — | 100,000 | 0.69 | 3.45 | — | ||||||||||||||||||||||||||
1.21 | 379,000 | 1.21 | 3.28 | — | 379,000 | 1.21 | 3.28 | — | ||||||||||||||||||||||||||
$ | 0.10-1.21 | 9,184,000 | $ | 0.29 | 2.85 | $ | — | 5,184,000 | $ | 0.27 | 2.85 | $ | — |
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
The following table sets forth the status of the Company’s non-vested stock options as of September 30, 2020 and December 31, 2019:
Number of Options | Weighted- Average Grant-Date Fair Value | ||||||||
Non-vested as of December 31, 2019 | 4,000,000 | $ | 0.50 | ||||||
Granted | — | — | |||||||
Forfeited | — | — | |||||||
Vested | — | — | |||||||
Non-vested as of September 30, 2020 | 4,000,000 | $ | 0.50 |
The weighted-average remaining contractual life for stock options exercisable at September 30, 20172020 is 3.962.85 years. At September 30, 2017,2020 the Company has 5,656,0008,566,000 and 7,250,000 options available for grant under the 2011 Plan and 2010 Plan, respectively. There was $0
The aggregate intrinsic value for fully vested, exercisable options was $0 at both September 30, 2017 and December 31, 2016. There were no2020. The aggregate intrinsic value of options exercised induring the nine months ended September 30, 2017 or September 30, 2016. No2020 was $0 as no options were exercised. The actual tax benefit was realized from stock option exercises during these periods.the nine months ended September 30, 2019 was $0 as no options were exercised.
As of September 30, 2017, 8,094,000 of the stock options issued by the Company are fully vested and 4,000,000 remain unvested.11. RELATED PARTY TRANSACTIONS
Through December 31, 2011, a founder of the company and significant shareholder, Dr. David Platt advanced $257,820 to the Company to fund start-up costs and operations. Advances by Dr. Platt carry an interest rate of 6.5% and were due on June 29, 2013. On May 7, 2012, Dr. Platt and the Company’s former President and also a significant shareholder entered into promissory notes to advance to the Company an aggregate of $40,000. The notes accrue interest at 6.5% per year and were due June 30, 2013. The outstanding notes of $297,820 were amended each year to extend the maturity dates. Most recently, effectiveEffective June 30, 2015, the outstanding notes for Dr. Platt were amended to extend the maturity dates to June 30, 2017. During the second and third quarters of 2017, the Company made principal payments totaling $16,288 against$20,000 to the shareholders notes,former President of the Company, reducing the total balance of the outstanding notes to $281,532.$277,820. As of September 30, 2017,2020 and December 31, 2019, the remaining notes to Dr. Platt are in default and are classified as current liabilities.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Nine Months Ended September 30, 2017 and 2016
On June 24, 2011, the Company entered into a definitive Licensing and Manufacturing Agreement (the “Agreement”) with Advance Pharmaceutical Company Ltd. (“Advance Pharmaceutical”), a Hong Kong-based privately-held company. Under terms of the Agreement, the Company manufactures and supplies product in bulk for Advance Pharmaceutical. Advance Pharmaceutical is responsible for the packaging, marketing and distribution of SUGARDOWN® in certain territories within Asia. In addition, APC is able to purchase the SUGARDOWN product directly from the US manufacturer and sell it within APC’s distribution area. In these situations, the Company is entitled to royalty payments from APC of 10% of the total sales price paid upon shipment of the product. Advance Pharmaceutical, through a wholly owned subsidiary, has purchased an aggregate 1,799,800 shares of the Company’s common stock in conjunction with the Company’s private placement offerings during the years ended December 31, 2012 and 2011. The shares were purchased on the same terms as the other participants acquiring shares in the respective offerings. Conroy Chi-Heng Cheng is a director of Advance Pharmaceutical and joined the Company’s Board in December 2013. No revenue was generated pursuant to the Agreement for the three or nine months ended September 30, 20172020 or 2016.2019.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
In December 2013, the Board of Directors agreed to indemnify Dr. Platt for legal costs incurred in connection with an arbitration (now concluded) initiated before the American Arbitration Association by Galectin Therapeutics, Inc. (formerly named Pro-Pharmaceuticals, Inc.) for which Dr. Platt previously served as CEO and Chairman. Galectin sought to rescind or reform the Separation Agreement entered into with Dr. Platt upon his resignation from Galectin to remove a $1.0 million milestone payment which Dr. Platt asserted he was entitled to receive and to be repaid all separation benefits paid to Dr. Platt. The Company initially capped the amount for which it would indemnify Dr. Platt at $150,000 in December 2013 and Dr. Platt agreed to reimburse the indemnification amounts paid by the Company should he prevail in the arbitration. The Board decided to indemnify Dr. Platt after considering a number of factors, including the scope of the Company’s existing indemnification obligations to officers and directors and the potential impact of the arbitration on the Company. In May 2014, the Board approved a $50,000 increase in indemnification support, solely for the payment of outside legal expenses. The Company recorded a total of $182,697 in costs associated with Dr. Platt’s indemnification, of which $119,401 was expensed in the year ended December 31, 2013 and of which $63,296 was expensed in the year ended December 31, 2014. In July 2014, the arbitration was concluded in favor of Dr. Platt, confirming the effectiveness of the separation agreement and payment was made to Dr. Platt in July 2014.
On March 2, 2015, the Board of Directors voted to reduce the amount that Dr. Platt was required to reimburse the Company to $82,355 and to offset this amount against interest accrued in respect of the outstanding note payable to Dr. Platt. In addition, the Board determined that Dr. Platt would be charged interest related to the $182,697 indemnification payment since funds were received by Dr. Platt in July 2014. The Board of Directors concluded the foregoing constituted complete satisfaction of Dr. Platt’s indemnification by the Company. Accordingly, the Company has recorded the reduction in accrued interest through equity during the year ended December 31, 2015. As of September 30, 20172020 and December 31, 2016, $34,3372019, $96,595 and $35,542,$80,815, respectively, of accrued interest in connection with the related party promissory notes, had beenis included in accrued expenses and other current liabilities on the accompanying balance sheet.
In June 2015, the Company received $200,000 of cash proceeds from CJY Holdings Limited, in connection with a potential future exercise of its warrant. On November 12, 2015, the Company entered into a modification of a previously issued warrant agreement to CJY. The Board approved the reduction in the common stock warrant exercise prices from $0.50 to $1.00 per share to $0.17 per share. In connection with the June 2015 proceeds of $200,000 previously received by the Company and the reduction in the warrant exercise price, the Board approved the issuance of 1,194,440 shares of Common Stock to CJY in connection with the modified warrant agreement. These shares were issued on December 5, 2016. Prior to their issuance, $200,000 was recorded in common stock subscribed.
During September 2015, the Company entered into a securities purchase agreement with CJY. Pursuant to this agreement, the Company issued to CJY a convertible promissory note in the principal amount of $750,000. The Note was amended during the fourth quarter of 2015 to $1,200,000 and$1,200,000. During 2016, the Note was amended again in 2016 to $1,752,000. This Note provided necessary bridge financing to the Company prior to a financing of $1,600,000 completed in the third quarter of 2016. Interest accrues at the rate of 10% per annum and is due upon maturity of the note in August 2018. The Company may prepay this Note and any accrued interest at any time. At any time on, amounts outstanding under the CJY Note are convertible into the Company’s common stock, in whole or in part, at the option of the lender, at a conversion price of $0.05 per share. A beneficial conversion feature of $1,642,000 was calculated and capped at the value of the note pursuant to ASC 470 - 20. The Company recorded amortization of the beneficial conversion feature as interest expense in the amount of $153,466 and $460,399was fully amortized during 2018. No amortization was recorded during the three months andor nine months ended September 30, 2017, respectively. The Company recorded amortization of the beneficial conversion feature as interest expense in the amount of $145,1302020 and $406,153 during the three months and nine months ended September 30, 2016,2019, respectively.
On October 6, 2017, in accordance with the terms of the Securities Purchase Agreement, CJY Holdings converted $500,000 of Notes in exchange for 10,000,000 shares of the Company’s common stock. The cost basis for the shares issued was $0.05. Upon conversion, a loss on extinguishment of $15,354 was charged to additional paid in capital.
On October 16, 2017, CJY holdings converted an additional $50,000 of the Notes along with $150,000 of accrued interest into 4,000,000 shares of the Company’s common stock. The cost basis for the shares issued was $0.05. Upon conversion, a loss on extinguishment of $155,459 was charged to additional paid in capital.
The CJY Holdings Notes are currently in default and are classified as current liabilities.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
On April 26, 2017,Boston Therapeutics, Inc. (the “Company”)entered into Securities Purchase Agreement with CJY Holdings Limited (“CJY”) providing for the sale by the Company to CJY of 6% Subordinated Convertible Debenture in an amount of up to $1,000,000 (the “Debentures”). In addition to the Debentures, CJY will also receive stock purchase warrants (the “Warrants”) to acquire 500,000 shares of common stock of the Company for every $50,000 in Debentures purchased. The Warrants are exercisable for five years at an exercise price of $0.10 and may be exercised on a cashless basis. The Company may only use the proceeds for the payment of services or materials associated with clinical trials. The Company closed on $200,000 in financing and issued the related Debentures and Warrants under this agreement on April 26, 2017.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended September 30, 2017 and 2016
The Debentures bear interest at 6% per annum and mature two years from issuance. CJY may elect to convert all or part of the Debentures, plus accrued interest, at any time into shares of common stock of the Company at a conversion price of $0.10 per share. Interest on the Debentures is payable in cash or shares of common stock at $0.10 per share quarterly commencing June 30, 2017. The conversion price is subject to adjustment for stock dividends and stock splits. In addition, if after the original issue date of the Debentures, either (i) the volume weighted average price equals or exceeds $0.50 for 10 consecutive trading days or (ii) the Company elects to list a class of securities on a national securities exchange, the Company may cause CJY to convert all or part of the then outstanding principal amount of the Debentures plus, accrued but unpaid interest, liquidated damages and other amounts owed.
CJY agreed to restrict its ability to convert the Debentures and exercise the Warrants and receive shares of common stock such that the number of shares of common stock held by CJY after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.
A beneficial conversion feature of $186,939 was calculated and capped at the value of the note pursuant to ASC 470 - 20. The Company recorded amortization of the beneficial conversion feature as interest expense in the amount of $23,560$0 and $40,205$0 during the three months ended September 30, 2020 and 2019, respectively. The Company recorded amortization of the beneficial conversion feature as interest expense in the amount of $0 and $23,094 during the nine months ended September 30, 2017,2020 and 2019, respectively. In connection with this borrowing, the Company also issued warrants to purchase 2,000,000 shares of the Company’s common stock at $0.10 per share.
Convertible notes payable – related party consist of the following at September 30, 20172020 and December 31, 2016:2019:
2017 | 2016 | |||||||
Principal balance | $ | 1,952,000 | $ | 1,752,000 | ||||
Debt discount | (683,863 | ) | (997,539 | ) | ||||
Outstanding, net of debt discount | $ | 1,268,137 | $ | 754,461 |
2020 | 2019 | |||||||
Principal balance | $ | 1,402,000 | $ | 1,402,000 | ||||
Debt discount | — | — | ||||||
Outstanding, net of debt | $ | 1,402,000 | $ | 1,402,000 |
On June 12, 2018, the Company issued a note payable for $100,000 to World Technology East II Limited (“WTE2”). WTE2 is a Hong Kong company owned by Carl W. Rausch, the Company’s former CEO. The WTE2 Note is an unsecured obligation of the Company. Principal and interest under the WTE2 Note is due and payable June 12, 2019, however, in the event that the Company raises in excess of $1,000,000 in equity financing, then the Company will use part of its proceeds to pay off the WTE2 Note. During the fourth quarter of 2018, the Company increased the amount of the note payable to $174,500 with borrowings of $44,500 on October 4, $15,000 on November 5 and $15,000 on December 7. During the first quarter of 2019, the Company increased the amount of the note payable to $224,500 with borrowings of $30,000 on January 17 and $20,000 on February 11. During the second quarter of 2019, the Company increased the amount of the note payable to $324,500 with borrowings of $50,000 on April 4 and $50,000 on May 31. On July 31, 2019, the Company borrowed $50,000 increasing the total amount of notes payable to $374,500. On November 18, 2019, the Company borrowed $30,000 increasing the total amount of notes payable to $404,500 which remain outstanding at September 30, 2020. The notes payable are due on various dates through November 18, 2020 including $374,500 which came due during 2019 and the first nine months of 2020 and are currently in default and are classified as current liabilities. Interest accrues on the WTE2 Notes at the rate of 10.0% per annum. Accrued interest at September 30, 2020 and December 31, 2019 totaled $67,853 and $37,516, respectively.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
On September 26, 2018, the Company issued a note payable for $305,937 to CJY Holdings, Ltd (“CJY”). CJY is a Hong Kong company owned by Conroy Chi- Heng Cheng, a director of the Company. The CJY Note is an unsecured obligation of the Company. Principal and interest under the CJY Note is due and payable after one year. During the 2019, the Company increased the amount of the note payable to $1,266,108 with borrowings of $289,144 on April 12, $157,671 on July 2, $194,356 on July 31 and $319,000 on November 29. The notes are due on various dates through November 29, 2020 and are currently all in default. During the first quarter of 2020, the Company increased the amount of the note payable to $1,516,108 with a borrowing of $250,000 on January 3. During the second quarter of 2020, the Company increased the amount of the note payable to $1,846,108 with borrowings of $200,000 on April 2, $50,000 on May 20, $60,000 on June 10 and $20,000 on June 30. During the third quarter of 2020, the Company increased the amount of the note payable to $2,076,108 with borrowings of $80,000 on July 10 and $150,000 on August 4. The notes are due on various dates through August 4, 2021. Interest accrues on the CJY Note at the rate of 10% per annum. Accrued interest at September 30, 2020 and December 31, 2019 totaled $212,477 and $80,546, respectively.
Notes payable-related party consist of the following at September 30, 2020 and December 31, 2019:
2020 | 2019 | |||||||
Founder | $ | 277,821 | $ | 277,821 | ||||
CJY Holdings Ltd | 2,076,108 | 1,266,108 | ||||||
World Technology East Ltd II | 404,500 | 404,500 | ||||||
$ | 2,758,429 | $ | 1,948,429 |
Included in accounts payable at both September 30, 2020 and December 31, 2019 are amounts due shareholders, officers and directors of the Company in the amounts of $282,302 and $152,302, respectively.
Included in accrued expenses at both September 30, 2020 and December 31, 2019 are amounts due shareholders, officers and directors of the Company in the amounts of $1,181,197 and $1,097,974, respectively.
12. COMMITMENTS AND CONTINGENCIES
Pending litigation
In March 2019, we were served with notification of complaint filed by CureDM Inc. as agent for the members of CureDM Group Holdings, LLC filed with the Supreme Court of the State of New York County of New York regarding breach of contract and other matters relating to their desire to unwind the acquisition of CureDM Group Holdings LLC according to the original Contribution Agreement. The complaint was withdrawn by CureDM, Inc. in December 2019. The Company is continuing to work with the representatives from CureDM Inc. to settle this claim and unwind the Contribution Agreement.
In addition to the above matter, we are also in a dispute with Level Brands, Inc. regarding a License Agreement dated June 21, 2018 (JAMS Ref. No.: 1220061261). The Company filed an Answer to Complaint and Counter-complaint on June 25, 2019. Both parties are claiming non-performance under the License Agreement. The matter was scheduled for arbitration in October 2019. In October 2019, the arbitration was dismissed without prejudice.
On October 16, 2019 the Company received a Summons and Complaint filed by Microcap Headlines Inc. against the Company in the Supreme Court of the United States of New York County of Suffolk claiming damages of $18,000 and the costs and disbursements of the action. The Company filed an Answer on November 15, 2019. The Company intends to vigorously defend against the claim.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
Leases
The Company currently leasesleased office space inat 354 Merrimack Street, Lawrence, MA under01843 on a month to month lease. Prior to this location, the Company leased office space in Newton MA under a lease that expired July 31, 2016.basis. The Company has noended the lease on August 31, 2019. No further obligation under that lease.exists. The Company recognized rent expense of $900$0 and $2,700 during$800 for the three and nine months ended September 30, 2017,2020 and 2019, respectively. The Company recognized rent expense of $3,900$0 and $14,700 during$3,200 for the three and nine months ended September 30, 2016,2020 and 2019, respectively.
ThereContingent share liability
On February 12, 2018, the Company entered into a Contribution Agreement with the members of CureDM Group Holdings, LLC, a limited liability company, all of which except five are accredited investors (“CureDM Group Members”) pursuant to which the CureDM Group Members agreed to contribute 100% of the outstanding securities of CureDM Group in exchange for an aggregate of 47,741,140 shares of common stock of the Company (the “BTHE Contribution Shares”) of which 25,000,000 BTHE Contribution Shares were delivered at closing and 22,741,140 BTHE Contribution Shares (the “Milestone BTHE Shares”) shall be delivered in four equal tranches of 5,685,285 BTHE Contribution Shares each upon the achievement of specific milestones (the “CureDM Group Contribution”). The closing of the CureDM Group Contribution occurred on February 12, 2018.
Under the agreement, BTI was to use its best efforts to secure a binding commitment to close an equity financing with net proceeds of at least $1,000,000 within 180 days after the closing date. The use of the equity financing proceeds would be designated as working capital for at least, but not limited to the synthesis of HIP2B clinical material. In the event the equity financing is not closed by the required date, then, if both BTI and CureDM, Inc. mutually agree, (i) this Acquisition Agreement will then be null and void and have no futurefurther force and effect and all other rights and liabilities of the parties will terminate without any liability of any party to any other party and (ii) each party shall have released the other party. Further, if such event occurs, the CureDM Members will return all shares to BTI for cancellation.
Subsequent to June 30, 2018, the 180 day time period elapsed and the Company did not raise the required funding.
The Company believes the milestones noted above will not be achieved and that the Milestone BTHE Shares will not be issued. Therefore, the Company has not established a contingent liability to recognize the milestone shares obligations.
Employment Agreement
The Company entered into an Employment Agreement with Carl W. Rausch pursuant to which Mr. Rausch was engaged as the Chief Executive Officer of the Company for a period of three years. Mr. Rausch was initially required to relocate from Hong Kong to the United States. However, due to his continued efforts in Hong Kong, the Company and Mr. Rausch, in March 2017, have amended the employment agreement to remove the provision requiring Mr. Rausch to relocate to the United States. Mr. Rausch received a signing bonus of $60,000 and an annual salary of $224,000, which will be increased to $264,000 upon Mr. Rausch relocating to the United States. Further, upon the Company being listed on a national exchange, Mr. Rausch’s salary will be increased by $20,000. The Company granted Mr. Rausch a Stock Option (the “Rausch Option”) to acquire an aggregate of 6,000,000 shares of common stock of the Company, exercisable for five (5) years, subject to vesting. The Rausch Option shall be earned and vested in three equal tranches of 2,000,000 upon the Company raising $1,000,000 in financing, the Company raising $5,000,000 in financing and the Company entering into a significant corporate alliance for substantial marketing and selling of the Company’s product portfolio. The initial tranche shall be exercisable at $0.20 per share, the second tranche will be $0.40 per share and the third tranche shall be $0.60 per share, which such vesting is subject to Mr. Rausch’s continued employment as an executive with the Company as of the vesting date. In addition, as additional consideration for Mr. Rausch’s commitment to the Company, the stock options previously granted to Mr. Rausch shall be amended to extend the expiration date to the ten year anniversary of signing date and such options shall be considered fully vested. Mr. Rausch shall be entitled to certain raises and milestones subject to the achievement of certain milestones to be agreed upon. In the event the Employment Agreement is terminated prior to the expiration of the term by the Company without cause or by Mr. Rausch with good reason, the Company shall pay Mr. Rausch an amount equal to Mr. Rausch’s accrued but unpaid base salary and earned but unpaid bonus prior to the termination date, reimbursement for any reimbursable business expenses and Mr. Rausch’s salary for a period of one year. On December 12, 2019, Mr. Rausch resigned as the Chief Executive Officer and Board Chairman. In January 2020, Mr. Rausch agreed to remain a paid advisor to the Company. Under the agreement, Mr. Rausch’s options were not canceled as a result of his voluntary termination.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2020 and 2019
On March 1, 2018 the Board of Directors approved a reduction in the exercise price of 6,000,000 stock options issued to the Company’s CEO on August 22, 2016. The First tranche of 2,000,000 will be exercisable at $0.10 per share and the second and third tranches of 2,000,000 will be exercisable at $0.15 per share. The remainder of the terms remain unchanged.
On February 12, 2018, Loraine Upham was appointed as Chief Operating Officer. The Company and Ms. Upham entered into an Executive Retention Agreement pursuant to which Ms. Upham was engaged as Chief Operating Officer with an annual salary of $200,000. However, Ms. Upham’s salary shall accrue until the Company has raised a minimum lease paymentsof $1,250,000. Ms. Upham is eligible for bonuses as determined by the Board of Directors. These include a bonus of $20,000 is to be paid upon the Company successfully raising $1,250,000 through the sale of equity; an annual performance bonus based on milestones related to clinical progress, partnering and fund raising success to be established by the Board of Directors or the Compensation Committee, if in existence on an annual basis. In addition, Ms. Upham received a stock option to purchase 4,000,000 shares of common stock under non-cancelable operating leasesthe Company’s Amended and Restated 2011 Stock Incentive Plan, vesting over three (3) years, one third on the first anniversary of the effective date and the balance in equal quarterly installments. The exercise price of the initial tranche of options (1,333,334 shares) shall be $0.06 per share, the second tranche (1,333,333 shares) shall be $0.10 per share and the final tranche (1,333,333 shares) shall be $0.20 per share. The term of the options is five years. Ms. Upham resigned from the Company on November 30, 2018. As a result of her resignation all of her stock options were terminated and returned to the option pool. Her accrued salary and vacation of $188,716 will be paid once the funding is obtained.
Consulting Agreement
On April 1, 2018, the Company entered into a Corporate Advisory Agreement with a consultant. Services commenced May 1, 2018 for a term of one year with an option to renew for an additional six months. Compensation pursuant to the agreement is as follows: (1) a monthly fee of $6,500 paid in cash, and (2) 3,000,000 shares of restricted common stock of which 1,400,000 shares were deliverable upon execution of the agreement and the remaining 1,600,000 delivered in monthly installments of 400,000 shares as long as the agreement has not been terminated. Included in accrued expenses is the monthly fee totaling $110,500 and the fair value of the shares of common stock totaling $211,600, as the shares have not been issued as of September 30, 2017.2020.
13. SUBSEQUENT EVENTS
The Company has evaluated events and transactions that occurred from October 1, 2017September 30, 2020 through the date of the filing for possible disclosure and recognition in the financial statements. See discussed below material subsequent events that impact its financial statements or disclosures.
On October 4, 2017,December 10, 2020, the Company issued 500,000 shares to a vendor under a settlement agreement for investor relations services performed.
On October 6, 2017, in accordance with the terms of a Securities Purchase Agreement, the Company issued 10,000,000 shares toborrowed $25,000 from a related party investor upon conversion of a note payable held by the investor for $750,000 including accruedparty. The Note bears interest of approximately $150,000. The cost basis for the shares issued was $0.05.
On October 24, 2017, the Company entered into Securities Purchase Agreements with an accredited investors. In connection with the agreement, the Company issued 10,000 shares of Series A Preferred Stockat 10% and warrants to acquire 2,000,000 shares of common stock. The shares of Series A Preferred Stock are convertible, at any time at the option of the holder, into an aggregate of 1,000,000 shares of the Company’s common stock. The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per share.is due in twelve months.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based on, and should be read in conjunction with, the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q .10-Q. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Report on Form 10-Q.
Overview
Boston Therapeutics, Inc., headquartered in Lawrence, MA, (OTC:(OTCQB: BTHE) is a leader in the field of complex carbohydrate chemistry.chemistry and peptide therapeutic drug discovery and development. The Company’s initial product pipeline is focused on developing and commercializing therapeutic molecules for pre-diabetes,sugar control more specifically prediabetics and diabetes: BTI-320 is a non-systemic, non-toxic, therapeutic investigative material BTI-320, a non- systemic, non-toxic, investigative therapeutic compound designed to reduce post-meal glucose immediate elevation, the new important finding for effecting diabetes sugar management, and IPOXYN, an injectable anti-necrosis drug specifically designed to treat hypoxia and possibly an adjunctive therapy for lower limb ischemia associated with diabetes complications. The Company has been granted patents in the Ipoxyn and in the BTI-320 compound formulations.elevation. In addition, the Companyunder manufacturing control, SUGARDOWN®, a similar base material to BTI-320 has completed development of SUGARDOWN®, a complex carbohydrate-based material regulatedprogressed into market testing as a dietary supplement. SUGARDOWN®is currentlysupplement designed to manage post-meal sugar spikes. Recently, with the acquisition of CureDM in the first quarter of 2018, a new investigative material BTI-410, an injectable peptide, may fulfill the medical need to replace injection of insulin by stimulating the beta cell maturation. And the adjunctive therapeutic material called IPOXYN, is an investigative intravenous fluid therapy for the prevention of necrosis and a treatment for ischemia, with an initial stagetarget indication of market introduction inlower limb ischemic events often associated with diabetes. This covers a wider combined prevention and therapeutic option for the US, and in 2011, we entered into an agreement of licensing and developmentgrowing worldwide epidemic related to metabolic diseases with Advance Pharmaceutical to develop markets in Hong Kong, China and Macau. In November 2014, we agreed to expand this marketing, manufacturing, and development agreement to include 12 additional countries: Korea, Taiwan, Singapore, Thailand, Malaysia, Vietnam, Philippines, Myanmar, Indonesia, Laos, Brunei and Cambodia. In March 2015, we agreed to further expanddiabetes being the license holders authorized territories to include Japan. Recently they registered in the Philippines, and are pending a registration in Taiwan. A sales order has been received for Korea and we are awaiting the completion of the lot for shipment in November, 2017.leader.
The accompanying unaudited financial statements have been prepared assuming the Company has incurred recurring operating losses since inception as it has worked to bring its SUGARDOWN® product to market and develop BTI-320 and IPOXYN. Management expects such operating losses will continue as a going concern.until such time that substantial revenues are received from SUGARDOWN® or the regulatory and clinical development of BTI-320 or IPOXYN is completed. The Company has limited resources and operating history. As shown in the accompanying financial statements, the Company has an accumulated deficit of approximately $19.8 million and $297,000$118,286 cash on hand as ofat September 30, 2017.2020. Management is currently seeking additional capital through private placements and public offerings and or Corporate collaborations and mergers through the use of its common stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financings as well as collaboration activities in order to fund our operations. The Company has received ongoing fundingwas advanced $250,000 through a fixed price convertible note fromthe issuance of 10% notes payable to a related party and significant shareholder.during the first quarter of 2020. The Company was advanced $330,000 through the issuance of 10% notes payable to a related party during the second quarter of 2020. The Company was advanced $230,000 through the issuance of 10% notes payable to a related party during the third quarter of 2020. The Company was advanced $25,000 through the issuance of 10% notes payable to a related party during the fourth quarter of 2020. Management anticipates that our cash resources will be sufficient to fund our planned operations into the fourthfirst quarter of 2017 as a result of this funding and cash management.2021. The future of the Company is dependent upon its ability to obtain continued financing and upon future profitable operations from the partnering, development and clarity of its new business opportunities.
There can be no assurance that we will be successful in accomplishing our objectives. Without such additional capital, we may be required to cease operations. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue operations.
Results of Operations
Three Months Ended September 30, 20172020 compared to September 30, 20162019
Revenue
Revenue for the three months ended September 30, 20172020 was $4,400,$2,217, a decrease of $7,295$1,441 as compared to revenue of $11,695$3,658 for the three months ended September 30, 2016.2019. The decrease is primarilyattributable to the Company’s lack of financial resources to assist with sales and marketing costs.
Direct Expenses
Direct expenses related to the Company suspension of its US marketing programs to sell its Sugardown product during 2017. The Company is currently pursuing additional sales through the use of radio and social media advertising in specific targeted markets in the Northeast and Florida markets. The Company will consider other test markets and controlled sales of Sugardown via a few strategic outlets as further funding is secured.
Gross Margin
The Company generated a gross deficitrevenue for the three months ended September 30, 2017 of ($13,383)2020 totaled $5,541 as compared to a gross deficit of ($5,538)$7,588 for the three months ended September 30, 2016. The decrease is primarily related2019. Costs for fulfillment were lower in 2020 due to the decrease in revenues during the quarter that were not sufficient to cover the fixed costs for the quarter. In addition, we took a chargereduced volume of $9,338 to write off excess quantities of our Sugardown product expected to expire in June 2018.units sold.
Research and Development
Research and development expense for the three months ended September 30, 20172020 was $17,639, an increase$55,405, a decrease of $1,568$331,310 as compared to $16,071$386,715 for the three months ended September 30, 2016.2019. The Company has initiatedthird quarter of 2020 expenses related to consultants assisting with the clinical trials for its Sugardown product and its BTI320 investigative materialSugardown. All intangible assets were written off in the U.S. andfourth quarter of 2019 resulting in China (Hong Kong), startingno amortization expense in the second and2020. The third quarter of 2017. Both2019 expenses related to the domestic clinical trials are being funded by the Asian license holder who is also a Directorconducted for Sugardown and significant stockholder. The majority of the expense in both 2017 and 2016 is from non-cashnon cash amortization of the intangible assets.patents.
Sales and Marketing
Sales and marketing expense for the three months ended September 30, 20172020 was $3,301,$0, a decrease of $19,404$30,357 as compared to $22,705$30,357 for the three months ended September 30, 2016.2019. The decrease in 20172019 expense is duerelated to the Company suspending its selling and marketing program explorations.agreement entered into with Level Brands, Inc. The Company is currently evaluating other opportunities and reviewing proposalsin arbitration with Level Brands, Inc., in an effort to sell and market Sugardown and its sister registered products ofend the Asia registrations SugarBalance and SugarBlock. Beginning late incontract which the thirdCompany believes is not beneficial. We wrote off the prepaid asset during the fourth quarter of 2017,2019 as we no longer expect to use the Company is pursuing additional markets in the Northeastagreement. There are currently no employees dedicated to sales and Florida through the use of radio and social media advertising. The Company will consider other test markets and control sell Sugardown via a few strategic outlets. The 2016 expenses were related to advertising costs on radio and newspaper as well as consultant fees to assist with market development.marketing.
General and Administrative
General and administrative expense for the three months ended September 30, 20172020 was $260,605,$151,299, a decrease of $211,339$75,781 as compared to $471,944$227,080 for the three months ended September 30, 2016.2019. The Company currently has no US based full timezero employees as all of the general and is fully operatedadministrative tasks are performed by contracted consultantsoutside consultants. The 2020 expenses related to profession fees including legal, accounting and audit fees, as well as insurance, IT and other operating expenses.
Other (Expenses) Income
Total other income was $21,084 for the functionsthree months ended September 30, 2020 compared to total other income $344,645 for the three months ended September 30, 2019. Interest expense increased by approximately $29,054 for the three months ended September 30, 2020 as compared to the same period in 2019. This was due to the increase of related party debt during 2019 and into 2020. The Company recognized a gain of $129,255 from the change in the valuation of its operationswarrant liability for the three months ended September 30, 2020 compared to a gain of $421,476 for three months ended September 30, 2019. The Company also recognized a gain of $3,124 from the change in legal, regulatory, clinical, manufacturing and general office and administrative tasks. The decrease costs in 2017 are the resultvaluation of lower non-cash stock compensation costs in 2017 of $212,000 which wereits derivative liability for the result of stock options issued the contract CEO upon his hiring in 2016. In addition, compensation costs of the contract CEO decreased in 2017 by approximately $40,000. This was caused bythree months ended September 30, 2020 compared to a sign on bonus paid the contract CEO upon his hiring in 2016. These saving were offset by increased professional feesgain of approximately $40,000.$5,410 for the three months ended September 30, 2019.
Nine Months Ended September 30, 20172020 compared to September 30, 20162019
Revenue
Revenue for the nine months ended September 30, 20172020 was $14,092,$8,247, a decrease of $26,191$4,867 as compared to revenue of $40,283$13,114 for the nine months ended September 30, 2016.2019. The decrease is primarilyattributable to the Company’s lack of financial resources to assist with sales and marketing costs.
Direct Expenses
Direct expenses related to the Company suspension of its US marketing programs to sell its Sugardown product during the first quarter of 2017. The Company is currently pursuing additional sales through the use of radio and social media advertising in specific targeted markets in the Northeast and Florida markets. The Company will consider other test markets and controlled sales of Sugardown via a few strategic outlets.
Gross Margin
The Company generated a gross deficitrevenue for the nine months ended September 30, 2017 of ($19,783)2020 totaled $15,327 as compared to a gross deficit of ($1,579)$20,395 for the nine months ended September 30, 2016. The decrease is primarily related2019. Costs for fulfillment were lower in 2020 due to the decrease in revenues during the quarter which were not sufficient to cover the fixed costs for the quarter. In addition, we took a chargereduced volume of $9,338 to write off excess quantities of our Sugardown product expected to expire in June 2018.units sold.
Research and Development
Research and development expense for the nine months ended September 30, 20172020 was $81,242, an increase$126,004, a decrease of $23,470$1,132,255 as compared to $57,772$1,258,259 for the nine months ended September 30, 2016.2019. The increase is attributed2020 expenses related to consultants assisting with the Company suspending nearly all if its research and development activities in 2016 and shifting them to the Asia licensed territory. The Company and its Asia license and development partner has begun clinical trials for its Sugardown product and its BTI320 investigative materialSugardown. All intangible assets were written off in the U.S. and in China, Hong Kong, starting in the second and thirdfourth quarter of 2017. The majority of the2019 resulting in no amortization expense in 2017 is from non-cash2020. The 2019 expenses related to the domestic clinical trials being conducted for Sugardown and non cash amortization of the intangible assets and stability testing performed for the Sugardown product. The majority of the expense in 2016 is related to non-cash amortization of the intangible assets and part time consulting work.patents.
Sales and Marketing
Sales and marketing expense for the nine months ended September 30, 20172020 was $17,606,$844, a decrease of $76,613$91,813 as compared to $94,219$92,657 for the nine months ended September 30, 2016.2019. The decrease in 20172019 expense is duerelated to the Company suspending its US based selling and marketing programs in the first quarter.agreement entered into with Level Brands, Inc. The Company with its Asia license holder, is currently evaluating other opportunities and reviewing proposalsin arbitration with Level Brands, Inc., in an effort to sell and market Sugardown and its sister registered products ofend the Asia registrations SugarBalance and SugarBlock. Beginning late incontract which the thirdCompany believes is not beneficial. We wrote off the prepaid asset during the fourth quarter of 2017,2019 as we no longer expect to use the Company is pursuing additional test markets in the Northeastagreement. There are currently no employees dedicated to sales and Florida through the use of radio and social media advertising. The Company will consider other test markets and controlled sales of Sugardown via a few strategic outlets as further funding is secured. The 2016 expenses related to advertising costs on radio and newspaper as well as consultant fees to assist with market development.marketing.
General and Administrative
General and administrative expense for the nine months ended September 30, 20172020 was $698,602,$378,551, a decrease of $100,115$258,337 as compared to $798,717$636,888 for the nine months ended September 30, 2016.2019. The decrease costs in 2017 are the result of lower non-cash stock compensation costs in 2017 of $190,000 which were the result of stock options issued the contract CEO upon his hiring in 2016. This savings was offset by increased compensation costsCompany currently has zero employees as all of the contract CEO in 2017general and administrative tasks are performed by approximately $70,000.outside consultants. The contract CEO2020 expenses related to profession fees including legal, accounting and audit fees, as well as insurance, IT and other operating expenses.
Other (Expenses) Income
Total other expense was hired in July 2016 so($39,696) for the nine months ended September 30, 2016 includes only 3 months of the contract CEO’s compensation costs as opposed2020 compared to nine months in 2017. In addition, professional fees increased by approximately $20,000total other income $458,147 for the nine months of 2017ended September 30, 2019. Interest expense increased by $63,216 for the nine months ended September 30, 2020 as compared to 2016.the same period in 2019. This was due to the increase of related party debt during 2019 and into 2020. The Company recognized a gain of $268,636 from the change in the valuation of its warrant liability for the nine months ended September 30, 2020 compared to a gain of $658,111 for nine months ended September 30, 2019. The Company also recognized a gain of $6,748 from the change in the valuation of its derivative liability for the nine months ended September 30, 2020 compared to a gain of $51,900 for the nine months ended September 30, 2019.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2020
As of September 30, 2017,2020, we had cash of $296,907$118,286 and accounts payable and accrued expenses totaling $718,269.$3,256,137. During the nine months ended September 30, 2017,2020, the Company used $1,020,676$648,415 of cash in operationsoperations.
We haveThe Company has incurred recurring operating losses since inception as we are generating a new platformit has worked to bring ourits SUGARDOWN®product to address the growing market of “excess free sugar” presented concerns. We will explore collaborative efforts in Asia alliance toand develop BTI-320 and IPOXYN investigative materials. We expectIPOXYN. Management expects such operating losses will continue until such time that we receive substantial revenues are received from SUGARDOWN®or we complete the regulatory and clinical development of BTI-320 or IPOXYN.IPOXYN is completed. The Company has $118,286 cash on hand at September 30, 2020. Management is currently seeking additional capital through private placements and public offerings of its common stock and/or preferred stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financings as well as collaboration activities in order to fund our operations. Most recently, we have expanded our searchThe Company was advanced $250,000 through the issuance of co-development beyond10% notes payable to a related party during the Asian partnership.first quarter of 2020. The Company was advanced $330,000 through the issuance of 10% notes payable to a related party during the second quarter of 2020. The Company was advanced $230,000 through the issuance of 10% notes payable to a related party during the third quarter of 2020. The Company was advanced $25,000 through the issuance of 10% notes payable to a related party during the fourth quarter of 2020. Management anticipates that our cash resources will be sufficient to fund our planned operations into the first quarter of 2018 as a result of this funding and cash management.2021. The future of the Company is dependent upon its ability to obtain continued financing and upon future profitable operations from the partnering, development and clarity of its new business opportunities.
The Company may seek to raise additional capital or private debt or public or private equity financings, and partnerships or licensing opportunities andin order to fund our operations. There can be no assurance that the continued cost sharing and operation support from the Asia operations of the Alliance partner. There is no guarantee that weCompany will be successful in these efforts.accomplishing its objectives. Without such additional capital, the Company may be required to cease operations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
CRITICAL ACCOUNTING POLICIES
See Note 12 Summary of Significant Accounting Policies, of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 herein for a discussion of critical accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information requested by this item, as provided by Regulation S-K Item 305(e).
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer (“CEO/CFO”) of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures”, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As disclosed in our annual report filing for the year ended December 31, 2016,2019, there was a material weakness in the Company’s internal control over financial reporting due to the fact that the Company does not have an adequate process established to ensure appropriate levels of review of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments and disclosures in a timely fashion. The Company’s CEO/CFO has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. Based upon the evaluation of the disclosure controls and procedures at the end of the period covered by this report, the Company’s CEO/CFO concluded that the Company’s disclosure controls and procedures were not effective due to a material weakness in the Company’s internal control over financial reporting.
Through the use of external consultants and the review process, management believes that the financial statements and other information presented herewith are materially correct.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15f of the Exchange Act) that occurred during the three andfirst nine months ended September 30, 2017of 2020 that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on Internal Controls
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. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Exhibit No. | Title of Document | |
31.1 | Certification of Principal Executive and Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended* | |
32.1 | Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Executive and Financial Officer)** | |
101 | The following financial statements from the Quarterly Report on Form 10-Q of Boston Therapeutics, Inc. for the quarter ended September 30, |
*Filed as an exhibit hereto.
* | Filed as an exhibit hereto. |
** | These certificates are furnished to, but shall not be deemed to be filed with, the Securities and Exchange Commission. |
**These certificates are furnished to, but shall not be deemed to be filed with, the Securities and Exchange Commission.
24 33
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
BOSTON THERAPEUTICS, INC. | |||
Date: | By: | /s/ | Conroy Chi-Heng Cheng |
Conroy Chi-Heng Cheng | |||
Chief Executive Officer |
25 34