GRANTS OF PLAN-BASED AWARDS IN FISCAL 2014
Name | Award Type | Grant Date | Approval Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Target ($) | All Other Option Awards: Number of Securities Underlying Options (3) | | Exercise or Base Price of Option Awards ($/Sh) (1) | | | Grant Date Fair Value of Stock and Option Awards ($) (2) | |
David Platt | Incentive Stock Option | 02/12/14 | 02/12/14 | - | 100,000 | | $ | 1.21 | | | $ | 87,995 | |
Anthony Squeglia | Incentive Stock Option | 02/12/14 | 02/12/14 | - | 100,000 | | $ | 1.21 | | | $ | 87,995 | |
Kenneth A. Tassey, Jr. (4) | Incentive Stock Option | 02/12/14 | 02/12/14 | - | 100,000 (4) | | $ | 1.21 | | | $ | 87,995 | |
(1) | Stock options were granted with an exercise price equal to 100% of the fair market value on the date of grant. The stock options granted in 2014 carry an exercise price of $1.21 per share, the closing price of Boston Therapeutics, Inc.’s common stock on the grant date. |
(2) | The dollar amounts in this column represent the grant date fair value of each stock option award granted to the named executive officers in 2014. These amounts have been calculated in accordance with ASC 718, using the Black-Scholes option-pricing model. Assumptions used in the calculation of these amounts are included in the notes to Boston Therapeutics, Inc.’s audited financial statements included in this prospectus for the year ended December 31, 2014. |
(3) | Annual stock options were granted under our Amended and Restated 2010 Stock Plan (the "2010 Plan"). |
(4) | Mr. Tassey’s fully vested stock options were forfeited September 30, 2014 as they were not exercised by Mr. Tassey within the timeframe allotted by the stock option plan based on his resignation date. |
Outstanding Equity Awards at December 31, 20112014
There were no outstanding unvested stock options held by the Company’s Named Executive Officers at
The following table sets forth, as of December 31, 2011.2014, certain information regarding outstanding equity awards at fiscal year-end for the named executive officers.
OUTSTANDING EQUITY AWARDS AT 2014 FISCAL-YEAR END TABLE
| | Option Awards |
| | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#)(1) Unexercisable | | | Option Exercise Price ($) | | Option Expiration Date |
Name |
| | | 250,000 | | | | — | | | $ | 0.50 | | |
| | | 75,000 | | | | 25,000 | | | $ | 1.21 | | |
| | | 500,000 | | | | — | | | $ | 0.50 | | |
| | | 75,000 | | | | 25,000 | | | $ | 1.21 | | |
(1) | In addition to the specific vesting schedule for each stock option award, each unvested stock option is subject to the general terms of the 2010 and 2011 Plans including the potential for future vesting acceleration. |
Option Exercises and Stock Vested in 20112014
Our Named Executive Officers did not exercise any stock options or have any stock awards vest during fiscal year 2011.2014. Both Dr. Platt and Mr. Squeglia were awarded 100,000 stock options in February 2014 of which 75,000 were fully exercisable at the time of grant and 25,000 become exercisable on January 1, 2015. In addition, 62,500 stock options from a November 2012 award to Mr. Squeglia’s vested in March 2014.
Director CompensationHolders of Common Stock
All compensation,As of the date of this prospectus, we have approximately 1,700 holders of record of our common stock. The number of record holders does not include persons, if any, paid towho hold our employee directors is set forthcommon stock in the tables summarizing executive officer compensation above. For the 2011 fiscal year, non-employee directors were not entitled to receive, and did not receive, any stock optionsnominee or other forms of compensation and there are currently no agreements in effect entitling them to compensation.“street name” accounts through brokers.
Market for Common Stock
Employment ContractsOur common stock is quoted on the OTCQB Marketplace under the symbol “BTHE” The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported by the OTCQB Marketplace:
In August 2011, Mr. Tassey entered into an employment contract with the Company, pursuant to which he is engaged to serve in the position set forth below. The employment contract sets forth the officer’s annual salary, hours of work and other terms. The terms of the employment contract include the following:
Name | Term | Monthly Wage | Job Title |
Kenneth A. Tassey, Jr. | August 11, 2011 through December 31, 2012 | | $3,000 | President and Chief Operating Officer |
Period | | High | | Low |
| | | | | | |
February 28, 2012 through March 31, 2012 | | | | | | |
April 1, 2012 through June 30, 2012 | | | | | | |
July 1, 2012 through September 30, 2012 | | | | | | |
October 1, 2012 through December 31, 2012 | | | | | | |
January 1, 2013 through March 31, 2013 | | | | | | |
April 1, 2013 through June 30, 2013 | | | | | | |
July 1, 2013 through September 30, 2013 | | | | | | |
October 1, 2013 through December 31, 2013 | | | | | | |
January 1, 2014 through March 31, 2014 | | | | | | |
April 1, 2014 through June 30, 2014 | | | | | | |
July 1, 2014 through September 30, 2014 | | | | | | |
October 1, 2014 through December 31, 2014 | | | | | | |
January 1, 2015 through March 31, 2015 | | | | | | |
The employment agreement betweenThese sales prices were obtained from the CompanyOTCQB Marketplace and Mr. Tassey provides fordo not necessarily reflect actual transactions, retail markups, mark downs or commissions. As of April 21, 2015 the lump-sum paymentlast reported sales price of 50%a share of Mr. Tassey’s annual salary then in effect in the event the agreement is terminated by the Company without cause other than as a result of the death or disability, which would result in a payment of $18,000 to Mr. Tassey based on his current salary level. In the event of the termination of the agreement as a result of Mr. Tassey’s death or disability, he or his estate is entitled to receive payment of his salary for the balance of the month in which such termination occurs, which would result in a payment of no more than $3,000 to Mr. Tassey based on his current salary level. In both instances, Mr. Tassey is entitled to receive any unpaid non-discretionary bonus for the year prior to the year in which the termination occurs.
The employment agreement between the Company and Mr. Tassey further entitles Mr. Tassey to receive benefitsour common stock on the same basis as employee benefits are generally made available to other senior executivesOTCQB Marketplace was $0.20. No assurance can be given that an established public market will develop in our common stock, or if any such market does develop, that it will continue or be sustained for any period of the Company, including among other items, health, life and disability insurance and participation in any non-discretionary executive bonus or similar plans.
The employment agreement between the Company and Mr. Tassey provides that if he is terminated without cause within 6 months after a change of control he is entitled to receive the lump-sum payment of 50% of Mr. Tassey’s annual salary then in effect in the event the agreement is terminated by the Company without cause other than as a result of the death or disability, which would result in a payment of $18,000 to Mr. Tassey based on his current salary level. There are no material terms of the contract that provide for payments in connection with the resignation, retirement or other termination of Mr. Tassey or in connection with a change of control. Other than the agreement with Mr. Tassey described above, there are currently no employment or consulting contracts between the Company and its Named Executive Officers or directors. There are no arrangements or plans in which we provide pension, retirement or similar benefits for Named Executive Officers or directors. Our Named Executive Officers and directors may receive stock options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our Named Executive Officers or directors, except that stock options may be granted at the discretion of our board of directors from time to time.
Other than the agreement with Mr. Tassey described above, there are no arrangements between the Company and the Named Executive Officers that provide for payments in connection with the resignation, retirement or other termination of a Named Executive Officer or in connection with a change of control or any other arrangements with any Named Executive Officer with respect to termination of employment or change of control transactions.Transfer Agent
Compensation Risk AssessmentOur stock transfer agent is Worldwide Stock Transfer, LLC, which is located at One University Plaza Suite 505, Hackensack, NJ 07601, Telephone: 201-820-2008.
We recently formed aSecurities Authorized for Issuance under Equity Compensation Committee. Prior to the formation of the committee, compensation decisions, including the contract with Mr. Tassey described above, were made by the full Board. In setting compensation, the Compensation Committee considers (and the Board previously considered) the risks to the Company’s stockholders and to achievement of its goals that may be inherent in its compensation programs. The Compensation Committee (and the Board previously) reviewed and discussed its assessment with management and outside legal counsel and concluded that the Company’s compensation programs are within industry standards and are designed with the appropriate balance of risk and reward to align employees’ interests with those of the Company and do not incent employees to take unnecessary or excessive risks. We believe our compensation plans are appropriately structured and are not reasonably likely to result in a material adverse effect on the Company.Plans
Outstanding Equity Awards at Fiscal Year End.
The following table includes the information indicates shares of common stock authorized for issuance under our Amended and Restated 2011 Non-Qualified Stock Plan (the “2011 Plan”) and our Amended and Restated 2010 Stock Plan (the “2010 Plan”) as of the end of 2011 for our equity compensation plans:December 31, 2014:
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted- average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) ) (c) |
Equity compensation plans approved by security holders (1) | 78,400 | $1.85 | 4,921,600 |
Equity compensation plans not approved by security holders (2) | 1,500,000 | $0.10 | 600,000 |
Total | 1,578,400 | | 5,521,600 |
Plan category | | Number of securities to be issued upon exercise of outstanding options | | | Weighted-average exercise price of outstanding options | | | Number of securities remaining available for future issuance | |
Equity compensation plans approved by security holders(1) | | | | | | $ | | | | | | |
| | | | | | | | | | | | |
Equity compensation plans not approved by security holders (2) | | | | | | $ | | | | | | |
(1) | Consists of our Amended and Restated 2010 Stock Plan (the “2010 Plan”). See Note 4—“Stock Option Plan and Stock-Based Compensation” of the Notes to the Financial Statements included in this Prospectus. The Company’s stockholders approved the 2010 Plan by written consent on June 16, 2010. |
(2) | Consists of our 2011 Non-Qualified Stock Plan (the “2011 Plan”). See Note 46 —“Stock Option Plan and Stock-Based Compensation” of the Notes to the Financial Statements included in this Prospectus.prospectus. The Company’s stockholders approved the 2010 Plan by written consent on June 16, 2010 and an amendment to increase the number of shares of common stock issuable to 7,500,000 was approved in September 2013. |
(2) | Consists of our Amended and Restated 2011 Non-Qualified Stock Plan (the “2011 Plan”). See Note 6 —“Stock Option Plan and Stock-Based Compensation” of the Notes to the Financial Statements included in this prospectus. The 2011 Plan has not been presented to the Company’s stockholders for their consent.consent as it does not provide for the issuance of incentive stock options. An amendment to increase the number of shares of common stock issuable to 17,500,000 was approved in March 2013. |
Compensation, if any, paid to our employee directors is set forth in the tables summarizing executive officer compensation above. For the 2011 fiscal year, non-employee directors were not entitled to receive, and did not receive, any stock options or other forms of compensation and there are currently no agreements in effect entitling them to compensation.
Corporate Governance
The Company has established separate audit, compensation and nominating committees of its board of directors.
CodeCAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of Ethics. A codeDecember 31, 2014:
| ● | on an actual basis; and |
| | |
| ● | on a pro forma basis to give effect to our issuance and sale of up to 25,000,000 shares of our common stock in this offering at an assumed public offering price of $0.20 per share, which is closing price of our common stock on April 21, 2015, after deducting estimated offering expenses payable by us. The following does not include the 12,500,000 warrants issuable in this offering to purchase shares of common stock. |
| | |
| ● | the following table does not include the dilutive impact for the potential conversion of the Company’s convertible promissory note agreements totaling approximately $497,000 in gross proceeds entered into during March 2015 as well as a warrant issued in conjunction with one of the convertible debt agreements to purchase 979,965 shares of common stock. |
| | |
| | As of December 31, 2014 |
| | Actual | | | Pro Forma |
Cash and cash equivalents | | $ | 157,278 | | | $ | 5,057,278 |
Notes payable - related parties | | | 297,820 | | | | 297,820 |
| | | | | | | |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding | | | - | | | | - |
Common stock, $0.001 par value, 200,000,000 shares authorized, 38,512,516 shares issued and outstanding at December 31, 2014 and 63,512,516 shares Pro Forma | | | 38,512 | | | | 63,512 |
Additional paid-in capital | | | 12,034,992 | | | | 16,909,992 |
| | | (11,998,841 | ) | | | (11,998,841) |
Total stockholders’ equity | | | 74,663 | | | | 4,974,663 |
| | | 372,483 | | | | 5,272,483 |
The table above does not include:
| ● | outstanding stock options to purchase an aggregate of 6,483,400 shares of common stock as of December 31, 2014, pursuant to our 2010 and 2011 stock option plans with a weighted average exercise price of $0.47; |
| ● | outstanding warrants to purchase an aggregate of 12,516,669 shares of common stock as of December 31, 2014, with a weighted average exercise price of $0.53; or |
| ● | warrants issuable in this offering to purchase up to 12,500,000 shares of common stock with an exercise price of $0.30. |
DILUTION
If you purchase shares in this offering your interest will be diluted immediately to the extent of business conductthe difference between the assumed public offering price of $0.20 per share and ethicsthe as adjusted net tangible book value per share of our common stock immediately following this offering as of December 31, 2014.
Our net tangible book value as of December 31, 2014 was a deficit of approximately $(627,262), or approximately $(0.02) per share. Net tangible book value per share represents our total tangible assets less total tangible liabilities, divided by the number of shares of common stock outstanding as of December 31, 2014. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers in this offering and the as adjusted net tangible book value per share of common stock immediately after completion of this offering.
Assuming the sale of all 25,000,000 shares of common stock in this offering at an assumed public offering price of $0.20 per share, and after deducting estimated offering expenses, our as adjusted net tangible book value as of December 31, 2014 would have been approximately $4,300,000, or $0.07 per share. This represents an immediate increase in net tangible book value of $0.09 per share to existing stockholders and an immediate dilution in net tangible book value of $0.13 per share to purchasers of shares in this offering.
The following table illustrates the dilution to the purchasers of the common stock in this offering. The table below includes an analysis of the dilution that will occur if 25%, 50%, 75% of the shares are sold, as well as the dilution if all shares are sold:
| | 25% of | | | 50% of | | | 75% of | | | Maximum | |
| | Offering | | | Offering | | | Offering | | | Offering | |
| | | | | | | | | | | | |
Assumed public offering price per share | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net tangible book value per share as of December 31, 2014 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Increase in net tangible book value per share attributable to new investors | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Adjusted net tangible book value per share as of December 31, 2014, after giving effect to the offering | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Dilution per share to new investors in the offering | | | | | | | | | | | | | | | | |
The above discussion and table do not include:
| · | outstanding stock options to purchase an aggregate of 6,483,400 shares of common stock as of December 31, 2014, pursuant to our 2010 and 2011 stock option plans with a weighted average exercise price of $0.47; |
| · | outstanding warrants to purchase an aggregate of 12,516,669 shares of common stock as of December 31, 2014, with a weighted average exercise price of $0.53; or |
| · | warrants issuable in this offering to purchase up to 12,500,000 shares of common stock with an exercise price of $0.30. |
| · | the dilutive impact for the potential conversion of the Company’s convertible promissory note agreements totaling approximately $497,000 in gross proceeds entered into during March 2015 as well as a warrant issued in conjunction with one of the convertible debt agreements to purchase 979,965 shares of common stock. |
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 our financial statements, which are included elsewhere in this prospectus. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. 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. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this prospectus, and other factors that we may not know.
Overview
Boston Therapeutics, headquartered in Manchester, NH, (OTC: BTHE) is a written standardleader in the field of complex carbohydrate chemistry. The Company's initial product pipeline is focused on developing and commercializing therapeutic molecules for diabetes: BTI-320 is a non-systemic, non-toxic, therapeutic compound designed to deter wrongdoingreduce post-meal glucose elevation, and IPOXYN, an injectable anti-necrosis drug specifically designed to treat lower limb ischemia associated with diabetes. In addition, the Company has completed development of SUGARDOWN®, a complex carbohydrate-based dietary supplement. SUGARDOWN® is currently in the initial stage of market introduction, and in June 2011, we entered into an agreement with Advance Pharmaceutical Co. Ltd. to develop markets in Hong Kong, South Korea, China and Macau. In November 2014, we agreed to expand this marketing 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 expand their marketing agreement to include Japan. In May 2014, we entered into a strategic marketing agreement with Benchworks SD, LLC, (Benchworks) a leading branding and marketing agency, aimed at driving brand awareness and growing sales of SUGARDOWN® among the large pre-diabetic population in North America.
Management is currently seeking additional capital through private placements and public offerings of its common stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financings in order to fund our operations. In March 2015, the Company entered into four different convertible promissory note agreements with an aggregate proceeds balance of $432,000, net of discounts and fees. Management anticipates that our cash resources will be sufficient to fund our planned operations through the second quarter of 2015 as a result of additional cost cutting measures surrounding the use of consultants and payroll associated costs reduced by the Company during the fourth quarter of fiscal 2014 and into fiscal 2015. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development 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.
Results of Operations
Fiscal 2014 as compared to Fiscal 2013
Revenue
Revenue for fiscal 2014 was $199,582, a decrease of $123,830 as compared to revenue of $323,412 for fiscal 2013. The decrease was primarily the result of decreased shipments of SUGARDOWN® to Advance Pharmaceutical.
Gross Margin
Gross margin for fiscal 2014 was $23,753 as compared to gross margin of $45,207 for fiscal 2013. The decrease is primarily due to the reduction in revenue and continued fixed fulfillment charges during fiscal 2014.
Research and Development
Research and development expense for fiscal 2014 was $1,432,669, an increase of $890,177 as compared to $542,492 for fiscal 2013. The increase is primarily the result of expenses associated with the Phase IIb clinical trial for BTI-320 in patients with type 2 diabetes conducted in the U.S. that concluded in fiscal 2014 as well as an ongoing Phase IIb clinical trial in France.
Sales and Marketing
Sales and marketing expense for fiscal 2014 was $320,353, a decrease of $8,865 as compared to $329,218 for fiscal 2013. The decrease is primarily related to non-cash stock-based compensation recorded in fiscal 2013 for options previously granted which are now fully vested.
General and Administrative
General and administrative expense for fiscal 2014 was $2,945,078, a decrease of $808,664 as compared to $3,753,742 for fiscal 2013. Approximately $687,000 of the decrease is related to non-cash, stock-based compensation, due to approximately $624,000 of stock-based compensation expense recorded in fiscal 2013 per the terms of a terminated employee’s employment agreement. Consulting and professional services decreased $558,000, primarily due to transitions in our business development, public relations and investor relations activities. These decreases in general and administrative expense were partially offset by an increase in accounting, financial and legal professional fees of $189,000, primarily related to the increased legal expenses associated with ongoing operations and capital funding activities, as well as the engagement of a finance professional to manage its accounting and financial reporting matters. Payroll and payroll related expense increased $188,000 due to salary increases, severance costs associated with the resignation of the Company’s former President, the institution of an employee medical benefit program and the hiring of a new employee. Travel and entertainment expense increased approximately $39,000 primarily due to investor and industry conferences attended during fiscal 2014.
Fiscal 2013 as compared to Fiscal 2012
Revenue
Revenue for fiscal 2013 was $323,412, an increase of $281,158 as compared to revenue of $42,254 for fiscal 2012. The increase was primarily the result of shipments of SUGARDOWN® to one customer.
Gross Margin
Gross margin for fiscal 2013 was $45,207 as compared to a gross margin deficit of ($14,605) for fiscal 2012. The increase is primarily related to the shipment of additional product during the third and fourth quarters of fiscal 2013. The gross margin deficit for fiscal 2012 was primarily the result of fixed overhead costs related to moving to a new fulfillment operations and manufacturing scale-up from small to production grade equipment exceeding revenue.
Research and Development
Research and development expense for fiscal 2013 was $542,492, an increase of $363,554 as compared to $178,938 for fiscal 2012. The increase is primarily the result of increased research and development activity in preparation for BTI-320’s Phase II trial in France and BTI-320’s Phase III international trial.
Sales and Marketing
Sales and marketing expense for fiscal 2013 was $329,218, an increase of $96,807 as compared to $232,411 for fiscal 2012. The expense consists primarily of costs incurred with third parties for product marketing and public relations and non-cash stock-based compensation.
General and Administrative
General and administrative expense for fiscal 2013 was $3,753,742, an increase of $2,717,176 as compared to $1,036,566 for fiscal 2012. Approximately $991,000 of the increase is related to non-cash, stock-based compensation which includes $624,000 of expense per the terms of a terminated employee’s employment agreement and expense associated with option grants in 2013. Consulting and professional services increased $864,000 and accounting, financial and legal professional fees increased $445,000. In addition, payroll and payroll related expense increased $272,000 due to additional personnel, rent expense increased $61,000 due to increased space and a full year’s rental and travel and entertainment expenses increased $33,000.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 revenues and expenses during the reported periods. See Note 1 to our audited financial statements for and as of the year ended December 31, 2014 for discussions of our critical accounting policies and estimates.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we are currently not party to, any off-balance sheet arrangements.
Liquidity and Capital Resources
As of December 31, 2014, we had cash of $157,278 and accounts payable and accrued expenses of $688,964. For the year ended December 31, 2014 the Company used $3,474,140 of cash in operations.
As of December 31, 2013, we had cash of $3,387,428 and accounts payable, and accrued expenses and other current liabilities, of $891,942. During the year ended December 31, 2013, we used $2,339,398 of cash in operations.
We have incurred recurring operating losses since inception as we have worked to bring our SUGARDOWN® product to market and develop BTI-320 and IPOXYN. We expect such operating losses will continue until such time that we receive substantial revenues from SUGARDOWN® or we complete the regulatory and clinical development of BTI-320 or IPOXYN. In March 2015, we entered into four different convertible promissory note agreements with an aggregate proceeds balance of $432,000, net of discounts and fees. Management anticipates that our cash resources will be sufficient to fund our planned operations through the second quarter of 2015 as a result of additional cost cutting measures surrounding the use of consultants and payroll associated costs reduced by the Company during the fourth quarter of fiscal 2014 and into fiscal 2015. We are seeking additional capital through private placements and public offerings of our stock. In addition, we may seek to raise additional capital through public or private debt or equity financings in order to fund our operations. There can be no assurance that we will be successful in accomplishing our business objectives. Without such additional capital, we may be required to curtail or cease operations.
BUSINESS
Overview
We are a clinical-stage pharmaceutical company focused on the development, manufacture and commercialization of carbohydrate-based therapeutic drugs and dietary supplements designed to address blood sugar management and inflammatory diseases in a safe and efficient manner.
Currently, our lead pharmaceutical drug candidates are:
| · | BTI-320, a non-systemic, carbohydrate-based compound designed to reduce post-meal elevation of blood glucose levels in Type 2 diabetic patients; and |
| · | IPOXYN, a carbohydrate-based, injectable drug intended to prevent necrosis, or cell death, and to treat hypoxic conditions, such as diabetic foot ulcers and other vascular complications. |
Following Phase II clinical trial results reported in 2013 and the recent Phase IIb clinical trial concluded in October 2014, the U.S. Food and Drug Administration (“FDA”) accepted the Investigational New Drug Application (or IND) we filed for BTI-320 to treat Type 2 diabetes and weight management. Joslin Diabetes Center in Boston will serve as the lead clinic for the multi-center, multi-country trial expected to commence in the second quarter of 2015. The trial is expected to enroll up to 360 patients in the 24 week study which is being designed as a randomized, placebo-controlled, double blind international multi-center study with two treatment arms. The primary efficacy endpoint of the trial is the mean change in HbA1c levels from baseline at 24 weeks and will be conducted at a number of international centers located in the U.S., Europe, Asia and Australia. Development of IPOXYN is in the pre-clinical planning stage.
In addition, we currently sell SUGARDOWN®, a non-systemic, carbohydrate-based dietary supplement designed to support healthy blood glucose levels, over the Internet and by purchase order.
We were formed on August 24, 2009, as a Delaware corporation under the name of Avanyx Therapeutics, Inc. Initially, we focused on our IPOXYN drug candidate. On November 10, 2010, we entered into an Agreement and Plan of Merger with Boston Therapeutics, Inc., a New Hampshire corporation, which added our BTI-320 drug candidate to our pipeline. The transaction provided for (i) the merger of the New Hampshire entity into our company, with our company being the surviving entity, (ii) the issuance by us of 4,000,000 shares of common stock to the stockholders of the New Hampshire entity as consideration for 100% of the outstanding common stock of the New Hampshire, and (iii) the change of our corporate name to Boston Therapeutics, Inc.
Novelty of Complex Carbohydrate Science
Carbohydrate molecules, which are essential to the transmission and recognition of cellular information, have been shown to play an important role in major diseases including cancer, cardiovascular disease, Alzheimer’s disease, inflammatory disease and viral infections. We believe this offers a largely untapped area for treatment by utilizing:
| · | in the case of BTI-320 and SUGARDOWN®, modified mannan (a polymer found in plants) to lower the rise in post-prandial blood glucose (PPG, or post-meal blood sugar); and |
| · | in the case of IPOXYN, hemoglobin as modified by carbohydrate chemistry to deliver oxygen to cells in a necrosis or hypoxic condition. |
We use naturally occurring, readily-available plant materials as starting material to create proprietary complex carbohydrates with specific molecular weights and other pharmaceutical properties. These complex carbohydrate molecules are then formulated into acceptable pharmaceutical formulations. Using these novel carbohydrate-based candidate compounds that largely bind and inhibit enzymes, we are undertaking the focused pursuit of developing therapies for diabetes and other serious diseases in which enzymes have a demonstrated role in causing the disease.
Our management team, including most notably our Chairman and Chief Executive Officer David Platt, Ph.D., has played a leading role in the development of complex carbohydrate science and a pipeline of carbohydrate-based therapeutics to address a variety of unmet medical needs. We believe this expertise is particularly valuable as we progress the clinical development of our products and work to expand market awareness and sales of SUGARDOWN®.
BTI-320 and SUGARDOWN® Mechanisms of Action
Diabetes is a chronic disease in which a patient’s inability to produce the hormone insulin in sufficient amounts or at all leads to high levels of glucose in the blood stream, which in turn can cause complications such as heart, kidney and retina disease. The modified mannan in BTI-320 tablets works to lower the rise in post-meal blood glucose in several ways. First, it binds to long-chain starch polysaccharides in food and to promote (a) honestthe digestive enzymes that cleave these large sugars into glucose. Second, it temporarily coats the inside of the small intestine to slow the absorption of glucose. Together, these mechanisms have been shown to lower the rate of absorption of glucose from the small intestine into the blood.
BTI-320 is intended to reduce the amount of glucose available for absorption into the bloodstream. Most anti-diabetes drugs, also called hypoglycemic drugs, force blood sugar levels down systemically by targeting organs such as the pancreas and ethicalthe body’s cells, increasing the risk of side effects as has been evidenced in recent FDA findings. In contrast, BTI-320 targets enzymes in the mouth and small intestine to reduce the uptake of glucose during the digestion of carbohydrate foods. We believe this preemptive, non-systemic approach to blood sugar management provides for a stronger safety profile. The BTI-320 profile is enhanced due to its GRAS (Generally Regarded as Safe) classification. SUGARDOWN® has a similar mechanism of action.
In February 2013, we reported positive results from a Phase II clinical study conducted at Dartmouth-Hitchcock Medical Center that evaluated the safety and efficacy of BTI-320. The study evaluated BTI-320 in 24 patients with Type 2 diabetes between the ages of 18 and 75 with a body mass index (BMI) of 25-40 kg/m2 and with a HbA1c (a lab test that shows the average level of blood glucose over the previous three months) of less than or equal to 9 percent. The primary endpoint of this study was to demonstrate a minimum reduction of incremental area under the curve (AUC) of post-meal blood glucose by 20%.
In this study, forty-five percent (45%) of patients responded positively with a forty percent (40%) reduction of post-meal glucose in the blood compared to baseline in a dose-dependent manner. Additionally, results showed the effect of BTI-320 does not correlate with duration of diabetes, and worked regardless of concurrent diabetes medications. There was no severe hypoglycemia (low blood sugar episodes), gastrointestinal side effects were mild and satiety (fullness) was observed. In the article published in the July/August 2013 issue of the peer reviewed journal, Endocrine Practice, there were no serious adverse events (SAEs) from the data analysis of the open-label dose escalation crossover trial on patients with Type 2 diabetes.
In 2012, we conducted a clinical study at the University of Sydney in Australia that showed the post-meal incremental area under the curve (iAUC) for glucose and insulin were significantly lower following consumption of SUGARDOWN® prior to a high carbohydrate meal of rice in a dose-dependent manner. This resulted in a reduction of up to 61 percent in post-meal elevation of blood glucose compared with the rice consumed alone. On average, there was a 32 percent reduction in the post-meal iAUC for glucose and a 24 percent reduction in post-meal insulin response for the volunteers in the study. No severe adverse effects were reported or observed during the study. SUGARDOWN® was tested in healthy, but overweight, adults with a mean body mass index (BMI) value of 27.3 kg/m2. This clinical study indicated that SUGARDOWN® can maintain healthy glucose levels even after meals, when sugar tends to spike.
In October 2014, we reported results from a Phase IIb study of BTI-320 in patients with Type 2 diabetes conducted in the U.S. by Accumed Research Associates. The trial enrolled 23 patients with Type 2 diabetes diagnosed for at least one year and who were on a stable daily dose of Metformin for at least three months. The patients were administered BTI-320 and Metformin using a randomized, double-blind, placebo-controlled, dose-ranging, three-way cross-over study design. Of the 23 patients that completed the trial, 15 patients did not respond to the rice test meal for unexplained reasons. The remaining eight patients responded to BTI-320 with up to a 34% reduction in post meal blood glucose levels. Patients were given one to two BTI-320 tablets, half of the dose of the Dartmouth study and one third the dose of the University of Sydney trial. The results of the trial showed BTI-320 as safe and well tolerated, with no adverse events reported and provided information on different patient populations to be used to design the proper protocols for the clinical trial planned for 2015.
IPOXYN and OXYFEX
IPOXYN is a carbohydrate-based, injectible solution that can potentially prevent necrosis, or cell death, and treat hypoxic conditions such as diabetic foot ulcers and other vascular complications of diabetes. IPOXYN, a blood substitute, has a very broad range of potential applications, including but not limited to, tissue death prevention, wound healing, traumatic blood loss, traumatic brain injury, stroke, cancer, surgery, transplant and anemia. In addition, since donated human blood needs refrigeration and has a shelf life of less than one month, IPOXYN can serve as an adjunct to or replacement for donated blood in trauma and surgery cases when there are human blood supply deficiencies.
Hypoxia is a condition in which cells lack sufficient oxygen supply to support metabolic function. As evidenced by the well-established record of data relating to similar products, the IPOXYN carbohydrate molecule contains oxygen rechargeable iron which picks up oxygen in the lungs, is 5,000 times smaller than a red blood cell (or RBC), and can reach hypoxic tissue more effectively than RBCs. IPOXYN is stable at room temperature, has a five year shelf life and requires no blood type matching. We plan to introduce this product in clinical trials for hypoxic medical conditions.
Our pharmaceutical agents are intended for intravenous administration into the circulatory system to target acute and late stage diseases that, we believe, have a great unmet medical need. Hypoxia conditions, which we intend to treat with IPOXYN, result from a lack of oxygen supply to living cells. Hypoxia will lead to ischemia, inflammation and the death of living cells. Ischemia is a restriction in blood supply, generally due to factors in the blood vessels, with resultant damage or dysfunction of tissue. Diabetic foot ulcer, which occurs in 15% of patients with diabetes and precedes more than 80% of all lower leg amputations, is one of the major complications of diabetes mellitus. Two major risk factors that cause diabetic foot ulcer are diabetic neuropathy and micro/macro ischemia. Increases in mortality among diabetic patients observed over the past 20 years are considered to be due to the development of macro and micro vascular complications including the failure of the wound healing process. A failure of effective treatment of wounds in this population can often lead to infection, tissue death and amputation of the lower leg and foot as the only treatment option. We believe that IPOXYN represents a potentially effective treatment for lower limb complications of diabetes.
We are also developing OXYFEX, a veterinary analog to IPOXYN. We are unaware of any drug currently on the market for animals that can deliver oxygen, and there is only limited “blood banking” for animals despite a constant need. OXYFEX™ can serve as the only available oxygen delivery mechanism for animals suffering ischemia or traumatic and surgical blood loss events.
IPOXYN and OXYFEX consist of a stabilized glycoprotein composition containing oxygen-rechargeable iron, targeting both human and animal tissues and organ systems deprived of oxygen and in need of metabolic support. We have not conducted any clinical trials to confirm the efficacy of, or filed any applications with the FDA with respect to, IPOXYN. We are in the process of developing IPOXYN for pre-clinical studies, in order to conduct (b) full, fair, accurate, timelyclinical trials and understandable disclosureto file applications with the FDA as applicable. We expect to file an IND application with the FDA in 2015, provided we obtain adequate funding. We expect to have access to the pilot-scale manufacturing facility of a third party with adequate capacity to produce IPOXYN for clinical trials and market introduction following European Medicines Evaluation Agency (or EMEA) approval.
We have unrestricted access, subject to adequate funding, to both sufficient raw materials at commodity pricing and processing facilities to produce sufficient quantities of IPOXYN to complete pre-clinical pharmacokinetic, safety and efficacy studies in support of an investigative new drug (IND) filing in the United States in 2015. The primary raw material for IPOXYN is extracted from controlled sourced bovine blood which can be obtained from multiple sources at commodity prices under Good Manufacturing Practice (GMP). There are numerous facilities capable of processing source verified red blood cell extract. We expect to put in place agreements for obtaining and processing these materials upon funding.
Drug Development Status
BTI-320 is our lead product candidate and is currently in Phase II clinical development. We have not initiated any trials or filed any applications with the United States Food and Drug Administration (or FDA) for IPOXYN. Following Phase II clinical trial results reported in 2013 and the recent Phase IIb clinical trial concluded in October 2014, the FDA accepted the Investigational New Drug Application (or IND) we filed for BTI-320 to treat Type 2 diabetes and weight management. Joslin Diabetes Center in Boston will serve as the lead clinic for the multi-center, multi-country trial expected to commence in the second quarter of 2015. The trial is expected to enroll up to 360 patients in the 24 week study which is being designed as a randomized, placebo-controlled, double blind international multi-center study with two treatment arms. The primary efficacy endpoint of the trial is the mean change in HbA1c levels from baseline at 24 weeks and will be conducted at a number of international centers located in the U.S., Europe, Asia and Australia. Development of IPOXYN is in the pre-clinical planning stage.
BTI-320
In March 2014, following the successful results of the Dartmouth study, we received Institutional Review Board (IRB) approval to initiate a clinical study of BTI-320 in the United States. In October 2014, we completed a Phase II trial in the United States and are currently undergoing an additional Phase II trial in France. These trials were designed to build upon the results from our Dartmouth study for BTI-320. In the Dartmouth study, BTI-320 was well tolerated in patients taking various anti-diabetic agents, including Metformin. The recent clinical trial in the U.S. showed BTI-320 was safe and well tolerated with no adverse events reported. The FDA has accepted an IND we filed for BTI-320 to treat Type 2 Diabetes and weight management. We plan to commence a multi-center, multi-country clinical trial in 2015 for BTI-320.
IPOXYN
We believe IPOXYN is a safe and effective intervention for reversing acute hypoxia, fulfilling an unmet clinical need; and that IPOXYN can alleviate acute deficiency of oxygen and avert further life threatening complications and muscle and tissue death which can result from a sustained deficiency of oxygen. Our belief about the safety and efficacy of IPOXYN is based on preliminary good laboratory practices (GLP) testing of a material bio-similar to IPOXYN, where it was found that such bio-similar formulation had no material toxicity on a small group of animals. We understand that this testing of GLP produced bio-similar materials or, for that matter, pre-clinical testing, will not necessarily predict levels of toxicity and efficacy in humans. However, if clinical trials ultimately support this belief, in many clinical situations IPOXYN could become a significant new management tool to moderate the inconsistencies of RBC transfusion.
In addition to the expansive and broad application development in the field of human medical management, we envision a sizable market in the veterinary field and expect to make a registration filing for this market as soon as we can complete pre-clinical safety and efficacy studies. Clinical safety and efficacy studies under Good Manufacturing Practices have not yet been initiated.
Preliminary data from animal testing conducted by third parties suggests successful use of IPOXYN in hypoxia and critical anemic situations, where hypoxic conditions were critical to animal survival. Early experiments with dogs suggest intervention with IPOXYN will significantly improve survival in induced canine anemia models. This veterinary treatment of canine anemia will be our first target for seeking early regulatory approval in the European Union. As there is substantial commonality between the metabolic functions of humans and other mammals, animal testing becomes a starting point for many clinical development programs that can directly translate into clinical development programs for humans. The third party testing described here was conducted by a company that developed a bio-similar product to IPOXYN. Testing included repeated intravenous infusions of the product in dogs that was reported in well documented literature and regulatory filings, and public statements,the testing did not result in reported mortality/morbidity of the subject animals. Reports concerning anemic dogs infused with the bio-similar product showed increased plasma hemoglobin levels resulting in an increase of the oxygen carrying capacity of the treated animals. We have no agreements with the third party that conducted these toxicity tests, or its successors.
Market Opportunity
Diabetes
According to the International Diabetes Federation, in 2013, 382 million people worldwide are living with diabetes and that number is projected to increase to 592 million by 2035. In the United States alone, the Center for Disease Control estimated that there were 26 million people living with diabetes and an estimated 79 million people who were pre-diabetic in 2011. Standard therapies for diabetes include physician recommended diet and exercise, oral hypoglycemic drugs such as Metformin for Type 2 diabetes and insulin injection regimens for people with Type 1 diabetes. The objective of each is to maintain a daily blood glucose level range recommended by a physician. Each of the current therapies alone has its limitations including numerous side effects.
According to Standard & Poor’s, the diabetes drug market is estimated to be $35 billion and is on pace to grow to more than $58 billion by 2018. Pharmaceutical companies have been investigating new approaches to treating diabetes and market value has been maintained in the industry due to the introduction of these new products. We believe that BTI-320 represents a near-term commercial opportunity in a large and growing diabetes market. BTI-320 is pharmacologically differentiated from commercially available PPG drugs.
We believe that many patients with diabetes have suboptimal relief with the use of the above therapies alone or in combination with each other. In addition, other types of PPGs are only effective by themselves in the early stages of impaired glucose tolerance. Our BTI-320 oral formulation is a new class of drug for the treatment of Type 2 diabetes. Human testing to date has shown that it is safe and non-systemic with a benign side effect profile that will be used for the treatment of diabetes. We believe BTI-320 has the potential to be an adjunctive therapy when combined with Metformin, the most prescribed diabetes drug in the U.S. with 50 million prescriptions annually.
Hypoxia
Our injectable drug candidate, IPOXYN, will potentially compete with existing therapies for the treatment of hypoxia or anti-necrosis that according to Global Industry Analysts, Inc. has a global market opportunity of $1 billion. Hypoxia is a condition in which cells lack sufficient oxygen supply to support metabolic function. The standard therapy for acute anemia resulting from blood loss is infusion of RBCs mainly from supplies of donated blood. For prophylactic or long-term treatment of anticipated or chronic anemia, medications that stimulate the creation of new RBCs are frequently used.
Presently, there is no substitute for human blood to deliver oxygen to the body; and transfusions involve certain risks and limitations. The standard therapy for reversing hypoxia is blood infusion, RBCs or hyperbaric oxygen. Hyperbaric medicine or hyperbaric oxygen therapy (HBOT) is a medical term for using oxygen at a level higher than atmospheric pressure. The HBOT treatment can only be done at a medical facility and each session can cost from $200 to more than $1,000. For decades, oxygen carriers have been developed for perfusion and oxygenation of ischemic tissue; none have yet succeeded in becoming an artificial blood component or blood substitute. These products were either blood-derived elements, synthetic perfluorocarbons, or red blood cell modifiers. According to a Brown University study, there is a global shortage of transfusion suitable blood of 110 million units, and the need for blood is rising 6-7% annually. IPOXYN, a blood substitute, has a broad range of potential applications, including but not limited to, tissue death prevention, wound healing, traumatic blood loss, traumatic brain injury, stroke, cancer, surgery, transplant and anemia.
Veterinary Market
We plan to commence marketing OXYFEX™ for veterinary applications, which we view as a potentially lucrative market, once we receive the necessary approvals in the U.S. and globally. We estimate that there are at least 15,000 small animal veterinary practices in the United States, another 4,000 mixed animal practices treating small and large animals in the United States and approximately 22,000 small animal practices in Europe. We believe that the average veterinary practice treats only a small percentage of canine anemia cases with red blood cell transfusion. The remaining animals receive either cage rest or treatment such as fluid administration, iron supplements, dietary supplements or inspired oxygen. The FDA Center for Veterinary Medicine approved a bio-similar product to OXYFEX™ named Oxyglobin in 1998 and the European Commission approved Oxyglobin in 1999, in both cases for the treatment of canine anemia, regardless of the cause of the anemia. Oxyglobin is no longer in use. Based upon the prior, limited efforts of the now bankrupt third party that developed Oxyglobin, we believe that the potential veterinary market for OXYFEX™ in the United States alone could exceed $250 million in sales annually within a few years after introduction.
Our Product Candidates
Our primary business is the development, manufacture and commercialization of therapeutic drugs with a focus on complex carbohydrate chemistry to address diabetes and inflammatory diseases. We are currently focusing on drug candidates. BTI-320, a non-systemic, non-toxic, drug candidate taken before carbohydrate meals, is designed to improve post-meal blood sugar control in patients with Type 2 diabetes.
We are also developing IPOXYN, an injectable drug candidate for prevention of necrosis and treatment of hypoxia. IPOXYN is a polysaccharide based therapeutic agent using proprietary processes and patented technology. Our IPOXYN drug consists of a stabilized polysaccharide composition containing oxygen-rechargeable iron, targeting both human and animal tissues and organ systems deprived of oxygen and in need of metabolic support.
According to Global Industry Analysts, Inc., the global market opportunity for anti-hypoxia or anti-necrosis technology is $1 billion. Early entry global markets include the following:
| · | Asia (replace Hepatitis C contaminated blood products) |
| · | Africa (AIDS contaminated blood) |
| · | Lower Limb Ischemia and other vascular complications of diabetes |
BTI-320
Overview
BTI-320 is our lead product candidate and is currently in Phase II clinical development. We expect to begin a multi-center, multi-country clinical trial in 2015.
BTI-320 is a Carbohydrate hydrolyzing Enzyme Inhibitors (CHEI) for treatment of patients with Type 2 diabetes. BTI-320 initially targets improved management of post-meal blood sugar in patients currently taking Metformin and potentially other anti-diabetic agents.
BTI-320, a non-systemic, non-toxic, drug candidate taken before carbohydrate meals, is designed to improve post-meal blood glucose control in patients with Type 2 diabetes. BTI-320 acts non-systemically in the gastrointestinal tract to inhibit the enzymes that cleave complex carbohydrates from foods into simple sugars, reducing available glucose during the period following a meal. BTI-320 initially targets improved management of post-meal blood sugar in patients currently taking Metformin and potentially other anti-diabetic agents.
According to the International Diabetes Federations 2011 report, Guideline for Management of Post-meal Glucose in Diabetes, addressing both post-meal plasma glucose and fasting plasma glucose is an important strategy for achieving optimal glucose control, and that evidence points to a relationship between an acute increase in blood sugar, particularly after a meal, and cardiovascular disease. We completed a BTI-320 Phase II clinical trial in patients with Type 2 diabetes.
Status of Development of BTI-320
BTI-320 is fully developed as a drug candidate. In October 2011, we announced the initiation of our clinical trial at Dartmouth-Hitchcock Medical Center in New Hampshire to evaluate the safety and efficacy of BTI-320 when added to oral agents or insulin regimen in patients with Type 2 Diabetes Mellitus. In July 2012, we announced the completion of patient enrollment. In February 2013, we announced that BTI-320 reduced the elevation of post-meal blood sugar by forty percent with no serious adverse events. The study evaluated BTI-320 in 24 patients with Type 2 diabetes between the ages of 18 and 75 with a body mass index (BMI) of 25-40 kg/m2 and with HbA1c of less than or equal to nine percent. HbA1c is a lab test that shows the average level of blood sugar (glucose) over the previous three months.
Forty-five percent of patients responded with an average forty percent reduction of post-meal glucose in the blood compared to baseline in a dose-dependent manner. Additionally, results showed the effect of BTI-320 does not correlate with duration of diabetes and works regardless of concurrent diabetes medications. There was no severe hypoglycemia and gastrointestinal side effects were mild. Satiety was also observed. There were no serious adverse events from the data analysis of the open-label dose escalation crossover trial on Type 2 diabetic patients.
The full article for the clinical study was published in the July/August 2013 issue of Endocrine Practice, a peer-reviewed journal.
In October 2014, we reported results from a Phase IIb study of BTI-320 in patients with Type 2 diabetes conducted in the U.S. by Accumed Research Associates. The trial enrolled 23 patients with Type 2 diabetes diagnosed for at least one year and who were on a stable daily dose of Metformin for at least three months. The patients were administered BTI-320 and Metformin using a randomized, double-blind, placebo-controlled, dose-ranging, three-way cross-over study design. Of the 23 patients that completed the trial, 15 patients did not respond to the rice test meal for unexplained reasons. The remaining eight patients responded to BTI-320 with up to a 34% reduction in post meal blood glucose levels. Patients were given one to two BTI-320 tablets, half of the dose of the Dartmouth study and one third the dose of the University of Sydney trial. The results of the trial showed BTI-320 as safe and well tolerated, with no adverse events reported and provided information on different patient populations to be used to design the proper protocols for the clinical trial planned for 2015. We currently have an ongoing Phase IIb trial in France.
Products Competitive with BTI-320
Anti-diabetic drugs. Anti-diabetic drugs treat diabetes mellitus by lowering glucose levels in the blood. With the exceptions of insulin, insulin analogues and Glucagon-like Peptide-1 Agonists, all are administered orally and are thus also called oral hypoglycemic agents or oral anti-hyperglycemic agents. There are different classes of anti-diabetic drugs, and their selection depends on the nature of the diabetes, age and situation of the person, as well as other factors. BTI-320 is the first compound in a new class of therapies called Carbohydrate-hydrolyzing Enzyme Inhibitor (CHEI) for treatment of patients with Type 2 diabetes. BTI-320 acts non-systematically in the gastrointestinal tract to inhibit the enzymes that cleave complex carbohydrates from foods into simple sugars, reducing postprandial glucose excursion (post-meal blood sugar elevation).
Secretagogues. Secretagogues, which include Sulfonylureas and Meglitinides, help enhance insulin secretion. Sulfonylureas were the first widely used oral hypoglycemic medications. They are insulin secretagogues, triggering insulin release by direct action on the KATP channel of the pancreatic beta cells. Glipizide (Glucotrol®) falls into this category with side effects including GI discomfort, diarrhea and hypoglycemia.
Sensitizers. Insulin sensitizers address the core problem in Type 2 diabetes—insulin resistance—and include Biguanides and Thiazolidinediones. Among oral hypoglycemic agents, insulin sensitizers are the largest category. Biguanides reduce hepatic glucose output and increase uptake of glucose by the periphery, including skeletal muscle. Although it must be used with caution in patients with impaired liver or kidney function, metformin, a biguanide, has become the most commonly used agent for Type 2 diabetes in children and teenagers. Amongst common diabetic drugs, Metformin is the only widely used oral drug that does not cause weight gain. Metformin is the most prescribed drug in this category whose side effects may be hypoglycemia and lactic acidosis.
Thiazolidinediones (TZDs), also known as “glitazones,” bind to PPARγ, a type of nuclear regulatory protein involved in transcription of genes regulating glucose and fat metabolism. Rosiglitazone (Avandia®) and Pioglitazone (Actos®) fall into this category of anti-diabetic agent.
Alpha-glucosidase inhibitors. Alpha-glucosidase inhibitors are “diabetes pills” but not technically hypoglycemic agents because they do not have a direct effect on insulin secretion or sensitivity. These agents slow the digestion of starch in the small intestine, so that glucose from the starch of a meal enters the bloodstream more slowly, and can be matched more effectively by an impaired insulin response or sensitivity. These agents are effective by themselves only in the earliest stages of impaired glucose tolerance, but can be helpful in combination with other agents in Type 2 diabetes. Acarbose, marketed as Prandase® and Glucobay® is an Alpha-glucosidase Inhibitor.
IPOXYN and OXYFEX™
IPOXYN is designed for delivery as an intravenous solution, with the expectation that it can reverse an inadequate supply of oxygen and support various metabolic functions in the body in a manner and with effects similar to those resulting from the infusion of RBCs - but without the limitations of compatibility, availability, short shelf life, volume and logistical challenges commonly associated with transfusions of whole blood. Other intravenous fluids commonly used in emergency trauma to restore blood volume, such as Ringer’s lactate or saline, are not designed to and do not effectively carry oxygen. We have not conducted any clinical trials to confirm the efficacy of, or filed any applications with the FDA with respect to, IPOXYN. IPOXYN will not be ready for commercialization until these steps are completed. Preclinical animal study results for IPOXYN were presented at the XIII International Symposium on Blood Substitutes and Oxygen Therapeutics in July 2011.
We plan to introduce this product in clinical trials for hypoxic medical conditions. Hypoxia promotes resistance to conventional treatments, as well as treatments for other diseases. IPOXYN has the potential to greatly improve survival of patients in multiple indications in which hypoxia is a factor. Hypoxia is a condition in which cells lack sufficient oxygen supply to support metabolic function. It is widely known through research that lack of oxygen will result in a cascade of biochemical reactions which promote resistance to many helpful therapeutic substances and which interfere with the body’s own repair mechanisms. Antibiotics for the treatment of infection are less effective when hypoxic conditions are involved. Similarly, hypoxic cancer cells are resistant to chemotherapy treatments; most chemotherapy drugs rely on rapid cell division which requires normal oxygenation of cells, but in a hypoxic condition, cells divide slowly and therefore resist many chemotherapy treatments.
Another unmet clinical need is in various acute ischemic conditions, where hypoxia can develop from a local restriction of constrained blood vessels, or poor and compromised flow which leads to insufficient supply of oxygen by otherwise well-oxygenated and distributed RBCs, e.g. cerebral ischemia, ischemic heart disease and intrauterine hypoxia which is an unchallenged cause of perinatal death. In these cases IPOXYN, as a rechargeable soluble oxygen delivery agent, may not be restrained whereas well-oxygenated RBCs may be prevented from flow and delivery of oxygen. This is so because RBCs are large biological structures compared to the size of IPOXYN, which is a modified single-protein function oxygen carrier. In ischemic and hypoxic conditions, RBCs may not be able to penetrate the small vessels which have lost their integrity to support RBC distribution and thus oxygen availability. Due to its small molecular size, IPOXYN can carry and distribute oxygen widely without risk of clot formation and flow stoppage.
In veterinary medicine applications, OXYFEX™ will be used as an oxygen delivery agent similar to a blood substitute for ischemia and trauma, as well as for blood loss during surgery.
Status of development of IPOXYN
We are in the process of developing IPOXYN for pre-clinical studies, in order to conduct clinical trials and to file applications with the FDA as applicable.
Products Competitive with IPOXYN
Many biotechnology and pharmaceutical companies are developing new technologies for the treatment of hypoxia and other diseases. The standard therapy for reversing hypoxia due to acute blood loss may be blood infusion, RBCs or hyperbaric oxygen. Hyperbaric medicine, also known as hyperbaric oxygen therapy (HBOT), is the medical terminology for using oxygen at a level higher than atmospheric pressure. There are many conditions being treated using this approach including acute blood loss (Hart GB, Lennon PA, Strauss MB. (1987) “Hyperbaric oxygen in exceptional acute blood-loss anemia,” J. Hyperbaric Med 2 (4): 205–210). In the United States, HBOT is recognized as a reimbursable treatment for 14 “approved” conditions and an HBOT session can cost anywhere from $200 in private clinics, to over $1,000 in hospitals. The most common intervention in hypoxic patients is RBC transfusion. The need for intervention to reduce hypoxia can also be affected by medical conditions such as ischemia or cardiopulmonary failure, claudication (cramping caused by blocked arteries in the leg), poor perfusion and other indications, where a combination of below optimal flow and capacity are compromising oxygen delivery.
When compared to RBC transfusion, we believe IPOXYN will have the following advantages:
| · | Availability: readily available, with a two year shelf-life (much longer than the two week shelf life for RBCs) and easier to perfuse. |
| · | Stability: stored at room temperature for months while maintaining its full capacity for oxygen delivery and release and logistical convenience. |
| · | Sterile: when manufactured and processed consistently through good manufacturing practices, free of infectious agents and unnecessary elements. |
| · | Compatibility: safe for all blood types in a wide range of conditions and does not require pre-infusion typing or testing for compatibility. |
| · | Critical care: IPOXYN can be safely applied outside the hospital to treat or prevent ischemic conditions in cases like shock and trauma, heart attack or stroke where low flow or suspended local flow are disrupted. A readily available infusion package makes it a straightforward tool for emergency medical teams to use on site in order to save a patient’s life, when time is of the essence for survival. |
| · | Molecular structure: Chemically, IPOXYN features a small molecular size compared to RBCs, so it possesses better flow characteristics and circumvents constricted vessels that restrict flow of RBCs and thus the supply of oxygen to tissues and organs. |
| · | Oxygenation: Due to its high solubility, it has high capacity and faster exchange of oxygen in tissues, as well as facilitating the release of oxygen from RBCs for overall unparalled efficiency. |
For chronic anemia situations, erythropoietin-based formulations are available from two suppliers. Erythropoietin stimulates the erythropoietic system in the bone marrow to produce its own RBCs. These products are slow acting, and only administered in anticipation of blood loss during surgery, and are not effective for temporary use or in emergency situations when acute blood loss requires RBC infusion to deliver oxygen.
The fields of treatment of oxygen-deprived states have been approached in many ways. These include such techniques as high oxygen concentration, hyperbaric chambers, as well as the more mechanical approaches of vessel dilation and blood thinning. All have met with minor measures of improvement. In the early 1980’s a number of companies focused on creating specific oxygen carriers that were either (a) blood derived elements, (b) synthetics consisting of Perfluoro chemicals or (c) complianceelements created using recombinant and molecular engineering approaches (red cell modifiers). Companies including Baxter, Abbot, and Biopure and OPK Biotech, for example, used the blood derived approach; Green Cross, Alliance Pharmaceuticals and Synthetic blood focused on synthetics, and Somatogen and Allos Therapeutics tried recombinant and molecular engineering. All of these approaches were early attempts to meet a need whose main focus has been on a “blood substitute”. Our approach is fundamentally different. Instead of a blood substitute, we are offering a new chemical entity that will deliver oxygen to hypoxic cells.
We are aware of other companies researching the use of hemoglobin as a therapeutic, including programs in China and Japan. We expect IPOXYN to compete with applicabletraditional therapies and with other oxygen delivery pharmaceuticals. Some of our competitors and potential competitors may have greater financial and other resources to develop, manufacture and market their products. We believe the most immediate competition comes from companies currently conducting clinical trials of investigational hemoglobin solutions.
We believe that these programs are in the preclinical stage of development. We believe that our use of bovine red blood cells for the production of IPOXYN is an advantage over products made from donated human red blood cells stored for a long period of time and other competitive approaches because of the availability, abundance, ability to control source, cost and relative safety of bovine red blood cells.
SUGARDOWN®
We have developed and currently produce and sell SUGARDOWN®, a non-systemic complex carbohydrate-based dietary food supplement to support healthy post-meal blood glucose using proprietary processes and technology. We have unrestricted access to both sufficient raw materials at commodity pricing and processing facilities to produce sufficient supply of SUGARDOWN® to support product distribution across multiple sales channels as a dietary supplement. Our SUGARDOWN® dietary supplement consists of a complex carbohydrate composition.
Status of Development of SUGARDOWN®
We completed development of SUGARDOWN® as an over the counter (OTC) dietary supplement. We filed a structure and function claim application with the United States Food and Drug Administration (FDA) with respect to SUGARDOWN®, which describes the proposed mechanism of action of SUGARDOWN® in reducing post-meal elevation of glucose in the blood. We have submitted thirty structural and functional claims with the FDA. We currently have strategically filed national stage patent applications pending that are directed to the Composition of Purified Mannanns, which are utilized in the formulation of SUGARDOWN®. We have also received a registered mark for SUGARDOWN®. General Product Liability Insurance for SUGARDOWN® has been in effect since April 2010. On January 24, 2012, we announced the clinical trial results in healthy volunteers performed at the University of Sydney on SUGARDOWN®. On January 28, 2013, we announced the final results of the study conducted at the University of Sydney that showed the post- meal incremental area under the curve (iAUC) for glucose and insulin were significantly lower following consumption of SUGARDOWN® tablets prior to a high carbohydrate meal of rice in a dose-dependent manner. This resulted in a reduction of up to 61% in post-meal elevation of blood glucose compared with the rice consumed alone. On average, there was a 25.5% reduction in the post-meal iAUC for glucose and a 20% reduction in post-meal insulin response for the 10 volunteers in the study. No severe adverse effects were reported or observed during the study.
Licensing Agreement with Advance Pharmaceutical Company
On June 24, 2011, we entered into a definitive Licensing and Manufacturing Agreement (the “Agreement”) with Advance Pharmaceutical Company (“Advance Pharmaceutical”), a Hong Kong-based, privately-held company and a significant stockholder of ours.
Under terms of the Agreement, we will manufacture and supply product in bulk for Advance Pharmaceutical. Advance Pharmaceutical will be responsible for the packaging, marketing and distribution of SUGARDOWN™ in Hong Kong, China and Macau. In November 2014, we agreed to expand their marketing 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 expand their marketing agreement to include Japan. Advance Pharmaceutical will also have rights to develop and manufacture SUGARDOWN™ for commercial sale in these countries, subject to establishment of quality assurance and quality control standards set forth by us. The Agreement provides that Advance Pharmaceutical will pay royalties to us for SUGARDOWN™ and related products developed by us and a reduced royalty rate for products based on our intellectual property and developed by Advance Pharmaceutical. Revenue generated through this agreement for the years ended December 31, 2014 and 2013 were approximately $182,000 and $315,000, respectively.
Marketing SUGARDOWN®
We believe SUGARDOWN® is a safe and effective dietary supplement that can help support healthy after-meal blood sugar and support a weight management plan by helping to curb appetite if taken before meals. The product is ready for limited market release and is currently available for distribution in some Asian markets and is available for sale in the U.S. through our product website, www.sugardown.com.
To date, our marketing plan for SUGARDOWN® has been to out-license marketing rights to strategic partners in their jurisdictions of expertise. In June 2011, we entered into an agreement with Advance Pharmaceutical Co. Ltd., our Hong Kong-based strategic partner that is also a significant stockholder of ours, to develop markets for SUGARDOWN® in Hong Kong, China and Macau. In November 2014, we agreed to expand their marketing 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 expand their marketing agreement to include Japan.
On May 14, 2014, we entered into a definitive Marketing Agreement with Benchworks SD, LLC (Benchworks), a company engaged in the marketing, promotion and offering for distribution and sale of pharmaceutical, healthcare and consumer products. Under the terms of the agreement, we have granted Benchworks the exclusive right to promote, market, sell and distribute SUGARDOWN®, our dietary supplement that supports healthy blood sugar, in North America for an initial term of one year, subject to extension in accordance with the terms of the agreement. Benchworks is responsible and bears the expense for marketing and commercializing SUGARDOWN®, including the creation and payment for marketing, creative and promotional materials. The agreement defines certain minimum net sales levels that Benchworks must achieve to maintain exclusivity; and the agreement also provides for net sales splits with Benchworks receiving 65% of the first $10 million in net sales from the sale of SUGARDOWN® in North America, with a declining share to 50% for net sales in excess of $40 million.
Overview of Diabetes
Diabetes Mellitus
Diabetes mellitus, known simply as diabetes, is a chronic metabolic disorder in which a person has abnormally high levels of glucose in the circulating blood. This condition is caused by a failure of the pancreas to produce insulin and/or an inability of the body to respond adequately to circulating insulin. When glucose builds up in the blood instead of going into cells, it can lead to diabetes complications, which include limb Ischemia and neuropathy, retinopathy, kidney, cardiovascular and cerebrovascular diseases. According to the Centers for Disease Control and Prevention (CDC), diabetes affected approximately 26 million people in the United States in 2011. The estimated cost of diabetes in the United States alone is $245 billion, according to a study commissioned by the American Diabetes Association entitled, Economic Costs of Diabetes in the U.S. in 2012.
Pre-Diabetes
Pre-diabetes is the state in which a person has higher than normal blood glucose level, but not high enough to be diagnosed with diabetes. While in this range between normal and diabetic, patients are at risk for not only developing Type 2 diabetes, but also for cardiovascular complications. According to the CDC, pre-diabetes affected an estimated 79 million Americans in 2010.
Diabetes Mellitus is categorized into three general areas:
Type 1 diabetes: results from the body’s failure to produce insulin, and presently requires the person to inject insulin. Only 5-10% of people with diabetes have this form of the disease. It is considered an auto-immune disease, since the body’s immune system attacks and destroys insulin producing beta cells in the pancreas.
Type 2 diabetes: results from insulin resistance by the body’s cells, deficient insulin production by the Pancreas or a combination of both. Insulin resistance is a condition in which the cells in the body ignore or have become desensitized to insulin.
Gestational diabetes: is determined when pregnant women, who have never had diabetes before, have a high blood glucose level during pregnancy. It may precede development of Type 2 diabetes and affects approximately 4% of all pregnant women.
People with Type 2 and Type 1 diabetes generally manage their blood glucose level on a meal-to-meal basis. High levels of glucose in the bloodstream for prolonged periods can lead to complications of diabetes caused by reduced oxygen supply and nerve tissue damage to eyes, kidney, brain, heart and limbs.
Standard therapies for diabetes include physician-recommended exercise and diet, oral hypoglycemic drugs such as Metformin for Type 2 diabetics, and insulin injection regimens for Type 1 diabetics. The objective of each is to maintain a daily blood glucose level range recommended by a physician.
Overview of Hypoxia
Hypoxic conditions are detrimental to maintaining normal functionality in all living tissues. In mammals, red blood cells (RBCs) deliver oxygen throughout the body using hemoglobin, a protein responsible for carrying and releasing oxygen to the body’s tissues. Under normal conditions, approximately 98% of oxygen is delivered by hemoglobin in the RBCs, while less than two percent is dissolved in the plasma, the fluid part of the blood.
As the heart pumps blood, RBCs take up oxygen in the lungs and carry it to various parts of the body. Blood travels through progressively smaller blood vessels to the capillaries, some of which are so narrow that RBCs can only pass through them in single file. Most of the oxygen release occurs in the capillaries. Oxygen depleted RBCs return to the lungs to be reloaded. Adequate blood flow, pressure and RBC counts are crucial to this process. Hypoxia, or oxygen deprivation, even for several minutes, can result in cell damage, organ dysfunction and, if prolonged, death.
The causes of inadequate tissue oxygenation generally can be classified into three major categories:
Ischemia: inadequate RBC flow for tissue oxygenation. Ischemia may be caused by obstructed or constricted blood vessels and can lead to stroke, heart attack or other organ or tissue dysfunction.
Cardiopulmonary failure: impaired function of the heart or lungs. Cardiopulmonary failure may be caused by the inability of the heart to pump sufficient quantities of blood to meet the needs of the tissues or the failure of the lungs to oxygenate blood adequately.
Anemia: insufficient RBCs in circulation. This condition can be caused by chronic disorders affecting RBCs functionality or production like chemotherapy and radiation for treatment of cancer, or blood borne diseases like bone marrow diseases. Anemia may be also caused by acute blood loss from accidental injury or surgery.
The standard therapy for acute anemia resulting from blood loss is infusion of RBCs mainly from supplies of donated blood. For prophylactic or long-term treatment of anticipated or chronic anemia, medications that stimulate the creation of new RBCs are frequently used.
Presently, there is no substitute for human blood to deliver oxygen to the body; and transfusions involve certain risks and limitations. Despite the effort by blood banks around the world to screen the blood supply for HIV, hepatitis and other blood borne diseases, there is a continuing risk of an unsafe blood supply in many parts of the world; donated blood continues to carry the risk of disease transmission.
Blood compatibility and handling and storage requirements and limitations limit the use of RBCs transfusions to hospital environment only. Shortages of certain types of blood thus occur due to seasonal factors or disasters. Since RBCs’ oxygen-delivering capacity breaks down with storage (approximately 75% capacity remains after eight days of storage) their shelf-life is less than 42 days, limiting the ability for significant stockpiles of RBCs. In addition, for ischemic conditions due to constricted blood vessels where normal passage of RBCs is restricted or due to impaired heart or lung function, RBC transfusions are generally not effective.
Business Strategy
Our business strategy primarily consists of the following:
| · | to advance our leading clinical stage drug candidates, BTI-320 and IPOXYN, through regulatory approvals in the United States and the European Union and, if successful, to commercialize BTI-320 and IPOXYN either on our own or with one or more strategic partners in the U.S. and/or outside of the U.S.; and |
| · | to drive brand awareness and increase sales of SUGARDOWN® in North America and globally in 2015 and beyond and to further study the potential beneficial characteristics of SUGARDOWN®. |
We intend to continue to establish and implement clinical development programs that add value to our business in the shortest period of time possible and to seek strategic partners when a program becomes advanced and requires additional resources. We intend to continue focusing our expertise and resources to develop novel formulations, and to leverage development partnerships to apply our complex carbohydrate chemistry design in other medical indications. We may seek to enter into licensing, co-marketing, or co-development agreements across different geographic regions, in order to avail ourselves of the marketing expertise of one or more seasoned marketing and/or pharmaceutical companies. Our strategy is to leverage considerable industry experience, expertise in complex carbohydrate chemistry and clinical development experience to continue to identify, develop and commercialize product candidates with strong market potential that can fulfill unmet medical needs in the treatment of diabetes and inflammatory diseases. We plan to further develop new and proprietary drug candidates to provide improved efficacy and safety by using novel development pathways specific to each candidate.
A core part of our strategy relies upon creating safe and efficacious drug formulations that can be administered as standalone therapies or in combination with existing medications. We believe we utilize a novel approach that is expected to create safe and efficacious drug formulations that can be combined with existing therapies and potentially deliver valuable products in areas of high unmet medical needs. In 2014, we assembled a scientific advisory board consisting of scientists with both academic and corporate research and development experience that will provide leadership and counsel in the scientific, technological and regulatory aspects of our current and future projects. In addition, we have assembled a medical advisory board consisting of leading physicians and key opinion leaders who have participated in relevant clinical studies and who will guide us through ongoing clinical trial programs. Our scientific and medical advisory boards consist of some of the leading scientists, medical doctors and professionals in the carbohydrate and diabetes fields.
We believe that our highly experienced drug development leadership provides us with a significant competitive advantage in designing highly efficient clinical programs to deliver valuable products in areas of high unmet medical needs.
Key Strengths
We believe that our key differentiating elements include:
| · | Focus on novel therapeutic opportunities provided by carbohydrates: We are focused on development of carbohydrate-based compounds to better manage blood glucose and anti-necrosis or hypoxia therapeutics. As a result of its structural complexity, carbohydrates have not received as much scientific attention as nucleic acids and proteins. Carbohydrate-based therapeutics have proven to be efficacious and safe, while elimination many common side effects from other types of drugs. |
| · | Experienced management: Our Chief Executive Officer and Chairman, David Platt, Ph.D., is a chemical engineer, a pioneer in designing drugs made from carbohydrates, and has more than 30 years of experience in the development of therapeutic drugs. He is the inventor or co-inventor on a number of patents. He has been involved in the FDA approval process for several drugs, and we anticipate that his expertise will be critical as we develop our product candidates through clinical trials and FDA approval process. We are the third company founded by Dr. Platt. The first two are International Gene Group, which later became Prospect Therapeutics, and is now known as LaJolla Pharmaceuticals (Nasdaq: LJPC), and Pro-Pharmaceuticals (now Galectin Therapeutics) (Nasdaq: GALT). LJPC is applying its carbohydrate-based technologies in cancer and chronic kidney disease and GALT is focused on liver fibrosis and cancer. Their core technologies were either developed or co-developed by Dr. Platt. Our Chairman and Chief Executive Officer, David Platt, has been a leading pioneer in the area of complex carbohydrates for over 30 years and has significant experience developing pharmaceutical drug candidates. Furthermore, we assembled a scientific advisory board consisting of scientists with both academic and corporate research and development experience that will provide leadership and counsel in the scientific, technological and regulatory aspects of our current and future projects. In addition, we have assembled a medical advisory board consisting of leading physicians and key opinion leaders who have participated in relevant clinical studies and who will guide us through ongoing clinical trial programs. Our scientific and medical advisory boards consist of some of the leading scientists, medical doctors and professionals in the carbohydrate and diabetes fields. |
| · | Products are differentiated and address significant unmet needs: Both of our lead product candidates, BTI-320 and IPOXYN, are well-differentiated diabetes-related formulations that address significant unmet medical needs. Diabetes management, including sugar management and treatment of inflammatory diseases, remains a critical area of unmet need. Increasingly, patients, physicians and the media are highlighting the deficiencies of current diabetes-related therapies and the growing population of affected individuals. |
| · | A multiple product portfolio with a balanced risk reward profile: We have two lead product candidates and a dietary supplement product currently generating revenue with what we believe are significant growth prospects. We have also begun to develop a pipeline of additional carbohydrate-based therapeutics. Accordingly, we believe that the revenues we generate from our advanced products and drug candidates will offset costs related to developing our existing and future pipeline. |
| · | Efficient development strategy: We believe that the FDA’s 505(b)(2) regulatory pathway for IPOXYN and its veterinary analog, OXYFEX, lowers the risk of drug development of these drug candidates. Our strategy of combining these drugs, once approved, with novel delivery methods and pharmaceutical compositions is expected to significantly reduce clinical development time and costs and lowers regulatory risks, while delivering valuable products in areas of high unmet need to the market place. |
Manufacturing
We currently contract with a third-party to manufacture BTI-320 and SUGARDOWN® in the United States at a Good Manufacturing Practices (GMP) compliant facility. We expect to have access to a pilot-scale manufacturing facility with adequate capacity to produce IPOXYN for clinical trials and market introduction following FDA/European Medicines Evaluation Agency (EMEA) approval, but no agreement for such access is currently in place. We intend to utilize manufacturing facilities that we believe are fully compliant with GMP only, as required by the regulatory authorities in Europe or the United States.
Environmental Regulation
Pharmaceutical research and development involves the controlled use of hazardous materials. Biotechnology and pharmaceutical companies must comply with laws rules and regulations (d)governing the prompt reporting violationuse, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We do not anticipate building in-house research, development or manufacturing facilities, and, accordingly, do not expect to have to comply directly with environmental regulation. However, our contractors and others conducting research, development or manufacturing activities for us may be required to incur significant compliance cost, and this could in turn could increase our expense or delay our completion of research or manufacturing programs.
Lack of Major Customers
To date we have had limited sales of our products and have one significant customer, Advance Pharmaceutical Co. Ltd., a Hong Kong-based pharmaceutical company, a significant stockholder of ours, for distribution of SUGARDOWN® in Hong Kong, China and Macau. These authorized territories were recently expanded to include Korea, Taiwan, Singapore, Thailand, Malaysia, Vietnam, Philippines, Myanmar, Indonesia, Laos, Brunei, Cambodia and Japan. One of our directors, Conroy Chi-Heng Cheng, is also a director of Advance Pharmaceutical Co. Ltd. In May 2014, we entered into a strategic marketing agreement with Benchworks SD, LLC, a leading branding and marketing agency, aimed at driving brand awareness and growing sales of SUGARDOWN® among the large pre-diabetic population in North America. There were no significant sales generated through the Benchworks agreement during the year ended December 31, 2014.
Intellectual Property
Patents, trademarks, trade secrets, technological know-how and other proprietary rights are essential to our business. Our patent portfolio is directed to three main areas, mannans, hemoglobin composition and methods of use, and taste masking in chewable tablets. The active ingredient in BTI-320 is a mannan, and BTI-320 is a proprietary fractionated mannan. Mannans are a group of plant-derived complex carbohydrates, or polysaccharides, which consist mainly of polymers of the codesugar mannose. Some of the plants from which mannans are derived are guar, locust bean, fenugreek, barley and (e) accountabilitykonjac. Published studies on mannans have shown that they possess significant biological activity ranging from inhibition of cholesterol absorption to promoting wound healing and inhibiting tumor growth. Studies have also shown that consuming mannans before a meal may lessen the rise in blood glucose after the meal. Therefore, supplementation with mannans may be beneficial in the management of diabetes by supporting healthy blood sugar levels. We seek to strengthen our patent portfolio and increase market exclusivity as we progress in our clinical development process. During the clinical development and commercial scale up of our products, we anticipate additional intellectual property may be realized from the creation of novel therapeutic formulations, methods of manufacture, methods of use and novel quality control assays for adherenceeach of our products. Our intellectual property estate directed to our technology and products consists of a provisional patent application and three international patent applications and their related national stage applications entitled: Composition of Purified Soluble Mannans for Dietary Supplements and Methods of Use Thereof (W02012/061675); Hemoglobin Compositions and Methods of Use (WO2012/78850); Encapsulation of Pharmaceuticals for Taste Masking in Chewable Tablets (PCT/US14/27243); and Compositions for Inhibiting Amylase Mediated Hydrolysis of Alpha (1-4) Linked Glucose Polymers (61/991,814).
The international patent application entitled Hemoglobin Compositions and Methods of Use and its related national stage filings, which were assigned to us by Dr. Platt, are directed to our IPOXYN and OXYFEX technologies.
The international patent application entitled Composition of Purified Soluble Mannans for Dietary Supplements and Methods of Use Therof and its related national stage filings, which were assigned to us by Dr. Platt, are directed to our BTI-320 and SUGARDOWN® technologies.
Dr. Platt also has assigned the trademarks IPOXYN (U.S. Trademark Application No. 77754473) and Avanyx Therapeutics™ (U.S. Trademark Application No. 77806120) to us. Dr. Platt and our former President Mr. Tassey have assigned the trademark SUGARDOWN® (U.S. Trademark Reg. No. 3,955,414, registered May 3, 2011) to us.
Government Regulation
New drug approval for clinical use requires extensive research, manufacturing, pre-clinical and clinical studies, packaging, labeling, advertising, promotion, export and marketing, among other things. Both BTI-320 and IPOXYN will be subject to extensive regulation by governmental authorities in the United States and other countries. As a therapeutic product administered by intravenous infusion IPOXYN will be regulated as a drug and will require extensive safety and efficacy studies for regulatory approval before it may be commercialized.
Drug Approval Process
In the United States, IPOXYN is a new chemical entity and will require FDA approval. BTI-320, as a drug candidate, will also require FDA approval. Before final approval for marketing for either IPOXYN or BTI-320 could occur, the following steps must be completed: preclinical safety animal studies, GMP manufacturing, submission of Investigational New Drug, or IND application for extensive clinical trials to show proof of concept to significant health benefit.
After approval and during clinical studies the FDA can put the drug on “clinical hold.” In such case, the IND sponsor and the FDA must resolve any outstanding concerns before the use of the drug can proceed. The FDA may stop marketing, or clinical trials, or particular types of trials, by imposing a clinical hold because of safety concerns and potential risk to patients.
Clinical trials involve the administration of the investigational products to healthy volunteers or patients under the supervision of a qualified principal investigator consistent with an informed consent. Each clinical protocol is submitted, reviewed and approved by an independent Institutional Review Board, or IRB, or Ethical Committee (EC) at a participating hospital or clinical site, at which the study will be conducted. The IRB/EC will consider, among other things; ethical factors, safety to human subjects and the possible liability of the institution.
Clinical trials required for FDA approval typically are conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the drug into human subjects, the drug is usually tested for safety or adverse effects, dosage tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II clinical trials usually involve studies in a limited patient population to evaluate the efficacy of the drug for specific, targeted indications, determine dosage tolerance and optimal dosage and identify possible adverse effects and safety risks.
Phase III clinical trials generally further evaluate clinical efficacy and test further for safety within an expanded patient population and at multiple clinical sites.
After FDA approval, Phase IV clinical trials may be conducted to gain additional experience from the treatment of patients in the intended therapeutic indication. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase IV clinical trial requirement. These clinical trials are often referred to as Phase III/IV post-approval clinical trials.
The results of the pre-clinical studies and clinical trials, together with detailed information on the manufacture and composition of the product, are submitted to the code.FDA in the application requesting approval to market the product. The FDA may delay approval of any product submitted by us. The FDA may limit the indicated uses for which an approval is given.
New Drug Approval for Veterinary Use
The use of new drugs for companion animals requires the filing of a New Animal Drug Application, or NADA, with and approval by the FDA. The requirements for approval are similar to those for new human drugs, exclusive of human trials. Obtaining NADA approval often requires safety and efficacy clinical field trials in the applicable species and disease, after submission of an Investigational New Animal Drug Application, or INADA, which for non-food animals becomes effective upon acceptance for filing.
Dietary Supplements
We currently offer SUGARDOWN® as a dietary supplement. We are not currentlyrequired to obtain FDA approval in order to offer SUGARDOWN® in this manner. We are required to either comply with certain FDA guidelines with respect to certain marketing claims for SUGARDOWN®, or to file those claims with the FDA. We believe that we comply with those guidelines and have voluntarily filed structural and functional claims with the FDA.
Pervasive and Continuing Regulation
Any FDA approvals that may be granted will be subject to any law, rulecontinual review, and newly discovered or regulation requiring that we adoptdeveloped safety or efficacy data may result in withdrawal of products from marketing. Moreover, if and when such approval is obtained, the manufacture and marketing of our products remain subject to extensive regulatory requirements administered by the regulatory bodies, including compliance with current Good Manufacturing Practices, serious adverse event reporting requirements and the FDA’s general prohibitions against promoting products for unapproved or “off-label” uses.
We are subject to inspection and market surveillance by the FDA for compliance with these regulatory requirements. Failure to comply with the requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or withdrawals of regulatory approvals and termination of marketing. Any such enforcement action could have a codematerial adverse effect on us. Unanticipated changes in existing regulatory requirements, state and local work and environmental laws or the adoption of ethics; however, we intendnew requirements could also have a material adverse effect on us.
Foreign Regulation
We will be subject to adopt onea variety of regulations governing clinical trials and sales of our products in the near future.United States and outside the United States. Whether or not FDA approval has been obtained, approval of a product by the comparable non-U.S. regulatory authorities must be obtained prior to the commencement of marketing of the product in any country.
Audit Committee.
The approval process varies from country to country and can be complicated and time consuming; the time needed to secure approval may be longer or shorter than that required for FDA approval. For example, the European Union requires approval of a Marketing Authorization Application by the European Medicines Evaluation Agency. These applications require the completion of extensive preclinical studies, clinical studies and manufacturing and controls information.
Reimbursement
Our ability to successfully commercialize our human products also may depend on the extent to which reimbursement of the cost of such products and related treatment will be approved by the government health administration authorities, private health insurers and other health providers’ organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products. As third-party payors are increasingly challenging the price of medical products, there can be no assurance that adequate reimbursement of the cost will be available to enable us to maintain price levels sufficient for realization of an appropriate return on its investment.
Recently the public and the federal government have focused significant attention on reforming the health care system in the United States. A number of health care reform measures have been suggested, including price controls on therapeutics. Public discussion of such measures is likely to continue, and concerns about the potential effects of different possible proposals have been reflected in the volatility of the stock prices of companies in the health care and related industries.
Legal Proceedings
Arbitration Involving our CEO
On October 12, 2012, Dr. David Platt, our Chief Executive Officer and Chairman, commenced a lawsuit under the Massachusetts Wage Act against Dr. Traber and Thomas McGauley, who in their capacities as the Chief Executive Officer and former Chief Financial Officer of Galectin Therapeutics Inc., or Galectin, respectively, can be held individually liable under the Wage Act for non-payment of wages. The lawsuit is based on the facts and issues raised in a previous arbitration proceeding between Dr. Platt and Galectin regarding payment of a $1.0 million separation payment under Dr. Platt’s separation agreement, and other unspecified “wages.” The statute provides that a successful claimant may be entitled to multiple damages, interest and attorney’s fees. On April 29, 2013, the Court allowed Dr. Traber’s and Mr. McGauley’s motion to dismiss. On May 28, 2013, Dr. Platt filed a Notice of Appeal to appeal the Court’s order allowing the defendants’ motion to dismiss, which was denied.
On March 29, 2013, Galectin instituted arbitration before the American Arbitration Association, seeking to rescind or reform the separation agreement. Galectin claimed that Dr. Platt fraudulently induced Galectin to enter into the Separation Agreement, breached his fiduciary duty to Galectin, and was unduly enriched from his conduct. Along with removal of the $1.0 million milestone payment under the separation agreement, Galectin was seeking repayment of all separation benefits paid to Dr. Platt to date. We indemnified Dr. Platt for $150,000 in legal fees and expenses in December 2013, and in May 2014, our board approved a $50,000 increase in its indemnification support, solely for the payment of outside legal expenses. We recorded a total of $182,697 in costs associated with Dr. Platt’s indemnification, of which $119,401 was recorded in the year ended December 31, 2013 and $63,296 was recorded 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, our Board of Directors voted to rescind the requirement that Dr. Platt reimburse the Company the entire $182,697. Our board determined that interest should be charged to Dr. Platt from the time he received the funds to the date of the meeting and that this amount would be offset against interest we owe Dr. Platt in conjunction with our note payable as referenced in Note 7 of the accompanying Notes to the Financial Statements included in this prospectus. The remaining amount would be considered settled in full by the Company.
Lawsuit Involving our Company and our CEO
On March 12, 2014, a complaint against us and our Chief Executive Officer and Chairman, David Platt, was filed in Middlesex Superior Court in Massachusetts by Eliezer Zomer. Mr. Zomer alleged that we and Dr. Platt had refused to deliver 400,000 shares of our common stock that Mr. Zomer believes are owed to him, and seeks delivery of the shares and damages. In August 2014, the Middlesex Superior Court dismissed Mr. Zomer’s complaint for failure to proceed.
The Company may become involved in certain legal proceedings and claims which arise in the normal course of business. Other than those described above, the Company is not aware of any outstanding or pending litigation.
Employees
As of April 21, 2015, we had six full-time employees. Our employees do not have written employment agreements with us.
Facilities
We currently do not own any real property. We currently lease approximately 3,100 square feet of office space with access to common areas located at 1750 Elm Street, Suite 103, Manchester, NH 03104 on a five-year lease that expires on March 31, 2018. We currently pay $5,224 per month for this space. Rental payments will increase annually to $5,591 per month for the one year lease period ending through March 31, 2018. We believe this facility is adequate for our current needs.
MANAGEMENT
Set forth below is information regarding our current directors. Except as set forth below, there are no family relationships between any of our directors or executive officers. Each director holds his office until he resigns or is removed and his successor is elected and qualified.
Name | | | Age | | Position | Term as a Director |
| | | | | Chief Executive Officer and Chairman | |
| | | | | | September 2009 to Present |
| | | | | | September 2009 to Present |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | September 2014 to Present |
| | | | | | September 2014 to Present |
David Platt, Ph.D. is our Chief Executive Officer, Treasurer and Chairman. He also served as our President from the inception of our company in August 2009 through November 2010. From 2001 to February 2009, Dr. Platt was Chief Executive Officer and Chairman of the Board of Directors of Pro-Pharmaceuticals, Inc., a public company with shares traded on the NYSE Alternext US (formerly the American Stock Exchange) that he co-founded and for which he was the co-developer of their core technology. From 1995 to 2000, Dr. Platt was Chief Executive Officer and Chairman of the Board of Directors of SafeScience Inc., a Nasdaq-listed company he founded. From 1992 to 1995, Dr. Platt was the Chief Executive Officer, Chairman of the Board and a founder of International Gene Group, Inc., the predecessor company to SafeScience. Dr. Platt received a Ph.D. in Chemistry in 1988 from Hebrew University in Jerusalem. In 1989, Dr. Platt was a research fellow at the Weizmann Institute of Science, Rehovot, Israel, and from 1989 to 1991, was a research fellow at the Michigan Foundation (re-named Barbara Ann Karmanos Institute). From 1991 to 1992, Dr. Platt was a research scientist with the Department of Internal Medicine at the University of Michigan. Dr. Platt has not yet establishedpublished peer-reviewed articles and holds many patents, primarily in the field of carbohydrate chemistry. We believe that Dr. Platt is well qualified to serve as a separate audit committee,member of our Board of Directors due to his expertise in complex carbohydrate chemistry, leadership and extensive management experience.
Dale H. Conaway, D.V.M., a Director of our company since September 2009, is the Veterinary Medical Officer for the Office of Research Oversight, an office within the Veterans Health Administration under the U.S. Department of Veterans Affairs. From 2001 to 2006, Dr. Conaway was the Deputy Regional Director (Southern Region). From 1998 to 2001, Dr. Conaway served as Manager of the Equine Drug Testing and Animal Disease Surveillance Laboratories for the Michigan Department of Agriculture. From 1994 to 1998, he was Regulatory Affairs Manager for the Michigan Department of Public Health Vaccine Production Division. From May 2001 to February 2009, Dr. Conaway was a director of Pro-Pharmaceuticals, Inc., a public company with shares traded on the NYSE Alternext US. Dr. Conaway received a D.V.M. degree from Tuskegee Institute and an M.S. degree in pathology from the College of Veterinary Medicine at Michigan State University. We believe that Dr. Conaway is well qualified to serve as a member of our Board of Directors due to his expertise in drug testing and animal regulatory affairs.
Rom E. Eliaz, Ph.D., MBA, a Director of our company since September 2009, has over 20 years of pharmaceutical and biotechnology development experience as a scientist, entrepreneur, executive and venture capitalist. Dr. Eliaz has been the Chief Executive Officer of NasVax since October 2010. Prior to joining NasVax, Dr. Eliaz was the Chief Executive Officer of ImCure Therapeutics (previously JJ Pharma) and a Strategic Partner at The Colmen Group. Following an academic appointment as Assistant Professor at the University of California San Francisco, Dr. Eliaz held various management positions at Alza Corporation from 2001 to 2004. Following the acquisition of Alza by Johnson & Johnson in 2001, Dr. Eliaz managed Johnson & Johnson’s investment portfolio in various different pharmaceutical and biotechnology companies, brought to market several blockbuster drugs and advanced over 10 drug candidates from discovery research to clinical trials. Dr. Eliaz was Head of Product Development and Project Management at Rinat Neuroscience Corporation from 2004 to 2006, which was acquired by Pfizer in 2006. Dr. Eliaz was Vice President of Development and Project Management at Intradigm Corporation, which subsequently merged with Silence Therapeutics. Dr. Eliaz then founded Elrom Ventures Corp., a venture capital firm, in 2007, that specializes in the formation, financing and operational development of medical devices, green Technology and biotechnology-based companies. Dr. Eliaz is the author or co-author of over 40 publications, mostly in the field of drug targeting, drug delivery and gene therapy, and is an inventor of several patents in these fields. Dr. Eliaz has made over 30 invited presentations and chaired many sessions at international scientific and business conferences and venues. Dr. Eliaz conducted his Post-Doctoral work at the University of California San Francisco School Of Medicine and the functionsSchool of Pharmacy, focusing in the areas of drug delivery, drug targeting, tissue engineering and gene therapy. Dr. Eliaz received his Ph.D. (cum laude) in Chemical Engineering and Biotechnology from the Weizmann Institute of Sciences and Ben-Gurion University. Dr. Eliaz also holds an M.Sc. (summa cum laude) in Chemical Engineering, and a B.Sc. in Chemical Engineering and Biotechnology, both from Ben-Gurion University. He earned an M.B.A. (cum laude) from Harvard Business School and the Boston University program at Ben Gurion University.
Henry J. Esber, Ph.D., a Director of our company since December 2011, has been a Principal in Esber D&D Consulting since 2005. From 2003 to 2005, Dr. Esber was a Senior Consultant, Business Development at Charles River Labs, Discovery and Development Services. From 2005 to 2006, Dr. Esber was a consultant and in 2006, he was Senior Vice President and Chief Business Officer for Bio-Quant, which he co-founded. Dr. Esber was also the co-founder of BioSignature Diagnostics, Inc. and Advanced Drug Delivery, Inc. From December 2009 to January 2013, Dr. Esber was a director of Apricus Biosciences, Inc., a public company with shares traded on the NASDAQ Capital Market. From April 2006 to February 2009, Dr. Esber was a director of Pro-Pharmaceuticals, Inc., a public company with shares traded on the NYSE Alternext US. He serves on the scientific advisory boards of several biotechnology companies and is the author of more than 130 technical publications. Dr. Esber has more than 35 years of experience in the areas of oncology/tumor immunology and immunotherapy as well as strong knowledge in the field of toxicology and regulatory affairs. Dr. Esber received a B.S. degree in biology/pre-med from the College of William and Mary, an M.S. degree in public health and parasitology from the University of North Carolina, and a Ph.D. in immunology/microbiology from West Virginia University Medical Center. Dr. Esber was previously a Director of our company from September 2009 through December 2010. We believe that Dr. Esber is well qualified to serve as a member of our Board of Directors due to his extensive managerial experience in the pharmaceutical industry.
S. Colin Neill, a Director of our company since December 2013, became President of Pharmos Corporation in January 2008, and has served as Chief Financial Officer, Secretary, and Treasurer of Pharmos since October 2006. He held these positions through November 2012. From September 2003 to October 2006, Mr. Neill served as Chief Financial Officer, Treasurer and Secretary of Axonyx Inc., a biopharmaceutical company that developed products and technologies to treat Alzheimer’s disease and other central nervous system disorders, where he played an integral role in the merger between Axonyx and TorreyPines Therapeutics Inc., a privately-held biopharmaceutical company. Mr. Neill served as Senior Vice President, Chief Financial Officer, Secretary and Treasurer of ClinTrials Research Inc.; a $100 million publicly traded global contract research organization in the drug development business, from 1998 to its sale in 2001. Following that sale from April 2001 to September 2003 Mr. Neill served as an independent consultant assisting small start-up and development stage companies in raising capital. Earlier experience was gained as Vice President of Finance and Chief Financial Officer of BTR Inc., a $3.5 billion US subsidiary of BTR plc, a British diversified manufacturing company, and Vice President Financial Services of The BOC Group Inc., a $2.5 billion British owned industrial gas company with substantial operations in the health care field. Mr. Neill served four years with American Express Travel Related Services, first as chief internal auditor for worldwide operations and then as head of business planning and financial analysis. Mr. Neill began his career in public accounting with Arthur Andersen LLP in Ireland and later with Price Waterhouse LLP as a senior manager in New York City. He also served with Price Waterhouse for two years in Paris, France. Mr. Neill graduated from Trinity College, Dublin with a first class honors degree in Business/Economics and he holds a master’s degree in Accounting and Finance from the London School of Economics. He is a Certified Public Accountant in New York State and a Chartered Accountant in Ireland. Mr. Neill served on the board of Galectin Therapeutics (formerly named Pro-Pharmaceuticals, Inc.) from May 2007 to October 2011 and from April 2004 to June 2008 on the board of OXIS International, Inc. We believe that Mr. Neill is well qualified to serve as a member of our Board of Directors due to his extensive executive leadership experience in our industry as well as his many years serving in senior financial management roles.
Conroy Chi-Heng Cheng, a Director of our company since December 2013, serves as the Chief Executive Officer of Net Plus Company Limited. He serves as an Executive Director of Net Plus Company Limited. He has been an Executive Director of New World Development Co. Ltd. since June 2010. He serves as a Director of Chow Tai Fook Enterprises Limited. He served as an Independent Non-executive Director of Hong Kong Energy Holdings Limited (alternate name JIC Technology Co. Ltd. & China Renewable Energy Investment Limited) from July 2002 to May 2007. Mr. Cheng has a Bachelor of Arts degree majoring in Economics from the University of Western Ontario, Ontario, Canada in 1999. We believe that Mr. Cheng is well qualified to serve as a member of our Board of Directors due to his executive leadership experience and his extensive experience with business development.
Jan Brinkman, M.D., Ph.D., a Director of our company since September 2014, serves as the Junior Chair of the audit committeeFamily Committee of the Edmond De Rothschild Foundation. Dr. Brinkman began his career at ABN Bank in 1985 and served as a member of the Biotechnology Business Strategies Committee with ABN-Amro Bank N.V. in London, New York and Hong Kong, reconciling global regulatory affairs. In 1995 Dr. Brinkman served as Chair of the Structured Capital markets team creating the Bank’s advisory body for Corporate Finance and Investment in Healthcare Sector. In 2005 he focused his financial expertise in biotech, becoming ABN-Amro’s liaison to Motorola Biochip, Harvard Medical, Merck, Serono, Teva, Bayer, Philips, Siemens, M.I.T. and the Mayo Foundation. He is also an advisor to the Mayo Foundation Comprehensive Cancer Program. Dr. Brinkman holds a M.D. degree from the Erasmus University of Rotterdam, the Netherlands, and a MBA in international finance from INSEAD/ABN-Amro, France/the Netherlands and a Ph.D. in mathematical physics from the University of Florence, Italy. We believe that Dr. Brinkman is well qualified to serve as a member of our Board of Directors due to his extensive experience in the business and research arenas of the life sciences.
Alan M. Hoberman, Ph.D., a Director of our company since September 2014, has served as President and CEO of Argus International, Inc. since 2009 overseeing a staff of scientists and other professionals who provide consulting services for industry, government agencies, law firms and other organizations both in the U.S. and internationally. Between 1991 and 2013 he held a series of positions of increasing responsibility at Charles River Laboratories Preclinical Services (formerly Argus Research Laboratories, Inc.), most recently as Executive Director of Site Operations and Toxicology. He currently works with that organization to design, supervise and evaluate reproductive and developmental toxicity, neurotoxicity, inhalation and photobiology studies. Dr. Hoberman holds a Ph.D. in toxicology from Pacific Western University, an M.S. in interdisciplinary toxicology from the University of Arkansas and a B.S. in biology from Drexel University. We believe that Dr. Hoberman is well qualified to serve as a member of our Board of Directors due to his extensive experience in the business and research arenas of the life sciences.
Our Directors are currently performedelected annually and each holds office until the annual meeting of our stockholders and until their respective successors are elected and qualified. Our officers, including any officers we may elect moving forward, will hold their positions at the pleasure of the Board of Directors, absent any employment agreement. In the event we employ any additional officers or directors, they may receive compensation as determined by our Board of Directors as a wholefrom time to time. Vacancies in accordance with Section 3(a)(58) of the Exchange Act. We are not currently subject to any law, rule or regulation requiring that we establish or maintain a separate audit committee.
Board of Directors Independence. will be filled by majority vote of the remaining directors or in the event that our sole Director vacates his position, by our majority stockholders. Our Directors may be reimbursed by us for expenses incurred in attending meetings of the Board of Directors.
Executive Officers
Set forth below is information regarding our current executive officers. Except as set forth below, there are no family relationships between any of our executive officers and our directors. Executive officers are elected annually by our Board of Directors. Each executive officer holds his office until he resigns or is removed by the Board or his successor is elected and qualified.
Name | | | Age | | Position | Term as an Officer |
| | | | | Chief Executive Officer, Treasurer and Chairman | August 2009 to the Present |
| | | | | Chief Financial Officer and Secretary | December 2013 to the Present |
Biographical information with respect to Dr. Platt is set forth above.
Anthony Squeglia, Chief Financial Officer joined our company in January 2013 and became Chief Financial Officer in December 2013. He served as Chief Financial Officer of Pro-Pharmaceuticals, Inc. and Galectin Therapeutics, Inc. from 2007 to 2012. From 2003 to 2007, Mr. Squeglia was Vice President of Investor Relations for Pro-Pharmaceuticals, Inc. and was instrumental in that company’s listing on the American Stock Exchange, as well as in its fund-raising activities. From 2001 to 2003, Mr. Squeglia was a Partner in JFS Advisors, a management consulting firm that delivered strategic services to entrepreneurial businesses that included raising funds, business planning, positioning, branding, marketing and sales channel development. Previously, Mr. Squeglia helped to launch an IPO for Summa Four, a telecommunications switching company and held senior management positions with Unisys, AT&T, ITT and Colonial Penn. Mr. Squeglia received an M.B.A. from Pepperdine University and a B.B.A. from The Wharton School, University of Pennsylvania.
Scientific Advisory Board
In 2013, we formally established a scientific advisory board to advise our management regarding our clinical and regulatory development programs and other customary matters. Our scientific advisors are experts in various areas of medicine including diabetes and other diseases. We believe the advice of our scientific advisors is important to the research, development and clinical testing of our products. Our scientific advisory board is comprised of David Platt, Ph.D., our Chairman and Chief Executive Officer, and Rom E. Eliaz (Chairman of the Scientific Advisory Board), Dale H. Conaway, D.V.M. and Henry J. Esber, Ph.D., each of whom is an independent director of our company, as well as the following individuals:
Meng Hee Tan (Scientific Advisor and Consulting Medical Director): Dr. Tan is Professor of Internal Medicine, Division of Metabolism, Endocrinology and Diabetes, Department of Internal Medicine in the University of Michigan. A past President of the Canadian Diabetes Association, senior medical director of the Diabetes Endocrine Platform Team and distinguished medical fellow of Eli Lilly and Company, he is a member of the American Diabetes Association and fellow of the American College of Endocrinology. Dr. Tan received his M.D. degree from Dalhousie University.
Larry K. Ellingson (Scientific Advisor): A former Chairman of the Board of the American Diabetes Association, Mr. Ellingson has more than four decades of experience in drug development with a strong emphasis on diabetes and related diseases. Mr. Ellingson is the principal of Global Diabetes Consulting, which works with several companies as well as the North Dakota State University College of Pharmacy. He was Executive Director Diabetes Care at Eli Lilly & Co. He is also a former chair of the board of Protemix Ltd., a biotechnology company focused on proteomics and the development of molecules for diabetes and related diseases. He holds an executive MBA degree from Babson College and a BS degree in pharmacy from North Dakota State University.
Benjamin Rivnay, Ph. D. (Scientific Advisor): Mr. Rivnay is a seasoned director of technology and research activities within the biotechnology industry. Most recently, he was Director of Research and Development at Formatech Inc., where he managed more than 50 projects on formulation development for a diverse group of drugs, as well as studies for stability and material compatibility, initial engineering and process development activities, and preparation of non-cGMP product lots for toxicology studies and other research purposes. Prior to this, he was Vice President of Research and Development and Lab Director at Repromedix Corporation, where he introduced more than 50 new test products for both male and female infertility. Earlier, he served as Senior Investigator and Program Leader at Procept Inc., where he initiated and led a new research and development program focusing on the development of anti-allergic drugs, and as Senior Scientist at Neurex Corporation. He holds a Ph.D. in biochemistry from The Weizmann Institute of Science and a B.Sc. in biology from Tel Aviv University.
Zbigniew J. Witczak, Ph. D. (Scientific Advisor): Dr. Witczak is professor and chair of the Department of Pharmaceutical Sciences at Wilkes University in Wilkes-Barre, Pennsylvania, and has taught Principles of Bioorganic and Medicinal Chemistry at the Nesbitt School of Pharmacy at Wilkes University for the past 14 years. A member of the American Chemical Society, he is the recipient of numerous honors and awards, including Selected 2011 ACS Fellow of the American Chemical Society and Elected U.S. Representative to the International Carbohydrate Organization in 2006. He is the author or coauthor of more than 75 research articles in the area of carbohydrate chemistry. He received Ph.D. and M.S. degrees in organic chemistry from Medical University in Lódz, Poland.
Medical Advisory Board
We established a Medical Advisory Board comprised of Clinicians and Clinical Research professionals who are interested in the field of Diabetes or in other subjects related to our product pipeline. The board will provide leadership and expertise to assist us in designing, executing and implementing our clinically oriented activities in a safe, efficient and professional manner. The Medical Advisory Board is chaired by Larry Ellingson. Additional members include Meng H. Tan, whose biographical information is set forth above under the heading “Scientific Advisory Board”, and the following individuals:
Charles M. Clark, Jr., M.D., (Medical Advisor): Dr. Clark is Professor Emeritus of Medicine at Indiana University Medical Center in Indianapolis. A past president of the American Diabetes Association, he has served as chairman of the National Diabetes Education Program Steering Committee and as editor of Diabetes Care. He has also served as chair of the Conference of the Worldwide Burden of Diabetes. He received his M.D. degree from Indiana University School of Medicine.
Jaime A. Davidson, M.D., (Medical Advisor): Dr. Davidson is a Clinical Professor of Internal Medicine in the Division of Endocrinology of Touchstone Diabetes Center at the University of Texas Southwestern Medical Center in Dallas. He has served as president of WorldWIDE, a non-profit diabetes education organization, and as an editorial board member of The Journal of Diabetes. A member of the American Diabetes Association, he has also served as chair of the American College of Endocrinology Diabetes Consensus Guidelines. He received his M.D. degree from the Universidad Nacional Autonoma de Mexico.
Philip Raskin, M.D., (Medical Advisor): Dr. Raskin is the Clifton and Betsy Robinson Chair in Biomedical Research and Professor of Medicine at the University of Texas Southwestern Medical Center at Dallas in Dallas, Texas. He is also director of the diabetes clinic and former director of the University Diabetes Treatment Center at Parkland Memorial Hospital in Dallas. A member of the American Diabetes Association, he is the editor of the Journal of Diabetes and its Complications. He received his M.D. degree from the University of Pittsburgh.
David S.H. Bell, MB, FACP, FACE., (Medical Advisor): Dr. Bell is an adjunct professor of medicine at the University of Alabama at Birmingham School of Medicine where from 1980 to 2005 he served as professor of medicine. The author and coauthor of more than 320 publications, he is a Fellow of the American College of Physicians, a Fellow of the Royal College of Physicians of Edinburgh and a Fellow of the Royal College of Physicians and Surgeons of Canada. He is a member of the American Diabetes Association and is on the Editorial Boards of the Journal Diabetes Obesity and Metabolism and Endocrine Today. He is a graduate of Belfast Royal Academy and Queens University School of Medicine, from which he graduated with the MB, BCh, BAO degree.
Audit Committee
Our Board of Directors consistshas established an audit committee, the members of six members.which are S. Colin Neill, Dale Conaway and Henry Esber, all of whom are independent directors. Mr. Neill serves as the chairman of the audit committee. The audit committee is primarily responsible for reviewing the services performed by our independent auditors and evaluating our accounting policies and our system of internal controls. Mr. Neill serves as our “audit committee financial expert.” We are not currently subject to any law, rule or regulation requiringbelieve that all or any portion of our Board of Directors include “independent” directors. Four ofwhile the members of the Boardcommittee are collectively capable of Directors, Dale H. Conaway, D.V.M., Rom E. Eliaz, Henry Esberanalyzing and Carl Lueders, are “independent” as defined in Section 4200(a)(15) of NASDAQ Stock Market Rules.
Audit Committee Financial Expert. Theevaluating financial statements and understanding internal control over financial reporting and disclosure controls procedures, the Board of Directors has determined that Carl L. Lueders isonly Mr. Neill qualifies as an “audit committee financial expert” who is “independent” as defined in Item 407(d)(5) of Regulation S-K of the Securities Exchange Act of 1934, as amended and Mr. Lueders serves as acting chairman when the Board performs audit committee functions.
Nominating Committee. Our Board of Directors has established a nominating committee. We are not currently subject to any law, rule or regulation requiring that we establish a nominating committee.
Compensation Committee. Our Board of Directors has established a compensation committee. We are not currently subject to any law, rule or regulation requiring that we establish a compensation committee. We intend to establish a compensation committee if the Board determines it to be advisable or we are otherwise required to do so by applicable law, rule or regulation.
Indemnification Agreements
None.
Director Independence
Four of the members of the board of directors are “independent” as defined under the rules of the NASDAQ Stock Market.
CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 21, 2010, the Company was notified that effective July 20, 2010, McGladrey LLP (“McGladrey”) acquired certain assets of Caturano and Company, Inc., the Company’s independent registered public accounting firm (“Caturano”), and substantially all of the officers and employees of Caturano joined McGladrey. As a result, on October 26, 2010, Caturano resigned as the independent registered public accounting firm for the Company and, concurrent with such resignation, McGladrey was appointed by the Company as its new independent registered public accounting firm by the Company’s Board of Directors.
The audit report of Caturano on the financial statements of the Company for the period ending December 31, 2009 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified to the uncertainty, audit scope or accounting principles, except that it did contain an explanatory paragraph disclosing the uncertainty regarding the ability of the Company to continue as a going concern. During the fiscal period ended December 31, 2009 and through October 26, 2010 there were: (1) no disagreements between the Company and Caturano on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Caturano would have caused them to make reference thereto in their reports on the Company’s financial statements for such years, and (2) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
During the Company’s fiscal period ended December 31, 2009 and through October 26, 2010, the Company did not consult with McGladrey on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on the Company’s financial statements, and McGladrey did not provide either a written report or oral advice to the Company that McGladrey concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
DESCRIPTION OF CAPITAL STOCK
We have authorized capital stock consisting of 100,000,000 shares of common stock, $0.001 par value per share ("Common Stock") and 5,000,000 shares of preferred stock, $0.001 par value per share ("Preferred Stock"). As of_September 7, 2012, we had 17,348,206 shares of common stock issued and outstanding and no shares of Preferred Stock issued and outstanding.
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or more series, each of which shall have such distinctive designation or title as shall be determined by our Board of Directors ("Board of Directors") prior to the issuance of any shares thereof. Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then outstanding shares of our capital stock entitled to vote generally in the election of the directors, voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation.
Additionally, while it is not possible to state the actual effect of the issuance of any shares of Preferred Stock on the rights of holders of the common stock until the Board of Directors determines the specific rights of the holders of any shares of Preferred Stock, such rights may be superior to those associated with our common stock, and may include:
o | Restricting dividends on the common stock; |
o | Rights and preferences including dividend and dissolution rights, which are superior to our common stock; |
o | Diluting the voting power of the common stock; |
o | Impairing the liquidation rights of the common stock; or |
o | Delaying or preventing a change in control of the Company without further action by the stockholders. |
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders. Directors are appointed by a plurality of the votes present at any special or annual meeting of shareholders (by proxy or in person), and a majority of the votes present at any special or annual meeting of shareholders (by proxy or in person) shall determine all other matters. The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends at such times and in such amounts as the board from time to time may determine. There is no cumulative voting of the election of directors then standing for election. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this Offering will be, duly and validly issued, fully paid and non-assessable.
Director Independence
Four of the members of the board of directors are “independent” as defined under the rules of the NASDAQ Stock Market.amended.
Provisions of the Company’s Charter or By-Laws which would delay, deter or prevent a change in control of the Company
There are no special provisions of the Company’s Certificate of Incorporation or By-Laws which would specifically delay, deter or prevent a change in control of the Company. Additionally, the Company has 5,000,000 shares of preferred stock authorized and undesignated. Shares of preferred stock designated by our Board of Directors in the future may have voting powers superior to our common stock, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as adopted by the Board of Directors. Such preferred stock, if authorized in the future, may contain provisions (including voting rights) which could delay, deter or prevent a change in control of the Company.
SHARES AVAILABLE FOR FUTURE SALE
Assuming that all 20,000,000 common shares in this offering are issued and sold, and the 10,000,000 warrants are issued and exercised, we will have 47,348,206 shares of common stock outstanding. Of those 47,348,206 shares of common stock outstanding, only 30,000,000 shares issued in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares held by an “affiliate” of us, which will be subject to the resale limitations of Rule 144 promulgated under the Securities Act.
Rule 144 governs resale of "restricted securities" for the account of any person (other than an issuer), and restricted and unrestricted securities for the account of an "affiliate" of the issuer. Restricted securities generally include any securities acquired directly or indirectly from an issuer or its affiliates which were not issued or sold in connection with a public offering registered under the Securities Act. An affiliate of the issuer is any person who directly or indirectly controls, is controlled by, or is under common control with, the issuer. Affiliates of the Company may include its directors, executive officers, and persons directly or indirectly owning 10% or more of the outstanding common stock. Under Rule 144, non-affiliates are able to sell restricted securities pursuant to Rule 144, after six months, subject to certain conditions, including if the Company is current in its reporting obligations with the Commission and remains current for an additional period of six months, and thereafter after one year, with no volume or reporting obligations.
Under Rule 144, affiliates are able to sell restricted securities pursuant to Rule 144 after six months, subject to certain conditions, including if the Company is current in its reporting obligations with the Commission and remains current for an additional period of six months, as well as other requirements described below. Resales by the Company's affiliates of restricted and unrestricted common stock are subject to volume limitation, aggregation, broker transaction, notice filing requirements, and requirements concerning publicly available information about the Company ("Applicable Requirements"). The volume limitations provide that a person (or persons who must aggregate their sales) cannot, within any three-month period, sell more than the greater of one percent of the then outstanding shares, or the average weekly reported trading volume during the four calendar weeks preceding each such sale.
PLAN OF DISTRIBUTION
We are offering for sale a maximum of 20,000,000 shares of our common stock in a self-underwritten offering directly to the public at a price of $0.50 per share, plus a maximum of 10,000,000 shares of our common stock underlying the warrants exercisable at price of $1.00 per share. There is no minimum number of shares that we must sell in our direct offering, and therefore no minimum amount of proceeds will be raised. No arrangements have been made to place funds into an escrow or any similar account. Upon receipt, offering proceeds will be deposited into our operating account and used to conduct our business and operations. We are offering the shares without any underwriting discounts or commissions. If all 20,000,000 shares are not sold within 180 days from the date hereof the offering for the balance of the shares will terminate and no further shares will be sold.
Our offering price of $0.50 per share was determined based on very light trading volume with a limited float, $0.50 is the approximate trading price decided upon by our management and is not based upon earnings or operating history, does not reflect our actual value, and bears no relation to our earnings, assets, book value, net worth, or any other recognized criteria of value. No independent investment banking firm has been retained to assist in determining the offering price for the shares. Such offering price was not based on the price of the issuance to our founders. Accordingly, the offering price should not be regarded as an indication of any future price of our stock.
Our common stock is traded on the over-the-counter (OTC) Bulletin Board. There is currently a limited market for our shares of common stock. There can be no assurance that a market for our common stock will be sustained. Therefore, purchasers of our shares registered hereunder may be unable to sell their securities because our shares are thinly traded. As a result, you may find it more difficult to dispose of, or obtain accurate quotes of our common stock. Any purchaser of our securities should be in a financial position to bear the risks of losing their entire investment.Nominating and Corporate Governance Committee
Shares in This Offering Will Be Sold By Our OfficersBoard of Directors has established a nominating and Directors
This is a self-underwritten offering with no minimum sale requirement. Our officerscorporate governance committee, which members are comprised of Henry Esber, Dale Conaway, and directors will sell the Shares directly to the public, with no commission or other remuneration payable to them for any Shares thatRom Eliaz, all of whom are sold by them. Dr. Platt will registerindependent directors. Mr. Esber acts as the issuer-agent in those states requiring such registration. In offering the securities on our behalf, he will rely on the safe harbor from broker-dealer registration set out in Rule 3a4-1 under the Securities Exchange Act of 1934.
Rule 3a4-1 sets forth those conditions under which a person associated with an Issuer may participate in the offeringchairman of the Issuer’s securitiesnominating and not be deemed to be a broker-dealer. Those conditions are as follows:corporate governance committee. The functions of the nominating and corporate governance committee include the following:
| a.· | Our officersidentifying and directors are not subjectrecommending to a statutory disqualification,the Board of Directors individuals qualified to serve as that term is defined in Section 3(a)(39)members of our Board of Directors and on the committees of the Act, atBoard; |
| · | advising the timeBoard with respect to matters of their participation;Board composition, procedures and committees; and |
| b.· | Our officersdeveloping and recommending to the Board a set of corporate governance principles applicable to us and overseeing corporate governance matters generally including review of possible conflicts and transactions with persons affiliated with directors will not be compensated in connection with their participation byor members of management; and overseeing the paymentannual evaluation of commissions or other remuneration based either directly or indirectly on transactions in securities;the Board and |
| c. | Our officers and directors are not, nor will they be at the time of their participation in the offering, an associated person of a broker-dealer; and our management. |
Compensation Committee
Our officersBoard of Directors has established a compensation committee, which members are comprised of Rom Eliaz, Dale Conaway and directors meetHenry Esber, all of whom are independent directors. Mr. Esber serves as the conditions of paragraph (a)(4)(ii) of Rule 3a4-1chairman of the Exchange Act,compensation committee. The compensation committee is primarily responsible for overseeing and administering our compensation plans and executive compensation matters.
Executive Compensation
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to (i) all individuals serving as our principal executive officers or acting in that they (A) primarily perform, or intend primarily to performa similar capacity during the last two completed fiscal years, regardless of compensation level, and (ii) our two most highly compensated executive officers other than the principal executive officers serving at the end of the offering, substantial duties for or on behalf of our Company, other than in connection with transactions in securities; and (B) are not a broker or dealer, or have been associated person of a broker or dealer, withinlast two completed fiscal years (collectively, the preceding twelve months; and (C) have not participated in selling and offering securities for any Issuer more than once every twelve months other than in reliance on Paragraphs (a)(4)(i) and (a)(4)(iii)“Named Executive Officers”).
There are no current plans or arrangements to enter into any contracts or agreements to sell the Shares with a broker or dealer. However, we may enter into such agreements and pay commissions and expenses of up to 10% of all proceeds raised by brokers, dealers, finders or selling agents who may participate in this offering.
Our officers, directors, control persons and affiliates of same do not intend to purchase any shares in this offering.
Under the securities laws of certain states, the Shares may be sold in such states only through registered or licensed brokers or dealers or persons exempt from such registration. In addition, in certain states the Shares may not be sold unless the Shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. We will only offer and sell the Shares in those states where we register or qualify the Shares for sale or where an exemption from such registration or qualification requirement is available and we have complied with such exemption.
We intend to sell our shares in the Commonwealth of Massachusetts, New York, New Jersey, Connecticut, Texas, California, Florida and Illinois. However we may expand the offering into additional states should the officers deem it appropriate to do so.
Terms of the Offering
The shares will be sold at the fixed price of $0.50 per share until the completion of this offering. There is no minimum amount of subscription required per investor, and subscriptions, once received, are irrevocable. This offering will commence on the effective date of this Prospectus and continue for a period not to exceed 180 days (the “Expiration Date”).Summary Compensation Table
Name and Principal Position | | | | | | | | | Stock | | | | |
| Year | | Salary | | | Bonus | | | Awards (4) | | | Compensation | |
| | | | | | | | | | | | | |
David Platt, Ph.D., Chief Executive | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Anthony Squeglia, Chief Financial | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
(1) | Dr. Platt also served as Chief Financial Officer during the 2013 fiscal year until the election of Anthony Squeglia as Chief Financial Officer on December 4, 2013. |
(2) | Mr. Tassey served as President until his resignation from our company on June 30, 2014. Salary for 2014 includes $50,000 in severance paid to Mr. Tassey through December 31, 2014. Mr. Tassey’s fully vested stock options granted in fiscal 2014 forfeited September 30, 2014 as they were not exercised by Mr. Tassey. |
| |
(3) | In January 2013, Mr. Squeglia was hired as the Vice President of Strategic Planning and became Chief Financial Officer on December 4, 2013. |
| |
(4) | Consists of grants of stock options. Details of the options are set forth on the table titled “GRANTS OF PLAN-BASED AWARDS IN FISCAL 2014” below. |
DepositGrants of Offering ProceedsPlan-Based Awards
There were no grants of plan-based awards to the named executive officers in fiscal 2013. The following table shows for the fiscal year ended December 31, 2014, certain information regarding grants of plan-based awards, or common stock options, to the named executive officers.
GRANTS OF PLAN-BASED AWARDS IN FISCAL 2014
Name | Award Type | Grant Date | Approval Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Target ($) | All Other Option Awards: Number of Securities Underlying Options (3) | | Exercise or Base Price of Option Awards ($/Sh) (1) | | | Grant Date Fair Value of Stock and Option Awards ($) (2) | |
David Platt | Incentive Stock Option | 02/12/14 | 02/12/14 | - | 100,000 | | $ | 1.21 | | | $ | 87,995 | |
Anthony Squeglia | Incentive Stock Option | 02/12/14 | 02/12/14 | - | 100,000 | | $ | 1.21 | | | $ | 87,995 | |
Kenneth A. Tassey, Jr. (4) | Incentive Stock Option | 02/12/14 | 02/12/14 | - | 100,000 (4) | | $ | 1.21 | | | $ | 87,995 | |
(1) | Stock options were granted with an exercise price equal to 100% of the fair market value on the date of grant. The stock options granted in 2014 carry an exercise price of $1.21 per share, the closing price of Boston Therapeutics, Inc.’s common stock on the grant date. |
(2) | The dollar amounts in this column represent the grant date fair value of each stock option award granted to the named executive officers in 2014. These amounts have been calculated in accordance with ASC 718, using the Black-Scholes option-pricing model. Assumptions used in the calculation of these amounts are included in the notes to Boston Therapeutics, Inc.’s audited financial statements included in this prospectus for the year ended December 31, 2014. |
(3) | Annual stock options were granted under our Amended and Restated 2010 Stock Plan (the "2010 Plan"). |
(4) | Mr. Tassey’s fully vested stock options were forfeited September 30, 2014 as they were not exercised by Mr. Tassey within the timeframe allotted by the stock option plan based on his resignation date. |
Outstanding Equity Awards at December 31, 2014
The following table sets forth, as of December 31, 2014, certain information regarding outstanding equity awards at fiscal year-end for the named executive officers.
This is a “best efforts” offering and, as such, we will be able to spend any of the proceeds. The funds will be transferred to our business account for use in the implementation of our business plansOUTSTANDING EQUITY AWARDS AT 2014 FISCAL-YEAR END TABLE
| | Option Awards |
| | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#)(1) Unexercisable | | | Option Exercise Price ($) | | Option Expiration Date |
Name |
| | | 250,000 | | | | — | | | $ | 0.50 | | |
| | | 75,000 | | | | 25,000 | | | $ | 1.21 | | |
| | | 500,000 | | | | — | | | $ | 0.50 | | |
| | | 75,000 | | | | 25,000 | | | $ | 1.21 | | |
(1) | In addition to the specific vesting schedule for each stock option award, each unvested stock option is subject to the general terms of the 2010 and 2011 Plans including the potential for future vesting acceleration. |
ProceduresOption Exercises and Requirements for SubscriptionStock Vested in 2014
Our Named Executive Officers did not exercise any stock options during fiscal year 2014. Both Dr. Platt and Mr. Squeglia were awarded 100,000 stock options in February 2014 of which 75,000 were fully exercisable at the time of grant and 25,000 become exercisable on January 1, 2015. In addition, 62,500 stock options from a November 2012 award to Mr. Squeglia’s vested in March 2014.
If you decide to subscribe for any shares in this offering, you will be required to execute a Subscription Agreement and tender it, together with a check or certified funds to us. Subscriptions, once received by the Company, are irrevocable. All checks for subscriptions should be made payable to the Company. There is no minimum purchase requirement.
DETERMINATION OF PRICE
The offering of 20,000,000 shares of our common stock described in this Prospectus, and 10,000,000 shares of our common stock upon exercise of the warrants will represent approximately 173% of our outstanding common stock. For purposes of calculating the registration fee for the common stock included in this Prospectus, we have used an estimated public offering price of $0.50 per share. This is an arbitrary price and we can offer no assurances that the $0.50 price per share bears any relation to the value of the shares as of the date of this Prospectus.
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
No established public trading market exists for our common stock. We have no shares of common stock subject to outstanding options or warrants to purchase, or securities convertible into, our common stock. Except for this offering, there is no common stock that is being, or has been proposed to be, publicly offered.
Holders of Common Stock
As of the date of this prospectus, we have 1,676approximately 1,700 holders of record of our common stock. The number of record holders does not include persons, if any, who hold our common stock in nominee or “street name” accounts through brokers.
Market for Common Stock
Our primary stockholders are Dr. David Platt, our chairman ofcommon stock is quoted on the board, chief executive officerOTCQB Marketplace under the symbol “BTHE” The following table sets forth, for the periods indicated, the high and chief financial officer, Kenneth Tassey, our President, and Offer Binder, who own 8,603,584; 3,040,000, and 2,000,000 shares respectivelylow sales prices per share of our common stock or an aggregate of 13,643,584 of our 17,348,206 outstanding shares.as reported by the OTCQB Marketplace:
Period | | High | | Low |
| | | | | | |
February 28, 2012 through March 31, 2012 | | | | | | |
April 1, 2012 through June 30, 2012 | | | | | | |
July 1, 2012 through September 30, 2012 | | | | | | |
October 1, 2012 through December 31, 2012 | | | | | | |
January 1, 2013 through March 31, 2013 | | | | | | |
April 1, 2013 through June 30, 2013 | | | | | | |
July 1, 2013 through September 30, 2013 | | | | | | |
October 1, 2013 through December 31, 2013 | | | | | | |
January 1, 2014 through March 31, 2014 | | | | | | |
April 1, 2014 through June 30, 2014 | | | | | | |
July 1, 2014 through September 30, 2014 | | | | | | |
October 1, 2014 through December 31, 2014 | | | | | | |
January 1, 2015 through March 31, 2015 | | | | | | |
Dividends
There have been no cash dividends declared onThese sales prices were obtained from the OTCQB Marketplace and do not necessarily reflect actual transactions, retail markups, mark downs or commissions. As of April 21, 2015 the last reported sales price of a share of our common stock sinceon the OTCQB Marketplace was $0.20. No assurance can be given that an established public market will develop in our company was formed. Dividends are declaredcommon stock, or if any such market does develop, that it will continue or be sustained for any period of time.
Transfer Agent
Our stock transfer agent is Worldwide Stock Transfer, LLC, which is located at One University Plaza Suite 505, Hackensack, NJ 07601, Telephone: 201-820-2008.
Securities Authorized for Issuance under Equity Compensation Plans
The following table indicates shares of common stock authorized for issuance under our Amended and Restated 2011 Non-Qualified Stock Plan (the “2011 Plan”) and our Amended and Restated 2010 Stock Plan (the “2010 Plan”) as of December 31, 2014:
Plan category | | Number of securities to be issued upon exercise of outstanding options | | | Weighted-average exercise price of outstanding options | | | Number of securities remaining available for future issuance | |
Equity compensation plans approved by security holders(1) | | | | | | $ | | | | | | |
| | | | | | | | | | | | |
Equity compensation plans not approved by security holders (2) | | | | | | $ | | | | | | |
(1) | Consists of our Amended and Restated 2010 Stock Plan (the “2010 Plan”). See Note 6 —“Stock Option Plan and Stock-Based Compensation” of the Notes to the Financial Statements included in this prospectus. The Company’s stockholders approved the 2010 Plan by written consent on June 16, 2010 and an amendment to increase the number of shares of common stock issuable to 7,500,000 was approved in September 2013. |
(2) | Consists of our Amended and Restated 2011 Non-Qualified Stock Plan (the “2011 Plan”). See Note 6 —“Stock Option Plan and Stock-Based Compensation” of the Notes to the Financial Statements included in this prospectus. The 2011 Plan has not been presented to the Company’s stockholders for their consent as it does not provide for the issuance of incentive stock options. An amendment to increase the number of shares of common stock issuable to 17,500,000 was approved in March 2013. |
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2014:
| ● | on an actual basis; and |
| | |
| ● | on a pro forma basis to give effect to our issuance and sale of up to 25,000,000 shares of our common stock in this offering at an assumed public offering price of $0.20 per share, which is closing price of our common stock on April 21, 2015, after deducting estimated offering expenses payable by us. The following does not include the 12,500,000 warrants issuable in this offering to purchase shares of common stock. |
| | |
| ● | the following table does not include the dilutive impact for the potential conversion of the Company’s convertible promissory note agreements totaling approximately $497,000 in gross proceeds entered into during March 2015 as well as a warrant issued in conjunction with one of the convertible debt agreements to purchase 979,965 shares of common stock. |
| | |
| | As of December 31, 2014 |
| | Actual | | | Pro Forma |
Cash and cash equivalents | | $ | 157,278 | | | $ | 5,057,278 |
Notes payable - related parties | | | 297,820 | | | | 297,820 |
| | | | | | | |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding | | | - | | | | - |
Common stock, $0.001 par value, 200,000,000 shares authorized, 38,512,516 shares issued and outstanding at December 31, 2014 and 63,512,516 shares Pro Forma | | | 38,512 | | | | 63,512 |
Additional paid-in capital | | | 12,034,992 | | | | 16,909,992 |
| | | (11,998,841 | ) | | | (11,998,841) |
Total stockholders’ equity | | | 74,663 | | | | 4,974,663 |
| | | 372,483 | | | | 5,272,483 |
The table above does not include:
| ● | outstanding stock options to purchase an aggregate of 6,483,400 shares of common stock as of December 31, 2014, pursuant to our 2010 and 2011 stock option plans with a weighted average exercise price of $0.47; |
| ● | outstanding warrants to purchase an aggregate of 12,516,669 shares of common stock as of December 31, 2014, with a weighted average exercise price of $0.53; or |
| ● | warrants issuable in this offering to purchase up to 12,500,000 shares of common stock with an exercise price of $0.30. |
DILUTION
If you purchase shares in this offering your interest will be diluted immediately to the sole discretionextent of the difference between the assumed public offering price of $0.20 per share and the as adjusted net tangible book value per share of our Boardcommon stock immediately following this offering as of Directors. December 31, 2014.
Our intentionnet tangible book value as of December 31, 2014 was a deficit of approximately $(627,262), or approximately $(0.02) per share. Net tangible book value per share represents our total tangible assets less total tangible liabilities, divided by the number of shares of common stock outstanding as of December 31, 2014. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers in this offering and the as adjusted net tangible book value per share of common stock immediately after completion of this offering.
Assuming the sale of all 25,000,000 shares of common stock in this offering at an assumed public offering price of $0.20 per share, and after deducting estimated offering expenses, our as adjusted net tangible book value as of December 31, 2014 would have been approximately $4,300,000, or $0.07 per share. This represents an immediate increase in net tangible book value of $0.09 per share to existing stockholders and an immediate dilution in net tangible book value of $0.13 per share to purchasers of shares in this offering.
The following table illustrates the dilution to the purchasers of the common stock in this offering. The table below includes an analysis of the dilution that will occur if 25%, 50%, 75% of the shares are sold, as well as the dilution if all shares are sold:
| | 25% of | | | 50% of | | | 75% of | | | Maximum | |
| | Offering | | | Offering | | | Offering | | | Offering | |
| | | | | | | | | | | | |
Assumed public offering price per share | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net tangible book value per share as of December 31, 2014 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Increase in net tangible book value per share attributable to new investors | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Adjusted net tangible book value per share as of December 31, 2014, after giving effect to the offering | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Dilution per share to new investors in the offering | | | | | | | | | | | | | | | | |
The above discussion and table do not include:
| · | outstanding stock options to purchase an aggregate of 6,483,400 shares of common stock as of December 31, 2014, pursuant to our 2010 and 2011 stock option plans with a weighted average exercise price of $0.47; |
| · | outstanding warrants to purchase an aggregate of 12,516,669 shares of common stock as of December 31, 2014, with a weighted average exercise price of $0.53; or |
| · | warrants issuable in this offering to purchase up to 12,500,000 shares of common stock with an exercise price of $0.30. |
| · | the dilutive impact for the potential conversion of the Company’s convertible promissory note agreements totaling approximately $497,000 in gross proceeds entered into during March 2015 as well as a warrant issued in conjunction with one of the convertible debt agreements to purchase 979,965 shares of common stock. |
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 our financial statements, which are included elsewhere in this prospectus. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. 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. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this prospectus, and other factors that we may not know.
Overview
Boston Therapeutics, headquartered in Manchester, NH, (OTC: BTHE) is a leader in the field of complex carbohydrate chemistry. The Company's initial product pipeline is focused on developing and commercializing therapeutic molecules for diabetes: BTI-320 is a non-systemic, non-toxic, therapeutic compound designed to declarereduce post-meal glucose elevation, and IPOXYN, an injectable anti-necrosis drug specifically designed to treat lower limb ischemia associated with diabetes. In addition, the Company has completed development of SUGARDOWN®, a complex carbohydrate-based dietary supplement. SUGARDOWN® is currently in the initial stage of market introduction, and in June 2011, we entered into an agreement with Advance Pharmaceutical Co. Ltd. to develop markets in Hong Kong, South Korea, China and Macau. In November 2014, we agreed to expand this marketing 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 expand their marketing agreement to include Japan. In May 2014, we entered into a strategic marketing agreement with Benchworks SD, LLC, (Benchworks) a leading branding and marketing agency, aimed at driving brand awareness and growing sales of SUGARDOWN® among the large pre-diabetic population in North America.
Management is currently seeking additional capital through private placements and public offerings of its common stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financings in order to fund our operations. In March 2015, the Company entered into four different convertible promissory note agreements with an aggregate proceeds balance of $432,000, net of discounts and fees. Management anticipates that our cash dividendsresources will be sufficient to fund our planned operations through the second quarter of 2015 as a result of additional cost cutting measures surrounding the use of consultants and retain all cash forpayroll associated costs reduced by the Company during the fourth quarter of fiscal 2014 and into fiscal 2015. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development 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.
ADDITIONAL INFORMATIONResults of OperationsFiscal 2014 as compared to Fiscal 2013
We have filedRevenue
Revenue for fiscal 2014 was $199,582, a registration statement on Form S-1decrease of $123,830 as compared to revenue of $323,412 for fiscal 2013. The decrease was primarily the result of decreased shipments of SUGARDOWN® to Advance Pharmaceutical.
Gross Margin
Gross margin for fiscal 2014 was $23,753 as compared to gross margin of $45,207 for fiscal 2013. The decrease is primarily due to the reduction in revenue and continued fixed fulfillment charges during fiscal 2014.
Research and Development
Research and development expense for fiscal 2014 was $1,432,669, an increase of $890,177 as compared to $542,492 for fiscal 2013. The increase is primarily the result of expenses associated with the SecuritiesPhase IIb clinical trial for BTI-320 in patients with type 2 diabetes conducted in the U.S. that concluded in fiscal 2014 as well as an ongoing Phase IIb clinical trial in France.
Sales and Exchange CommissionMarketing
Sales and marketing expense for our common stock offeredfiscal 2014 was $320,353, a decrease of $8,865 as compared to $329,218 for fiscal 2013. The decrease is primarily related to non-cash stock-based compensation recorded in this offering. This Prospectus does not contain allfiscal 2013 for options previously granted which are now fully vested.
General and Administrative
General and administrative expense for fiscal 2014 was $2,945,078, a decrease of $808,664 as compared to $3,753,742 for fiscal 2013. Approximately $687,000 of the information set forthdecrease is related to non-cash, stock-based compensation, due to approximately $624,000 of stock-based compensation expense recorded in fiscal 2013 per the registration statement. You should referterms of a terminated employee’s employment agreement. Consulting and professional services decreased $558,000, primarily due to transitions in our business development, public relations and investor relations activities. These decreases in general and administrative expense were partially offset by an increase in accounting, financial and legal professional fees of $189,000, primarily related to the registration statementincreased legal expenses associated with ongoing operations and capital funding activities, as well as the engagement of a finance professional to manage its exhibitsaccounting and financial reporting matters. Payroll and payroll related expense increased $188,000 due to salary increases, severance costs associated with the resignation of the Company’s former President, the institution of an employee medical benefit program and the hiring of a new employee. Travel and entertainment expense increased approximately $39,000 primarily due to investor and industry conferences attended during fiscal 2014.
Fiscal 2013 as compared to Fiscal 2012
Revenue
Revenue for additional information. Whenever we make references in this Prospectusfiscal 2013 was $323,412, an increase of $281,158 as compared to anyrevenue of our contracts, agreements or other documents,$42,254 for fiscal 2012. The increase was primarily the references are not necessarily complete and you should referresult of shipments of SUGARDOWN® to one customer.
Gross Margin
Gross margin for fiscal 2013 was $45,207 as compared to a gross margin deficit of ($14,605) for fiscal 2012. The increase is primarily related to the exhibits attachedshipment of additional product during the third and fourth quarters of fiscal 2013. The gross margin deficit for fiscal 2012 was primarily the result of fixed overhead costs related to moving to a new fulfillment operations and manufacturing scale-up from small to production grade equipment exceeding revenue.
Research and Development
Research and development expense for fiscal 2013 was $542,492, an increase of $363,554 as compared to $178,938 for fiscal 2012. The increase is primarily the registration statementresult of increased research and development activity in preparation for the copiesBTI-320’s Phase II trial in France and BTI-320’s Phase III international trial.
Sales and Marketing
Sales and marketing expense for fiscal 2013 was $329,218, an increase of $96,807 as compared to $232,411 for fiscal 2012. The expense consists primarily of costs incurred with third parties for product marketing and public relations and non-cash stock-based compensation.
General and Administrative
General and administrative expense for fiscal 2013 was $3,753,742, an increase of $2,717,176 as compared to $1,036,566 for fiscal 2012. Approximately $991,000 of the actual contract,increase is related to non-cash, stock-based compensation which includes $624,000 of expense per the terms of a terminated employee’s employment agreement or other document.and expense associated with option grants in 2013. Consulting and professional services increased $864,000 and accounting, financial and legal professional fees increased $445,000. In addition, payroll and payroll related expense increased $272,000 due to additional personnel, rent expense increased $61,000 due to increased space and a full year’s rental and travel and entertainment expenses increased $33,000.
Our fiscal year ends on December 31. We plan Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to furnishmake 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 revenues and expenses during the reported periods. See Note 1 to our shareholders annual reports containing audited financial statements for and as of the year ended December 31, 2014 for discussions of our critical accounting policies and estimates.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we are currently not party to, any off-balance sheet arrangements.
Liquidity and Capital Resources
As of December 31, 2014, we had cash of $157,278 and accounts payable and accrued expenses of $688,964. For the year ended December 31, 2014 the Company used $3,474,140 of cash in operations.
As of December 31, 2013, we had cash of $3,387,428 and accounts payable, and accrued expenses and other appropriate reports, where applicable.current liabilities, of $891,942. During the year ended December 31, 2013, we used $2,339,398 of cash in operations.
We have incurred recurring operating losses since inception as we have worked to bring our SUGARDOWN® product to market and develop BTI-320 and IPOXYN. We expect such operating losses will continue until such time that we receive substantial revenues from SUGARDOWN® or we complete the regulatory and clinical development of BTI-320 or IPOXYN. In March 2015, we entered into four different convertible promissory note agreements with an aggregate proceeds balance of $432,000, net of discounts and fees. Management anticipates that our cash resources will be sufficient to fund our planned operations through the second quarter of 2015 as a result of additional cost cutting measures surrounding the use of consultants and payroll associated costs reduced by the Company during the fourth quarter of fiscal 2014 and into fiscal 2015. We are seeking additional capital through private placements and public offerings of our stock. In addition, we intendmay seek to become a reporting company and file annual, quarterly, and current reports, and other information with the SEC, where applicable. Youraise additional capital through public or private debt or equity financings in order to fund our operations. There can be no assurance that we will be successful in accomplishing our business objectives. Without such additional capital, we may read and copy any reports, statements,be required to curtail or other information we file at the SEC's public reference room at 100 F. Street, N.E., Washington D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our SEC filings are also available to the public on the SEC's Internet site at http\\www.sec.gov.cease operations.
INDEMNIFICATION OF DIRECTORS AND OFFICERSBUSINESS
Section 145Overview
We are a clinical-stage pharmaceutical company focused on the development, manufacture and commercialization of carbohydrate-based therapeutic drugs and dietary supplements designed to address blood sugar management and inflammatory diseases in a safe and efficient manner.
Currently, our lead pharmaceutical drug candidates are:
| · | BTI-320, a non-systemic, carbohydrate-based compound designed to reduce post-meal elevation of blood glucose levels in Type 2 diabetic patients; and |
| · | IPOXYN, a carbohydrate-based, injectable drug intended to prevent necrosis, or cell death, and to treat hypoxic conditions, such as diabetic foot ulcers and other vascular complications. |
Following Phase II clinical trial results reported in 2013 and the recent Phase IIb clinical trial concluded in October 2014, the U.S. Food and Drug Administration (“FDA”) accepted the Investigational New Drug Application (or IND) we filed for BTI-320 to treat Type 2 diabetes and weight management. Joslin Diabetes Center in Boston will serve as the lead clinic for the multi-center, multi-country trial expected to commence in the second quarter of 2015. The trial is expected to enroll up to 360 patients in the 24 week study which is being designed as a randomized, placebo-controlled, double blind international multi-center study with two treatment arms. The primary efficacy endpoint of the trial is the mean change in HbA1c levels from baseline at 24 weeks and will be conducted at a number of international centers located in the U.S., Europe, Asia and Australia. Development of IPOXYN is in the pre-clinical planning stage.
In addition, we currently sell SUGARDOWN®, a non-systemic, carbohydrate-based dietary supplement designed to support healthy blood glucose levels, over the Internet and by purchase order.
We were formed on August 24, 2009, as a Delaware General Corporation Law providescorporation under the name of Avanyx Therapeutics, Inc. Initially, we focused on our IPOXYN drug candidate. On November 10, 2010, we entered into an Agreement and Plan of Merger with Boston Therapeutics, Inc., a New Hampshire corporation, which added our BTI-320 drug candidate to our pipeline. The transaction provided for (i) the merger of the New Hampshire entity into our company, with our company being the surviving entity, (ii) the issuance by us of 4,000,000 shares of common stock to the stockholders of the New Hampshire entity as consideration for 100% of the outstanding common stock of the New Hampshire, and (iii) the change of our corporate name to Boston Therapeutics, Inc.
Novelty of Complex Carbohydrate Science
Carbohydrate molecules, which are essential to the transmission and recognition of cellular information, have been shown to play an important role in major diseases including cancer, cardiovascular disease, Alzheimer’s disease, inflammatory disease and viral infections. We believe this offers a largely untapped area for treatment by utilizing:
| · | in the case of BTI-320 and SUGARDOWN®, modified mannan (a polymer found in plants) to lower the rise in post-prandial blood glucose (PPG, or post-meal blood sugar); and |
| · | in the case of IPOXYN, hemoglobin as modified by carbohydrate chemistry to deliver oxygen to cells in a necrosis or hypoxic condition. |
We use naturally occurring, readily-available plant materials as starting material to create proprietary complex carbohydrates with specific molecular weights and other pharmaceutical properties. These complex carbohydrate molecules are then formulated into acceptable pharmaceutical formulations. Using these novel carbohydrate-based candidate compounds that a corporation may indemnify directorslargely bind and officers as well asinhibit enzymes, we are undertaking the focused pursuit of developing therapies for diabetes and other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedingsserious diseases in which such person is madeenzymes have a party by reason of such person being or having been a director, officer, employee or agent ofdemonstrated role in causing the corporation. Section 145 of the Delaware General Corporation Law also provides that expenses (including attorneys’ fees) incurred by a director or officer in defending an action may be paid by a corporation in advance of the final disposition of an action if the director or officer undertakes to repay the advanced amounts if it is determined such person is not entitled to be indemnified by the corporation. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The Company’s Bylaws provide that, to the fullest extent permitted by law, the Company shall indemnify and hold harmless any person who was or is made or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person, or the person for whom he is the legally representative, is or was a director or officer of the Company, against all liabilities, losses, expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such proceeding.disease.
Section 102(b)(7) of the Delaware General Corporation Law permitsOur management team, including most notably our Chairman and Chief Executive Officer David Platt, Ph.D., has played a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. The Company’s Certificate of Incorporation provides for such limitation of liability.
The Company’s By-laws provide for the indemnification of, and advancement of expenses to, directors and officers of the Company (and, at the discretion of the Board of Directors of the Company, employees and agents of the Company to the extent that Delaware law permits the Company to provide indemnification to such persons) in excess of the indemnification and advancement otherwise permitted under Section 145 of the DGCL, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to the Company, its stockholders and others. The provision does not affect directors’ responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws.
The Company intends to enter into agreements with its directors and executive officers, that will require the Company to indemnify such persons to the fullest extent permitted by law, against expenses, judgments, fines, settlements and other amounts incurred (including attorneys’ fees), and advance expenses if requested by such person, in connection with investigating, defending, being a witness in, participating, or preparing for any threatened, pending, or completed action, suit, or proceeding or any alternative dispute resolution mechanism, or any inquiry, hearing, or investigation (collectively, a “Proceeding”), relating to any event or occurrence that takes place either prior to or after the execution of the indemnification agreement, related to the fact that such person is or was a director or officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to anything done or not done by such person in any such capacity, whether or not the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent of the Company. Indemnification is prohibited on account of any Proceeding in which judgment is rendered against such persons for an accounting of profits made from the purchase or sale by such persons of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state, or local laws. The indemnification agreements also set forth certain procedures that will applyleading role in the eventdevelopment of complex carbohydrate science and a claim for indemnification thereunder.pipeline of carbohydrate-based therapeutics to address a variety of unmet medical needs. We believe this expertise is particularly valuable as we progress the clinical development of our products and work to expand market awareness and sales of SUGARDOWN®.
Insurance. BTI-320 and SUGARDOWN® Mechanisms of Action
Diabetes is a chronic disease in which a patient’s inability to produce the hormone insulin in sufficient amounts or at all leads to high levels of glucose in the blood stream, which in turn can cause complications such as heart, kidney and retina disease. The modified mannan in BTI-320 tablets works to lower the rise in post-meal blood glucose in several ways. First, it binds to long-chain starch polysaccharides in food and to the digestive enzymes that cleave these large sugars into glucose. Second, it temporarily coats the inside of the small intestine to slow the absorption of glucose. Together, these mechanisms have been shown to lower the rate of absorption of glucose from the small intestine into the blood.
BTI-320 is intended to reduce the amount of glucose available for absorption into the bloodstream. Most anti-diabetes drugs, also called hypoglycemic drugs, force blood sugar levels down systemically by targeting organs such as the pancreas and the body’s cells, increasing the risk of side effects as has been evidenced in recent FDA findings. In contrast, BTI-320 targets enzymes in the mouth and small intestine to reduce the uptake of glucose during the digestion of carbohydrate foods. We believe this preemptive, non-systemic approach to blood sugar management provides for a stronger safety profile. The BTI-320 profile is enhanced due to its GRAS (Generally Regarded as Safe) classification. SUGARDOWN® has a similar mechanism of action.
In February 2013, we reported positive results from a Phase II clinical study conducted at Dartmouth-Hitchcock Medical Center that evaluated the safety and efficacy of BTI-320. The study evaluated BTI-320 in 24 patients with Type 2 diabetes between the ages of 18 and 75 with a body mass index (BMI) of 25-40 kg/m2 and with a HbA1c (a lab test that shows the average level of blood glucose over the previous three months) of less than or equal to 9 percent. The primary endpoint of this study was to demonstrate a minimum reduction of incremental area under the curve (AUC) of post-meal blood glucose by 20%.
In this study, forty-five percent (45%) of patients responded positively with a forty percent (40%) reduction of post-meal glucose in the blood compared to baseline in a dose-dependent manner. Additionally, results showed the effect of BTI-320 does not correlate with duration of diabetes, and worked regardless of concurrent diabetes medications. There was no severe hypoglycemia (low blood sugar episodes), gastrointestinal side effects were mild and satiety (fullness) was observed. In the article published in the July/August 2013 issue of the peer reviewed journal, Endocrine Practice, there were no serious adverse events (SAEs) from the data analysis of the open-label dose escalation crossover trial on patients with Type 2 diabetes.
In 2012, we conducted a clinical study at the University of Sydney in Australia that showed the post-meal incremental area under the curve (iAUC) for glucose and insulin were significantly lower following consumption of SUGARDOWN® prior to a high carbohydrate meal of rice in a dose-dependent manner. This resulted in a reduction of up to 61 percent in post-meal elevation of blood glucose compared with the rice consumed alone. On average, there was a 32 percent reduction in the post-meal iAUC for glucose and a 24 percent reduction in post-meal insulin response for the volunteers in the study. No severe adverse effects were reported or observed during the study. SUGARDOWN® was tested in healthy, but overweight, adults with a mean body mass index (BMI) value of 27.3 kg/m2. This clinical study indicated that SUGARDOWN® can maintain healthy glucose levels even after meals, when sugar tends to spike.
In October 2014, we reported results from a Phase IIb study of BTI-320 in patients with Type 2 diabetes conducted in the U.S. by Accumed Research Associates. The trial enrolled 23 patients with Type 2 diabetes diagnosed for at least one year and who were on a stable daily dose of Metformin for at least three months. The patients were administered BTI-320 and Metformin using a randomized, double-blind, placebo-controlled, dose-ranging, three-way cross-over study design. Of the 23 patients that completed the trial, 15 patients did not respond to the rice test meal for unexplained reasons. The remaining eight patients responded to BTI-320 with up to a 34% reduction in post meal blood glucose levels. Patients were given one to two BTI-320 tablets, half of the dose of the Dartmouth study and one third the dose of the University of Sydney trial. The results of the trial showed BTI-320 as safe and well tolerated, with no adverse events reported and provided information on different patient populations to be used to design the proper protocols for the clinical trial planned for 2015.
IPOXYN and OXYFEX
IPOXYN is a carbohydrate-based, injectible solution that can potentially prevent necrosis, or cell death, and treat hypoxic conditions such as diabetic foot ulcers and other vascular complications of diabetes. IPOXYN, a blood substitute, has a very broad range of potential applications, including but not limited to, tissue death prevention, wound healing, traumatic blood loss, traumatic brain injury, stroke, cancer, surgery, transplant and anemia. In addition, since donated human blood needs refrigeration and has a shelf life of less than one month, IPOXYN can serve as an adjunct to or replacement for donated blood in trauma and surgery cases when there are human blood supply deficiencies.
Hypoxia is a condition in which cells lack sufficient oxygen supply to support metabolic function. As evidenced by the well-established record of data relating to similar products, the IPOXYN carbohydrate molecule contains oxygen rechargeable iron which picks up oxygen in the lungs, is 5,000 times smaller than a red blood cell (or RBC), and can reach hypoxic tissue more effectively than RBCs. IPOXYN is stable at room temperature, has a five year shelf life and requires no blood type matching. We plan to introduce this product in clinical trials for hypoxic medical conditions.
Our pharmaceutical agents are intended for intravenous administration into the circulatory system to target acute and late stage diseases that, we believe, have a great unmet medical need. Hypoxia conditions, which we intend to treat with IPOXYN, result from a lack of oxygen supply to living cells. Hypoxia will lead to ischemia, inflammation and the death of living cells. Ischemia is a restriction in blood supply, generally due to factors in the blood vessels, with resultant damage or dysfunction of tissue. Diabetic foot ulcer, which occurs in 15% of patients with diabetes and precedes more than 80% of all lower leg amputations, is one of the major complications of diabetes mellitus. Two major risk factors that cause diabetic foot ulcer are diabetic neuropathy and micro/macro ischemia. Increases in mortality among diabetic patients observed over the past 20 years are considered to be due to the development of macro and micro vascular complications including the failure of the wound healing process. A failure of effective treatment of wounds in this population can often lead to infection, tissue death and amputation of the lower leg and foot as the only treatment option. We believe that IPOXYN represents a potentially effective treatment for lower limb complications of diabetes.
We are also developing OXYFEX, a veterinary analog to IPOXYN. We are unaware of any drug currently on the market for animals that can deliver oxygen, and there is only limited “blood banking” for animals despite a constant need. OXYFEX™ can serve as the only available oxygen delivery mechanism for animals suffering ischemia or traumatic and surgical blood loss events.
IPOXYN and OXYFEX consist of a stabilized glycoprotein composition containing oxygen-rechargeable iron, targeting both human and animal tissues and organ systems deprived of oxygen and in need of metabolic support. We have not conducted any clinical trials to confirm the efficacy of, or filed any applications with the FDA with respect to, IPOXYN. We are in the process of developing IPOXYN for pre-clinical studies, in order to conduct clinical trials and to file applications with the FDA as applicable. We expect to file an IND application with the FDA in 2015, provided we obtain adequate funding. We expect to have access to the pilot-scale manufacturing facility of a third party with adequate capacity to produce IPOXYN for clinical trials and market introduction following European Medicines Evaluation Agency (or EMEA) approval.
We have unrestricted access, subject to adequate funding, to both sufficient raw materials at commodity pricing and processing facilities to produce sufficient quantities of IPOXYN to complete pre-clinical pharmacokinetic, safety and efficacy studies in support of an investigative new drug (IND) filing in the United States in 2015. The primary raw material for IPOXYN is extracted from controlled sourced bovine blood which can be obtained from multiple sources at commodity prices under Good Manufacturing Practice (GMP). There are numerous facilities capable of processing source verified red blood cell extract. We expect to put in place agreements for obtaining and processing these materials upon funding.
Drug Development Status
BTI-320 is our lead product candidate and is currently in Phase II clinical development. We have not initiated any trials or filed any applications with the United States Food and Drug Administration (or FDA) for IPOXYN. Following Phase II clinical trial results reported in 2013 and the recent Phase IIb clinical trial concluded in October 2014, the FDA accepted the Investigational New Drug Application (or IND) we filed for BTI-320 to treat Type 2 diabetes and weight management. Joslin Diabetes Center in Boston will serve as the lead clinic for the multi-center, multi-country trial expected to commence in the second quarter of 2015. The trial is expected to enroll up to 360 patients in the 24 week study which is being designed as a randomized, placebo-controlled, double blind international multi-center study with two treatment arms. The primary efficacy endpoint of the trial is the mean change in HbA1c levels from baseline at 24 weeks and will be conducted at a number of international centers located in the U.S., Europe, Asia and Australia. Development of IPOXYN is in the pre-clinical planning stage.
BTI-320
In March 2014, following the successful results of the Dartmouth study, we received Institutional Review Board (IRB) approval to initiate a clinical study of BTI-320 in the United States. In October 2014, we completed a Phase II trial in the United States and are currently undergoing an additional Phase II trial in France. These trials were designed to build upon the results from our Dartmouth study for BTI-320. In the Dartmouth study, BTI-320 was well tolerated in patients taking various anti-diabetic agents, including Metformin. The recent clinical trial in the U.S. showed BTI-320 was safe and well tolerated with no adverse events reported. The FDA has accepted an IND we filed for BTI-320 to treat Type 2 Diabetes and weight management. We plan to commence a multi-center, multi-country clinical trial in 2015 for BTI-320.
IPOXYN
We believe IPOXYN is a safe and effective intervention for reversing acute hypoxia, fulfilling an unmet clinical need; and that IPOXYN can alleviate acute deficiency of oxygen and avert further life threatening complications and muscle and tissue death which can result from a sustained deficiency of oxygen. Our belief about the safety and efficacy of IPOXYN is based on preliminary good laboratory practices (GLP) testing of a material bio-similar to IPOXYN, where it was found that such bio-similar formulation had no material toxicity on a small group of animals. We understand that this testing of GLP produced bio-similar materials or, for that matter, pre-clinical testing, will not necessarily predict levels of toxicity and efficacy in humans. However, if clinical trials ultimately support this belief, in many clinical situations IPOXYN could become a significant new management tool to moderate the inconsistencies of RBC transfusion.
In addition to the expansive and broad application development in the field of human medical management, we envision a sizable market in the veterinary field and expect to make a registration filing for this market as soon as we can complete pre-clinical safety and efficacy studies. Clinical safety and efficacy studies under Good Manufacturing Practices have not yet been initiated.
Preliminary data from animal testing conducted by third parties suggests successful use of IPOXYN in hypoxia and critical anemic situations, where hypoxic conditions were critical to animal survival. Early experiments with dogs suggest intervention with IPOXYN will significantly improve survival in induced canine anemia models. This veterinary treatment of canine anemia will be our first target for seeking early regulatory approval in the European Union. As there is substantial commonality between the metabolic functions of humans and other mammals, animal testing becomes a starting point for many clinical development programs that can directly translate into clinical development programs for humans. The third party testing described here was conducted by a company that developed a bio-similar product to IPOXYN. Testing included repeated intravenous infusions of the product in dogs that was reported in well documented literature and regulatory filings, and the testing did not result in reported mortality/morbidity of the subject animals. Reports concerning anemic dogs infused with the bio-similar product showed increased plasma hemoglobin levels resulting in an increase of the oxygen carrying capacity of the treated animals. We have no agreements with the third party that conducted these toxicity tests, or its successors.
Market Opportunity
Diabetes
According to the International Diabetes Federation, in 2013, 382 million people worldwide are living with diabetes and that number is projected to increase to 592 million by 2035. In the United States alone, the Center for Disease Control estimated that there were 26 million people living with diabetes and an estimated 79 million people who were pre-diabetic in 2011. Standard therapies for diabetes include physician recommended diet and exercise, oral hypoglycemic drugs such as Metformin for Type 2 diabetes and insulin injection regimens for people with Type 1 diabetes. The objective of each is to maintain a daily blood glucose level range recommended by a physician. Each of the current therapies alone has its limitations including numerous side effects.
According to Standard & Poor’s, the diabetes drug market is estimated to be $35 billion and is on pace to grow to more than $58 billion by 2018. Pharmaceutical companies have been investigating new approaches to treating diabetes and market value has been maintained in the industry due to the introduction of these new products. We believe that BTI-320 represents a near-term commercial opportunity in a large and growing diabetes market. BTI-320 is pharmacologically differentiated from commercially available PPG drugs.
We believe that many patients with diabetes have suboptimal relief with the use of the above therapies alone or in combination with each other. In addition, other types of PPGs are only effective by themselves in the early stages of impaired glucose tolerance. Our BTI-320 oral formulation is a new class of drug for the treatment of Type 2 diabetes. Human testing to date has shown that it is safe and non-systemic with a benign side effect profile that will be used for the treatment of diabetes. We believe BTI-320 has the potential to be an adjunctive therapy when combined with Metformin, the most prescribed diabetes drug in the U.S. with 50 million prescriptions annually.
Hypoxia
Our injectable drug candidate, IPOXYN, will potentially compete with existing therapies for the treatment of hypoxia or anti-necrosis that according to Global Industry Analysts, Inc. has a global market opportunity of $1 billion. Hypoxia is a condition in which cells lack sufficient oxygen supply to support metabolic function. The standard therapy for acute anemia resulting from blood loss is infusion of RBCs mainly from supplies of donated blood. For prophylactic or long-term treatment of anticipated or chronic anemia, medications that stimulate the creation of new RBCs are frequently used.
Presently, there is no substitute for human blood to deliver oxygen to the body; and transfusions involve certain risks and limitations. The standard therapy for reversing hypoxia is blood infusion, RBCs or hyperbaric oxygen. Hyperbaric medicine or hyperbaric oxygen therapy (HBOT) is a medical term for using oxygen at a level higher than atmospheric pressure. The HBOT treatment can only be done at a medical facility and each session can cost from $200 to more than $1,000. For decades, oxygen carriers have been developed for perfusion and oxygenation of ischemic tissue; none have yet succeeded in becoming an artificial blood component or blood substitute. These products were either blood-derived elements, synthetic perfluorocarbons, or red blood cell modifiers. According to a Brown University study, there is a global shortage of transfusion suitable blood of 110 million units, and the need for blood is rising 6-7% annually. IPOXYN, a blood substitute, has a broad range of potential applications, including but not limited to, tissue death prevention, wound healing, traumatic blood loss, traumatic brain injury, stroke, cancer, surgery, transplant and anemia.
Veterinary Market
We plan to commence marketing OXYFEX™ for veterinary applications, which we view as a potentially lucrative market, once we receive the necessary approvals in the U.S. and globally. We estimate that there are at least 15,000 small animal veterinary practices in the United States, another 4,000 mixed animal practices treating small and large animals in the United States and approximately 22,000 small animal practices in Europe. We believe that the average veterinary practice treats only a small percentage of canine anemia cases with red blood cell transfusion. The remaining animals receive either cage rest or treatment such as fluid administration, iron supplements, dietary supplements or inspired oxygen. The FDA Center for Veterinary Medicine approved a bio-similar product to OXYFEX™ named Oxyglobin in 1998 and the European Commission approved Oxyglobin in 1999, in both cases for the treatment of canine anemia, regardless of the cause of the anemia. Oxyglobin is no longer in use. Based upon the prior, limited efforts of the now bankrupt third party that developed Oxyglobin, we believe that the potential veterinary market for OXYFEX™ in the United States alone could exceed $250 million in sales annually within a few years after introduction.
Our Product Candidates
Our primary business is the development, manufacture and commercialization of therapeutic drugs with a focus on complex carbohydrate chemistry to address diabetes and inflammatory diseases. We are currently focusing on drug candidates. BTI-320, a non-systemic, non-toxic, drug candidate taken before carbohydrate meals, is designed to improve post-meal blood sugar control in patients with Type 2 diabetes.
We are also developing IPOXYN, an injectable drug candidate for prevention of necrosis and treatment of hypoxia. IPOXYN is a polysaccharide based therapeutic agent using proprietary processes and patented technology. Our IPOXYN drug consists of a stabilized polysaccharide composition containing oxygen-rechargeable iron, targeting both human and animal tissues and organ systems deprived of oxygen and in need of metabolic support.
According to Global Industry Analysts, Inc., the global market opportunity for anti-hypoxia or anti-necrosis technology is $1 billion. Early entry global markets include the following:
| · | Asia (replace Hepatitis C contaminated blood products) |
| · | Africa (AIDS contaminated blood) |
| · | Lower Limb Ischemia and other vascular complications of diabetes |
BTI-320
Overview
BTI-320 is our lead product candidate and is currently in Phase II clinical development. We expect to begin a multi-center, multi-country clinical trial in 2015.
BTI-320 is a Carbohydrate hydrolyzing Enzyme Inhibitors (CHEI) for treatment of patients with Type 2 diabetes. BTI-320 initially targets improved management of post-meal blood sugar in patients currently taking Metformin and potentially other anti-diabetic agents.
BTI-320, a non-systemic, non-toxic, drug candidate taken before carbohydrate meals, is designed to improve post-meal blood glucose control in patients with Type 2 diabetes. BTI-320 acts non-systemically in the gastrointestinal tract to inhibit the enzymes that cleave complex carbohydrates from foods into simple sugars, reducing available glucose during the period following a meal. BTI-320 initially targets improved management of post-meal blood sugar in patients currently taking Metformin and potentially other anti-diabetic agents.
According to the International Diabetes Federations 2011 report, Guideline for Management of Post-meal Glucose in Diabetes, addressing both post-meal plasma glucose and fasting plasma glucose is an important strategy for achieving optimal glucose control, and that evidence points to a relationship between an acute increase in blood sugar, particularly after a meal, and cardiovascular disease. We completed a BTI-320 Phase II clinical trial in patients with Type 2 diabetes.
Status of Development of BTI-320
BTI-320 is fully developed as a drug candidate. In October 2011, we announced the initiation of our clinical trial at Dartmouth-Hitchcock Medical Center in New Hampshire to evaluate the safety and efficacy of BTI-320 when added to oral agents or insulin regimen in patients with Type 2 Diabetes Mellitus. In July 2012, we announced the completion of patient enrollment. In February 2013, we announced that BTI-320 reduced the elevation of post-meal blood sugar by forty percent with no serious adverse events. The study evaluated BTI-320 in 24 patients with Type 2 diabetes between the ages of 18 and 75 with a body mass index (BMI) of 25-40 kg/m2 and with HbA1c of less than or equal to nine percent. HbA1c is a lab test that shows the average level of blood sugar (glucose) over the previous three months.
Forty-five percent of patients responded with an average forty percent reduction of post-meal glucose in the blood compared to baseline in a dose-dependent manner. Additionally, results showed the effect of BTI-320 does not correlate with duration of diabetes and works regardless of concurrent diabetes medications. There was no severe hypoglycemia and gastrointestinal side effects were mild. Satiety was also observed. There were no serious adverse events from the data analysis of the open-label dose escalation crossover trial on Type 2 diabetic patients.
The full article for the clinical study was published in the July/August 2013 issue of Endocrine Practice, a peer-reviewed journal.
In October 2014, we reported results from a Phase IIb study of BTI-320 in patients with Type 2 diabetes conducted in the U.S. by Accumed Research Associates. The trial enrolled 23 patients with Type 2 diabetes diagnosed for at least one year and who were on a stable daily dose of Metformin for at least three months. The patients were administered BTI-320 and Metformin using a randomized, double-blind, placebo-controlled, dose-ranging, three-way cross-over study design. Of the 23 patients that completed the trial, 15 patients did not respond to the rice test meal for unexplained reasons. The remaining eight patients responded to BTI-320 with up to a 34% reduction in post meal blood glucose levels. Patients were given one to two BTI-320 tablets, half of the dose of the Dartmouth study and one third the dose of the University of Sydney trial. The results of the trial showed BTI-320 as safe and well tolerated, with no adverse events reported and provided information on different patient populations to be used to design the proper protocols for the clinical trial planned for 2015. We currently have an ongoing Phase IIb trial in France.
Products Competitive with BTI-320
Anti-diabetic drugs. Anti-diabetic drugs treat diabetes mellitus by lowering glucose levels in the blood. With the exceptions of insulin, insulin analogues and Glucagon-like Peptide-1 Agonists, all are administered orally and are thus also called oral hypoglycemic agents or oral anti-hyperglycemic agents. There are different classes of anti-diabetic drugs, and their selection depends on the nature of the diabetes, age and situation of the person, as well as other factors. BTI-320 is the first compound in a new class of therapies called Carbohydrate-hydrolyzing Enzyme Inhibitor (CHEI) for treatment of patients with Type 2 diabetes. BTI-320 acts non-systematically in the gastrointestinal tract to inhibit the enzymes that cleave complex carbohydrates from foods into simple sugars, reducing postprandial glucose excursion (post-meal blood sugar elevation).
Secretagogues. Secretagogues, which include Sulfonylureas and Meglitinides, help enhance insulin secretion. Sulfonylureas were the first widely used oral hypoglycemic medications. They are insulin secretagogues, triggering insulin release by direct action on the KATP channel of the pancreatic beta cells. Glipizide (Glucotrol®) falls into this category with side effects including GI discomfort, diarrhea and hypoglycemia.
Sensitizers. Insulin sensitizers address the core problem in Type 2 diabetes—insulin resistance—and include Biguanides and Thiazolidinediones. Among oral hypoglycemic agents, insulin sensitizers are the largest category. Biguanides reduce hepatic glucose output and increase uptake of glucose by the periphery, including skeletal muscle. Although it must be used with caution in patients with impaired liver or kidney function, metformin, a biguanide, has become the most commonly used agent for Type 2 diabetes in children and teenagers. Amongst common diabetic drugs, Metformin is the only widely used oral drug that does not cause weight gain. Metformin is the most prescribed drug in this category whose side effects may be hypoglycemia and lactic acidosis.
Thiazolidinediones (TZDs), also known as “glitazones,” bind to PPARγ, a type of nuclear regulatory protein involved in transcription of genes regulating glucose and fat metabolism. Rosiglitazone (Avandia®) and Pioglitazone (Actos®) fall into this category of anti-diabetic agent.
Alpha-glucosidase inhibitors. Alpha-glucosidase inhibitors are “diabetes pills” but not technically hypoglycemic agents because they do not have a direct effect on insulin secretion or sensitivity. These agents slow the digestion of starch in the small intestine, so that glucose from the starch of a meal enters the bloodstream more slowly, and can be matched more effectively by an impaired insulin response or sensitivity. These agents are effective by themselves only in the earliest stages of impaired glucose tolerance, but can be helpful in combination with other agents in Type 2 diabetes. Acarbose, marketed as Prandase® and Glucobay® is an Alpha-glucosidase Inhibitor.
IPOXYN and OXYFEX™
IPOXYN is designed for delivery as an intravenous solution, with the expectation that it can reverse an inadequate supply of oxygen and support various metabolic functions in the body in a manner and with effects similar to those resulting from the infusion of RBCs - but without the limitations of compatibility, availability, short shelf life, volume and logistical challenges commonly associated with transfusions of whole blood. Other intravenous fluids commonly used in emergency trauma to restore blood volume, such as Ringer’s lactate or saline, are not designed to and do not effectively carry oxygen. We have not conducted any clinical trials to confirm the efficacy of, or filed any applications with the FDA with respect to, IPOXYN. IPOXYN will not be ready for commercialization until these steps are completed. Preclinical animal study results for IPOXYN were presented at the XIII International Symposium on Blood Substitutes and Oxygen Therapeutics in July 2011.
We plan to introduce this product in clinical trials for hypoxic medical conditions. Hypoxia promotes resistance to conventional treatments, as well as treatments for other diseases. IPOXYN has the potential to greatly improve survival of patients in multiple indications in which hypoxia is a factor. Hypoxia is a condition in which cells lack sufficient oxygen supply to support metabolic function. It is widely known through research that lack of oxygen will result in a cascade of biochemical reactions which promote resistance to many helpful therapeutic substances and which interfere with the body’s own repair mechanisms. Antibiotics for the treatment of infection are less effective when hypoxic conditions are involved. Similarly, hypoxic cancer cells are resistant to chemotherapy treatments; most chemotherapy drugs rely on rapid cell division which requires normal oxygenation of cells, but in a hypoxic condition, cells divide slowly and therefore resist many chemotherapy treatments.
Another unmet clinical need is in various acute ischemic conditions, where hypoxia can develop from a local restriction of constrained blood vessels, or poor and compromised flow which leads to insufficient supply of oxygen by otherwise well-oxygenated and distributed RBCs, e.g. cerebral ischemia, ischemic heart disease and intrauterine hypoxia which is an unchallenged cause of perinatal death. In these cases IPOXYN, as a rechargeable soluble oxygen delivery agent, may not be restrained whereas well-oxygenated RBCs may be prevented from flow and delivery of oxygen. This is so because RBCs are large biological structures compared to the size of IPOXYN, which is a modified single-protein function oxygen carrier. In ischemic and hypoxic conditions, RBCs may not be able to penetrate the small vessels which have lost their integrity to support RBC distribution and thus oxygen availability. Due to its small molecular size, IPOXYN can carry and distribute oxygen widely without risk of clot formation and flow stoppage.
In veterinary medicine applications, OXYFEX™ will be used as an oxygen delivery agent similar to a blood substitute for ischemia and trauma, as well as for blood loss during surgery.
Status of development of IPOXYN
We are in the process of developing IPOXYN for pre-clinical studies, in order to conduct clinical trials and to file applications with the FDA as applicable.
Products Competitive with IPOXYN
Many biotechnology and pharmaceutical companies are developing new technologies for the treatment of hypoxia and other diseases. The standard therapy for reversing hypoxia due to acute blood loss may be blood infusion, RBCs or hyperbaric oxygen. Hyperbaric medicine, also known as hyperbaric oxygen therapy (HBOT), is the medical terminology for using oxygen at a level higher than atmospheric pressure. There are many conditions being treated using this approach including acute blood loss (Hart GB, Lennon PA, Strauss MB. (1987) “Hyperbaric oxygen in exceptional acute blood-loss anemia,” J. Hyperbaric Med 2 (4): 205–210). In the United States, HBOT is recognized as a reimbursable treatment for 14 “approved” conditions and an HBOT session can cost anywhere from $200 in private clinics, to over $1,000 in hospitals. The most common intervention in hypoxic patients is RBC transfusion. The need for intervention to reduce hypoxia can also be affected by medical conditions such as ischemia or cardiopulmonary failure, claudication (cramping caused by blocked arteries in the leg), poor perfusion and other indications, where a combination of below optimal flow and capacity are compromising oxygen delivery.
When compared to RBC transfusion, we believe IPOXYN will have the following advantages:
| · | Availability: readily available, with a two year shelf-life (much longer than the two week shelf life for RBCs) and easier to perfuse. |
| · | Stability: stored at room temperature for months while maintaining its full capacity for oxygen delivery and release and logistical convenience. |
| · | Sterile: when manufactured and processed consistently through good manufacturing practices, free of infectious agents and unnecessary elements. |
| · | Compatibility: safe for all blood types in a wide range of conditions and does not require pre-infusion typing or testing for compatibility. |
| · | Critical care: IPOXYN can be safely applied outside the hospital to treat or prevent ischemic conditions in cases like shock and trauma, heart attack or stroke where low flow or suspended local flow are disrupted. A readily available infusion package makes it a straightforward tool for emergency medical teams to use on site in order to save a patient’s life, when time is of the essence for survival. |
| · | Molecular structure: Chemically, IPOXYN features a small molecular size compared to RBCs, so it possesses better flow characteristics and circumvents constricted vessels that restrict flow of RBCs and thus the supply of oxygen to tissues and organs. |
| · | Oxygenation: Due to its high solubility, it has high capacity and faster exchange of oxygen in tissues, as well as facilitating the release of oxygen from RBCs for overall unparalled efficiency. |
For chronic anemia situations, erythropoietin-based formulations are available from two suppliers. Erythropoietin stimulates the erythropoietic system in the bone marrow to produce its own RBCs. These products are slow acting, and only administered in anticipation of blood loss during surgery, and are not effective for temporary use or in emergency situations when acute blood loss requires RBC infusion to deliver oxygen.
The fields of treatment of oxygen-deprived states have been approached in many ways. These include such techniques as high oxygen concentration, hyperbaric chambers, as well as the more mechanical approaches of vessel dilation and blood thinning. All have met with minor measures of improvement. In the early 1980’s a number of companies focused on creating specific oxygen carriers that were either (a) blood derived elements, (b) synthetics consisting of Perfluoro chemicals or (c) elements created using recombinant and molecular engineering approaches (red cell modifiers). Companies including Baxter, Abbot, and Biopure and OPK Biotech, for example, used the blood derived approach; Green Cross, Alliance Pharmaceuticals and Synthetic blood focused on synthetics, and Somatogen and Allos Therapeutics tried recombinant and molecular engineering. All of these approaches were early attempts to meet a need whose main focus has been on a “blood substitute”. Our approach is fundamentally different. Instead of a blood substitute, we are offering a new chemical entity that will deliver oxygen to hypoxic cells.
We are aware of other companies researching the use of hemoglobin as a therapeutic, including programs in China and Japan. We expect IPOXYN to compete with traditional therapies and with other oxygen delivery pharmaceuticals. Some of our competitors and potential competitors may have greater financial and other resources to develop, manufacture and market their products. We believe the most immediate competition comes from companies currently conducting clinical trials of investigational hemoglobin solutions.
We believe that these programs are in the preclinical stage of development. We believe that our use of bovine red blood cells for the production of IPOXYN is an advantage over products made from donated human red blood cells stored for a long period of time and other competitive approaches because of the availability, abundance, ability to control source, cost and relative safety of bovine red blood cells.
SUGARDOWN®
We have developed and currently produce and sell SUGARDOWN®, a non-systemic complex carbohydrate-based dietary food supplement to support healthy post-meal blood glucose using proprietary processes and technology. We have unrestricted access to both sufficient raw materials at commodity pricing and processing facilities to produce sufficient supply of SUGARDOWN® to support product distribution across multiple sales channels as a dietary supplement. Our SUGARDOWN® dietary supplement consists of a complex carbohydrate composition.
Status of Development of SUGARDOWN®
We completed development of SUGARDOWN® as an over the counter (OTC) dietary supplement. We filed a structure and function claim application with the United States Food and Drug Administration (FDA) with respect to SUGARDOWN®, which describes the proposed mechanism of action of SUGARDOWN® in reducing post-meal elevation of glucose in the blood. We have submitted thirty structural and functional claims with the FDA. We currently have strategically filed national stage patent applications pending that are directed to the Composition of Purified Mannanns, which are utilized in the formulation of SUGARDOWN®. We have also received a registered mark for SUGARDOWN®. General Product Liability Insurance for SUGARDOWN® has been in effect since April 2010. On January 24, 2012, we announced the clinical trial results in healthy volunteers performed at the University of Sydney on SUGARDOWN®. On January 28, 2013, we announced the final results of the study conducted at the University of Sydney that showed the post- meal incremental area under the curve (iAUC) for glucose and insulin were significantly lower following consumption of SUGARDOWN® tablets prior to a high carbohydrate meal of rice in a dose-dependent manner. This resulted in a reduction of up to 61% in post-meal elevation of blood glucose compared with the rice consumed alone. On average, there was a 25.5% reduction in the post-meal iAUC for glucose and a 20% reduction in post-meal insulin response for the 10 volunteers in the study. No severe adverse effects were reported or observed during the study.
Licensing Agreement with Advance Pharmaceutical Company
On June 24, 2011, we entered into a definitive Licensing and Manufacturing Agreement (the “Agreement”) with Advance Pharmaceutical Company (“Advance Pharmaceutical”), a Hong Kong-based, privately-held company and a significant stockholder of ours.
Under terms of the Agreement, we will manufacture and supply product in bulk for Advance Pharmaceutical. Advance Pharmaceutical will be responsible for the packaging, marketing and distribution of SUGARDOWN™ in Hong Kong, China and Macau. In November 2014, we agreed to expand their marketing 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 expand their marketing agreement to include Japan. Advance Pharmaceutical will also have rights to develop and manufacture SUGARDOWN™ for commercial sale in these countries, subject to establishment of quality assurance and quality control standards set forth by us. The Agreement provides that Advance Pharmaceutical will pay royalties to us for SUGARDOWN™ and related products developed by us and a reduced royalty rate for products based on our intellectual property and developed by Advance Pharmaceutical. Revenue generated through this agreement for the years ended December 31, 2014 and 2013 were approximately $182,000 and $315,000, respectively.
Marketing SUGARDOWN®
We believe SUGARDOWN® is a safe and effective dietary supplement that can help support healthy after-meal blood sugar and support a weight management plan by helping to curb appetite if taken before meals. The product is ready for limited market release and is currently available for distribution in some Asian markets and is available for sale in the U.S. through our product website, www.sugardown.com.
To date, our marketing plan for SUGARDOWN® has been to out-license marketing rights to strategic partners in their jurisdictions of expertise. In June 2011, we entered into an agreement with Advance Pharmaceutical Co. Ltd., our Hong Kong-based strategic partner that is also a significant stockholder of ours, to develop markets for SUGARDOWN® in Hong Kong, China and Macau. In November 2014, we agreed to expand their marketing 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 expand their marketing agreement to include Japan.
On May 14, 2014, we entered into a definitive Marketing Agreement with Benchworks SD, LLC (Benchworks), a company engaged in the marketing, promotion and offering for distribution and sale of pharmaceutical, healthcare and consumer products. Under the terms of the agreement, we have granted Benchworks the exclusive right to promote, market, sell and distribute SUGARDOWN®, our dietary supplement that supports healthy blood sugar, in North America for an initial term of one year, subject to extension in accordance with the terms of the agreement. Benchworks is responsible and bears the expense for marketing and commercializing SUGARDOWN®, including the creation and payment for marketing, creative and promotional materials. The agreement defines certain minimum net sales levels that Benchworks must achieve to maintain exclusivity; and the agreement also provides for net sales splits with Benchworks receiving 65% of the first $10 million in net sales from the sale of SUGARDOWN® in North America, with a declining share to 50% for net sales in excess of $40 million.
Overview of Diabetes
Diabetes Mellitus
Diabetes mellitus, known simply as diabetes, is a chronic metabolic disorder in which a person has abnormally high levels of glucose in the circulating blood. This condition is caused by a failure of the pancreas to produce insulin and/or an inability of the body to respond adequately to circulating insulin. When glucose builds up in the blood instead of going into cells, it can lead to diabetes complications, which include limb Ischemia and neuropathy, retinopathy, kidney, cardiovascular and cerebrovascular diseases. According to the Centers for Disease Control and Prevention (CDC), diabetes affected approximately 26 million people in the United States in 2011. The estimated cost of diabetes in the United States alone is $245 billion, according to a study commissioned by the American Diabetes Association entitled, Economic Costs of Diabetes in the U.S. in 2012.
Pre-Diabetes
Pre-diabetes is the state in which a person has higher than normal blood glucose level, but not high enough to be diagnosed with diabetes. While in this range between normal and diabetic, patients are at risk for not only developing Type 2 diabetes, but also for cardiovascular complications. According to the CDC, pre-diabetes affected an estimated 79 million Americans in 2010.
Diabetes Mellitus is categorized into three general areas:
Type 1 diabetes: results from the body’s failure to produce insulin, and presently requires the person to inject insulin. Only 5-10% of people with diabetes have this form of the disease. It is considered an auto-immune disease, since the body’s immune system attacks and destroys insulin producing beta cells in the pancreas.
Type 2 diabetes: results from insulin resistance by the body’s cells, deficient insulin production by the Pancreas or a combination of both. Insulin resistance is a condition in which the cells in the body ignore or have become desensitized to insulin.
Gestational diabetes: is determined when pregnant women, who have never had diabetes before, have a high blood glucose level during pregnancy. It may precede development of Type 2 diabetes and affects approximately 4% of all pregnant women.
People with Type 2 and Type 1 diabetes generally manage their blood glucose level on a meal-to-meal basis. High levels of glucose in the bloodstream for prolonged periods can lead to complications of diabetes caused by reduced oxygen supply and nerve tissue damage to eyes, kidney, brain, heart and limbs.
Standard therapies for diabetes include physician-recommended exercise and diet, oral hypoglycemic drugs such as Metformin for Type 2 diabetics, and insulin injection regimens for Type 1 diabetics. The objective of each is to maintain a daily blood glucose level range recommended by a physician.
Overview of Hypoxia
Hypoxic conditions are detrimental to maintaining normal functionality in all living tissues. In mammals, red blood cells (RBCs) deliver oxygen throughout the body using hemoglobin, a protein responsible for carrying and releasing oxygen to the body’s tissues. Under normal conditions, approximately 98% of oxygen is delivered by hemoglobin in the RBCs, while less than two percent is dissolved in the plasma, the fluid part of the blood.
As the heart pumps blood, RBCs take up oxygen in the lungs and carry it to various parts of the body. Blood travels through progressively smaller blood vessels to the capillaries, some of which are so narrow that RBCs can only pass through them in single file. Most of the oxygen release occurs in the capillaries. Oxygen depleted RBCs return to the lungs to be reloaded. Adequate blood flow, pressure and RBC counts are crucial to this process. Hypoxia, or oxygen deprivation, even for several minutes, can result in cell damage, organ dysfunction and, if prolonged, death.
The causes of inadequate tissue oxygenation generally can be classified into three major categories:
Ischemia: inadequate RBC flow for tissue oxygenation. Ischemia may be caused by obstructed or constricted blood vessels and can lead to stroke, heart attack or other organ or tissue dysfunction.
Cardiopulmonary failure: impaired function of the heart or lungs. Cardiopulmonary failure may be caused by the inability of the heart to pump sufficient quantities of blood to meet the needs of the tissues or the failure of the lungs to oxygenate blood adequately.
Anemia: insufficient RBCs in circulation. This condition can be caused by chronic disorders affecting RBCs functionality or production like chemotherapy and radiation for treatment of cancer, or blood borne diseases like bone marrow diseases. Anemia may be also caused by acute blood loss from accidental injury or surgery.
The standard therapy for acute anemia resulting from blood loss is infusion of RBCs mainly from supplies of donated blood. For prophylactic or long-term treatment of anticipated or chronic anemia, medications that stimulate the creation of new RBCs are frequently used.
Presently, there is no substitute for human blood to deliver oxygen to the body; and transfusions involve certain risks and limitations. Despite the effort by blood banks around the world to screen the blood supply for HIV, hepatitis and other blood borne diseases, there is a continuing risk of an unsafe blood supply in many parts of the world; donated blood continues to carry the risk of disease transmission.
Blood compatibility and handling and storage requirements and limitations limit the use of RBCs transfusions to hospital environment only. Shortages of certain types of blood thus occur due to seasonal factors or disasters. Since RBCs’ oxygen-delivering capacity breaks down with storage (approximately 75% capacity remains after eight days of storage) their shelf-life is less than 42 days, limiting the ability for significant stockpiles of RBCs. In addition, for ischemic conditions due to constricted blood vessels where normal passage of RBCs is restricted or due to impaired heart or lung function, RBC transfusions are generally not effective.
Business Strategy
Our business strategy primarily consists of the following:
| · | to advance our leading clinical stage drug candidates, BTI-320 and IPOXYN, through regulatory approvals in the United States and the European Union and, if successful, to commercialize BTI-320 and IPOXYN either on our own or with one or more strategic partners in the U.S. and/or outside of the U.S.; and |
| · | to drive brand awareness and increase sales of SUGARDOWN® in North America and globally in 2015 and beyond and to further study the potential beneficial characteristics of SUGARDOWN®. |
We intend to continue to establish and implement clinical development programs that add value to our business in the shortest period of time possible and to seek strategic partners when a program becomes advanced and requires additional resources. We intend to continue focusing our expertise and resources to develop novel formulations, and to leverage development partnerships to apply our complex carbohydrate chemistry design in other medical indications. We may seek to enter into licensing, co-marketing, or co-development agreements across different geographic regions, in order to avail ourselves of the marketing expertise of one or more seasoned marketing and/or pharmaceutical companies. Our strategy is to leverage considerable industry experience, expertise in complex carbohydrate chemistry and clinical development experience to continue to identify, develop and commercialize product candidates with strong market potential that can fulfill unmet medical needs in the treatment of diabetes and inflammatory diseases. We plan to further develop new and proprietary drug candidates to provide improved efficacy and safety by using novel development pathways specific to each candidate.
A core part of our strategy relies upon creating safe and efficacious drug formulations that can be administered as standalone therapies or in combination with existing medications. We believe we utilize a novel approach that is expected to create safe and efficacious drug formulations that can be combined with existing therapies and potentially deliver valuable products in areas of high unmet medical needs. In 2014, we assembled a scientific advisory board consisting of scientists with both academic and corporate research and development experience that will provide leadership and counsel in the scientific, technological and regulatory aspects of our current and future projects. In addition, we have assembled a medical advisory board consisting of leading physicians and key opinion leaders who have participated in relevant clinical studies and who will guide us through ongoing clinical trial programs. Our scientific and medical advisory boards consist of some of the leading scientists, medical doctors and professionals in the carbohydrate and diabetes fields.
We believe that our highly experienced drug development leadership provides us with a significant competitive advantage in designing highly efficient clinical programs to deliver valuable products in areas of high unmet medical needs.
Key Strengths
We believe that our key differentiating elements include:
| · | Focus on novel therapeutic opportunities provided by carbohydrates: We are focused on development of carbohydrate-based compounds to better manage blood glucose and anti-necrosis or hypoxia therapeutics. As a result of its structural complexity, carbohydrates have not received as much scientific attention as nucleic acids and proteins. Carbohydrate-based therapeutics have proven to be efficacious and safe, while elimination many common side effects from other types of drugs. |
| · | Experienced management: Our Chief Executive Officer and Chairman, David Platt, Ph.D., is a chemical engineer, a pioneer in designing drugs made from carbohydrates, and has more than 30 years of experience in the development of therapeutic drugs. He is the inventor or co-inventor on a number of patents. He has been involved in the FDA approval process for several drugs, and we anticipate that his expertise will be critical as we develop our product candidates through clinical trials and FDA approval process. We are the third company founded by Dr. Platt. The first two are International Gene Group, which later became Prospect Therapeutics, and is now known as LaJolla Pharmaceuticals (Nasdaq: LJPC), and Pro-Pharmaceuticals (now Galectin Therapeutics) (Nasdaq: GALT). LJPC is applying its carbohydrate-based technologies in cancer and chronic kidney disease and GALT is focused on liver fibrosis and cancer. Their core technologies were either developed or co-developed by Dr. Platt. Our Chairman and Chief Executive Officer, David Platt, has been a leading pioneer in the area of complex carbohydrates for over 30 years and has significant experience developing pharmaceutical drug candidates. Furthermore, we assembled a scientific advisory board consisting of scientists with both academic and corporate research and development experience that will provide leadership and counsel in the scientific, technological and regulatory aspects of our current and future projects. In addition, we have assembled a medical advisory board consisting of leading physicians and key opinion leaders who have participated in relevant clinical studies and who will guide us through ongoing clinical trial programs. Our scientific and medical advisory boards consist of some of the leading scientists, medical doctors and professionals in the carbohydrate and diabetes fields. |
| · | Products are differentiated and address significant unmet needs: Both of our lead product candidates, BTI-320 and IPOXYN, are well-differentiated diabetes-related formulations that address significant unmet medical needs. Diabetes management, including sugar management and treatment of inflammatory diseases, remains a critical area of unmet need. Increasingly, patients, physicians and the media are highlighting the deficiencies of current diabetes-related therapies and the growing population of affected individuals. |
| · | A multiple product portfolio with a balanced risk reward profile: We have two lead product candidates and a dietary supplement product currently generating revenue with what we believe are significant growth prospects. We have also begun to develop a pipeline of additional carbohydrate-based therapeutics. Accordingly, we believe that the revenues we generate from our advanced products and drug candidates will offset costs related to developing our existing and future pipeline. |
| · | Efficient development strategy: We believe that the FDA’s 505(b)(2) regulatory pathway for IPOXYN and its veterinary analog, OXYFEX, lowers the risk of drug development of these drug candidates. Our strategy of combining these drugs, once approved, with novel delivery methods and pharmaceutical compositions is expected to significantly reduce clinical development time and costs and lowers regulatory risks, while delivering valuable products in areas of high unmet need to the market place. |
Manufacturing
We currently contract with a third-party to manufacture BTI-320 and SUGARDOWN® in the United States at a Good Manufacturing Practices (GMP) compliant facility. We expect to have access to a pilot-scale manufacturing facility with adequate capacity to produce IPOXYN for clinical trials and market introduction following FDA/European Medicines Evaluation Agency (EMEA) approval, but no agreement for such access is currently in place. We intend to utilize manufacturing facilities that we believe are fully compliant with GMP only, as required by the regulatory authorities in Europe or the United States.
Environmental Regulation
Pharmaceutical research and development involves the controlled use of hazardous materials. Biotechnology and pharmaceutical companies must comply with laws and regulations governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We do not anticipate building in-house research, development or manufacturing facilities, and, accordingly, do not expect to have to comply directly with environmental regulation. However, our contractors and others conducting research, development or manufacturing activities for us may be required to incur significant compliance cost, and this could in turn could increase our expense or delay our completion of research or manufacturing programs.
Lack of Major Customers
To date we have had limited sales of our products and have one significant customer, Advance Pharmaceutical Co. Ltd., a Hong Kong-based pharmaceutical company, a significant stockholder of ours, for distribution of SUGARDOWN® in Hong Kong, China and Macau. These authorized territories were recently expanded to include Korea, Taiwan, Singapore, Thailand, Malaysia, Vietnam, Philippines, Myanmar, Indonesia, Laos, Brunei, Cambodia and Japan. One of our directors, Conroy Chi-Heng Cheng, is also a director of Advance Pharmaceutical Co. Ltd. In May 2014, we entered into a strategic marketing agreement with Benchworks SD, LLC, a leading branding and marketing agency, aimed at driving brand awareness and growing sales of SUGARDOWN® among the large pre-diabetic population in North America. There were no significant sales generated through the Benchworks agreement during the year ended December 31, 2014.
Intellectual Property
Patents, trademarks, trade secrets, technological know-how and other proprietary rights are essential to our business. Our patent portfolio is directed to three main areas, mannans, hemoglobin composition and methods of use, and taste masking in chewable tablets. The active ingredient in BTI-320 is a mannan, and BTI-320 is a proprietary fractionated mannan. Mannans are a group of plant-derived complex carbohydrates, or polysaccharides, which consist mainly of polymers of the sugar mannose. Some of the plants from which mannans are derived are guar, locust bean, fenugreek, barley and konjac. Published studies on mannans have shown that they possess significant biological activity ranging from inhibition of cholesterol absorption to promoting wound healing and inhibiting tumor growth. Studies have also shown that consuming mannans before a meal may lessen the rise in blood glucose after the meal. Therefore, supplementation with mannans may be beneficial in the management of diabetes by supporting healthy blood sugar levels. We seek to strengthen our patent portfolio and increase market exclusivity as we progress in our clinical development process. During the clinical development and commercial scale up of our products, we anticipate additional intellectual property may be realized from the creation of novel therapeutic formulations, methods of manufacture, methods of use and novel quality control assays for each of our products. Our intellectual property estate directed to our technology and products consists of a provisional patent application and three international patent applications and their related national stage applications entitled: Composition of Purified Soluble Mannans for Dietary Supplements and Methods of Use Thereof (W02012/061675); Hemoglobin Compositions and Methods of Use (WO2012/78850); Encapsulation of Pharmaceuticals for Taste Masking in Chewable Tablets (PCT/US14/27243); and Compositions for Inhibiting Amylase Mediated Hydrolysis of Alpha (1-4) Linked Glucose Polymers (61/991,814).
The international patent application entitled Hemoglobin Compositions and Methods of Use and its related national stage filings, which were assigned to us by Dr. Platt, are directed to our IPOXYN and OXYFEX technologies.
The international patent application entitled Composition of Purified Soluble Mannans for Dietary Supplements and Methods of Use Therof and its related national stage filings, which were assigned to us by Dr. Platt, are directed to our BTI-320 and SUGARDOWN® technologies.
Dr. Platt also has assigned the trademarks IPOXYN (U.S. Trademark Application No. 77754473) and Avanyx Therapeutics™ (U.S. Trademark Application No. 77806120) to us. Dr. Platt and our former President Mr. Tassey have assigned the trademark SUGARDOWN® (U.S. Trademark Reg. No. 3,955,414, registered May 3, 2011) to us.
Government Regulation
New drug approval for clinical use requires extensive research, manufacturing, pre-clinical and clinical studies, packaging, labeling, advertising, promotion, export and marketing, among other things. Both BTI-320 and IPOXYN will be subject to extensive regulation by governmental authorities in the United States and other countries. As a therapeutic product administered by intravenous infusion IPOXYN will be regulated as a drug and will require extensive safety and efficacy studies for regulatory approval before it may be commercialized.
Drug Approval Process
In the United States, IPOXYN is a new chemical entity and will require FDA approval. BTI-320, as a drug candidate, will also require FDA approval. Before final approval for marketing for either IPOXYN or BTI-320 could occur, the following steps must be completed: preclinical safety animal studies, GMP manufacturing, submission of Investigational New Drug, or IND application for extensive clinical trials to show proof of concept to significant health benefit.
After approval and during clinical studies the FDA can put the drug on “clinical hold.” In such case, the IND sponsor and the FDA must resolve any outstanding concerns before the use of the drug can proceed. The FDA may stop marketing, or clinical trials, or particular types of trials, by imposing a clinical hold because of safety concerns and potential risk to patients.
Clinical trials involve the administration of the investigational products to healthy volunteers or patients under the supervision of a qualified principal investigator consistent with an informed consent. Each clinical protocol is submitted, reviewed and approved by an independent Institutional Review Board, or IRB, or Ethical Committee (EC) at a participating hospital or clinical site, at which the study will be conducted. The IRB/EC will consider, among other things; ethical factors, safety to human subjects and the possible liability of the institution.
Clinical trials required for FDA approval typically are conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the drug into human subjects, the drug is usually tested for safety or adverse effects, dosage tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II clinical trials usually involve studies in a limited patient population to evaluate the efficacy of the drug for specific, targeted indications, determine dosage tolerance and optimal dosage and identify possible adverse effects and safety risks.
Phase III clinical trials generally further evaluate clinical efficacy and test further for safety within an expanded patient population and at multiple clinical sites.
After FDA approval, Phase IV clinical trials may be conducted to gain additional experience from the treatment of patients in the intended therapeutic indication. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase IV clinical trial requirement. These clinical trials are often referred to as Phase III/IV post-approval clinical trials.
The results of the pre-clinical studies and clinical trials, together with detailed information on the manufacture and composition of the product, are submitted to the FDA in the application requesting approval to market the product. The FDA may delay approval of any product submitted by us. The FDA may limit the indicated uses for which an approval is given.
New Drug Approval for Veterinary Use
The use of new drugs for companion animals requires the filing of a New Animal Drug Application, or NADA, with and approval by the FDA. The requirements for approval are similar to those for new human drugs, exclusive of human trials. Obtaining NADA approval often requires safety and efficacy clinical field trials in the applicable species and disease, after submission of an Investigational New Animal Drug Application, or INADA, which for non-food animals becomes effective upon acceptance for filing.
Dietary Supplements
We currently offer SUGARDOWN® as a dietary supplement. We are not required to obtain FDA approval in order to offer SUGARDOWN® in this manner. We are required to either comply with certain FDA guidelines with respect to certain marketing claims for SUGARDOWN®, or to file those claims with the FDA. We believe that we comply with those guidelines and have voluntarily filed structural and functional claims with the FDA.
Pervasive and Continuing Regulation
Any FDA approvals that may be granted will be subject to continual review, and newly discovered or developed safety or efficacy data may result in withdrawal of products from marketing. Moreover, if and when such approval is obtained, the manufacture and marketing of our products remain subject to extensive regulatory requirements administered by the regulatory bodies, including compliance with current Good Manufacturing Practices, serious adverse event reporting requirements and the FDA’s general prohibitions against promoting products for unapproved or “off-label” uses.
We are subject to inspection and market surveillance by the FDA for compliance with these regulatory requirements. Failure to comply with the requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or withdrawals of regulatory approvals and termination of marketing. Any such enforcement action could have a material adverse effect on us. Unanticipated changes in existing regulatory requirements, state and local work and environmental laws or the adoption of new requirements could also have a material adverse effect on us.
Foreign Regulation
We will be subject to a variety of regulations governing clinical trials and sales of our products in the United States and outside the United States. Whether or not FDA approval has been obtained, approval of a product by the comparable non-U.S. regulatory authorities must be obtained prior to the commencement of marketing of the product in any country.
The approval process varies from country to country and can be complicated and time consuming; the time needed to secure approval may be longer or shorter than that required for FDA approval. For example, the European Union requires approval of a Marketing Authorization Application by the European Medicines Evaluation Agency. These applications require the completion of extensive preclinical studies, clinical studies and manufacturing and controls information.
Reimbursement
Our ability to successfully commercialize our human products also may depend on the extent to which reimbursement of the cost of such products and related treatment will be approved by the government health administration authorities, private health insurers and other health providers’ organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products. As third-party payors are increasingly challenging the price of medical products, there can be no assurance that adequate reimbursement of the cost will be available to enable us to maintain price levels sufficient for realization of an appropriate return on its investment.
Recently the public and the federal government have focused significant attention on reforming the health care system in the United States. A number of health care reform measures have been suggested, including price controls on therapeutics. Public discussion of such measures is likely to continue, and concerns about the potential effects of different possible proposals have been reflected in the volatility of the stock prices of companies in the health care and related industries.
Legal Proceedings
Arbitration Involving our CEO
On October 12, 2012, Dr. David Platt, our Chief Executive Officer and Chairman, commenced a lawsuit under the Massachusetts Wage Act against Dr. Traber and Thomas McGauley, who in their capacities as the Chief Executive Officer and former Chief Financial Officer of Galectin Therapeutics Inc., or Galectin, respectively, can be held individually liable under the Wage Act for non-payment of wages. The lawsuit is based on the facts and issues raised in a previous arbitration proceeding between Dr. Platt and Galectin regarding payment of a $1.0 million separation payment under Dr. Platt’s separation agreement, and other unspecified “wages.” The statute provides that a successful claimant may be entitled to multiple damages, interest and attorney’s fees. On April 29, 2013, the Court allowed Dr. Traber’s and Mr. McGauley’s motion to dismiss. On May 28, 2013, Dr. Platt filed a Notice of Appeal to appeal the Court’s order allowing the defendants’ motion to dismiss, which was denied.
On March 29, 2013, Galectin instituted arbitration before the American Arbitration Association, seeking to rescind or reform the separation agreement. Galectin claimed that Dr. Platt fraudulently induced Galectin to enter into the Separation Agreement, breached his fiduciary duty to Galectin, and was unduly enriched from his conduct. Along with removal of the $1.0 million milestone payment under the separation agreement, Galectin was seeking repayment of all separation benefits paid to Dr. Platt to date. We indemnified Dr. Platt for $150,000 in legal fees and expenses in December 2013, and in May 2014, our board approved a $50,000 increase in its indemnification support, solely for the payment of outside legal expenses. We recorded a total of $182,697 in costs associated with Dr. Platt’s indemnification, of which $119,401 was recorded in the year ended December 31, 2013 and $63,296 was recorded 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, our Board of Directors voted to rescind the requirement that Dr. Platt reimburse the Company the entire $182,697. Our board determined that interest should be charged to Dr. Platt from the time he received the funds to the date of the meeting and that this amount would be offset against interest we owe Dr. Platt in conjunction with our note payable as referenced in Note 7 of the accompanying Notes to the Financial Statements included in this prospectus. The remaining amount would be considered settled in full by the Company.
Lawsuit Involving our Company and our CEO
On March 12, 2014, a complaint against us and our Chief Executive Officer and Chairman, David Platt, was filed in Middlesex Superior Court in Massachusetts by Eliezer Zomer. Mr. Zomer alleged that we and Dr. Platt had refused to deliver 400,000 shares of our common stock that Mr. Zomer believes are owed to him, and seeks delivery of the shares and damages. In August 2014, the Middlesex Superior Court dismissed Mr. Zomer’s complaint for failure to proceed.
The Company may become involved in certain legal proceedings and claims which arise in the normal course of business. Other than those described above, the Company is not aware of any outstanding or pending litigation.
Employees
As of April 21, 2015, we had six full-time employees. Our employees do not have written employment agreements with us.
Facilities
We currently do not own any real property. We currently lease approximately 3,100 square feet of office space with access to common areas located at 1750 Elm Street, Suite 103, Manchester, NH 03104 on a five-year lease that expires on March 31, 2018. We currently pay $5,224 per month for this space. Rental payments will increase annually to $5,591 per month for the one year lease period ending through March 31, 2018. We believe this facility is adequate for our current needs.
MANAGEMENT
Set forth below is information regarding our current directors. Except as set forth below, there are no family relationships between any of our directors or executive officers. Each director holds his office until he resigns or is removed and his successor is elected and qualified.
Name | | | Age | | Position | Term as a Director |
| | | | | Chief Executive Officer and Chairman | |
| | | | | | September 2009 to Present |
| | | | | | September 2009 to Present |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | September 2014 to Present |
| | | | | | September 2014 to Present |
David Platt, Ph.D. is our Chief Executive Officer, Treasurer and Chairman. He also served as our President from the inception of our company in August 2009 through November 2010. From 2001 to February 2009, Dr. Platt was Chief Executive Officer and Chairman of the Board of Directors of Pro-Pharmaceuticals, Inc., a public company with shares traded on the NYSE Alternext US (formerly the American Stock Exchange) that he co-founded and for which he was the co-developer of their core technology. From 1995 to 2000, Dr. Platt was Chief Executive Officer and Chairman of the Board of Directors of SafeScience Inc., a Nasdaq-listed company he founded. From 1992 to 1995, Dr. Platt was the Chief Executive Officer, Chairman of the Board and a founder of International Gene Group, Inc., the predecessor company to SafeScience. Dr. Platt received a Ph.D. in Chemistry in 1988 from Hebrew University in Jerusalem. In 1989, Dr. Platt was a research fellow at the Weizmann Institute of Science, Rehovot, Israel, and from 1989 to 1991, was a research fellow at the Michigan Foundation (re-named Barbara Ann Karmanos Institute). From 1991 to 1992, Dr. Platt was a research scientist with the Department of Internal Medicine at the University of Michigan. Dr. Platt has published peer-reviewed articles and holds many patents, primarily in the field of carbohydrate chemistry. We believe that Dr. Platt is well qualified to serve as a member of our Board of Directors due to his expertise in complex carbohydrate chemistry, leadership and extensive management experience.
Dale H. Conaway, D.V.M., a Director of our company since September 2009, is the Veterinary Medical Officer for the Office of Research Oversight, an office within the Veterans Health Administration under the U.S. Department of Veterans Affairs. From 2001 to 2006, Dr. Conaway was the Deputy Regional Director (Southern Region). From 1998 to 2001, Dr. Conaway served as Manager of the Equine Drug Testing and Animal Disease Surveillance Laboratories for the Michigan Department of Agriculture. From 1994 to 1998, he was Regulatory Affairs Manager for the Michigan Department of Public Health Vaccine Production Division. From May 2001 to February 2009, Dr. Conaway was a director of Pro-Pharmaceuticals, Inc., a public company with shares traded on the NYSE Alternext US. Dr. Conaway received a D.V.M. degree from Tuskegee Institute and an M.S. degree in pathology from the College of Veterinary Medicine at Michigan State University. We believe that Dr. Conaway is well qualified to serve as a member of our Board of Directors due to his expertise in drug testing and animal regulatory affairs.
Rom E. Eliaz, Ph.D., MBA, a Director of our company since September 2009, has over 20 years of pharmaceutical and biotechnology development experience as a scientist, entrepreneur, executive and venture capitalist. Dr. Eliaz has been the Chief Executive Officer of NasVax since October 2010. Prior to joining NasVax, Dr. Eliaz was the Chief Executive Officer of ImCure Therapeutics (previously JJ Pharma) and a Strategic Partner at The Colmen Group. Following an academic appointment as Assistant Professor at the University of California San Francisco, Dr. Eliaz held various management positions at Alza Corporation from 2001 to 2004. Following the acquisition of Alza by Johnson & Johnson in 2001, Dr. Eliaz managed Johnson & Johnson’s investment portfolio in various different pharmaceutical and biotechnology companies, brought to market several blockbuster drugs and advanced over 10 drug candidates from discovery research to clinical trials. Dr. Eliaz was Head of Product Development and Project Management at Rinat Neuroscience Corporation from 2004 to 2006, which was acquired by Pfizer in 2006. Dr. Eliaz was Vice President of Development and Project Management at Intradigm Corporation, which subsequently merged with Silence Therapeutics. Dr. Eliaz then founded Elrom Ventures Corp., a venture capital firm, in 2007, that specializes in the formation, financing and operational development of medical devices, green Technology and biotechnology-based companies. Dr. Eliaz is the author or co-author of over 40 publications, mostly in the field of drug targeting, drug delivery and gene therapy, and is an inventor of several patents in these fields. Dr. Eliaz has made over 30 invited presentations and chaired many sessions at international scientific and business conferences and venues. Dr. Eliaz conducted his Post-Doctoral work at the University of California San Francisco School Of Medicine and the School of Pharmacy, focusing in the areas of drug delivery, drug targeting, tissue engineering and gene therapy. Dr. Eliaz received his Ph.D. (cum laude) in Chemical Engineering and Biotechnology from the Weizmann Institute of Sciences and Ben-Gurion University. Dr. Eliaz also holds an M.Sc. (summa cum laude) in Chemical Engineering, and a B.Sc. in Chemical Engineering and Biotechnology, both from Ben-Gurion University. He earned an M.B.A. (cum laude) from Harvard Business School and the Boston University program at Ben Gurion University.
Henry J. Esber, Ph.D., a Director of our company since December 2011, has been a Principal in Esber D&D Consulting since 2005. From 2003 to 2005, Dr. Esber was a Senior Consultant, Business Development at Charles River Labs, Discovery and Development Services. From 2005 to 2006, Dr. Esber was a consultant and in 2006, he was Senior Vice President and Chief Business Officer for Bio-Quant, which he co-founded. Dr. Esber was also the co-founder of BioSignature Diagnostics, Inc. and Advanced Drug Delivery, Inc. From December 2009 to January 2013, Dr. Esber was a director of Apricus Biosciences, Inc., a public company with shares traded on the NASDAQ Capital Market. From April 2006 to February 2009, Dr. Esber was a director of Pro-Pharmaceuticals, Inc., a public company with shares traded on the NYSE Alternext US. He serves on the scientific advisory boards of several biotechnology companies and is the author of more than 130 technical publications. Dr. Esber has more than 35 years of experience in the areas of oncology/tumor immunology and immunotherapy as well as strong knowledge in the field of toxicology and regulatory affairs. Dr. Esber received a B.S. degree in biology/pre-med from the College of William and Mary, an M.S. degree in public health and parasitology from the University of North Carolina, and a Ph.D. in immunology/microbiology from West Virginia University Medical Center. Dr. Esber was previously a Director of our company from September 2009 through December 2010. We believe that Dr. Esber is well qualified to serve as a member of our Board of Directors due to his extensive managerial experience in the pharmaceutical industry.
S. Colin Neill, a Director of our company since December 2013, became President of Pharmos Corporation in January 2008, and has served as Chief Financial Officer, Secretary, and Treasurer of Pharmos since October 2006. He held these positions through November 2012. From September 2003 to October 2006, Mr. Neill served as Chief Financial Officer, Treasurer and Secretary of Axonyx Inc., a biopharmaceutical company that developed products and technologies to treat Alzheimer’s disease and other central nervous system disorders, where he played an integral role in the merger between Axonyx and TorreyPines Therapeutics Inc., a privately-held biopharmaceutical company. Mr. Neill served as Senior Vice President, Chief Financial Officer, Secretary and Treasurer of ClinTrials Research Inc.; a $100 million publicly traded global contract research organization in the drug development business, from 1998 to its sale in 2001. Following that sale from April 2001 to September 2003 Mr. Neill served as an independent consultant assisting small start-up and development stage companies in raising capital. Earlier experience was gained as Vice President of Finance and Chief Financial Officer of BTR Inc., a $3.5 billion US subsidiary of BTR plc, a British diversified manufacturing company, and Vice President Financial Services of The BOC Group Inc., a $2.5 billion British owned industrial gas company with substantial operations in the health care field. Mr. Neill served four years with American Express Travel Related Services, first as chief internal auditor for worldwide operations and then as head of business planning and financial analysis. Mr. Neill began his career in public accounting with Arthur Andersen LLP in Ireland and later with Price Waterhouse LLP as a senior manager in New York City. He also served with Price Waterhouse for two years in Paris, France. Mr. Neill graduated from Trinity College, Dublin with a first class honors degree in Business/Economics and he holds a master’s degree in Accounting and Finance from the London School of Economics. He is a Certified Public Accountant in New York State and a Chartered Accountant in Ireland. Mr. Neill served on the board of Galectin Therapeutics (formerly named Pro-Pharmaceuticals, Inc.) from May 2007 to October 2011 and from April 2004 to June 2008 on the board of OXIS International, Inc. We believe that Mr. Neill is well qualified to serve as a member of our Board of Directors due to his extensive executive leadership experience in our industry as well as his many years serving in senior financial management roles.
Conroy Chi-Heng Cheng, a Director of our company since December 2013, serves as the Chief Executive Officer of Net Plus Company Limited. He serves as an Executive Director of Net Plus Company Limited. He has been an Executive Director of New World Development Co. Ltd. since June 2010. He serves as a Director of Chow Tai Fook Enterprises Limited. He served as an Independent Non-executive Director of Hong Kong Energy Holdings Limited (alternate name JIC Technology Co. Ltd. & China Renewable Energy Investment Limited) from July 2002 to May 2007. Mr. Cheng has a Bachelor of Arts degree majoring in Economics from the University of Western Ontario, Ontario, Canada in 1999. We believe that Mr. Cheng is well qualified to serve as a member of our Board of Directors due to his executive leadership experience and his extensive experience with business development.
Jan Brinkman, M.D., Ph.D., a Director of our company since September 2014, serves as the Junior Chair of the Family Committee of the Edmond De Rothschild Foundation. Dr. Brinkman began his career at ABN Bank in 1985 and served as a member of the Biotechnology Business Strategies Committee with ABN-Amro Bank N.V. in London, New York and Hong Kong, reconciling global regulatory affairs. In 1995 Dr. Brinkman served as Chair of the Structured Capital markets team creating the Bank’s advisory body for Corporate Finance and Investment in Healthcare Sector. In 2005 he focused his financial expertise in biotech, becoming ABN-Amro’s liaison to Motorola Biochip, Harvard Medical, Merck, Serono, Teva, Bayer, Philips, Siemens, M.I.T. and the Mayo Foundation. He is also an advisor to the Mayo Foundation Comprehensive Cancer Program. Dr. Brinkman holds a M.D. degree from the Erasmus University of Rotterdam, the Netherlands, and a MBA in international finance from INSEAD/ABN-Amro, France/the Netherlands and a Ph.D. in mathematical physics from the University of Florence, Italy. We believe that Dr. Brinkman is well qualified to serve as a member of our Board of Directors due to his extensive experience in the business and research arenas of the life sciences.
Alan M. Hoberman, Ph.D., a Director of our company since September 2014, has served as President and CEO of Argus International, Inc. since 2009 overseeing a staff of scientists and other professionals who provide consulting services for industry, government agencies, law firms and other organizations both in the U.S. and internationally. Between 1991 and 2013 he held a series of positions of increasing responsibility at Charles River Laboratories Preclinical Services (formerly Argus Research Laboratories, Inc.), most recently as Executive Director of Site Operations and Toxicology. He currently works with that organization to design, supervise and evaluate reproductive and developmental toxicity, neurotoxicity, inhalation and photobiology studies. Dr. Hoberman holds a Ph.D. in toxicology from Pacific Western University, an M.S. in interdisciplinary toxicology from the University of Arkansas and a B.S. in biology from Drexel University. We believe that Dr. Hoberman is well qualified to serve as a member of our Board of Directors due to his extensive experience in the business and research arenas of the life sciences.
Our Directors are elected annually and each holds office until the annual meeting of our stockholders and until their respective successors are elected and qualified. Our officers, including any officers we may elect moving forward, will hold their positions at the pleasure of the Board of Directors, absent any employment agreement. In the event we employ any additional officers or directors, they may receive compensation as determined by our Board of Directors from time to time. Vacancies in the Board of Directors will be filled by majority vote of the remaining directors or in the event that our sole Director vacates his position, by our majority stockholders. Our Directors may be reimbursed by us for expenses incurred in attending meetings of the Board of Directors.
Executive Officers
Set forth below is information regarding our current executive officers. Except as set forth below, there are no family relationships between any of our executive officers and our directors. Executive officers are elected annually by our Board of Directors. Each executive officer holds his office until he resigns or is removed by the Board or his successor is elected and qualified.
Name | | | Age | | Position | Term as an Officer |
| | | | | Chief Executive Officer, Treasurer and Chairman | August 2009 to the Present |
| | | | | Chief Financial Officer and Secretary | December 2013 to the Present |
Biographical information with respect to Dr. Platt is set forth above.
Anthony Squeglia, Chief Financial Officer joined our company in January 2013 and became Chief Financial Officer in December 2013. He served as Chief Financial Officer of Pro-Pharmaceuticals, Inc. and Galectin Therapeutics, Inc. from 2007 to 2012. From 2003 to 2007, Mr. Squeglia was Vice President of Investor Relations for Pro-Pharmaceuticals, Inc. and was instrumental in that company’s listing on the American Stock Exchange, as well as in its fund-raising activities. From 2001 to 2003, Mr. Squeglia was a Partner in JFS Advisors, a management consulting firm that delivered strategic services to entrepreneurial businesses that included raising funds, business planning, positioning, branding, marketing and sales channel development. Previously, Mr. Squeglia helped to launch an IPO for Summa Four, a telecommunications switching company and held senior management positions with Unisys, AT&T, ITT and Colonial Penn. Mr. Squeglia received an M.B.A. from Pepperdine University and a B.B.A. from The Wharton School, University of Pennsylvania.
Scientific Advisory Board
In 2013, we formally established a scientific advisory board to advise our management regarding our clinical and regulatory development programs and other customary matters. Our scientific advisors are experts in various areas of medicine including diabetes and other diseases. We believe the advice of our scientific advisors is important to the research, development and clinical testing of our products. Our scientific advisory board is comprised of David Platt, Ph.D., our Chairman and Chief Executive Officer, and Rom E. Eliaz (Chairman of the Scientific Advisory Board), Dale H. Conaway, D.V.M. and Henry J. Esber, Ph.D., each of whom is an independent director of our company, as well as the following individuals:
Meng Hee Tan (Scientific Advisor and Consulting Medical Director): Dr. Tan is Professor of Internal Medicine, Division of Metabolism, Endocrinology and Diabetes, Department of Internal Medicine in the University of Michigan. A past President of the Canadian Diabetes Association, senior medical director of the Diabetes Endocrine Platform Team and distinguished medical fellow of Eli Lilly and Company, he is a member of the American Diabetes Association and fellow of the American College of Endocrinology. Dr. Tan received his M.D. degree from Dalhousie University.
Larry K. Ellingson (Scientific Advisor): A former Chairman of the Board of the American Diabetes Association, Mr. Ellingson has more than four decades of experience in drug development with a strong emphasis on diabetes and related diseases. Mr. Ellingson is the principal of Global Diabetes Consulting, which works with several companies as well as the North Dakota State University College of Pharmacy. He was Executive Director Diabetes Care at Eli Lilly & Co. He is also a former chair of the board of Protemix Ltd., a biotechnology company focused on proteomics and the development of molecules for diabetes and related diseases. He holds an executive MBA degree from Babson College and a BS degree in pharmacy from North Dakota State University.
Benjamin Rivnay, Ph. D. (Scientific Advisor): Mr. Rivnay is a seasoned director of technology and research activities within the biotechnology industry. Most recently, he was Director of Research and Development at Formatech Inc., where he managed more than 50 projects on formulation development for a diverse group of drugs, as well as studies for stability and material compatibility, initial engineering and process development activities, and preparation of non-cGMP product lots for toxicology studies and other research purposes. Prior to this, he was Vice President of Research and Development and Lab Director at Repromedix Corporation, where he introduced more than 50 new test products for both male and female infertility. Earlier, he served as Senior Investigator and Program Leader at Procept Inc., where he initiated and led a new research and development program focusing on the development of anti-allergic drugs, and as Senior Scientist at Neurex Corporation. He holds a Ph.D. in biochemistry from The Weizmann Institute of Science and a B.Sc. in biology from Tel Aviv University.
Zbigniew J. Witczak, Ph. D. (Scientific Advisor): Dr. Witczak is professor and chair of the Department of Pharmaceutical Sciences at Wilkes University in Wilkes-Barre, Pennsylvania, and has taught Principles of Bioorganic and Medicinal Chemistry at the Nesbitt School of Pharmacy at Wilkes University for the past 14 years. A member of the American Chemical Society, he is the recipient of numerous honors and awards, including Selected 2011 ACS Fellow of the American Chemical Society and Elected U.S. Representative to the International Carbohydrate Organization in 2006. He is the author or coauthor of more than 75 research articles in the area of carbohydrate chemistry. He received Ph.D. and M.S. degrees in organic chemistry from Medical University in Lódz, Poland.
Medical Advisory Board
We established a Medical Advisory Board comprised of Clinicians and Clinical Research professionals who are interested in the field of Diabetes or in other subjects related to our product pipeline. The board will provide leadership and expertise to assist us in designing, executing and implementing our clinically oriented activities in a safe, efficient and professional manner. The Medical Advisory Board is chaired by Larry Ellingson. Additional members include Meng H. Tan, whose biographical information is set forth above under the heading “Scientific Advisory Board”, and the following individuals:
Charles M. Clark, Jr., M.D., (Medical Advisor): Dr. Clark is Professor Emeritus of Medicine at Indiana University Medical Center in Indianapolis. A past president of the American Diabetes Association, he has served as chairman of the National Diabetes Education Program Steering Committee and as editor of Diabetes Care. He has also served as chair of the Conference of the Worldwide Burden of Diabetes. He received his M.D. degree from Indiana University School of Medicine.
Jaime A. Davidson, M.D., (Medical Advisor): Dr. Davidson is a Clinical Professor of Internal Medicine in the Division of Endocrinology of Touchstone Diabetes Center at the University of Texas Southwestern Medical Center in Dallas. He has served as president of WorldWIDE, a non-profit diabetes education organization, and as an editorial board member of The Journal of Diabetes. A member of the American Diabetes Association, he has also served as chair of the American College of Endocrinology Diabetes Consensus Guidelines. He received his M.D. degree from the Universidad Nacional Autonoma de Mexico.
Philip Raskin, M.D., (Medical Advisor): Dr. Raskin is the Clifton and Betsy Robinson Chair in Biomedical Research and Professor of Medicine at the University of Texas Southwestern Medical Center at Dallas in Dallas, Texas. He is also director of the diabetes clinic and former director of the University Diabetes Treatment Center at Parkland Memorial Hospital in Dallas. A member of the American Diabetes Association, he is the editor of the Journal of Diabetes and its Complications. He received his M.D. degree from the University of Pittsburgh.
David S.H. Bell, MB, FACP, FACE., (Medical Advisor): Dr. Bell is an adjunct professor of medicine at the University of Alabama at Birmingham School of Medicine where from 1980 to 2005 he served as professor of medicine. The author and coauthor of more than 320 publications, he is a Fellow of the American College of Physicians, a Fellow of the Royal College of Physicians of Edinburgh and a Fellow of the Royal College of Physicians and Surgeons of Canada. He is a member of the American Diabetes Association and is on the Editorial Boards of the Journal Diabetes Obesity and Metabolism and Endocrine Today. He is a graduate of Belfast Royal Academy and Queens University School of Medicine, from which he graduated with the MB, BCh, BAO degree.
Audit Committee
Our Board of Directors has established an audit committee, the members of which are S. Colin Neill, Dale Conaway and Henry Esber, all of whom are independent directors. Mr. Neill serves as the chairman of the audit committee. The audit committee is primarily responsible for reviewing the services performed by our independent auditors and evaluating our accounting policies and our system of internal controls. Mr. Neill serves as our “audit committee financial expert.” We believe that while the members of the committee are collectively capable of analyzing and evaluating financial statements and understanding internal control over financial reporting and disclosure controls procedures, the Board of Directors has determined that only Mr. Neill qualifies as an “audit committee financial expert” who is “independent” as defined in Item 407(d)(5) of Regulation S-K of the Securities Exchange Act of 1934, as amended.
Nominating and Corporate Governance Committee
Our Board of Directors has established a nominating and corporate governance committee, which members are comprised of Henry Esber, Dale Conaway, and Rom Eliaz, all of whom are independent directors. Mr. Esber acts as chairman of the nominating and corporate governance committee. The functions of the nominating and corporate governance committee include the following:
| · | identifying and recommending to the Board of Directors individuals qualified to serve as members of our Board of Directors and on the committees of the Board; |
| · | advising the Board with respect to matters of Board composition, procedures and committees; and |
| · | developing and recommending to the Board a set of corporate governance principles applicable to us and overseeing corporate governance matters generally including review of possible conflicts and transactions with persons affiliated with directors or members of management; and overseeing the annual evaluation of the Board and our management. |
Compensation Committee
Our Board of Directors has established a compensation committee, which members are comprised of Rom Eliaz, Dale Conaway and Henry Esber, all of whom are independent directors. Mr. Esber serves as the chairman of the compensation committee. The compensation committee is primarily responsible for overseeing and administering our compensation plans and executive compensation matters.
Executive Compensation
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to (i) all individuals serving as our principal executive officers or acting in a similar capacity during the last two completed fiscal years, regardless of compensation level, and (ii) our two most highly compensated executive officers other than the principal executive officers serving at the end of the last two completed fiscal years (collectively, the “Named Executive Officers”).
Summary Compensation Table
Name and Principal Position | | | | | | | | | Stock | | | | |
| Year | | Salary | | | Bonus | | | Awards (4) | | | Compensation | |
| | | | | | | | | | | | | |
David Platt, Ph.D., Chief Executive | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
Anthony Squeglia, Chief Financial | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
(1) | Dr. Platt also served as Chief Financial Officer during the 2013 fiscal year until the election of Anthony Squeglia as Chief Financial Officer on December 4, 2013. |
(2) | Mr. Tassey served as President until his resignation from our company on June 30, 2014. Salary for 2014 includes $50,000 in severance paid to Mr. Tassey through December 31, 2014. Mr. Tassey’s fully vested stock options granted in fiscal 2014 forfeited September 30, 2014 as they were not exercised by Mr. Tassey. |
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(3) | In January 2013, Mr. Squeglia was hired as the Vice President of Strategic Planning and became Chief Financial Officer on December 4, 2013. |
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(4) | Consists of grants of stock options. Details of the options are set forth on the table titled “GRANTS OF PLAN-BASED AWARDS IN FISCAL 2014” below. |
Grants of Plan-Based Awards
There were no grants of plan-based awards to the named executive officers in fiscal 2013. The following table shows for the fiscal year ended December 31, 2014, certain information regarding grants of plan-based awards, or common stock options, to the named executive officers.
GRANTS OF PLAN-BASED AWARDS IN FISCAL 2014
Name | Award Type | Grant Date | Approval Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Target ($) | All Other Option Awards: Number of Securities Underlying Options (3) | | Exercise or Base Price of Option Awards ($/Sh) (1) | | | Grant Date Fair Value of Stock and Option Awards ($) (2) | |
David Platt | Incentive Stock Option | 02/12/14 | 02/12/14 | - | 100,000 | | $ | 1.21 | | | $ | 87,995 | |
Anthony Squeglia | Incentive Stock Option | 02/12/14 | 02/12/14 | - | 100,000 | | $ | 1.21 | | | $ | 87,995 | |
Kenneth A. Tassey, Jr. (4) | Incentive Stock Option | 02/12/14 | 02/12/14 | - | 100,000 (4) | | $ | 1.21 | | | $ | 87,995 | |
(1) | Stock options were granted with an exercise price equal to 100% of the fair market value on the date of grant. The stock options granted in 2014 carry an exercise price of $1.21 per share, the closing price of Boston Therapeutics, Inc.’s common stock on the grant date. |
(2) | The dollar amounts in this column represent the grant date fair value of each stock option award granted to the named executive officers in 2014. These amounts have been calculated in accordance with ASC 718, using the Black-Scholes option-pricing model. Assumptions used in the calculation of these amounts are included in the notes to Boston Therapeutics, Inc.’s audited financial statements included in this prospectus for the year ended December 31, 2014. |
(3) | Annual stock options were granted under our Amended and Restated 2010 Stock Plan (the "2010 Plan"). |
(4) | Mr. Tassey’s fully vested stock options were forfeited September 30, 2014 as they were not exercised by Mr. Tassey within the timeframe allotted by the stock option plan based on his resignation date. |
Outstanding Equity Awards at December 31, 2014
The following table sets forth, as of December 31, 2014, certain information regarding outstanding equity awards at fiscal year-end for the named executive officers.
OUTSTANDING EQUITY AWARDS AT 2014 FISCAL-YEAR END TABLE
| | Option Awards |
| | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#)(1) Unexercisable | | | Option Exercise Price ($) | | Option Expiration Date |
Name |
| | | 250,000 | | | | — | | | $ | 0.50 | | |
| | | 75,000 | | | | 25,000 | | | $ | 1.21 | | |
| | | 500,000 | | | | — | | | $ | 0.50 | | |
| | | 75,000 | | | | 25,000 | | | $ | 1.21 | | |
(1) | In addition to the specific vesting schedule for each stock option award, each unvested stock option is subject to the general terms of the 2010 and 2011 Plans including the potential for future vesting acceleration. |
Option Exercises and Stock Vested in 2014
Our Named Executive Officers did not exercise any stock options during fiscal year 2014. Both Dr. Platt and Mr. Squeglia were awarded 100,000 stock options in February 2014 of which 75,000 were fully exercisable at the time of grant and 25,000 become exercisable on January 1, 2015. In addition, 62,500 stock options from a November 2012 award to Mr. Squeglia’s vested in March 2014.
Director Compensation
The following table sets forth all compensation awarded to, earned by or paid to the non-employee directors in 2014 for service as directors:
| | | Fees Earned Or Paid in Cash ($) | | | | Stock Awards ($) | | | | Option Awards ($) (1) | | | | Non-Equity Incentive Plan Compensation ($) | | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | | | All Other Compensation ($) | | | | Total ($) | |
| | $ | - | | | $ | - | | | $ | 69,455 | | | $ | - | | | $ | - | | | $ | - | | | $ | 69,455 | |
| | $ | - | | | $ | - | | | $ | 119,656 | | | $ | - | | | $ | - | | | $ | - | | | $ | 119,656 | |
| | $ | - | | | $ | - | | | $ | 38,620 | | | $ | - | | | $ | - | | | $ | - | | | $ | 38,620 | |
| | $ | 30,000 | | | $ | - | | | $ | 51,978 | | | $ | - | | | $ | - | | | $ | - | | | $ | 81,978 | |
| | $ | - | | | $ | - | | | $ | 21,144 | | | $ | - | | | $ | - | | | $ | - | | | $ | 21,144 | |
| | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Jan Brinkman, M.D., Ph.D. (3) | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
(1) | The “Option Awards” column reflects non-qualified options to purchase an aggregate of 279,000 shares of our common stock at an exercise price of $1.21 for a period of 10 years granted effective January 1, 2014 and vesting on December 31, 2014 conditioned on the grantee having attended a minimum of 75% of the Board meetings in 2014 and subject to immediate vesting upon change of control. These grants were made to compensate directors for their service in 2014. In addition, some board members were granted non-qualified options that immediately vested to purchase an aggregate of 118,000 shares of our common stock at exercise prices ranging from $0.37 to $0.69 for a period of 10 years. |
(2) | Mr. Neill is paid cash compensation of $2,500 per month in his position as the Chairman of the Audit Committee. |
(3) | Dr. Hoberman and Dr. Brinkman were elected to director positions in September 2014 and therefore not eligible for the 2014 option awards. |
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The amounts reported in “Option Awards” represent the aggregate grant date fair value of stock options awarded in each year in accordance with Accounting Standards Codification (ASC) Topic 718, Compensation — Stock Compensation. Assumptions used in the calculation of these amounts for the fiscal year ended December 31, 2014 are included in Note 6 “Stock Option Plan and Stock-Based Compensation” to our audited financial statements for the year ended December 31, 2014.
Readers are cautioned that the amounts reported in the Director Compensation Table for these awards may not represent the amounts that the directors will actually realize from the awards. Whether, and to what extent, a director realizes value will depend on our actual operating performance, stock price fluctuations and the director’s continued service. Other than the grant of options for 2014, and for the cash compensation to Mr. Neill described in the table above, there are currently no other agreements in effect entitling the non-employee directors to compensation.
Employment Contracts
There currently are no employment or consulting contracts between us and our Named Executive Officers or Directors. There are no arrangements or plans in which we provide pension, retirement or similar benefits for Named Executive Officers or Directors. Our Named Executive Officers and Directors receive stock options at the discretion of our Board of Directors. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our Named Executive Officers or Directors, except that stock options may be granted at the discretion of our Board of Directors from time to time.
There are no arrangements between us and the Named Executive Officers that provide for payments in connection with the resignation, retirement or other termination of a Named Executive Officer or in connection with a change of control or any other arrangements with any Named Executive Officer with respect to termination of employment or change of control transactions.
Compensation Risk Assessment
Prior to the formation of our Compensation Committee, compensation decisions were made by the full Board. In setting compensation, the Compensation Committee considers (and the Board previously considered) the risks to our stockholders and to achievement of our goals that may be inherent in its compensation programs. The Compensation Committee (and the Board of Directors previously) reviewed and discussed its assessment with management and outside legal counsel and concluded that our compensation programs are within industry standards and are designed with the appropriate balance of risk and reward to align employees’ interests with those of our company and do not incent employees to take unnecessary or excessive risks. We believe our compensation plans are appropriately structured and are not reasonably likely to result in a material adverse effect on us.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Except as otherwise set forth herein, during the last two fiscal years, we have not entered into any material transactions or series of transactions that would be considered material in which any officer, director or beneficial owner of 5% or more of any class of our capital stock, or any immediate family member of any of the preceding persons, had a direct or indirect material interest. There are no transactions presently proposed, except as follows:
Conroy Chi-Heng Cheng is a director of Advance Pharmaceutical Company (“Advance Pharmaceutical”), a Hong Kong-based, privately-held company. On June 24, 2011, prior to his election to the Board of Directors, we entered into a definitive Licensing and Manufacturing Agreement (the “Agreement”) with Advance Pharmaceutical. Under terms of the Agreement, we manufacture and supply product in bulk for Advance Pharmaceutical. Advance Pharmaceutical is responsible for the packaging, marketing and distribution of SUGARDOWN® in Hong Kong, China and Macau. In November 2014, we agreed to expand the Advance Pharmaceutical marketing agreement to include 12 additional countries: Korea, Taiwan, Singapore, Thailand, Malaysia, Vietnam, Philippines, Myanmar, Indonesia, Laos, Brunei and Cambodia, and in March 2015, we agreed to expand the agreement to include Japan. Advance Pharmaceutical will also have rights to develop and manufacture SUGARDOWN® for commercial sale in these countries, subject to establishment of quality assurance and quality control standards set forth by us. The Agreement provides that Advance Pharmaceutical will pay royalties to us for SUGARDOWN® and related products developed by us and a reduced royalty rate for products based on our intellectual property and developed by Advance Pharmaceutical. Revenue generated through this agreement for the years ended December 31, 2014 and 2013 were approximately $182,000 and $315,000, respectively.
Advance Pharmaceutical, through a wholly owned subsidiary, has purchased an aggregate 1,799,800 shares of the common stock in conjunction with our private placement offerings during the years ended December 31, 2013 and 2012. The shares were purchased on the same terms as the other participants acquiring shares in the respective offerings.
On March 14, 2013 we issued 500,000 shares of our common stock at a price per share of $0.50 and issued a warrant to purchase 250,000 additional shares for $1.00 per share for gross proceeds of $250,000 to CJY Holdings Limited, a company controlled by Cheng Chi Him, a brother of our Director, Conroy Chi-Heng Cheng. The warrant is exercisable immediately and maintain insurancehas a five year term.
In July 2013 CJY Holdings purchased 6,666,660 shares of our common stock and warrants to purchase an aggregate of 3,333,320 shares of our common stock for an aggregate purchase price of $2,000,000 in the private placement conducted by us between July and September 2013. The warrants have an exercise price of $0.50 per share, are currently exercisable and have a five year term.
Between July 3, 2009 and May 7, 2012, David Platt, our Chairman and Chief Executive Officer and then Chief Financial Officer and Ken Tassey, our former President, loaned an aggregate of $297,820 to us and, prior to its merger with us, to our predecessor Boston Therapeutics, Inc., a New Hampshire corporation (or BTHENH), to fund start-up costs and current operations of our company and BTHENH pursuant to a series of unsecured promissory notes. We assumed BTHENH’s obligations on behalfthe notes issued by BTHENH to Dr. Platt when BTHENH merged into us in November 2009. The notes carry interest at 6.5%. The notes initially became due and payable at various times between March 31, 2011 and June 30, 2012. On August 6, 2012, the maturity dates of each of the notes were extended to June 29, 2014. On August 2, 2013, the maturity dates of each of the notes were further extended to June 29, 2015. Effective June 30, 2014, the outstanding notes were amended to extend the maturity date to June 30, 2016.
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 recorded in the year ended December 31, 2013 and $63,296 was recorded 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 voted to rescind the requirement that Dr. Platt reimburse the Company the entire $182,697. The Board determined that interest should be charged to Dr. Platt from the time he received the funds in July 2014, to the date of the board meeting and that this amount would be offset against interest the Company owes Dr. Platt. The remaining amount would be considered settled in full by the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the ownership of the our common stock as of the date of this prospectus with respect to: (i) each person known to us to be the beneficial owner of more than five percent of our common stock; (ii) all directors; (iii) all named executive officers; and (iv) all directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC that deem shares to be beneficially owned by any person who ishas voting or was a director, officerinvestment power with respect to such shares. Shares of common stock subject to options or employeewarrants that are exercisable as of the Company,date of this prospectus or is or was serving atare exercisable within 60 days of such date are deemed to be outstanding and to be beneficially owned by the requestperson holding such options for the purpose of calculating the percentage ownership of such person but are not treated as outstanding for the purpose of calculating the percentage ownership of any other person.
| | | | | | | | | (1 | ) |
| | | 8,575,985 | | (3 | ) | | | 21.9 | % | | (3 | ) |
Kenneth A. Tassey, Jr. 226 Karatzas Avenue #309 Manchester, NH 03108 | | | 3,043,450 | | | | | | 7.9 | % | | | |
Jonathan Rome 50 Tice Boulevard Suite A35 Woodcliff Lake, NJ 07677 | | | 4,383,000 | | (4 | ) | | | 10.5 | % | | (4 | ) |
Offer Binder Via Armand Fedeli 121 Perugia PG 06132 Italy | | | 2,000,000 | | | | | | 5.2 | % | | | |
Harold Solomon Parnes 1525 Voorhies Avenue Brooklyn, NY 11235 | | | 2,020,000 | | | | | | 5.2 | % | | | |
Advance Pharmaceutical Company Ltd.(5) Rm A 2- 3F, Dai Fu Street Tai Po Industrial Est. Tai Po, New Territories, Hong Kong | | | 1,823,800 | | (5 | ) | | | 4.7 | % | | (5 | ) |
CJY Holdings Limited 7B Jonsim Place 288 Queens Road East Wanchai, Hong Kong | | | 10,749,980 | | (6 | ) | | | 25.5 | % | | (6 | ) |
Idan Sahar 12 Nissim Aloni Tel Aviv, Israel | | | 1,999,996 | | (7 | ) | | | 5.1 | % | | (7 | ) |
| | | 934,350 | | (8 | ) | | | 2.4 | % | | (8 | ) |
| | | 135,100 | | (9 | ) | | | * | | | | |
| | | 76,100 | | (10 | ) | | | * | | | | |
| | | 241,000 | | (11 | ) | | | * | | | | |
| | | 59,100 | | (12 | ) | | | * | | | | |
| | | 5,000 | | | | | | * | | | | |
Conroy Chi-Heng Cheng(2)** | | | 1,823,800 | | (13 | ) | | | 4.7 | % | | (13 | ) |
All Officers and Directors as a Group (8 persons) | | | 11,850,435 | | | | | | 28.9 | % | | | |
* Less than 1%
** Directors and Officers
(1) | Except as expressly stated, the percentages in the table are based on 38,597,008 shares of common stock outstanding as April 21, 2015. |
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(2) | The business address for these individuals is 1750 Elm Street, Suite 103, Manchester, NH 03104. |
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(3) | Includes 520,000 shares owned by Dr. Platt’s wife and 500,000 shares issuable pursuant to outstanding stock options currently exercisable. Excludes 20,000 shares held by Dr. Platt’s daughter as to which Dr. Platt disclaims beneficial ownership. Excludes 20,000 shares held by Dr. Platt’s son as to which Dr. Platt disclaims beneficial ownership. |
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(4) | Includes 2,500,000 shares issuable pursuant to an outstanding stock option currently exercisable. Includes 625,000 shares issuable pursuant to an outstanding warrant to purchase common stock currently exercisable. |
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(5) | Consists of 1,799,800 shares owned by SUGARDOWN Co., LTD., a wholly-owned subsidiary of Advance Pharmaceutical Company Ltd. Conroy Chi-Heng Cheng, a director of Boston Therapeutics, Inc., exercises voting and investment control over these securities. Includes 24,000 shares issuable pursuant to an outstanding stock option currently exercisable. |
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(6) | Includes 3,583,320 shares issuable pursuant to outstanding warrants to purchase common stock currently exercisable. Cheng Chi Him exercises voting and investment control over these securities. |
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(7) | Includes 666,664 shares issuable pursuant to outstanding warrants to purchase common stock currently exercisable. |
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(8) | Includes 750,000 shares issuable pursuant to outstanding stock options currently exercisable. Includes 50,000 shares issuable pursuant to an outstanding warrant to purchase common stock currently exercisable. Includes 6,000 shares owned by Mr. Squeglia’s wife. Excludes 10,000 shares owned, 5,000 shares issuable pursuant to an outstanding warrant to purchase common stock held by Mr. Squeglia’s son as to which Mr. Squeglia disclaims beneficial ownership. Excludes 75,000 shares issuable pursuant to an outstanding stock option currently exercisable held by Mr. Squeglia’s son as to which Mr. Squeglia disclaims beneficial ownership. |
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(9) | Includes 133,000 shares issuable pursuant to outstanding stock options currently exercisable. |
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(10) | Includes 76,000 shares issuable pursuant to outstanding stock options currently exercisable. |
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(11) | Includes 228,000 shares issuable pursuant to outstanding stock options currently exercisable. |
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(12) | Includes 59,000 shares issuable pursuant to an outstanding stock option currently exercisable. |
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(13) | Consists of 1,799,800 shares owned by SUGARDOWN Co., LTD., a wholly-owned subsidiary of Advance Pharmaceutical Company Ltd. Conroy Chi-Heng Cheng exercises voting and investment control over these securities. Includes 24,000 shares issuable pursuant to an outstanding stock option currently exercisable. |
DESCRIPTION OF SECURITIES
The total authorized shares of capital stock of our company currently consists of (1) 200,000,000 shares of common stock, par value $0.001 per share, and (2) 5,000,000 shares of preferred stock, par value $0.001 per share. As of the date of this prospectus, 38,597,008 shares of our common stock were issued and outstanding and no shares of preferred stock were issued or outstanding.
We are authorized under our 2010 Stock Option Plan to issue options to purchase up to 7,500,000 shares of our common stock and we are authorized under our 2011 Stock Option Plan to issue 17,500,000 shares of our common stock. As of the date of this prospectus, stock options were granted to purchase 8,192,400 shares of common stock from our 2010 and 2011 Plans at a weighted average exercise price of $0.41 per share outstanding.
As of the date of this prospectus, there are (i) warrants held by investors and consultants to purchase 1,878,336 shares of common stock at a weighted average exercise price of $0.88, (ii) warrants held by investors to purchase 8,829,484 shares of common stock at an exercise price of $0.50 per share, (iii) warrants held by former placement agents to purchase 1,716,849 shares of common stock at an exercise price of $0.30 per share outstanding and (iv) warrants issued in conjunction with our recent convertible debt financing to purchase 979,965 shares of common stock at a weighted average exercise price of $0.30. The Company asis required to reserve approximately 25,900,000 shares of common stock in connection with the convertible promissory note agreements entered into March 2015. If the holders of the Company’s convertible note agreements are to exercise the conversion features, the Company could be obligated to issue a director, officer, employeesignificant amount of shares of common stock in accordance to each agreement, subject to conversion rate adjustments.
Common Stock
Each share of our common stock entitles the holder to receive notice of and to attend all meetings of our stockholders with the entitlement to one vote. Holders of common stock are entitled, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares ranking in priority to the common stock, to receive any dividend declared by the Board of Directors. If we are voluntarily or agentinvoluntarily liquidated, dissolved or wound-up, the holders of another company, partnership, joint venture, trustcommon stock will be entitled to receive, after distribution in full of the preferential amounts, if any, all of the remaining assets available for distribution ratably in proportion to the number of shares of common stock held by them. Holders of common stock have no redemption or conversion rights. The rights, preferences and privileges of holders of shares of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock issued and outstanding or that we may designate and issue in the future.
Dividends
We have not paid any cash dividends on our common stock and do not plan to pay any such dividends in the foreseeable future. We currently intend to use all available funds to develop our business. We can give no assurances that we will ever have excess funds available to pay dividends.
Preferred Stock
Our authorized preferred stock consists of 5,000,000 shares of preferred stock, par value $0.001 per share. As of the date of this prospectus, no shares of preferred stock have been issued. Our Board of Directors has the authority, without any vote or action by the stockholders, to create one or more series of preferred stock up to the limit of our authorized but unissued shares of preferred stock and to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series and the relative participating, option or other enterprise against liability asserted against himspecial rights (if any), and incurredany qualifications, preferences, limitations or restrictions pertaining to such series which may be fixed by himthe Board of Directors pursuant to a resolution or resolutions providing for the issuance of such series adopted by the Board of Directors.
Warrants Being Issued in anythis Offering
We are offering 12,500,000 warrants in this offering. Each warrant is exercisable for one share of our common stock, at an exercise price of $0.30 per share. The warrants will become exercisable immediately after the date of issuance and may be exercised until 5 years after the date of issuance. |
Outstanding Warrants
At April 21, 2015, the following warrants were outstanding:
2013 Private Placement Warrants
In connection with a private placement, we issued to investors warrants to purchase an aggregate of 8,829,484 shares of common stock at an exercise price of $0.50 per share, all of which are currently exercisable, as follows:
| · | Warrants to purchase an aggregate of 3,333,320 shares of common stock, expiring on July 23, 2018. |
| · | Warrants to purchase an aggregate of 1,414,113 shares of common stock expiring on August 6, 2018. |
| · | Warrants to purchase an aggregate of 1,130,223 shares of common stock expiring on August 30, 2018. |
| · | Warrants to purchase an aggregate of 2,951,828 shares of common stock expiring on September 30, 2018. |
We may call these warrants for redemption if the volume weighted average price of our common stock is at or above $2.00 for 15 consecutive trading days. During the 45 days following a redemption call, holders of the warrants may choose to exercise the warrants, or a portion thereof, by paying the then applicable exercise price. Any warrants subject to the redemption call that are unexercised during such capacity,45-day period will be cancelled. We may call warrants that are covered by an effective registration statement from the time of the call through the end of the 45-day period only.
In connection with the private placement, we issued to the placement agent warrants to purchase 1,808,849 shares of common stock at an exercise price of $0.30 per share, all of which are exercisable. In January 2015, 92,000 warrants were exercised on a cashless basis. The remaining 1,716,849 warrants may be exercised on a cashless basis and expire on August 30, 2018.
Other Warrants
We have issued warrants to certain investors and to consultants after purchase of the aggregate of 1,878,336 shares of Common Stock; all of these warrants are exercisable at prices between $0.50 and $1.15 per share (“Other Warrants”). In addition, we issued a warrant in conjunction with our recent convertible note financings to purchase 979,965 shares of common stock at an exercise price of $0.30 per share.
The exercise price and number of shares of Common Stock to be received upon the exercise of the Investor Warrants, Placement Agent Warrants and Other Warrants are subject to adjustment upon the occurrence of certain events, such as stock splits, stock dividends or arising outrecapitalization.
Holders of his status asthe Investor Warrants have no voting, pre-emptive, subscription or other rights of stockholders in respect of the Investor Warrants, Placement Agent Warrants and Other Warrants, nor shall the holders of such whether or notwarrants be entitled to receive dividends.
Convertible Promissory Note Agreements
During March 2015, the Company would haveentered into four separate promissory note agreements with total proceeds of $432,000, net of discounts and fees. Under such agreements, the powerCompany is required to indemnify him against liability underreserve approximately 25,900,000 shares of common stock for potential conversion of these notes into common stock. If the holders of the Company’s convertible note agreements are to exercise the conversion features, the Company could be obligated to issue a significant amount of shares of common stock in accordance to each agreement, subject to conversion rate adjustments.
Delaware Anti-Takeover Law and Provisions of Certificate of Incorporation and By-Laws
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a public Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
| · | prior to the date of the transaction, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
| · | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding specified shares; or |
| · | at or subsequent to the date of the transaction, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3 % of the outstanding voting stock which is not owned by the interested stockholder. |
Section 203 defines a "business combination" to include:
| · | any merger or consolidation involving the corporation and the interested stockholder; |
| · | any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10% or more of the assets of the corporation to or with the interested stockholder; |
| · | subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; |
| · | subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or |
| · | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
In general, Section 203 defines an "interested stockholder" as any person that is:
| · | the owner of 15% or more of the outstanding voting stock of the corporation; |
| · | an affiliate or associate of the corporation who was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the relevant date; or |
| · | the affiliates and associates of the above. |
Under specific circumstances, Section 203 makes it more difficult for an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the stockholders may, by adopting an amendment to the corporation's certificate of incorporation or bylaws, elect not to be governed by this section, effective 12 months after adoption.
Our certificate of incorporation and bylaws do not exclude us from the restrictions of Section 203. We anticipate that the provisions of this section. The Company currently maintains such insurance.
Settlement by the Company. The right of any personSection 203 might encourage companies interested in acquiring us to be indemnified is subject always to the right of the Company by itsnegotiate in advance with our Board of Directors in lieu of such indemnity, to settle any such claim, action, suit or proceeding atsince the expensestockholder approval requirement would be avoided if a majority of the Company bydirectors then in office approve either the paymentbusiness combination or the transaction that resulted in the stockholder becoming an interested stockholder.
Certificate of Incorporation and Bylaws
Provisions of our certificate of incorporation and bylaws to be in effect upon the amountconsummation of such settlementthis offering may delay or discourage transactions involving an actual or potential change of control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our certificate of incorporation and the costs and expenses incurred in connection therewith.bylaws will:
| · | permit our Board of Directors to issue up to shares of preferred stock, with any rights, preferences and privileges as they may designate; |
Insofar as indemnification | · | provide that all vacancies on our Board of Directors, including as a result of newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; |
| · | require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent; |
| · | provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder's notice; |
| · | not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election; and |
| · | provide that special meetings of our stockholders may be called only by the Board of Directors or by such person or persons requested by a majority of the Board of Directors to call such meetings. |
SHARES AVAILABLE FOR FUTURE SALE
We cannot predict what effect, if any, market sales of shares of our common stock or the availability of shares of our common stock for liabilities arisingsale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options or warrants, in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate.
Assuming that all 25,000,000 common shares in this offering are issued and sold, we will have 63,597,008 shares of common stock outstanding. Of the outstanding shares, the shares sold in our initial public offering, subsequent public offering, and this offering will be freely tradable without restriction or further registration under the Securities Act, of 1933except that any shares held by our “affiliates”, as that term is defined under Rule 144, may be permitted to directors, officers or persons controllingsold only in compliance with the limitations described below. In addition, as of April 21, 2015 there were 13,404,634 shares issuable upon the exercise of warrants with a weighted average exercise price of $0.51 per share and 8,192,400 shares issuable upon the exercise of stock options with a weighted average exercise price of $0.41 per share. In addition, in connection with the promissory note agreements, the Company is required to reserve approximately 25,900,000 shares of common stock. If the notes are converted at the option of the holders, a significant amount of shares of common stock could be issued in accordance with each agreement, subject to conversion rate adjustments.The resale of such shares, following the exercise of such warrants and options by the holders thereof, has been registered. The remaining outstanding shares of common stock will be deemed “restricted securities” as that term is defined under Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration, including the exemptions under Rule 144, which we summarize below. The restricted shares held by our affiliates will be available for sale in the public market at various times after the date of this prospectus pursuant to Rule 144.
Rule 144
Rule 144 governs resale of “restricted securities” for the foregoing provisions, or otherwise,account of any person (other than an issuer), and restricted and unrestricted securities for the Company has been advised that in the opinionaccount of an “affiliate” of the issuer. Restricted securities generally include any securities acquired directly or indirectly from an issuer or its affiliates which were not issued or sold in connection with a public offering registered under the Securities Act. An affiliate of the issuer is any person who directly or indirectly controls, is controlled by, or is under common control with, the issuer. Affiliates of ours may include its directors, executive officers, and Exchangepersons directly or indirectly owning 10% or more of the outstanding common stock. Under Rule 144, non-affiliates are able to sell restricted securities pursuant to Rule 144, after six months, subject to certain conditions, including if we are current in our reporting obligations with the Commission and remain current for an additional period of six months, and thereafter after one year, with no volume or reporting obligations.
Under Rule 144, affiliates are able to sell restricted securities pursuant to Rule 144 after six months, subject to certain conditions, including if we are current in our reporting obligations with the SEC and remain current for an additional period of six months, as well as other requirements described below. Resales by our affiliates of restricted and unrestricted common stock are subject to volume limitation, aggregation, broker transaction, notice filing requirements, and requirements concerning publicly available information about our company. The volume limitations provide that a person (or persons who must aggregate their sales) cannot, within any three-month period, sell more than the greater of one percent of the then outstanding shares, or the average weekly reported trading volume during the four calendar weeks preceding each such indemnification is against public policy as expressed insale.
Registration Rights
The holders of an aggregate of 17,659,007 shares of our common stock are entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of 1933the registration statement of which this prospectus is a part. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.
Equity Incentive Plans
We filed a registration statement Amended and is, therefore, unenforceable.Restated 2010 Stock Plan and 2011 Amended and Restated Non-Restricted Stock Plan on Form S-8 under the Securities Act. Accordingly, shares registered under the registration statement are available for sale in the open market subject to Rule 144 volume limitations.
PLAN OF DISTRIBUTION
We are offering up to 25,000,000 shares of our common stock on a self-underwritten “best efforts” basis for aggregate gross proceeds of up to $5 million at an estimated price of $0.20 per share, to be issued in one or more closings. There can be no assurance that the offering will be fully subscribed. Accordingly, we may sell substantially less than $5 million of our shares of common stock, in which case our gross proceeds would be substantially reduced.
We expect to enter into securities purchase or subscription agreements directly with investors in connection with this offering, and we will only sell to investors who have entered into such agreement with us.
This prospectus forms a part of a registration statement that permits our officers and directors to sell the shares directly to the public, with no commission or other remuneration payable to them for any shares they sell. There are no plans or arrangements to enter into any contracts or agreements to sell the shares with a broker or dealer. In offering the securities on our behalf, our officers and directors will rely on the safe harbor from broker/dealer registration set out in Rule 3a4-1 under the Exchange Act, which sets forth those conditions under which a person associated with an issuer may participate in the offering of the issuer’s securities and not be deemed to be a broker/dealer.
There is no requirement to sell any specific number or dollar amount of securities and we may raise substantially less than the $5 million in common stock offered hereby. Our officers will use their best efforts to sell the securities offered. We will pay all expenses incurred in this offering.
The assumed number of shares offered hereby as reflected in this prospectus is based on the last reported sale price of our common stock on April 21, 2015. However, this final public offering price will be a negotiated price and the final number of shares offered hereby will be based on such negotiated offering price.
The offering will close on _______, 2015, 90 days after the effectiveness of the registration statement of which this prospectus is a part, unless all the securities are sold before that date, we extend the offering another 90 days or we otherwise decide to close the offering early or cancel it, in each case in our sole discretion. If we extend the offering, we will provide that information in an amendment to this prospectus. If we close the offering early or cancel it, including during any extended offering period, we may do so without notice to investors, although if we cancel the offering we will promptly return any funds investors may already have paid.
There is no minimum number of shares that we must sell in this offering. Because there is no minimum offering amount required as a condition to closing in this offering, the actual public offering amount and proceeds to us, if any, are not presently determinable and may be substantially less than all of the securities offered hereby. As a result, the actual amount of gross proceeds from the sale of shares, if any, might not be sufficient to cover the expenses of the offering. Funds raised pursuant to this offering will not be held in any escrow account and all funds raised regardless of the amount will be available to us. In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person inwe do not raise sufficient capital to implement our planned operations, your entire investment could be lost.
In connection with the securities being registered,this offering, we will unlessissue 1 warrant for every share of common stock purchased. Each warrant entitles the holder to purchase one half of one (1/2) share of common stock at an exercise price of $0.30 per share. After the expiration of the 5 year exercise period, warrant holders will have no further rights to exercise such warrants.
The warrants may be exercised only for full shares of common stock. We will not issue fractional shares of common stock or cash in lieu of fractional shares of common stock. Warrant holders do not have any voting or other rights as a stockholder of our company. The exercise price and the opinionnumber of its counselshares of common stock purchasable upon the matter has been settled by controlling precedent, submitexercise of each warrant are subject to adjustment upon the courthappening of appropriate jurisdiction the question whethercertain events, such indemnification by it is against public policy as expressed in the Securities Actstock dividends, distributions, and will be governed by the final adjudication of such issue.splits.
At present, there is no pending litigation or proceeding involving any of our directors, officers or employees as to which indemnification is sought, nor are we aware of any threatened litigation or proceeding that may result in claims for indemnification.
Certain legal matters with respect to the issuance of shares of common stock offered hereby will be passed upon by Seyfarth ShawEllenoff Grossman & Schole LLP, Boston, Massachusetts.New York, New York.
EXPERTS
The financial statements of the Company as of and for the years ended December 31, 20112014 and 2010 and for the period from inception (August 24, 2009) to December 31, 2011,2013, appearing in this Prospectus and Registration Statement have been audited by McGladrey LLP, (Formerly McGladrey & Pullen, LLP), an independent registered public accounting firm, as stated in their report appearing elsewhere herein, (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's ability to continue as a going concern) and are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
The financial statementsWHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and Exchange Commission (SEC) for our common stock offered in this offering. This prospectus does not contain all of the Company asinformation set forth in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make references in this prospectus to any of December 31, 2009our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for the period from inception (August 24, 2009)copies of the actual contract, agreement or other document.
Our fiscal year ends on December 31. We are a reporting company and file annual, quarterly, and current reports, and other information with the SEC. You may read and copy any reports, statements, or other information we file at the SEC’s public reference room at 100 F. Street, N.E., Washington D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee by writing to December 31, 2009, appearingthe SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our SEC filings are also available to the public on the SEC’s Internet site at http\\www.sec.gov. We maintain a website at www.bostonti.com. Information contained in or accessible through our website is not and should not be considered a part of this prospectus and you should not rely on that information in deciding whether to invest in our common stock, unless that information is also in or incorporated by reference in this Prospectus and Registration Statement, have been audited by Caturano and Company, Inc., an independent registered public accounting firm, as stated in their report appearing elsewhere herein, (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's ability to continue as a going concern) and are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.prospectus.
INDEX TO FINANCIAL STATEMENTS
The Financial Statements required by Article 8 of Regulation S-X are stated in U.S. dollars and are prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“US GAAP”). The following financial statements pertaining to Boston Therapeutics, Inc. are filed as part of this Prospectus.
| Page |
C O N T E N T SAudited Financial Statements For the Years Ended December 31, 2014 and 2013:
| |
Unaudited interm financial statements for the three and six month periods ended June 30, 2012 and 2011 | |
Balance Sheet
| F-2 |
Statement of Operations
| F-3 |
Statements of Cash Flows
| F-4 |
Notes to Financial Statements
| F-5 |
Audited Financial Statements for the years ended December 31, 2011and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
| Page |
ReportsReport of Independent Registered Public Accounting FirmsFirm | F-12 |
Reports | | |
| | |
| Statements of Changes in Stockholders’ Equity | |
| | |
| Notes to Financial Statements | |
| Page |
Audited Financial Statements For the Years Ended December 31, 2013 and 2012: | |
| Report of Independent Registered Public Accounting FirmsFirm | F-13 |
Financial Statements: | |
| | F-14 |
| | F-15 |
| Statements of Changes in Stockholders’ Equity (Deficit) | F-16 |
| | F-17 |
| Notes to Financial Statements | F-18 |
| | |
| | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Boston Therapeutics, Inc.
Manchester, New Hampshire
We have audited the accompanying balance sheets of Boston Therapeutics, Inc. as of December 31, 2014 and 2013, and the related statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Boston Therapeutics, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s limited cash resources, recurring cash used in operations and operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ McGladrey LLP
Boston, Massachusetts
March 27, 2015
(Formerly Avanyx Therapeutics, Inc.) | | | | | | |
(A Development Stage Company) | | | | | | |
Balance Sheets (Unaudited) | | | | | | |
June 30, 2012 and December 31, 2011 | | June 30, 2012 | | | December 31, 2011 | |
| | | | | | |
| | | | | | |
Cash | | $ | 417,510 | | | $ | 225,995 | |
Prepaid expenses | | | 5,495 | | | | 5,331 | |
Inventory, net | | | 24,726 | | | | 23,596 | |
Total current assets | | | 447,731 | | | | 254,922 | |
Property and equipment, net | | | 4,297 | | | | - | |
Intangible assets | | | 792,857 | | | | 825,000 | |
Goodwill | | | 69,782 | | | | 69,782 | |
Other assets | | | 2,125 | | | | - | |
Total assets | | $ | 1,316,792 | | | $ | 1,149,704 | |
| | | | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 335,954 | | | $ | 341,873 | |
Accrued expenses and other current liabilities | | | 133,851 | | | | 125,316 | |
Total current liabilities | | | 469,805 | | | | 467,189 | |
Advances - related parties | | | 297,820 | | | | 257,820 | |
Total liabilities | | | 767,625 | | | | 725,009 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | | | | |
| | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, | | | | | | | | |
none issued and outstanding | | | - | | | | | |
Common stock, $0.001 par value, 100,000,000 shares | | | | | | | | |
authorized, 17,348,206 and 16,223,206 shares issued and outstanding | | | | | | | | |
at June 30, 2012 and December 31, 2011, respectively | | | 17,348 | | | | 16,223 | |
Additional paid-in capital | | | 2,284,497 | | | | 1,621,756 | |
Deficit accumulated during the development stage | | | (1,752,678 | ) | | | (1,213,284 | ) |
Total stockholders’ equity | | | 549,167 | | | | 424,695 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,316,792 | | | $ | 1,149,704 | |
F-2
Boston Therapeutics, Inc. |
Balance Sheets |
December 31, 2014 and 2013 |
| | December 31, | | | December 31, | |
| | 2014 | | | 2013 | |
| | | | | | |
Cash and cash equivalents | | $ | 157,278 | | | $ | 3,387,428 | |
| | | - | | | | 99,786 | |
Prepaid expenses and other current assets | | | 89,408 | | | | 153,681 | |
| | | 197,969 | | | | 110,625 | |
| | | 444,655 | | | | 3,751,520 | |
| | | | | | | | |
Property and equipment, net | | | 14,417 | | | | 15,176 | |
| | | 632,143 | | | | 696,429 | |
| | | 69,782 | | | | 69,782 | |
| | | 2,125 | | | | 2,125 | |
| | $ | 1,163,122 | | | $ | 4,535,032 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | $ | 410,787 | | | $ | 170,977 | |
Accrued expenses and other current liabilities | | | 278,177 | | | | 720,965 | |
| | | 101,675 | | | | - | |
Total current liabilities | | | 790,639 | | | | 891,942 | |
| | | | | | | | |
Notes payable - related parties | | | 297,820 | | | | 297,820 | |
| | | 1,088,459 | | | | 1,189,762 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENCIES (Note 10) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, | | | | | | | | |
none issued and outstanding | | | - | | | | - | |
Common stock, $0.001 par value, 200,000,000 shares authorized, | | | | | | | | |
38,512,516 and 37,362,160 shares issued and outstanding | | | | | | | | |
at December 31, 2014 and 2013, respectively | | | 38,512 | | | | 37,362 | |
Additional paid-in capital | | | 12,034,992 | | | | 10,606,810 | |
| | | (11,998,841 | ) | | | (7,298,902 | ) |
Total stockholders’ equity | | | 74,663 | | | | 3,345,270 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,163,122 | | | $ | 4,535,032 | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc. |
Statements of Operations |
For the Years Ended December 31, 2014 and 2013 |
| | December 31, | | | December 31, | |
| | 2014 | | | 2013 | |
| | | | | | |
| | $ | 199,582 | | | $ | 323,412 | |
| | | 175,829 | | | | 278,205 | |
| | | 23,753 | | | | 45,207 | |
| | | | | | | | |
| | | | | | | | |
| | | 1,432,669 | | | | 542,492 | |
| | | 320,353 | | | | 329,218 | |
General and administrative | | | 2,945,078 | | | | 3,753,742 | |
| | | 4,698,100 | | | | 4,625,452 | |
| | | (4,674,347 | ) | | | (4,580,245 | ) |
| | | | | | | | |
| | | (20,009 | ) | | | (19,692 | ) |
| | | (4,749 | ) | | | 1,505 | |
| | | (834 | ) | | | (3,071 | ) |
| | $ | (4,699,939 | ) | | $ | (4,601,503 | ) |
| | | | | | | | |
| | | | | | | | |
Net loss per share- basic and diluted | | $ | (0.12 | ) | | $ | (0.18 | ) |
| | | | | | | | |
Weighted average shares outstanding basic and diluted | | | 38,192,363 | | | | 25,370,626 | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc. |
Statement of Changes in Stockholders' Equity |
For the Years Ended December 31, 2014 and 2013 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2012 | | | 18,745,706 | | | $ | 18,746 | | | $ | 3,375,116 | | | $ | (2,697,399 | ) | | $ | 696,463 | |
| | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, net of issuance costs | | | 18,312,341 | | | | 18,312 | | | | 3,551,056 | | | | - | | | | 3,569,368 | |
Issuance of common stock warrants | | | - | | | | - | | | | 1,616,062 | | | | - | | | | 1,616,062 | |
Issuance of common stock in exchange | | | | | | | | | | | | | | | | | |
| | | 291,009 | | | | 291 | | | | 226,775 | | | | - | | | | 227,066 | |
Issuance of common stock warrants in | | | | | | | | | | | | | | | | | | | | |
exchange for consulting services | | | - | | | | - | | | | 282,901 | | | | - | | | | 282,901 | |
Cashless exercise of common stock options | | | 13,104 | | | | 13 | | | | (13 | ) | | | - | | | | - | |
| | | - | | | | - | | | | 1,554,913 | | | | - | | | | 1,554,913 | |
| | | - | | | | - | | | | - | | | | (4,601,503 | ) | | | (4,601,503 | ) |
Balance at December 31, 2013 | | | 37,362,160 | | | | 37,362 | | | | 10,606,810 | | | | (7,298,902 | ) | | | 3,345,270 | |
| | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, net of issuance costs | | | 833,340 | | | | 833 | | | | 373,916 | | | | - | | | | 374,749 | |
Issuance of common stock warrants | | | - | | | | - | | | | 161,087 | | | | - | | | | 161,087 | |
Issuance of common stock in exchange | | | | | | | | | | | | | | | | | |
| | | 233,000 | | | | 233 | | | | 130,758 | | | | - | | | | 130,991 | |
Exercise of common stock options | | | 5,000 | | | | 5 | | | | 495 | | | | - | | | | 500 | |
Cashless exercise of common stock options | | | 79,016 | | | | 79 | | | | (79 | ) | | | - | | | | - | |
| | | - | | | | - | | | | 762,005 | | | | - | | | | 762,005 | |
| | | - | | | | - | | | | - | | | | (4,699,939 | ) | | | (4,699,939 | ) |
Balance at December 31, 2014 | | | 38,512,516 | | | $ | 38,512 | | | $ | 12,034,992 | | | $ | (11,998,841 | ) | | $ | 74,663 | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc. |
Statements of Cash Flows |
For the Years Ended December 31, 2014 and 2013 |
| | December 31, 2014 | | December 31, 2013 | |
Cash flows from operating activities: | | | | | |
| | | | | | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
Depreciation and amortization | | | | | | | | |
Loss on disposal of property and equipment | | | | | | | | |
| | | | | | | | |
Issuance of common stock and common stock warrants for consulting services | | | | | | | | |
Issuance of common stock warrants | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Prepaid expenses and other current assets | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net cash used in operating activities | | | | | | | | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchase of property and equipment | | | | | | | | |
Net cash used in investing activities | | | | | | | | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from issuance of common stock upon option exercises | | | | | | | | |
Proceeds from issuance of common stock and common stock warrants (net of issuance costs) | | | | | | | | |
Net cash provided by financing activities | | | | | | | | |
| | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | | | | | | |
Cash and cash equivalents, beginning of year | | | | | | | | |
Cash and cash equivalents, end of year | | | | | | | | |
| | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | |
Cash paid during the year for: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Non-cash financing activities: | | | | | | | | |
Issuance of common stock for stock subscription received in 2013 | | | | | | | | |
Value of common stock issued to settle accrued liabilities | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc. | | | | | | | | | | | | | |
(Formerly Avanyx Therapeutics, Inc.) | | | | | | | | | | |
(A Development Stage Company) | | | | | | | | | | | | | | | |
Statements of Operations (Unaudited) | | | | | | | | | | | | | | | |
For the Three and Six Month Periods Ended June 30, 2012 and 2011 | | | | | | | | | | |
and the Period from Inception (August 24, 2009) through June 30, 2012 | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Period from Inception (August 24, 2009) | |
| | For the Three Months Ended | | | For the Three Months Ended | |
| | | | | | | | to | |
| | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| 2012 | | | 2011 | | | 2012 | | | 2011 | | | 2012 | |
| | | | | | | | | | | | | | | |
Revenue | | $ | 2,376 | | | $ | 1,767 | | | $ | 21,230 | | | $ | 2,247 | | | $ | 25,770 | |
Cost of goods sold | | | 4,162 | | | | 1,287 | | | | 31,757 | | | | 2,250 | | | | 38,530 | |
Gross margin | | | (1,786 | ) | | | 480 | | | | (10,527 | ) | | | (3 | ) | | | (12,760 | ) |
| | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | |
Research and development | | | 67,924 | | | | 16,072 | | | | 119,552 | | | | 33,211 | | | | 324,600 | |
Sales and marketing | | | 66,898 | | | | 1,542 | | | | 134,078 | | | | 1,997 | | | | 344,271 | |
General and administrative | | | 139,435 | | | | 75,459 | | | | 263,971 | | | | 150,295 | | | | 1,036,109 | |
Total operating expenses | | | 274,257 | | | | 93,073 | | | | 517,601 | | | | 185,503 | | | | 1,704,980 | |
Operating loss | | | (276,043 | ) | | | (92,593 | ) | | | (528,128 | ) | | | (185,506 | ) | | | (1,717,740 | ) |
Interest expense | | | (4,178 | ) | | | (4,104 | ) | | | (8,356 | ) | | | (7,210 | ) | | | (32,028 | ) |
Foreign currency loss | | | (1,768 | ) | | | - | | | | (2,910 | ) | | | - | | | | (2,910 | ) |
Net loss | | $ | (281,989 | ) | | $ | (96,697 | ) | | $ | (539,394 | ) | | $ | (192,716 | ) | | $ | (1,752,678 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net loss per share- basic and diluted | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | (0.03 | ) | | $ | (0.01 | ) | | | | |
Weighted average shares outstanding basic and diluted | | | 16,287,381 | | | | 14,264,914 | | | | 16,255,293 | | | | 14,153,075 | | | | | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc. | | | | | | | | | |
(Formerly Avanyx Therapeutics, Inc.) | | | | | | | |
(A Development Stage Company) | | | | | | | | | |
Statement of Cash Flows (Unaudited) | | | | | | | | | |
For the Six Month Periods Ended June 30, 2012 and 2011 | | | | | | | | | |
and the Period from Inception (August 24, 2009) through June 30, 2012 | | | | | | | | Period from Inception (August 24, 2009) to June 30, 2012 | |
| | | | | | |
| | For the Three Months Ended | |
| | June 30, | | | June 30, | |
| | 2012 | | | 2011 | |
Cash flows from operating activities: | | | | | | | | | |
Net loss | | $ | (539,394 | ) | | $ | (192,716 | ) | | $ | (1,752,678 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
Amortization of intangible assets | | | 32,143 | | | | 32,143 | | | | 107,143 | |
Stock based compensation | | | 116,866 | | | | 13,118 | | | | 266,715 | |
Issuance of common stock for consulting services | | | 25,000 | | | | - | | | | 70,250 | |
Changes in: | | | | | | | | | | | | |
Inventory | | | (1,130 | ) | | | (10,280 | ) | | | (20,356 | ) |
Prepaid expenses | | | (164 | ) | | | 18 | | | | (2,578 | ) |
Other assets | | | (2,125 | ) | | | - | | | | (2,125 | ) |
Accounts payable | | | (5,919 | ) | | | 157,046 | | | | 335,954 | |
Accrued expenses | | | 8,535 | | | | (154,112 | ) | | | 87,032 | |
| | | | | | | | | | | | |
Net cash used in operating activities | | | (366,188 | ) | | | (154,783 | ) | | | (910,643 | ) |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchase of property and equipment | | | (4,297 | ) | | | - | | | | (4,297 | ) |
Net cash acquired in acquisition of Boston Therapeutics, Inc. | | | - | | | | - | | | | 8,397 | |
Net cash (used in) provided by investing activities | | | (4,297 | ) | | | - | | | | 4,100 | |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from advances - related parties | | | 40,000 | | | | 80,000 | | | | 237,820 | |
Proceeds from issuance of common stock - related party | | | - | | | | - | | | | 21,236 | |
Proceeds from issuance of common stock | | | 522,000 | | | | 500,000 | | | | 1,064,997 | |
Net cash provided by financing activities | | | 562,000 | | | | 580,000 | | | | 1,324,053 | |
Net increase in cash and cash equivalents | | | 191,515 | | | | 425,217 | | | | 417,510 | |
| | | | | | | | | | | | |
Cash and cash equivalents, beginning of period | | | 225,995 | | | | 15,193 | | | | - | |
Cash and cash equivalents, end of period | | $ | 417,510 | | | $ | 440,410 | | | $ | 417,510 | |
Supplemental disclosure of cash flow information: | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | |
Interest | | $ | - | | | $ | - | | | $ | | |
- Income taxes | | $ | - | | | $ | - | | | $ | | |
Acquisition of Boston Therapeutics, Inc.: | | | | | | | | | | | | |
Fair value of assets acquired | | $ | - | | | $ | - | | | $ | 985,466 | |
Assumed liabilities | | | - | | | | - | | | | (106,819 | ) |
Fair value of assets acquired | | $ | - | | | $ | - | | | $ | 878,647 | |
Subscription receivable | | $ | - | | | $ | 8,867 | | | $ | 8,867 | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the threeYears Ended December 31, 2014 and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 20122013
1. GENERAL 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., a New Hampshire corporation (“Target”BTI”) providing for the merger of TargetBTI 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 TargetBTI in exchange for 100% of the outstanding common stock of Target,BTI, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer, and Chief Financial Officer, is a founder of TargetBTI and was a director and minority stockholder of TargetBTI at the time of the Merger. Dr. Platt received 400,000 shares of the Company’s common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became the Company’s former President, shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of TargetBTI at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger.
Boston Therapeutics, headquartered in Manchester, NH, (OTC: BTHE)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 diabetes: SUGARDOWN®,the development of two additional drug products: BTI-320, a non-systemic, chewable complex carbohydrate dietary supplement designed to moderatenon-toxic, tablet for reduction of post-meal blood glucose; PAZ320, a non- systemic chewable therapeutic compound designed to reduce post-meal glucose elevation,in people living with diabetes that is fully developed, and IPOXYN™,IPOXYN, an injectable anti-necrosis, anti-hypoxia drug specifically designed to treat lower limb ischemia associated with diabetes. More information is available at www.bostonti.com.that we are currently developing.
The Company has minimal operations and is considered to be in the development stage as of June 30, 2012. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company is a recently formed entity withhas limited cash resources, recurring cash used in operations and operating losses history. As shown in the accompanying financial statements, the Company has incurred net lossesan accumulated deficit of $1,752,678 for the period from August 24, 2009 (inception) to June 30, 2012 and has negative working capital of $22,074approximately $12 million as of June 30, 2012. December 31, 2014 and used cash in operations of approximately $3.5 million during the year ended December 31, 2014.
The futureCompany 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 $157,000 cash on hand at December 31, 2014. In March 2015, the Company is dependent upon its abilityentered into four different convertible promissory note agreements with an aggregate proceeds balance of $432,000, net of discounts and fees, as referenced in Note 11. Management anticipates that our cash resources will be sufficient to obtain financingfund our planned operations through the second quarter of 2015 as a result of additional cost cutting measures surrounding the use of consultants and upon future profitable operations frompayroll associated costs reduced by the developmentCompany during the fourth quarter of its new business opportunities.
fiscal 2014 and into fiscal 2015. Management has plans to seek additional capital through private placements and public offerings of itsthe Company’s common stock. In addition, management may seek to raise additional capital through public or private debt or equity financings in order to fund its operations. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to curtail or cease operations.
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 in existence.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
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 ("(“US GAAP"GAAP”) for interim financial information and the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q. It is suggested that these condensed financial statements be read in conjunction with the Company's financial statements for its year ended December 31, 2011 included in its Form 10-K. 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 June 30, 2012 and the results of operations for the three and six month periods ended June 30, 2012 and 2011 and the period from inception (August 24, 2009) through June 30, 2012.
The year-end balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
The results disclosed in the Statements of Operations for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results to be expected for the full fiscal year..
Use of Estimates
The preparation of financial statements in conformity with USU.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.
Segment InformationREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Operating segments
To the Board of Directors and Stockholders of
Boston Therapeutics, Inc.
Manchester, New Hampshire
We have audited the accompanying balance sheets of Boston Therapeutics, Inc. as of December 31, 2014 and 2013, and the related statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are identified as componentsthe responsibility of the Company’s management. Our responsibility is to express an enterpriseopinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about which separate, discretewhether the financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance.statements are free of material misstatement. The Company viewsis not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Boston Therapeutics, Inc. as of December 31, 2014 and 2013, and the results of its operations and manages its businesscash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as onea going concern. As discussed in Note 1 to the financial statements, the Company’s limited cash resources, recurring cash used in operations and operating segment.losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ McGladrey LLP
Boston, Massachusetts
March 27, 2015
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid investments with original maturities of 90 days or less at the time of acquisition to be cash equivalents.Boston Therapeutics, Inc. |
Balance Sheets |
December 31, 2014 and 2013 |
The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation.
Revenue Recognition
| | December 31, | | | December 31, | |
| | 2014 | | | 2013 | |
| | | | | | |
Cash and cash equivalents | | $ | 157,278 | | | $ | 3,387,428 | |
| | | - | | | | 99,786 | |
Prepaid expenses and other current assets | | | 89,408 | | | | 153,681 | |
| | | 197,969 | | | | 110,625 | |
| | | 444,655 | | | | 3,751,520 | |
| | | | | | | | |
Property and equipment, net | | | 14,417 | | | | 15,176 | |
| | | 632,143 | | | | 696,429 | |
| | | 69,782 | | | | 69,782 | |
| | | 2,125 | | | | 2,125 | |
| | $ | 1,163,122 | | | $ | 4,535,032 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | $ | 410,787 | | | $ | 170,977 | |
Accrued expenses and other current liabilities | | | 278,177 | | | | 720,965 | |
| | | 101,675 | | | | - | |
Total current liabilities | | | 790,639 | | | | 891,942 | |
| | | | | | | | |
Notes payable - related parties | | | 297,820 | | | | 297,820 | |
| | | 1,088,459 | | | | 1,189,762 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENCIES (Note 10) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, | | | | | | | | |
none issued and outstanding | | | - | | | | - | |
Common stock, $0.001 par value, 200,000,000 shares authorized, | | | | | | | | |
38,512,516 and 37,362,160 shares issued and outstanding | | | | | | | | |
at December 31, 2014 and 2013, respectively | | | 38,512 | | | | 37,362 | |
Additional paid-in capital | | | 12,034,992 | | | | 10,606,810 | |
| | | (11,998,841 | ) | | | (7,298,902 | ) |
Total stockholders’ equity | | | 74,663 | | | | 3,345,270 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,163,122 | | | $ | 4,535,032 | |
The Company generates revenues from salesaccompanying notes are an integral part of SUGARDOWN®. Revenue is recognized when there is persuasive evidence thatthese financial statements.
Boston Therapeutics, Inc. |
Statements of Operations |
For the Years Ended December 31, 2014 and 2013 |
| | December 31, | | | December 31, | |
| | 2014 | | | 2013 | |
| | | | | | |
| | $ | 199,582 | | | $ | 323,412 | |
| | | 175,829 | | | | 278,205 | |
| | | 23,753 | | | | 45,207 | |
| | | | | | | | |
| | | | | | | | |
| | | 1,432,669 | | | | 542,492 | |
| | | 320,353 | | | | 329,218 | |
General and administrative | | | 2,945,078 | | | | 3,753,742 | |
| | | 4,698,100 | | | | 4,625,452 | |
| | | (4,674,347 | ) | | | (4,580,245 | ) |
| | | | | | | | |
| | | (20,009 | ) | | | (19,692 | ) |
| | | (4,749 | ) | | | 1,505 | |
| | | (834 | ) | | | (3,071 | ) |
| | $ | (4,699,939 | ) | | $ | (4,601,503 | ) |
| | | | | | | | |
| | | | | | | | |
Net loss per share- basic and diluted | | $ | (0.12 | ) | | $ | (0.18 | ) |
| | | | | | | | |
Weighted average shares outstanding basic and diluted | | | 38,192,363 | | | | 25,370,626 | |
The accompanying notes are an arrangement exists, the price is fixed and determinable, the product is shipped and collectability is reasonably assured.integral part of these financial statements.
Boston Therapeutics, Inc. |
Statement of Changes in Stockholders' Equity |
For the Years Ended December 31, 2014 and 2013 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2012 | | | 18,745,706 | | | $ | 18,746 | | | $ | 3,375,116 | | | $ | (2,697,399 | ) | | $ | 696,463 | |
| | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, net of issuance costs | | | 18,312,341 | | | | 18,312 | | | | 3,551,056 | | | | - | | | | 3,569,368 | |
Issuance of common stock warrants | | | - | | | | - | | | | 1,616,062 | | | | - | | | | 1,616,062 | |
Issuance of common stock in exchange | | | | | | | | | | | | | | | | | |
| | | 291,009 | | | | 291 | | | | 226,775 | | | | - | | | | 227,066 | |
Issuance of common stock warrants in | | | | | | | | | | | | | | | | | | | | |
exchange for consulting services | | | - | | | | - | | | | 282,901 | | | | - | | | | 282,901 | |
Cashless exercise of common stock options | | | 13,104 | | | | 13 | | | | (13 | ) | | | - | | | | - | |
| | | - | | | | - | | | | 1,554,913 | | | | - | | | | 1,554,913 | |
| | | - | | | | - | | | | - | | | | (4,601,503 | ) | | | (4,601,503 | ) |
Balance at December 31, 2013 | | | 37,362,160 | | | | 37,362 | | | | 10,606,810 | | | | (7,298,902 | ) | | | 3,345,270 | |
| | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, net of issuance costs | | | 833,340 | | | | 833 | | | | 373,916 | | | | - | | | | 374,749 | |
Issuance of common stock warrants | | | - | | | | - | | | | 161,087 | | | | - | | | | 161,087 | |
Issuance of common stock in exchange | | | | | | | | | | | | | | | | | |
| | | 233,000 | | | | 233 | | | | 130,758 | | | | - | | | | 130,991 | |
Exercise of common stock options | | | 5,000 | | | | 5 | | | | 495 | | | | - | | | | 500 | |
Cashless exercise of common stock options | | | 79,016 | | | | 79 | | | | (79 | ) | | | - | | | | - | |
| | | - | | | | - | | | | 762,005 | | | | - | | | | 762,005 | |
| | | - | | | | - | | | | - | | | | (4,699,939 | ) | | | (4,699,939 | ) |
Balance at December 31, 2014 | | | 38,512,516 | | | $ | 38,512 | | | $ | 12,034,992 | | | $ | (11,998,841 | ) | | $ | 74,663 | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc. |
Statements of Cash Flows |
For the Years Ended December 31, 2014 and 2013 |
| | December 31, 2014 | | December 31, 2013 | |
Cash flows from operating activities: | | | | | |
| | | | | | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
Depreciation and amortization | | | | | | | | |
Loss on disposal of property and equipment | | | | | | | | |
| | | | | | | | |
Issuance of common stock and common stock warrants for consulting services | | | | | | | | |
Issuance of common stock warrants | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Prepaid expenses and other current assets | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net cash used in operating activities | | | | | | | | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchase of property and equipment | | | | | | | | |
Net cash used in investing activities | | | | | | | | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from issuance of common stock upon option exercises | | | | | | | | |
Proceeds from issuance of common stock and common stock warrants (net of issuance costs) | | | | | | | | |
Net cash provided by financing activities | | | | | | | | |
| | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | | | | | | |
Cash and cash equivalents, beginning of year | | | | | | | | |
Cash and cash equivalents, end of year | | | | | | | | |
| | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | |
Cash paid during the year for: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Non-cash financing activities: | | | | | | | | |
Issuance of common stock for stock subscription received in 2013 | | | | | | | | |
Value of common stock issued to settle accrued liabilities | | | | | | | | |
Revenue is recognized as product is shipped fromThe accompanying notes are an outside fulfillment operation. Termsintegral part of product sales provide for 30 day money back guarantee. 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.
Inventory
Inventory consists of raw materials and finished goods of SUGARDOWN®. Inventory is stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. This reserve was $1,667 at June 30, 2012 and December 31, 2011. The Company continues to monitor the valuation of its inventories.these financial statements.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the threeYears Ended December 31, 2014 and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 20122013
2.SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued1. GENERAL ORGANIZATION AND BUSINESS
Property and Equipment
Property and equipment is depreciated using the straight-line method over the following estimated useful lives:
| Estimated Useful |
Asset Category | 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.
Goodwill
The Company follows the guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, Goodwill and Other Intangible Assets. Under ASC 350, goodwill and certain other intangible assets with indefinite lives are not amortized, but instead are reviewed for impairment at least annually.
Impairment of Long-lived Assets
The Company reviews 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 the 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.
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 six months ended June 30, 2012 and 2011 did not include 1,898,400 and 138,577 options and warrants, respectively, because of their anti-dilutive effect.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature.
The carrying value of the notes payable as of June 30, 2012 and December 31, 2011 is not materially different from the fair value of the notes payable.
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 vesting period of the award.
Boston Therapeutics, Inc.
(Formerly (the “Company”) was formed as a Delaware corporation on August 24, 2009, under the name Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For On November 10, 2010, the threeCompany entered into an Agreement and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued
The determinationPlan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“BTI”) providing for the fair valuemerger of share-based payment awards utilizingBTI into the Black-Scholes model is affectedCompany with the Company being the surviving entity (the “Merger”), the issuance by the stock price and a numberCompany of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company does not have a history4,000,000 shares of market prices of the common stock as, and as such volatility is estimated using historical volatilitiesto the stockholders of similar public entities. 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 vesting period, based on awards that are ultimately expected to vest.
The Company grants stock options to non-employee consultants from time to timeBTI in exchange for services performed for the Company. Equity instruments granted to non-employees are subject to periodic revaluation over their vesting terms. In general, the options vest over the contractual period100% of the respective consulting arrangementoutstanding common stock of BTI, and therefore, the Company revalues the options periodically and records additional compensation expense related to these options over the remaining vesting period.
Recent Accounting Pronouncements
Accounting Standards Update (“ASU”) 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment, gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair valuechange of a reporting unit is less than its carrying amount. The amendment is effective for the Company’s tests performed for fiscal year 2011. This statement is not expectedname to have a material impact on the Company’s results from operations.
3.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 100,000,000 shares of its $0.001 par value common stock.
Common Stock
On August 26, 2009, the Company issued 10,000,000 shares of its $0.001 par value common stock to its two founders. Eight million shares were issued toBoston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer, (CEO), Chairmanis a founder of BTI and was a director and minority stockholder of BTI at the time of the Board of Directors and co-founder, in exchange for a patent, a provisional patent and know-how. In accordance with ASC 845-10-S99, Transfers of Non-monetary Assets from Promoters or Shareholders, the transfer of nonmonetary assets to a company by its shareholders in exchange for stock prior to the Company’s initial public offering should be recorded at the transferor’s historical cost basis determined under GAAP. As a result, the valueMerger. Dr. Platt received 400,000 shares of the patent, provisional patent and know-how was valued at the CEO’s historical cost basis of zero because no records exist to support an historical cost basis in accordance with GAAP. The patent and provisional patent were assigned to the Company on December 10, 2009. The remaining 2,000,000 shares were issued to the co-founder for $10,000 in cash.
On March 31, 2010, the Company issued 20,000 shares of common stock for $10,000 cash to an investor. On April 9, 2010, the Company issued 11,236 shares of common stock in exchange for $11,236 to a related party. On October 4, 2010, the Company issued 10,000 shares for $10,000 cash to an investor. On November 6, 2010, the Company issued 4,000,000 shares ofCompany’s common stock in connection with the merger transaction described in Note 1.
On June 21, 2011,Merger. Kenneth A. Tassey, Jr., the Company sold 2,035,470 shares for $508,867 in a private placement offering. During August 2011, an additional 56,000 shares were sold for $14,130 inCompany’s former President, was the private placement. On November 1, 2011, 80,500 shares were issued to a consultant for marketing services valuedChief Executive Officer, President and principal stockholder of BTI at $40,250. On December 22, 2011, 10,000 shares were issued to a consultant for services rendered valued at $5,000.
On March 20, 2012 the Company entered into a subscription agreement to sell 20,000time of the Merger. Mr. Tassey received 3,200,000 shares of common stock at price per share of $1.10 and issue a warrant to purchase an additional 20,000 shares of common stock at $1.15 per share for gross proceeds of $22,000. The warrant associated with the subscription agreement is exercisable immediately and has five year term. The Company estimated the relative fair value of the warrant to be $9,000 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital. On May 7, 2012, the subscription agreement closed and the Company issued 20,000 shares of its common stock for $22,000.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
3. STOCKHOLDERS’ EQUITY...continued
During June 2012, the Company issued 105,000 shares of itsour common stock in exchangeconnection with the Merger.
The Company’s primary business is the development, manufacture and commercialization of therapeutic drugs with a focus on complex carbohydrate chemistry to address unmet medical needs in diabetes and inflammatory diseases. We have brought one product, SUGARDOWN®, to market and have begun to make initial sales. We are currently focused on the development of two additional drug products: BTI-320, a non-systemic, non-toxic, tablet for professional consulting services valued at $25,000. On June 29, 2012,reduction of post-meal blood glucose in people living with diabetes that is fully developed, and IPOXYN, an injectable anti-necrosis, anti-hypoxia drug that we are currently developing.
The accompanying financial statements have been prepared assuming the Company issued 1,000,000 shares to an affiliate of Advance Pharmaceutical Co., Ltd. (APC) inwill continue as a private placement for net proceeds of $500,000. APC is licensed to distribute SUGARDOWN® in Hong Kong, China and Macau.going concern. The Company reviewed the private placement issuancehas limited cash resources, recurring cash used in operations and determined that the issuance price of $0.50 per share approximates fair value as of the date of issuance. No other issuances of preferred or common stock have been made during the period cover byoperating losses history. As shown in the accompanying financial statements.
4. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
Duringstatements, the Company has an accumulated deficit of approximately $12 million as of December 31, 2014 and used cash in operations of approximately $3.5 million during the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. As of June 30, 2012 and 2011, there were 78,400 and 499,637 and 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) under which the Company may grant options to purchase 2,100,000 shares of common stock. As of June 30, 2012, there were 1,800,000 options outstanding under the 2011 Plan. There were no options outstanding as of June 30, 2011 under the 2011 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 three to four years and the options expire ten years from the date of grant.
The fair value of stock options granted or revalued for six months ended June 30, 2012 and 2011 was calculated with the following assumptions:
| | 2012 | | | 2011 | |
Risk-free interest rate | | | 0.43 - 1.27 | % | | | 0.60 - 0.84 | % |
Expected dividend yield | | | 0 | % | | | 0 | % |
Volatility factor | | | 90 | % | | | 90 | % |
Expected life of option | | 3.15 - 7.0 years | | | 4.75 - 10.0 years | |
The weighted-average fair value of stock options granted during the periods ended June 30, 2012 and 2011, under the Black-Scholes option pricing model was $0.21 and $0.21 per share, respectively.
The Company recognized $43,384 and $4,261 of stock-based compensation costs in the accompanying statement of operations for the three months ended June 30, 2012 and 2011, respectively. The Company recognized $116,866 and $13,118 of stock-based compensation costs in the accompanying statement of operations for the six months ended June 30, 2012 and 2011, respectively. No actual tax benefit was realized from stock option exercises during these periods. As of June 30, 2012, there was $317,270 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 1.6 years.
The following table summarizes the activity under the Stock Plans:
| | Shares | | | Exercise Price Per Share | | | Weighted Average Exercise Price | |
| | | | | | | | | |
Outstanding as of December 31, 2011 | | | 1,578,400 | | | $ | 0.10-1.85 | | | | 0.19 | |
Granted | | | 300,000 | | | | 0.10 | | | | 0.10 | |
Exercised | | | - | | | | - | | | | - | |
Options forfeited/cancelled | | | - | | | | - | | | | - | |
Outstanding as of June 30, 2012 | | | 1,878,400 | | | | 0.10-1.85 | | | | 0.17 | |
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
4. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION...continued
The following table summarizes information about stock options that are vested or expected to vest at June 30, 2012:
| | Vested or Expected to Vest | | | Exercisable Options |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Exercise | | Number of | | Weighted | | Weighted | | Aggregate | | | Aggregate | | Weighted | | Weighted | | Aggregate |
Price | | Options | | Average | | Average | | Intrinsic | | | Intrinsic | | Average | | Average | | Intrinsic |
| | | | Exercise | | Remaining | | Value | | | Value | | Exercise Price | | Remaining | | Value |
| | | | Price Per | | Contractual | | | | | | | Per Share | | Contractual | | |
| | | | Share | | Life (Years) | | | | | | | | | Life (Years) | | |
$ | 0.10 | | | 1,800,000 | | | 0.10 | | | 4.41 | | $ | 738,000 | | | | 1,093,750 | | | 0.10 | | | 4.50 | | $ | 448,438 |
| 1.85 | | | 78,400 | | | 1.85 | | | 3.15 | | | - | | | | 58,800 | | | 1.85 | | | 3.15 | | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
$ | 0.10-1.85 | | | 1,878,400 | | | 0.17 | | | 4.36 | | $ | 738,000 | | | | 1,152,550 | | | 0.19 | | | 4.43 | | $ | 448,438 |
At June 30, 2012, the Company has 300,000 and 4,921,600 options available for grant under the 2011 Plan and 2010 Plan, respectively.2014.
5. RELATED PARTY TRANSACTIONS
Through December 31, 2011, the CEO advanced $197,820 to the Company and $60,000 to Target to fund start-up costs and operations of the Company and Target. Advances by the CEO carry an interest rate of 6.5% and were due on June 29, 2013. On May 7, 2012, the Company’s CEO and COO entered into promissory notes to advance to the Company an aggregate of $40,000. The notes accrue interest at 6.5% per year and are due June 30, 2013. As of June 30, 2012, and December 31, 2011, $33,996 and $25,641, respectively, of accrued interest had been included in accrued expenses on the accompanying balance sheet. On August 6, 2012, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2014. The CEO intends, but is not legally obligated, to fund the Company’s operations in this manner until the Company raises sufficient capital.
6. INTANGIBLE ASSETS
The SUGARDOWN® technology and provisional patents are being amortized on a straight-line basis over their useful lives of 14 years. Goodwill is not amortized, but is evaluated annually for impairment.
Intangible assets consist of the following at June 30, 2012 and December 31, 2011:
| | 2012 | | | 2011 | |
SUGARDOWN® technology and provisional patents | | $ | 900,000 | | | $ | 900,000 | |
Less accumulated amortization | | | (107,143 | ) | | | (75,000 | ) |
Intangible assets, net | | $ | 792,857 | | | $ | 825,000 | |
Amortization expense was $16,071 and $32,143 for the three and six months ended June 30, 2012 and 2011, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company entered into a three year lease agreement for their office facility commencing August 1, 2012 which requires monthly installment payments of $2,125 in year one, $2,208 in year two and $2,292 in year three. The lease continues through July 31, 2015 for a total future contractual obligation of $79,500.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three and six month periods ended June 30, 2012 and 2011 and Period from Inception (August 24, 2009) to June 30, 2012
8. SUBSEQUENT EVENTS
The Company has evaluated eventsincurred recurring operating losses since inception as it has worked to bring its SUGARDOWN® product to market and transactionsdevelop BTI-320 and IPOXYN. Management expects such operating losses will continue until such time that occurredsubstantial revenues are received from June 30, 2012 throughSUGARDOWN® or the dateregulatory and clinical development of filing, for possible disclosure and recognition in the financial statements. Except as discussed below, theBTI-320 or IPOXYN is completed. The Company did not have any material subsequent events that impact its financial statements or disclosures.
On August 6, 2012, the outstanding notes of $297,820 were amended to extend the various maturity dates to June 29,has $157,000 cash on hand at December 31, 2014.
On July 8, 2012, In March 2015, the Company entered into four different convertible promissory note agreements with an aggregate proceeds balance of $432,000, net of discounts and fees, as referenced in Note 11. Management anticipates that our cash resources will be sufficient to fund our planned operations through the second quarter of 2015 as a consulting agreement wherebyresult of additional cost cutting measures surrounding the use of consultants and payroll associated costs reduced by the Company will pay the consultant a combination of $4,000 cash and 7,500 shares of restricted stock per month during the first 90 days, with an increasefourth quarter of fiscal 2014 and into fiscal 2015. Management plans to $5,000 cashseek additional capital through private placements and 7,500 shares of restricted stock per month if the agreement extends beyond the first 90 days. The agreement is on a month-to-month basis.
On September 1, 2012, the Company granted a consultant a non-qualified stock option to purchase up to 500,000 sharespublic offerings of the Company’s common stock at an exercise pricestock. In addition, management may seek to raise additional capital through public or private debt or equity financings in order to fund its operations. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to curtail or cease operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Basis of $0.51 per share. Presentation
The option has a 7 year termfinancial statements have been prepared in conformity with accounting principles generally accepting in the United States of America (“US GAAP”).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and vests 25% upon grant withassumptions that affect the balance vesting in 6 equal quarterly installmentsreported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end date of each calendar quarter starting on December 31, 2012.
the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and stockholdersStockholders of
Boston Therapeutics, Inc.
Manchester, New Hampshire
We have audited the accompanying balance sheets of Boston Therapeutics, Inc. (a development stage company) as of December 31, 20112014 and 2010,2013, and the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years then ended and for the period from inception (August 24, 2009) to December 31, 2011.ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements for the period from inception (August 24, 2009) to December 31, 2009 were audited by other auditors and our opinion, insofar as it relates to cumulative amounts included for such prior periods, is based solely on the report of other such auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Boston Therapeutics, Inc. as of December 31, 20112014 and 2010,2013, and the results of its operations and its cash flows for the years then ended and for the period from inception (August 24, 2009) to December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s limited cash resources, recurring cash used in operations and operating history, as well as operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ McGladrey & Pullen, LLP
Boston, Massachusetts
March 30, 201227, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoston Therapeutics, Inc. |
Balance Sheets |
December 31, 2014 and 2013 |
To the Board of Directors and stockholders of Boston Therapeutics, Inc. (formerly Avanyx Therapeutics, Inc.) Manchester, New Hampshire
We have audited the statement of operations, changes in stockholders’ deficit and cash flows of Boston Therapeutics, Inc. (formerly Avanyx Therapeutics, Inc.) (a development stage company) for the period from August 24, 2009 (date of inception) to December 31, 2009 (not separately presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Boston Therapeutics, Inc. for the period from August 24, 2009 (date of inception) to December 31, 2009 (not separately presented herein) in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s limited resources and operating history, as well as operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ CATURANO AND COMPANY, INC.
September 17, 2010
Boston, Massachusetts
Boston Therapeutics, Inc. | | | | | | |
(Formerly Avanyx Therapeutics, Inc.) | | | | | | |
(A Development Stage Company) | | | | | | |
Balance Sheets | | | | | | |
December 31, 2011 and 2010 | | | | | | |
| | | | | | | December 31, | | | December 31, | |
| | December 31, 2011 | | December 31, 2010 | | | 2014 | | | 2013 | |
ASSETS | | | | | | | | | | | |
| | | | | | | | |
| | | | | | |
| | | | | | | | |
Cash and cash equivalents | | | $ | 157,278 | | | $ | 3,387,428 | |
| | | | - | | | | 99,786 | |
Prepaid expenses and other current assets | | | | 89,408 | | | | 153,681 | |
| | | | 197,969 | | | | 110,625 | |
| | | | | | | | 444,655 | | | | 3,751,520 | |
| | | | | | | | | | | | | |
Property and equipment, net | | | | 14,417 | | | | 15,176 | |
| | | | | | | | 632,143 | | | | 696,429 | |
| | | | | | | | 69,782 | | | | 69,782 | |
| | | | | | | | |
| | | | 2,125 | | | | 2,125 | |
| | | | | | | | | $ | 1,163,122 | | | $ | 4,535,032 | |
| | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | $ | 410,787 | | | $ | 170,977 | |
| | | | | | | | |
Accrued expenses and other current liabilities | | | | 278,177 | | | | 720,965 | |
| | | | 101,675 | | | | - | |
Total current liabilities | | | | | | | | 790,639 | | | | 891,942 | |
| | | | | | | | | | | | | |
| | | | | | | | |
Notes payable - related parties | | | | 297,820 | | | | 297,820 | |
| | | | | | | | | | 1,088,459 | | | | 1,189,762 | |
| | | | | | | | | | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | | |
COMMITMENTS AND CONTINGENCIES (Note 10) | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding | | | | | | |
| | | | | | |
Common stock, $0.001 par value, 100,000,000 shares authorized, 16,223,206 and 14,041,236 shares issued and outstanding at December 31, 2011 and 2010, respectively | | | | | | |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, | | | | | | | | | |
none issued and outstanding | | | | - | | | | - | |
Common stock, $0.001 par value, 200,000,000 shares authorized, | | | | | | | | | |
38,512,516 and 37,362,160 shares issued and outstanding | | | | | | | | | |
at December 31, 2014 and 2013, respectively | | | | 38,512 | | | | 37,362 | |
Additional paid-in capital | | | | | | | | 12,034,992 | | | | 10,606,810 | |
Deficit accumulated during the development stage | | | | | | | | | |
| | | | (11,998,841 | ) | | | (7,298,902 | ) |
Total stockholders’ equity | | | | | | | | | | 74,663 | | | | 3,345,270 | |
| | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | | | | | | | | $ | 1,163,122 | | | $ | 4,535,032 | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.) | |
(A Development Stage Company) | |
Statements of Operations | |
For the Years Ended December 31, 20112014 and 2010 | |
and the Periods from Inception (August 24, 2009) through December 31, 20112013 |
| | Year Ended December 31, 2011 | | | Year Ended December 31, 2010 | | | Period From Inception (August 24, 2009) to December 31, 2011 | |
| | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
General and administrative | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Interest expense-related party | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net loss per share - basic and diluted | | | | | | | | | | | | |
| | | | | | | | | | | | |
Weighted average shares outstanding basic and diluted | | | | | | | | | | | | |
| | December 31, | | | December 31, | |
| | 2014 | | | 2013 | |
| | | | | | |
| | $ | 199,582 | | | $ | 323,412 | |
| | | 175,829 | | | | 278,205 | |
| | | 23,753 | | | | 45,207 | |
| | | | | | | | |
| | | | | | | | |
| | | 1,432,669 | | | | 542,492 | |
| | | 320,353 | | | | 329,218 | |
General and administrative | | | 2,945,078 | | | | 3,753,742 | |
| | | 4,698,100 | | | | 4,625,452 | |
| | | (4,674,347 | ) | | | (4,580,245 | ) |
| | | | | | | | |
| | | (20,009 | ) | | | (19,692 | ) |
| | | (4,749 | ) | | | 1,505 | |
| | | (834 | ) | | | (3,071 | ) |
| | $ | (4,699,939 | ) | | $ | (4,601,503 | ) |
| | | | | | | | |
| | | | | | | | |
Net loss per share- basic and diluted | | $ | (0.12 | ) | | $ | (0.18 | ) |
| | | | | | | | |
Weighted average shares outstanding basic and diluted | | | 38,192,363 | | | | 25,370,626 | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc. |
(Formerly Avanyx Therapeutics, Inc.) |
(A Development Stage Company) |
Statement of Changes in Stockholders' Equity (Deficit) |
For the years endedYears Ended December 31, 20112014 and 2010 and Period from Inception (August 24, 2009) to December 31, 20112013 |
| | | | | Additional | | | Deficit Accumulated | | | Total | |
| | Common Stock | | | Paid-in | | | During the | | | Stockholders' | |
| | Shares | | | Amount | | | Capital | | | Development Stage | | | Equity (Deficit) | |
Inception, August 24, 2009 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2009 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Issuance of common stock to acquire Boston Therapeutics, Inc. (See Note 7) | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2010 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Issuance of common stock in exchange for consulting services | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance, December 31 , 2011 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2012 | | | 18,745,706 | | | $ | 18,746 | | | $ | 3,375,116 | | | $ | (2,697,399 | ) | | $ | 696,463 | |
| | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, net of issuance costs | | | 18,312,341 | | | | 18,312 | | | | 3,551,056 | | | | - | | | | 3,569,368 | |
Issuance of common stock warrants | | | - | | | | - | | | | 1,616,062 | | | | - | | | | 1,616,062 | |
Issuance of common stock in exchange | | | | | | | | | | | | | | | | | |
| | | 291,009 | | | | 291 | | | | 226,775 | | | | - | | | | 227,066 | |
Issuance of common stock warrants in | | | | | | | | | | | | | | | | | | | | |
exchange for consulting services | | | - | | | | - | | | | 282,901 | | | | - | | | | 282,901 | |
Cashless exercise of common stock options | | | 13,104 | | | | 13 | | | | (13 | ) | | | - | | | | - | |
| | | - | | | | - | | | | 1,554,913 | | | | - | | | | 1,554,913 | |
| | | - | | | | - | | | | - | | | | (4,601,503 | ) | | | (4,601,503 | ) |
Balance at December 31, 2013 | | | 37,362,160 | | | | 37,362 | | | | 10,606,810 | | | | (7,298,902 | ) | | | 3,345,270 | |
| | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, net of issuance costs | | | 833,340 | | | | 833 | | | | 373,916 | | | | - | | | | 374,749 | |
Issuance of common stock warrants | | | - | | | | - | | | | 161,087 | | | | - | | | | 161,087 | |
Issuance of common stock in exchange | | | | | | | | | | | | | | | | | |
| | | 233,000 | | | | 233 | | | | 130,758 | | | | - | | | | 130,991 | |
Exercise of common stock options | | | 5,000 | | | | 5 | | | | 495 | | | | - | | | | 500 | |
Cashless exercise of common stock options | | | 79,016 | | | | 79 | | | | (79 | ) | | | - | | | | - | |
| | | - | | | | - | | | | 762,005 | | | | - | | | | 762,005 | |
| | | - | | | | - | | | | - | | | | (4,699,939 | ) | | | (4,699,939 | ) |
Balance at December 31, 2014 | | | 38,512,516 | | | $ | 38,512 | | | $ | 12,034,992 | | | $ | (11,998,841 | ) | | $ | 74,663 | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc. | | | |
(Formerly Avanyx Therapeutics, Inc.) | | | |
(A Development Stage Company) | | | |
Statements of Cash Flows | | | |
For the Years Ended December 31, 20112014 and 2010 | | | |
and the Periods from Inception (August 24, 2009) through December 31, 2011 | | 2013 |
| | | | | | | | | |
| | The Year Ended December 31, 2011 | | | The Year Ended December 31, 2010 | | | Period From Inception (August 24, 2009) to December 31, 2011 | |
Cash flows from operating activities: | | | | | | | | | |
| | | | | | | | | | | | |
Adjustments to reconcile net loss to cash | | | | | | | | | | | | |
used in operating activities: | | | | | | | | | | | | |
Amortization of intangible assets | | | | | | | | | | | | |
| | | | | | | | | | | | |
Issuance of common stock in exchange for consulting services | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net cash used in operating activities | | | | | | | | | | | | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Net cash acquired in acquisition of Boston Therapeutics, Inc. | | | | | | | | | | | | |
Net cash provided by investing activities | | | | | | | | | | | | |
| | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | |
Proceeds from advances - related party | | | | | | | | | | | | |
Proceeds from issuance of common stock - related party | | | | | | | | | | | | |
Proceeds from issuance of common stock | | | | | | | | | | | | |
Net cash provided by financing activities | | | | | | | | | | | | |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 210,802 | | | | (8,337 | ) | | | 225,995 | |
Cash and cash equivalents, beginning of period | | | 15,193 | | | | 23,530 | | | | - | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 225,995 | | | $ | 15,193 | | | $ | 225,995 | |
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | | | | |
Interest | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | |
Income taxes | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | |
Acquisition of Boston Therapeutics, Inc.: | | | | | | | | | | | | |
Fair value of assets acquired | | | | | | $ | 985,466 | | | $ | 985,466 | |
Assumed liabilities | | | | | | | (106,819 | ) | | | (106,819 | ) |
Fair value of common stock issued | | | | | | $ | 878,647 | | | $ | 878,647 | |
| | December 31, 2014 | | December 31, 2013 | |
Cash flows from operating activities: | | | | | |
| | | | | | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
Depreciation and amortization | | | | | | | | |
Loss on disposal of property and equipment | | | | | | | | |
| | | | | | | | |
Issuance of common stock and common stock warrants for consulting services | | | | | | | | |
Issuance of common stock warrants | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Prepaid expenses and other current assets | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net cash used in operating activities | | | | | | | | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchase of property and equipment | | | | | | | | |
Net cash used in investing activities | | | | | | | | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from issuance of common stock upon option exercises | | | | | | | | |
Proceeds from issuance of common stock and common stock warrants (net of issuance costs) | | | | | | | | |
Net cash provided by financing activities | | | | | | | | |
| | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | | | | | | |
Cash and cash equivalents, beginning of year | | | | | | | | |
Cash and cash equivalents, end of year | | | | | | | | |
| | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | |
Cash paid during the year for: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Non-cash financing activities: | | | | | | | | |
Issuance of common stock for stock subscription received in 2013 | | | | | | | | |
Value of common stock issued to settle accrued liabilities | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years endedYears Ended December 31, 20112014 and 2010 and Period from Inception (August 24, 2009) to December 31, 20112013
1. GENERAL 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., a New Hampshire corporation (“Target”BTI”) providing for the merger of TargetBTI 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 TargetBTI in exchange for 100% of the outstanding common stock of Target,BTI, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer, and Chief Financial Officer, is a founder of TargetBTI and was a director and minority stockholder of TargetBTI at the time of the Merger. Dr. Platt received 400,000 shares of the Company’s common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became the Company’s former President, shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of TargetBTI at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger.
The Company’s primary business is the development, manufacture and commercialization of therapeutic drugs and dietary supplementswith a focus on complex carbohydrate chemistry to treataddress unmet medical needs in diabetes and inflammatory diseases. We have brought one product, SUGARDOWN®, to market and have begun to make initial sales. We are currently focusingfocused on threethe development of two additional drug products: SUGARDOWN®, a complex carbohydrate-based chewable dietary supplement that we are currently marketing, PAZ320,BTI-320, a non-systemic, chewable drug candidatenon-toxic, tablet for reduction of post-meal blood glucose in diabetics currently in Phase ll clinical trial,people living with diabetes that is fully developed, and IPOXYN™,IPOXYN, an injectable anti-necrosis, anti-hypoxia drug that we are currently developing to treat lower limb ischemia.developing.
The Company has minimal operations and is considered to be in the development stage as of December 31, 2011. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company is a recently formed entity withhas limited cash resources, recurring cash used in operations and operating losses history. As shown in the accompanying financial statements, the Company has incurred net lossesan accumulated deficit of $1,213,284 for the period from August 24, 2009 (inception) to December 31, 2011 and has negative working capital of $212,267approximately $12 million as of December 31, 2011. 2014 and used cash in operations of approximately $3.5 million during the year ended December 31, 2014.
The futureCompany 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 $157,000 cash on hand at December 31, 2014. In March 2015, the Company is dependent upon its abilityentered into four different convertible promissory note agreements with an aggregate proceeds balance of $432,000, net of discounts and fees, as referenced in Note 11. Management anticipates that our cash resources will be sufficient to obtain financingfund our planned operations through the second quarter of 2015 as a result of additional cost cutting measures surrounding the use of consultants and upon future profitable operations frompayroll associated costs reduced by the developmentCompany during the fourth quarter of its new business opportunities.
fiscal 2014 and into fiscal 2015. Management has plans to seek additional capital through private placements and public offerings of itsthe Company’s common stock. In addition, management may seek to raise additional capital through public or private debt or equity financings in order to fund its operations. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to curtail or cease operations.
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 in existence.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Basis of Presentation
The financial statements have been prepared in conformity with accounting principles generally accepting in the United States of America (“US GAAP”).
Use of Estimates
The preparation of financial statements in conformity with USU.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.
Segment Information
Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years endedYears Ended December 31, 20112014 and 2010 and Period from Inception (August 24, 2009) to December 31, 20112013
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued
PRACTICES - continued
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and 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.
Revenue Recognition
The Company generates revenues from sales of SUGARDOWN®. Revenue is recognized when there is persuasive evidence that an arrangement exists, the price is fixed and determinable, the product is shipped in accordance with the customers’ Free On Board (FOB) shipping point terms and collectability is reasonably assured. Revenue is recognized as product is shipped from an outside fulfillment operation. Terms of product sales contain no contractual rights of return or multiple elements. 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.
As disclosed in Note 7, Advance Pharmaceutical Company Ltd., a related party, accounted for 91% and 97%, during the years ended December 31, 2014 and 2013, respectively.
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 December 31, 2014 and 2013. At December 31, 2014, there were no accounts receivable. At December 31, 2013, the Company had one customer that accounted for 100% of its accounts receivable.
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) or market, not in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. This adjustment for the years ended December 31, 2011 and 2010 was $1,667 and $0, respectively. The Company continues to monitor the valuation of its inventories.inventory.
Property 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 | |
Computer Equipment and Software | |
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 years ended December 31, 2014 and 2013, the Company recorded depreciation expense of $6,662 and $2,818, 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. Certain acquired intangible assets, including developed technology, productsacquisition and trade names, are amortized over their economic useful lives on a straight line basis.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES - continued
Goodwill
The Company testsfollows the guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, Goodwill and Other Intangible Assets. Under ASC 350, goodwill and certain other intangible assets with indefinite lives are not amortized, but instead are reviewed for impairment at least annually.
As the Company operates its business in one operating segment and one reporting unit, the Company’s goodwill is assessed at the Company level for impairment in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that impairment may exist. The Company has the asset might be impaired. Theoption to first assess qualitative factors to determine whether it is necessary to perform the two-step impairment test. If the Company’s qualitative assessment reveals that goodwill impairment is more likely than not, the Company performs the two-step impairment test. Alternatively, the Company may bypass the qualitative test is based onand initiate goodwill impairment testing with the first step of the two-step goodwill impairment test.
During the first step of the goodwill impairment test, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of a comparisonreporting unit exceeds its carrying value, then the Company concludes that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure possible goodwill impairment loss. If the carrying value of the reporting unit’s bookgoodwill exceeds its implied fair value, then we would record an impairment loss equal to its estimated fair value. the difference.
The Company hasperformed its impairment review of goodwill for the years ended December 31, 2014 and 2013, and concluded that no impairment existed at the 2011 testing date. A considerable amount of judgment is required in calculating this impairment analysis, principally in determining financial forecasts and discount rates. Differences in actual cash flows as compared to the discounted cash flows could require the Company to record an impairment loss in the future.existed.
Impairment of Long-lived Assets
The Company reviews 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 the 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.
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 yearsyear ended December 31, 2011 and 20102014 did not include consideration6,483,400 and 12,516,669 options and warrants, respectively, because of 1,578,400their anti-dilutive effect. The weighted average number of common shares for the year ended December 31, 2013 did not include 5,741,400 and 78,400 common stock11,974,999 options and warrants, 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 it is more likely than not that some portion of the gross deferred tax asset will not be realized. The Company records interest and 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 years ended December 31, 2014 and 2013.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years endedYears Ended December 31, 20112014 and 2010 and Period from Inception (August 24, 2009) to December 31, 20112013
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continuedPRACTICES - continued
Advertising Costs
Advertising costs are expensed as incurred and are reported as a component of selling, general and administrative expenses in the selling and marketing expenses in the statements of operations. The Company did not incur any advertising costs for the year ended December 31, 2014, primarily due to its marketing agreement with Benchworks who bears the expense for marketing initiatives. The Company incurred advertising costs of $25,068 for the year ended December 31, 2013.
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 research and development contracts, whether performed by the Company or 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 payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature.
nature using level 3 inputs as defined above. The carrying value of the notes payable as of December 31, 20112014 and 2010, is not materially different from2013, evaluated using level 2 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 of the notes payable.value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash and cash equivalents. The Company places its cash and cash equivalents in highly rated financial institutions. The Company maintains cash and cash equivalent 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.
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 its common stock and as such volatility is estimated using historical volatilities of similar public entities. 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 requisite service period, based on awards that are ultimately expected to vest.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES - continued
Stock-Based Compensation - continued
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-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.
Recently Adopted Accounting Pronouncements
In July 2013, the FASB issued ASU 2013-11, “Income Taxes, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement is available under the tax law of the applicable taxing jurisdiction as of the balance sheet reporting date. The adoption of ASU 2013-11 in 2014 did not affect the Company's results of operations, cash flows, or financial position.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU No 2014-09 supersedes the revenue recognition requirements in “Topic 605, Revenue Recognition” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective retrospectively for annual or interim reporting periods beginning after December 15, 2016, with early application not permitted. The Company is currently evaluating the impact of this standard on its financial statements.
In August 2014, the FASB issued Accounting Standard Update (ASU) 2014-15, Presentation of Financial Statements – Going Concern. The new standard addresses management’s responsibility to evaluate whether there is a substantial doubt about the Company’s ability to continue as a going concern. It requires management to perform interim and annual assessments of the Company ability to continue as a going concern and to provide related disclosures. The standard will be effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. The Company is currently evaluating the impact of this standard on its financial statements.
3. INVENTORIES
Inventories 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 inventories at December 31, 2014 and 2013, net of inventory reserves, were as follows:
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.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The following table represents the major components of accrued expenses and other current liabilities at December 31, 2014 and 2013:
| | | 2014 | | | 2013 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other current liabilities | | | | | | | | |
| | | | | | | | | |
5. 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 200,000,000 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 September 7, 2013.
Preferred Stock
No shares of preferred stock have been issued and the terms of such preferred stock have not been designated by the Board of Directors.
Common Stock
On March 14, 2013, the Company issued 500,000 shares of its common stock at a price per share of $0.50 and issued a warrant to purchase 250,000 additional shares for $1.00 per share for gross proceeds of $250,000 to CJY Holdings Limited, a company controlled by Conroy Cheng's brother Cheng Chi Him. The warrant is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the relative fair value of the warrant to be $35,457 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
On April 29, 2013, the Company issued a warrant to purchase 100,000 of common stock for $1.00 per share in exchange for consulting services rendered. The warrant associated with the consulting agreement is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the fair value of the warrant to be $19,865 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
On April 30, 2013, the Company issued 52,000 shares of its common stock with a fair value of $28,080 in exchange for consulting services rendered during February through April 2013 in connection with two separate consulting agreements.
On June 28, 2013, the Company issued 40,000 shares of its common stock with a fair value of $14,000 in exchange for consulting services rendered during May and June in connection with two separate consulting agreements.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
5. STOCKHOLDERS’ EQUITY - continued
Common Stock - continued
Between July and September 2013, the Company conducted four closings of its private placement of securities with accredited investors pursuant to which the investors purchased in aggregate 17,659,007 shares of the Company’s common stock and warrants to purchase an additional 8,829,484 shares of common stock at an exercise price of $0.50 per share (the Investor Warrants) for total gross proceeds of $5,297,698. In addition, the Company issued warrants to the Placement Agent in exchange for services to purchase in aggregate 1,808,849 shares for $0.30 per share (the Placement Agent Warrants). The Investor Warrants and Placement Agent Warrants are currently exercisable and have a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreements and has determined that equity classification is appropriate. The Company estimated the relative fair value of the Investor Warrants associated with the investor subscription agreements and Placement Agent Warrants as $1,279,093 and $288,101, respectively, using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital. In addition, issuance costs paid by the Company in connection with the private placement offering totaled $408,270. CJY Holdings Limited purchased 6,666,660 shares and 3,333,320 Investor Warrants included in this Private Placement on the same terms as the other participants purchasing shares in the transaction.
During September 2013, the Company issued 52,000 shares of its common stock with a fair value of $22,920 in exchange for consulting services rendered during July through September 2013 in connection with two separate consulting agreements.
During October 2013, the Company conducted an additional closing of its private placement of securities to related parties and affiliates resulting in the purchase of 153,334 shares of the Company’s common stock and warrants to purchase 76,666 additional shares of common stock at an exercise price of $0.50 per share for total gross proceeds of $46,000. The warrant associated with the subscription agreement is exercisable immediately and has a five year term. The Company estimated the relative fair value of the warrants as $13,411 using the Black Scholes model which has been recorded as a component of permanent equity in additional paid in capital.
During October 2013, the Company issued 43,860 shares of its common stock with a fair value of $61,404 in exchange for consulting services rendered during August through October 2013 in connection with a consulting agreement.
During October 2013, the Company entered into a consulting agreement under which it is required to pay the consultant a monthly fee consisting of $10,000 paid in cash and a warrant to purchase 265,000 shares of common stock at an exercise price of $0.50 per share. The warrant associated with the consulting agreement is exercisable immediately and has a five year term. The Company estimated the fair value of the warrant at $263,036 using the Black Scholes model which has been recorded as a component of permanent equity in additional paid in capital.
On November 18, 2013, the Company issued 22,000 shares of its common stock with a fair value of $32,120 in exchange for consulting services rendered during November 2013 in connection with a consulting agreement.
During December 2013, the Company issued 35,316 shares of its common stock with a fair value of $49,292 in exchange for consulting services rendered during September through December 2013 in connection with two separate consulting agreements.
During the year ended December 31, 2013, the Company received $270,000 of cash proceeds in connection with a potential private placement financing expected to be executed during 2014. As of December 31, 2013, the terms of the private placement were not secured and the Company had recorded the $270,000 of proceeds as a stock subscription in accrued expenses and other current liabilities within the accompanying balance sheet. Subsequent to the year ended December 31, 2013, the Company returned $20,000 of cash proceeds as the terms of the private placement were not secured.
During the three months ended March 31, 2014, the Company issued 99,000 shares of its common stock with a fair value of $74,160 in exchange for consulting services rendered during those periods in connection with three separate consulting agreements.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
5. STOCKHOLDERS’ EQUITY - continued
Common Stock - continued
On March 31, 2014, the Company issued 833,340 shares of common stock at a price per share of $0.60 and issued warrants to purchase 416,670 additional shares of common stock with an exercise price of $1.00 per share for gross proceeds of $500,000. The Company had received $250,000 of these proceeds during the fourth quarter of 2013 which was recorded as a stock subscription in accrued expenses and other current liabilities in the accompanying balance sheet as of December 31, 2013. The warrants are exercisable immediately and have a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the relative fair value of the warrant to be $125,251 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
During the three months ended June 30, 2014, the Company issued 36,000 shares of its common stock with a fair value of $21,540 in exchange for consulting services rendered during those periods in connection with two separate consulting agreements.
In August 2014, the Company issued warrants to purchase 125,000 of common stock with an exercise price of $0.60 to the March 2014 common stock investors in lieu of their registration rights. The warrants are exercisable immediately and have a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement to be $35,836 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid-in capital.
During the three months ended September 30, 2014, the Company issued 54,500 shares of its common stock with a fair value of $21,715 in exchange for consulting services rendered during those periods in connection with seven separate consulting agreements.
During the three months ended December 31, 2014, the Company issued 43,500 shares of its common stock with a fair value of $13,575 in exchange for consulting services rendered during those periods in connection with three separate consulting agreements.
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 December 31, 2014, the Company had 12,516,669 warrants outstanding which are all classified as equity instruments and are fully exercisable as of December 31, 2014. The following table summarizes outstanding and exercisable common stock warrants as of December 31, 2014:
Offering | | Number of Shares Issuable | | | Exercise Price | | | Expiration Date | |
March 2012 Private Placement | | | | | | | | | |
November 2012 Private Placement | | | | | | | | | |
February 2013 Issued to Consultant | | | | | | | | | |
February 2013 Private Placement | | | | | | | | | |
July 2013 Private Placement | | | | | | | | | |
August 2013 Private Placement | | | | | | | | | |
August 2013 Private Placement | | | | | | | | | |
August 2013 Issued to Placement Agent | | | | | | | | | |
September 2013 Private Placement | | | | | | | | | |
October 2013 Private Placement | | | | | | | | | |
October 2013 Issued to Consultant | | | | | | | | | |
March 2014 Private Placement | | | | | | | | | |
August 2014 Private Placement | | | | | | | | | |
| | | | | | | | | |
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
6. 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) 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 December 31, 2014 and December 31, 2013, there were 1,328,400 and 578,400 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) 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 December 31, 2014 and December 31, 2013, there were 5,155,000 and 5,163,000 options outstanding under the 2011 Plan, respectively
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 three to four years and the options typically expire in five to seven years.
The fair value of stock options granted and revaluation of non-employee consultant options for years ended December 31, 2014 and 2013 was calculated with the following assumptions:
The weighted-average fair value of stock options granted during the years ended December 31, 2014 and 2013, under the Black-Scholes option pricing model was $0.68 and $0.21 per share, respectively. For the years ended December 31, 2014 and 2013, the Company recorded stock-based compensation expense of $762,005 and $1,554,913, respectively, in connection with share-based payment awards. As of December 31, 2014, there was approximately $171,000 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 2.5 years.
The following table summarizes the Company’s stock option activity during the years ended December 31, 2014 and 2013:
| | | Shares | | | Exercise Price per Share | | | Weighted Average Exercise Price per Share | |
| Outstanding as of December 31, 2012 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Options forfeited/cancelled | | | | | | | | | | | | |
| Outstanding as of December 31, 2013 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Options forfeited/cancelled | | | | | | | | | | | | |
| Outstanding as of December 31, 2014 | | | | | | | | | | | | |
During the year ended December 31, 2014, the Company received a notice of cashless stock options exercise in which the holder elected to exercise 133,280 common stock options. The stock options which were exercised had an exercise price of $0.57 per share. Based upon the Company’s stock price on the date of exercise, as well as the cashless exercise formula, 79,016 shares were issued to the holder during the year ended December 31, 2014 with the remaining 54,264 options forfeited. In addition, the Company also received $500 in proceeds in connection with the exercise of 5,000 common stock options with an exercise price of $0.10 per share.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
6. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION - continued
During the year ended December 31, 2013, the Company received a notice of cashless stock options exercise in which the holder elected to exercise 20,000 vested options. The stock options which were exercised had an exercise price of $0.50 per share. Based upon the Company’s stock price on the date of exercise, as well as the cashless exercise formula, 13,104 shares were issued to the holder with the remaining 6,896 stock options forfeited during the year ended December 31, 2013.
The following table summarizes information about stock options that are vested or expected to vest at December 31, 2014:
Vested or Expected to Vest | | | Exercisable Options | |
| | | | | | Weighted | | | Weighted | | | | | | | | | Weighted | | | Weighted | | | | |
| | | | | | Average | | | Average | | | | | | | | | Average | | | Average | | | | |
| | | | | | Exercise | | | Remaining | | | Aggregate | | | | | | Exercise | | | Remaining | | | Aggregate | |
Exercise | | | Number of | | | Price Per | | | Contractual | | | Intrinsic | | | Number of | | | Price | | | Contractual | | | Intrinsic | |
Price | | | Options | | | Share | | | Life (Years) | | | Value | | | Options | | | Per Share | | | Life (Years) | | | Value | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table sets forth the status of the Company’s non-vested stock options as of December 31, 2014:
| | | Number of Options | | | Weighted-Average Grant-Date Fair Value | |
| Non-vested as of December 31, 2012 | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Non-vested as of December 31, 2013 | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Non-vested as of December 31, 2014 | | | | | | | | |
The weighted-average remaining contractual life for options exercisable at December 31, 2014 is 3.56 years. At December 31, 2014 the Company has 12,247,880 and 6,171,600 options available for grant under the 2011 Plan and 2010 Plan, respectively.
The aggregate intrinsic value for fully vested, exercisable options was $1,518,880 and $5,061,256 at December 31, 2014 and 2013, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2014 and 2013 was $71,083 and $12,449, respectively. The actual tax benefit realized from stock option exercises during the years ended December 31, 2014 and 2013 were $45,996 and $19,000, respectively.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
7. RELATED PARTY TRANSACTIONS
Through December 31, 2011, Dr. 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 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. On August 6, 2012, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2014. On August 2, 2013, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2015. Effective June 30, 2014, the outstanding notes of $297,820 were amended to extend the maturity dates to June 30, 2016. As of December 31, 2014 and 2013, $82,760 and $63,447, respectively, of accrued interest had been included in accrued expenses and other current liabilities on the accompanying balance sheet.
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. 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. Revenue generated pursuant to the Agreement for the years ended December 31, 2014 and 2013 were $182,000 and $315,000, respectively.
On March 14, 2013 the Company issued 500,000 shares of its common stock at a price per share of $0.50 and issued a warrant to purchase 250,000 additional shares for $1.00 per share for gross proceeds of $250,000 to CJY Holdings Limited ("CJY"). The warrant is exercisable immediately and has a five year term. In July 2013 CJY Holdings Limited purchased 6,666,660 shares of the Company’s common stock and warrants to purchase an aggregate of 3,333,320 shares of the Company’s common stock for an aggregate purchase price of $2,000,000 in the private placement conducted by the Company between July 2013 and September 2013 discussed in Note 5. The warrants are exercisable immediately over a five year term with an exercise price of $0.50 per share. CJY is an entity that is controlled by the sibling of our Director Conroy Chi-Heng Cheng.
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 recorded in the year ended December 31, 2013 and $63,296 was recorded 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 voted to rescind the requirement that Dr. Platt reimburse the Company the entire $182,697. The Board determined that interest should be charged to Dr. Platt from the time he received the funds in July 2014, to the date of the board meeting and that this amount would be offset against interest the Company owes Dr. Platt. The remaining amount would be considered settled in full by the Company.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
8. | INTANGIBLE ASSETS |
| |
| The SUGARDOWN® technology and patent applications, which were obtained through the acquisition of BTI in 2010, are being amortized on a straight-line basis over their estimated useful lives of 14 years. |
| |
| Intangible assets consist of the following as of December 31: |
| |
| | | 2014 | | | 2013 | |
| SUGARDOWN® technology and patent applications | | | | | | | | |
| Less accumulated amortization | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Amortization expense for each of the years ended December 31, 2014 and 2013 was $64,286 and $64,285, respectively. | | | | | | | | |
| | | | | | | | | |
| The estimated remaining amortization expense related to intangible assets with finite lives for each of the five succeeding years and thereafter is as follows: | |
9. | PROVISION FOR INCOME TAXES | | | | | | |
| | | | | | | |
| During the years ended December 31, 2014 and 2013, no provision for income taxes was recorded as the Company generated net operating losses of $3,965,123 and $2,680,473, respectively. | |
| | | | | | | |
| A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: | | | | | | |
| | | | | | | |
| | | | | | | |
| | | 2014 | | | 2013 | |
| Net operating loss carryforwards | | | | | | | | |
| State taxes, net of federal benefit | | | | | | | | |
| Federal research and development tax credit | | | | | | | | |
| | | | | | | | | |
| Change in deferred tax asset valuation allowance | | | | | | | | |
| Effective income tax rate | | | | | | | | |
| Net deferred tax assets as of December 31, 2014 and 2013 consisted of the following: | | | | | | |
| | | 2014 | | | 2013 | |
| Net operating loss carryforwards | | $ | 3,326,788 | | | $ | 1,781,334 | |
| | | | 72,685 | | | | 12,499 | |
| Non-qualified stock options | | | 1,006,472 | | | | 857,613 | |
| Other temporary differences | | | 194,895 | | | | 164,379 | |
| Gross deferred tax assets | | | 4,600,840 | | | | 2,815,825 | |
| | | | (4,600,840 | ) | | | (2,815,825 | ) |
| | | $ | - | | | $ | - | |
| | | | | | | | | |
| As of December 31, 2014, the Company had net operating loss carryforwards for federal and state income tax purposes of $8,398,858, which begin to expire in years 2029 and 2019, respectively. The Company also has available research and development tax credit carryforwards for federal income tax purposes of $72,685, which begin to expire in year 2032. | |
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
9. PROVISION FOR INCOME TAXES - continued
Pursuant to the Internal Revenue Code Section 382 (“Section 382”), certain ownership changes may subject the net operating loss carryforwards (“carryforwards”) and research and development tax credit carryforwards to annual limitations which could reduce or defer the carryforwards. Section 382 imposes limitations on a corporation’s ability to utilize carryforwards if it experiences an ownership change. An ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. In the event of an ownership change, utilization of the carryforwards would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of this limitation on its ability to use the carryforwards to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such carryforwards to expire unused, reducing or eliminating the benefit of such carryforwards. The Company has not completed a Section 382 study to determine if there have been one or more ownership changes due to the costs associated with such a study. Until a study is completed and the extent of the limitations, if any, is able to be determined, no additional amounts have been written off or are being presented as an uncertain tax position.
The Company provided a full valuation allowance for deferred tax assets generated since, based on the weight of available evidence; it is more likely than not that these benefits will not be realized. During the year ended December 31, 2014, the Company increased its valuation allowance by $1,785,015 due to the continued likelihood that realization of any future benefit from deductible temporary differences and net operating loss carryforwards cannot be sufficiently assured at December 31, 2014. Management reevaluates the positive and negative evidence at each reporting period.
The Company applies the provisions of ASC 740-10, Income Taxes. The Company has not recognized any liability for unrecognized tax benefits and does not believe there is any uncertainty with respect to its tax position. The Company’s policy with respect to unrecognized tax benefits is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s tax years are still open under statute from 2012 to the present. Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company entered into a three year lease agreement for their office lease facility commencing July 1, 2012, with escalating rental payments. On February 21, 2013, the Company amended the lease agreement to extend the lease through March 2018 and increase rental space. The effects of variable rent disbursements have been expensed on a straight-line basis over the life of the lease. The Company recognized rent expense of $57,524 and $73,752 during the years ended December 31, 2014 and 2013, respectively. As of December 31, 2014 and 2013, there was $22,810 and $25,381, respectively, of deferred rent included in accrued expenses and other current liabilities in the accompanying balance sheets.
Future minimum lease payments under all non-cancelable operating leases as of December 31, 2014, are as follows:
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2014 and 2013
10. COMMITMENTS AND CONTINGENCIES - continued
Marketing Agreement
On May 14, 2014, we entered into a definitive Marketing Agreement with Benchworks SD, LLC (Benchworks), a company engaged in the marketing, promotion and offering for distribution and sale of pharmaceutical, healthcare and consumer products. Under the terms of the agreement, we have granted Benchworks the exclusive right to promote, market, sell and distribute SUGARDOWN® in North America for an initial term of one year, subject to extension in accordance with the terms of the agreement. Benchworks is responsible and bears the expense for marketing and commercializing SUGARDOWN®, including the creation and payment for marketing, creative and promotional materials. The agreement defines certain minimum net sales levels that Benchworks must achieve to maintain exclusivity; and the agreement also provides for net sales splits with Benchworks receiving 65% of the first $10 million in net sales from the sale of SUGARDOWN® in North America, with a declining share to 50% for net sales in excess of $40 million.
11. SUBSEQUENT EVENTS
The Company has evaluated events and transactions that occurred from December 31, 2014 through March 27, 2015, the date these financial statements were issued, for possible disclosure and recognition in the financial statements. Except as discussed below, the Company did not have any material subsequent events that impact its financial statements or disclosures.
In January 2015, the Company issued 43,992 shares of common stock resulting from the cashless exercise of 92,000 placement agent warrants with an exercise price of $0.30. The remaining 48,008 common stock warrants were cancelled due to the cashless exercise.
In February 2015, the Company issued 30,000 shares of its common stock with a fair value of $9,900 in exchange for consulting services rendered during January and February 2015 in connection with a consulting agreement.
On March 12, 2015, the Company entered into a $225,000 convertible note agreement for $200,000 in net proceeds after discounts and fees. The note has an eleven month term with an annual interest rate of 10%. In connection with this convertible note, the Company issued a warrant to purchase 625,000 shares of the Company’s common stock. The warrant is immediately exercisable at an exercise price of $0.30 per share and expires in March 2020. The note is convertible into common stock at the Lender’s option pursuant to the conversion terms of the note agreement.
On March 13, 2015, the Company entered into a $100,000 convertible promissory note agreement for $94,000 in net proceeds after discounts and fees. The note has a twelve month term with an annual interest rate of 10%. Pursuant to the securities purchase agreement, the lender is obligated to enter into an additional convertible promissory note in the principal amount of $100,000 in May 2015 with an issuance discount of $10,000, unless the closing price of the Company’s common stock is below 50% of the closing price on the issuance date of March 13, 2015, in which case the lender may in its discretion determine not to fund all or any portion of the second convertible promissory note agreement. The promissory note is convertible into common stock at the Lender’s option at any time on or after June 12, 2015, pursuant to the conversion terms of the note.
On March 18, 2015, the Company entered into a $75,000 convertible promissory note agreement for $67,500 in net proceeds after issuance discounts. The promissory note has a two year term with an annual interest rate of 12%. The promissory note is convertible into common stock at the Lender’s option any time pursuant to the conversion terms of the note.
On March 20, 2015, the Company entered into a $79,000 convertible promissory note agreement for $70,500 in net proceeds after fees. The promissory note matures in December 2015 with an annual interest rate of 8%. The promissory note is convertible into common stock at the Lender’s option any time on or after September 20, 2015 pursuant to the conversion terms of the note.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Boston Therapeutics, Inc.
Manchester, New Hampshire
We have audited the accompanying balance sheets of Boston Therapeutics, Inc. as of December 31, 2013 and 2012, and the related statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Boston Therapeutics, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s limited resources and operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ McGladrey LLP
Boston, Massachusetts
March 14, 2014
Boston Therapeutics, Inc.
Balance Sheets
December 31, 2013 and 2012
|
| | December 31, 2013 | | | December 31, 2012 | |
ASSETS | | | | | | |
Cash and cash equivalents | | | | | | | | |
| | | | | | | | |
Prepaid expenses and other current assets | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Property and equipment, net | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Accrued expenses and other current liabilities | | | | | | | | |
Total current liabilities | | | | | | | | |
| | | | | | | | |
Notes payable - related parties | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
COMMITMENTS AND CONTINGENCIES (Note 10) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, | | | | | | | | |
none issued and outstanding | | | | | | | | |
Common stock, $0.001 par value, 200,000,000 and 100,000,000 shares authorized, | | | | | | | | |
37,362,160 and 18,745,706 shares issued and outstanding | | | | | | | | |
at December 31, 2013 and 2012, respectively | | | | | | | | |
Additional paid-in capital | | | | | | | | |
| | | | | | | | |
Total stockholders’ equity | | | | | | | | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc.
Statements of Operations |
For the Years Ended December 31, 2013 and 2012 |
|
|
| | December 31, 2013 | | | December 31, 2012 | |
| | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
General and administrative | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net loss per share- basic and diluted | | | | | | | | |
| | | | | | | | |
Weighted average shares outstanding basic and diluted | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc.
Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 2013 and 2012
| | | | | Additional | | | Accumulated | | | | |
| | Common Stock | | | Paid-in | | | Earnings | | | | |
| | Shares | | | Amount | | | Capital | | | (Deficit) | | | Total | |
Balance at December 31, 2011 | | | 16,223,206 | | | $ | 16,223 | | | $ | 1,621,756 | | | $ | (1,213,284 | ) | | $ | 424,695 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2,270,000 | | | | 2,270 | | | | 1,011,957 | | | | - | | | | 1,014,227 | |
Issuance of common stock warrants | | | - | | | | - | | | | 132,773 | | | | - | | | | 132,773 | |
Issuance of common stock in exchange | | | | | | | | | | | | | | | | | |
| | | 252,500 | | | | 253 | | | | 128,522 | | | | - | | | | 128,775 | |
| | | - | | | | - | | | | 480,108 | | | | - | | | | 480,108 | |
| | | - | | | | - | | | | - | | | | (1,484,115 | ) | | | (1,484,115 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2012 | | | 18,745,706 | | | | 18,746 | | | | 3,375,116 | | | | (2,697,399 | ) | | | 696,463 | |
| | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, net of issuance costs | | | 18,312,341 | | | | 18,312 | | | | 3,551,056 | | | | - | | | | 3,569,368 | |
Issuance of common stock warrants | | | - | | | | - | | | | 1,616,062 | | | | - | | | | 1,616,062 | |
Issuance of common stock in exchange | | | | | | | | | | | | | | | | | |
| | | 291,009 | | | | 291 | | | | 226,775 | | | | - | | | | 227,066 | |
Issuance of common stock warrants in | | | | | | | | | | | | | | | | | |
exchange for consulting services | | | - | | | | - | | | | 282,901 | | | | - | | | | 282,901 | |
Cashless exercise of common stock options | | | 13,104 | | | | 13 | | | | (13 | ) | | | - | | | | - | |
| | | - | | | | - | | | | 1,554,913 | | | | - | | | | 1,554,913 | |
| | | - | | | | - | | | | - | | | | (4,601,503 | ) | | | (4,601,503 | ) |
Balance at December 31, 2013 | | | 37,362,160 | | | $ | 37,362 | | | $ | 10,606,810 | | | $ | (7,298,902 | ) | | | 3,345,270 | ) |
Boston Therapeutics, Inc.
Statements of Cash Flows
For the Years Ended December 31, 2013 and 2012
| | December 31, 2013 | | | December 31, 2012 | |
Cash flows from operating activities: | | | | | | |
| | | | | | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
Depreciation and amortization | | | | | | | | |
| | | | | | | | |
Issuance of common stock and common stock warrants for consulting services | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Prepaid expenses and other current assets | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net cash used in operating activities | | | | | | | | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchase of property and equipment | | | | | | | | |
Net cash used in investing activities | | | | | | | | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from notes payable - related parties | | | | | | | | |
Proceeds from issuance of common stock and common stock warrants (net of issuance costs) | | | | | | | | |
Net cash provided by financing activities | | | | | | | | |
| | | | | | | | |
Net increase in cash and cash equivalents | | | | | | | | |
Cash and cash equivalents, beginning of period | | | | | | | | |
Cash and cash equivalents, end of period | | | | | | | | |
| | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | |
Cash paid during the period for: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2013 and 2012
1. GENERAL 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., a 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 exchange for 100% of the outstanding common stock of BTI, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer, is a founder of BTI and was a director and minority stockholder of BTI at the time of the Merger. Dr. Platt received 400,000 shares of the Company’s common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became the Company’s President shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of BTI at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger.
The Company’s primary business is the development, manufacture and commercialization of therapeutic drugs with a focus on complex carbohydrate chemistry to address unmet medical needs in diabetes and inflammatory diseases. We have brought one product, SUGARDOWN®, to market and have begun to make initial sales. We are currently focused on the development of two additional drug products: BTI320, a non-systemic, non-toxic tablet for reduction of post-meal blood glucose in people living with diabetes that is fully developed, and IPOXYN, an injectable anti-necrosis, anti-hypoxia drug that we are currently developing.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has limited resources and operating history. As shown in the accompanying financial statements, the Company has an accumulated deficit of approximately $7.3 million as of December 31, 2013 and used cash in operations of approximately $2.3 million during the year ended December 31, 2013.
The Company has incurred recurring operating losses since inception as it has worked to bring its SUGARDOWN® product to market and develop BTI320 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 BTI320 or IPOXYN is completed. Management anticipates that the Company’s cash resources will be sufficient to fund its planned operations into the second half of fiscal 2014. Management plans to seek additional capital through private placements and public offerings of the Company’s common stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financings in order to fund our operations. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to curtail or cease operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Basis of Presentation
The financial statements have been prepared in conformity with accounting principles generally accepting in the United States of America (“US GAAP”).
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.
Segment Information
Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2013 and 2012
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES - continued
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and 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.
Revenue Recognition
The Company generates revenues from sales of SUGARDOWN®. Revenue is recognized when there is persuasive evidence that an arrangement exists, the price is fixed and determinable, the product is shipped and collectability is reasonably assured. Revenue is recognized as product is shipped from an outside fulfillment operation. 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.
During the years ended December 31, 2013 and 2012, one customer accounted for 97% and 40%, respectively, of the Company’s revenue. During the year ended December 31, 2012, one additional customer accounted for 35% of the Company's revenue.
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 December 31, 2013 and 2012. At December 31, 2013 and 2012, the Company has one customer that accounts for 100% of its accounts receivable. The Company believes there is minimal risk associated with this receivable.
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) 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.
Property 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 | |
Computer Equipment and Software | |
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 years ended December 31, 2013 and 2012, the Company recorded depreciation expense of $2,818 and $682, 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.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2013 and 2012
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES - continued
Goodwill
The Company follows the guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, Goodwill and Other Intangible Assets. Under ASC 350, goodwill and certain other intangible assets with indefinite lives are not amortized, but instead are reviewed for impairment at least annually.
As the Company operates its business in one operating segment and one reporting unit, the Company’s goodwill is assessed at the Company level for impairment in the fourth quarter of each year or more frequently if events or changes in circumstances indicate that impairment may exist. The Company has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step impairment test. If the Company’s qualitative assessment reveals that goodwill impairment is more likely than not, the Company performs the two-step impairment test. Alternatively, the Company may bypass the qualitative test and initiate goodwill impairment testing with the first step of the two-step goodwill impairment test.
During the first step of the goodwill impairment test, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, then the Company concludes that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure possible goodwill impairment loss. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.
The Company performed its impairment review of goodwill utilizing the qualitative assessment method for the year ended December 31, 2013 and concluded that no impairment existed. The Company performed its impairment review of goodwill utilizing the quantitative assessment method for the year ended December 31, 2012 and concluded no impairment existed.
Impairment of Long-lived Assets
The Company reviews 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 the 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.
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 year ended December 31, 2013 did not include 5,741,400 and 11,974,999 options and warrants, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the year ended December 31, 2012 did not include 7,708,400 and 645,000 options and warrants, 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 it is more likely than not that some portion of the gross deferred tax asset will not be realized. The Company records interest and 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 years ended December 31, 2013 and 2012.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2013 and 2012
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES - continued
Advertising Costs
Advertising costs are expensed as incurred and are reported as a component of selling, general and administrative expenses in the selling and marketing expenses in the statements of operations. Advertising costs for the years ended December 31, 2013 and 2012 were $25,068 and $51,497, 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 research and development contracts, whether performed by the Company or contracted with independent third parties.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature.
The carrying value of the notes payable as of December 31, 2013 and 2012, is not materially different from the fair value of the notes payable.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash and cash equivalents. The Company places its cash and cash equivalents in highly rated financial institutions. The Company maintains cash and cash equivalent 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.
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 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 does not havehas a limited history of market prices of theits common stock as, and as such volatility is estimated using historical volatilities of similar public entities. 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 vesting 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-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.
The fair value of stock options granted was calculated with the following assumptions:
| | 2011 | | | 2010 | |
Risk-free interest rate | | | 0.28-0.77 | % | | | 0.54-0.84 | % |
Expected dividend yield | | | 0 | % | | | 0 | % |
Volatility factor | | | 90 | % | | | 90 | % |
Expected life of option | | 4.75-5.0 years | | | 3.75-4.75 years | |
The weighted-average fair value of stock options granted during the years ended December 31, 2011 and 2010, under the Black-Scholes option pricing model was $0.20 and $0.08 per share, respectively. For the years ended December 31, 2011 and 2010, the Company recorded stock-based compensation expense of $149,727 and $122, respectively, in connection with share-based payment awards. As of December 31, 2011, there was $172,953 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 2.1 years.
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years endedYears Ended December 31, 20112013 and 2010 and Period from Inception (August 24, 2009) to December 31, 20112012
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued
PRACTICES - continued
Recent Accounting Pronouncements
Accounting Standards Update
In July 2013, the FASB issued ASU 2013-11, “Income Taxes, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU”ASU 2013-11”) 2010-28, Intangibles – Goodwill and Other (Topic 350) - When. ASU 2013-11 states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to Perform Step 2a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the Goodwill Impairment Test for Reporting Units with Zeroapplicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or Negative Carrying Amounts - a consensusthe tax law of the FASB Emerging Issues Task Force, modifies Step 1 ofapplicable jurisdiction does not require the goodwill impairment testentity to use, and the entity does not intend to use, the deferred tax asset for reporting unitssuch purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist.deferred tax assets. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.
ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment
This ASU gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.2013, with early adoption permitted. The amendments areshould be applied prospectively to all unrecognized tax benefits that exist at the effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.date. Retrospective application is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
3. INVENTORIES
Inventories 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 inventories at December 31, 20112013 and 2010,2012, net of inventory reserves, were as follows:
| | 2011 | | 2010 | | | 2013 | | 2012 | |
Raw materials | | $ | 23,034 | | $ | 956 | | | | | | | | |
| | | | | | |
Finished goods | | | 562 | | | 3,193 | | | | | | | | |
TotaTotal | | $ | 23,596 | | $ | 4,419 | | |
| | | | | | | | |
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.
4. ACCRUED EXPENSES
The following table represents the major components of accrued expenses at December 31, 2013 and 2012:
| | 2013 | | | 2012 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other current liabilities | | | | | | | | |
| | | | | | | | |
4.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2013 and 2012
5. 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 100,000,000200,000,000 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 September 7, 2013.
Preferred Stock
No shares of preferred stock have been issued and the terms of such preferred stock have not been designated by the Board of Directors.
Common Stock
On August 26, 2009, the Company issued 10,000,000 shares of its $0.001 par value common stock to its two founders. Eight million shares were issued to the Company’s Chief Executive Officer (CEO), Chairman of the Board of Directors and co-founder, in exchange for a patent, a provisional patent and know-how. In accordance with ASC 845-10-S99, Transfers of Non-monetary Assets from Promoters or Shareholders, the transfer of nonmonetary assets to a company by its shareholders in exchange for stock prior to the Company’s initial public offering should be recorded at the transferor’s historical cost basis determined under GAAP. As a result, the value of the patent, provisional patent and know-how was valued at the CEO’s historical cost basis of zero because no records exist to support an historical cost basis in accordance with GAAP. The patent and provisional patent were assigned to the Company on December 10, 2009. The remaining 2,000,000 shares were issued to the co-founder for $10,000 in cash.
Boston Therapeutics, Inc.(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
For the years ended December 31, 2011 and 2010 and Period from Inception (August 24, 2009) to December 31, 2011
4. STOCKHOLDERS’ EQUITY...continued
On March 31, 2010,May 7, 2012 the Company issued 20,000 shares of common stock for $10,000 cashat a price per share of $1.10 and issued a warrant to purchase an investor. On April 9, 2010, the Company issued 11,236additional 20,000 shares of common stock at $1.15 per share for gross proceeds of $22,000. The warrant is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the relative fair value of the warrant to be $8,754 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
During May 2012 the Company entered into a consulting agreement under which it is required to pay the consultant a monthly fee consisting of 25,000 shares of restricted common stock beginning May 21, 2012 through May 21, 2013. As of December 31, 2012 the Company had issued 150,000 shares due under this agreement for services rendered during June through November 2012 with a fair value of $76,500. An accrual in the amount of $14,000 representing the fair value of the 33,333 unissued shares for services rendered in December 2012 was included in the accompanying December 31, 2012 balance sheet. The 33,333 shares were subsequently issued during the year ended December 31, 2013. An additional 12,000 shares were issued in January 2013 for services performed in January. The agreement was terminated in January 2013.
During June 2012 the Company issued 80,000 shares of its common stock with a fair value of $40,800 in exchange for $11,236 to a related party. professional consulting services.
On October 4, 2010,June 29, 2012 the Company issued 10,0001,000,000 shares for $10,000 cash to an investor. affiliate of Advance Pharmaceutical Co., Ltd. (APC) in a private placement for net proceeds of $500,000. APC is licensed to distribute SUGARDOWN® in Hong Kong, China and Macau. The Company reviewed the private placement issuance and determined that the issuance price of $0.50 per share approximates fair value as of the date of issuance.
During July 2012 the Company entered into a consulting agreement under which it is required to pay the consultant a monthly fee consisting of $4,000 paid in cash and 7,500 shares of restricted common stock. As of December 31, 2012 the Company has issued the 22,500 total shares due under this agreement for services rendered during July, August and September 2012 with an aggregate fair value of $11,475. The agreement was terminated as of September 30, 2012.
On November 6, 2010,13, 2012 the Company issued 4,000,0001,250,000 shares of its common stock at a price per share of $0.50 and issued a warrant to purchase 625,000 additional shares for $1.00 per share for gross proceeds of $625,000. The warrant is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the relative fair value of the warrant to be $124,019 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2013 and 2012
5. STOCKHOLDERS’ EQUITY - continued
Common Stock - continued
On March 14, 2013 the Company issued 500,000 shares of its common stock at a price per share of $0.50 and issued a warrant to purchase 250,000 additional shares for $1.00 per share for gross proceeds of $250,000 to CJY Holdings Limited, a company controlled by Conroy Cheng's brother Cheng Chi Him. The warrant is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the relative fair value of the warrant to be $35,457 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
On April 29, 2013 the Company issued a warrant to purchase 100,000 of common stock for $1.00 per share in exchange for consulting services rendered. The warrant associated with the consulting agreement is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the fair value of the warrant to be $19,865 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
On April 30, 2013 the Company issued 52,000 shares of its common stock with a fair value of $28,080 in exchange for consulting services rendered during February through April 2013 in connection with two separate consulting agreements.
On June 28, 2013 the Company issued 40,000 shares of its common stock with a fair value of $14,000 in exchange for consulting services rendered during May and June in connection with two separate consulting agreements.
Between July and September 2013, the Company conducted four closings of its private placement of securities with accredited investors pursuant to which the investors purchased in aggregate 17,659,007 shares of the Company’s common stock and warrants to purchase an additional 8,829,484 shares of common stock at an exercise price of $0.50 per share (the Investor Warrants) for total gross proceeds of $5,297,698. In addition, the Company issued warrants to the Placement Agent in exchange for services to purchase in aggregate 1,808,849 shares for $0.30 per share (the Placement Agent Warrants). The Investor Warrants and Placement Agent Warrants are currently exercisable and have a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreements and has determined that equity classification is appropriate. The Company estimated the relative fair value of the Investor Warrants associated with the investor subscription agreements and Placement Agent Warrants as $1,279,093 and $288,101, respectively, using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital. In addition, issuance costs paid by the Company in connection with the merger transaction describedprivate placement offering totaled $408,270. CJY Holdings Limited purchased 6,666,660 shares and 3,333,320 Investor Warrants included in Note 7.this Private Placement on the same terms as the other participants purchasing shares in the transaction.
On June 21, 2011,During September 2013 the Company sold 2,035,470issued 52,000 shares of its common stock with a fair value of $22,920 in exchange for $508,867consulting services rendered during July through September 2013 in aconnection with two separate consulting agreements.
During October 2013 the Company conducted an additional closing of its private placement offering. During August 2011, an additional 56,000 shares were sold for $14,130of securities to related parties and affiliates resulting in the private placement. On November 1, 2011, 80,500purchase of 153,334 shares were issued to a consultant for marketing services valued at $40,250. On December 22, 2011, 10,000 shares were issued to a consultant for services rendered valued at $5,000. No other issuances of preferred orthe Company’s common stock haveand warrants to purchase 76,666 additional shares of common stock at an exercise price of $0.50 per share for total gross proceeds of $46,000. The warrant associated with the subscription agreement is exercisable immediately and has a five year term. The Company estimated the relative fair value of the warrants as $13,411 using the Black Scholes model which has been made.recorded as a component of permanent equity in additional paid in capital.
During October 2013 the Company issued 43,860 shares of its common stock with a fair value of $61,404 in exchange for consulting services rendered during August through October 2013 in connection with a consulting agreement.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2013 and 2012
5. STOCKHOLDERS’ EQUITY - continued
Common Stock - continued
During October 2013 the Company entered into a consulting agreement under which it is required to pay the consultant a monthly fee consisting of $10,000 paid in cash and a warrant to purchase 265,000 shares of common stock at an exercise price of $0.50 per share. The warrant associated with the consulting agreement is exercisable immediately and has a five year term. The Company estimated the fair value of the warrant at $263,036 using the Black Scholes model which has been recorded as a component of permanent equity in additional paid in capital.
On November 18, 2013 the Company issued 22,000 shares of its common stock with a fair value of $32,120 in exchange for consulting services rendered during November 2013 in connection with a consulting agreement.
During December 2013 the Company issued 35,316 shares of its common stock with a fair value of $49,292 in exchange for consulting services rendered during September through December 2013 in connection with two separate consulting agreements.
During the year ended December 31, 2013, the Company received $270,000 of cash proceeds in connection with a potential private placement financing expected to be executed during 2014. As of December 31, 2013, the terms of the private placement were not secured and the Company had recorded the $270,000 of proceeds as a stock subscription in accrued expenses and other current liabilities within the accompanying balance sheet.
6. 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) 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 December 31, 2011,2013 and December 31, 2012, there were 78,400578,400 options outstanding under the 2010 Plan.
During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock 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 December 31, 2011,2013 and December 31, 2012, there were 1,500,0005,163,000 and 7,130,000 options outstanding under the 2011 Plan.Plan, respectively.
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 three to four years and the options typically expire tenin five to seven years.
The fair value of stock options granted for years fromended December 31, 2013 and 2012 was calculated with the datefollowing assumptions:
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2013 and 2012
6. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION - continued
The weighted-average fair value of grant.stock options granted during the years ended December 31, 2013 and 2012, under the Black-Scholes option pricing model was $0.21 and $0.30 per share, respectively. For the years ended December 31, 2013 and 2012, the Company recorded stock-based compensation expense of $1,554,913 and $480,108, respectively, in connection with share-based payment awards. As of December 31, 2013, there was approximately $173,000 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 0.70 years.
The following table summarizes the Company’s stock option activity under the Stock Plans.
| | Shares | | | Exercise Price Per Share | | | Weighted Average Exercise Price | |
| | | | | | | | | |
Balance at December 31, 2009 | | | - | | | $ | - | | | $ | - | |
Granted | | | 78,400 | | | | 1.85 | | | | 1.85 | |
Exercised | | | - | | | | | | | | - | |
Options forfeited/cancelled | | | - | | | | - | | | | - | |
Outstanding, December 31, 2010 | | | 78,400 | | | | 1.85 | | | | 1.85 | |
Granted | | | 1,921,237 | | | 0.10 to 0.25 | | | | 0.13 | |
Exercised | | | - | | | | | | | | - | |
Options forfeited/cancelled | | | (421,237 | ) | | | 0.25 | | | | 0.25 | |
Outstanding, December 31, 2011 | | | 1,578,400 | | | $ | 0.10 to 1.85 | | | $ | 0.19 | |
Boston Therapeutics, Inc.(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Forduring the years ended December 31, 20112013 and 2010 and Period from Inception (August 24, 2009) to2012:
| | Shares | | | Exercise Price per Share | | | Weighted Average Exercise Price per Share | |
Outstanding as of December 31, 2011 | | | 1,578,400 | | | $ | 0.10-1.85 | | | $ | 0.19 | |
| | | 6,130,000 | | | | 0.10-0.50 | | | | 0.48 | |
| | | - | | | | - | | | | - | |
Options forfeited/cancelled | | | - | | | | - | | | | - | |
Outstanding as of December 31, 2012 | | | 7,708,400 | | | $ | 0.10-1.85 | | | $ | 0.42 | |
| | | 708,000 | | | | 0.42-1.00 | | | | 0.68 | |
| | | (13,104 | ) | | | 0.50 | | | | 0.50 | |
Options forfeited/cancelled | | | (2,661,896 | ) | | | 0.42-1.00 | | | | 0.52 | |
Outstanding as of December 31, 2013 | | | 5,741,400 | | | $ | 0.10-1.85 | | | $ | 0.40 | |
During the year ended December 31, 20112013, the Company received a notice of cashless stock options exercise in which the holder elected to exercise 20,000 vested options. The stock options which were exercised had an exercise price of $0.50 per share. Based upon the Company’s stock price on the date of exercise, as well as the cashless exercise formula, 13,104 shares were issued to the holder with the remaining 6,896 stock options forfeited during the year ended December 31, 2013.
5. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION...continued
The following table summarizes information about stock options that are vested or expected to vest at December 31, 2011:2013:
Vested or Expected to Vest | | Vested or Expected to Vest | | Exercisable Options | |
| | Vested or Expected to Vest | | Exercisable Options | | | | | | Weighted | | Weighted | | | | | | Weighted | | Weighted | | | |
Exercise Price | | Number of Options | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value | | Number of Shares Exercisable | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value | | |
| | | | | | Average | | Average | | | | | | Average | | Average | | | |
| | | | | | Exercise | | Remaining | | Aggregate | | Number | | Exercise | | Remaining | | Aggregate | |
Exercise | | Exercise | | Number of | | Price Per | | Contractual | | Intrinsic | | of | | Price | | Contractual | | Intrinsic | |
Price | | Price | | Options | | Share | | Life (Years) | | Value | | Options | | Per Share | | Life (Years) | | Value | |
$ | 0.10 | | 1,500,000 | | 0.10 | | 4.75 | | $ | 219,900 | | 656,250 | | 0.10 | | 4.75 | | $ | 96,206 | | | | | | | | | | | | | | | | | | | | | | | |
| 1.85 | | 78,400 | | 1.85 | | 3.75 | | - | | 39,200 | | 1.85 | | 3.75 | | - | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ | 0.10 – 1.85 | | | 1,578,400 | | | 0.19 | | | 4.70 | | $ | 219,900 | | | 695,450 | | | 0.20 | | | 4.69 | | $ | 96,206 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The weighted-average remaining contractual life for options exercisable at December 31, 20112013 is 4.703.89 years. At December 31, 20112013 the Company has 600,00012,337,000 and 4,921,6006,921,600 options available for grant under the 2011 Plan and 2010 Plan, respectively.
The SUGARDOWN® technology and provisional patents, which were obtained through the acquisition of the TargetBTI in 2010, are being amortized on a straight-line basis over their estimated useful lives of 14 years.
The estimated remaining amortization expense related to intangible assets with finite lives for each of the five succeeding years and thereafter is as follows:
The Company has evaluated events and transactions that occurred from December 31, 20112013 through March 14, 2014, the date of filingthese financial statements were issued, for possible disclosure and recognition in the financial statements. Except as discussed below, the Company did not have any material subsequent events that impact its financial statements or disclosures.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with this registration statement. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent of the corporation. Section 145 of the Delaware General Corporation Law also provides that expenses (including attorneys’ fees) incurred by a director or officer in defending an action may be paid by a corporation in advance of the final disposition of an action if the director or officer undertakes to repay the advanced amounts if it is determined such person is not entitled to be indemnified by the corporation. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The Company’s BylawsOur bylaws provide that, to the fullest extent permitted by law, the Companywe shall indemnify and hold harmless any person who was or is made or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person, or the person for whom he is the legally representative, is or was a director or officer of the Company,ours, against all liabilities, losses, expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such proceeding.
Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. The Company’s Certificate
In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered herewith, we will, unless in the opinion of itsour counsel the matter has been settled by controlling precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by itus is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During August 2011, an additional 56,000 shares were sold for $14,130 in the private placement.
On November 1, 2011, 80,500 shares were issued to a consultant for marketing services valued at $40,250.
On December 22, 2011, 10,000 shares were issued to a consultant for services rendered valued at $5,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 17. UNDERTAKINGS
Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Platt and Anthony D. Squeglia, and each of them, as true and lawful attorney-in-factattorneys-in-fact and agentagents with full power of substitution and re-substitution and for him/herhim and in his/herhis name, place and stead, in any and all capacities to sign any and all amendments (including pre-effective and post-effective amendments) to this Registration Statement, as well as any new registration statement filed to register additional securities pursuant to Rule 462(b) under the Securities Act, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-factattorneys-in-fact and agentagents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-factattorneys-in-fact and agent,agents, or histheir substitute or substitutes may lawfully do or cause to be done by virtue hereof.