Key Strengths We believe that theour key differentiating elements for the Company’s market success include: Experienced management: David Platt, Ph.D., is a chemical engineer, a pioneer in designing drugs made from carbohydrates, and has more than 20 | · | 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. |
Risks Associated with Our Business Our business is subject to numerous significant risks, as more fully described in the developmentsection entitled “Risk Factors” immediately following this prospectus summary. You should read and carefully consider these risks, together with the risks set forth under the section entitled “Risk Factors” and all of therapeutic drugs. He is the inventorother information in this prospectus, including the financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in our common stock. If any of the risks discussed in this prospectus actually occur, our business, financial condition or co-inventoroperating results could be materially and adversely affected. In particular, our risks include, but are not limited to, the following: | · | We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. |
| · | We are a company with limited operating history which makes it difficult to evaluate our current business and future prospects. |
| · | We will require additional financing to implement our business plan, which may not be available on favorable terms or at all, and we may have to accept financing terms that would adversely affect our stockholders. |
| · | Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our drug candidates and dietary supplements. |
| · | Our products are based on novel, unproven technologies. |
| · | Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates. |
| · | We may be unable to commercialize our drug candidates or expand awareness and sales of our dietary supplement SUGARDOWN®. |
| · | Our success depends upon our ability to retain key executives and to attract, retain, and motivate qualified personnel and direction and the loss of these persons could adversely affect our operations and results. |
| · | We will need regulatory approvals to commercialize our products as drugs. |
| · | Our competitive position depends on protection of our intellectual property. |
| · | The market for our proposed products is rapidly changing and competitive, and new drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain competitive. |
| · | We may become involved in lawsuits to protect or enforce patents that may issue to us, that we may acquire, or may license in the future or other intellectual property, which could be expensive, time-consuming and ultimately unsuccessful. |
| · | The market price of our common stock may be highly volatile, and you could lose all or part of your investment. |
| · | We have a limited market for our common stock, which makes our securities very speculative. |
| · | You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future. |
| · | Our management will have broad discretion in how we use the net proceeds of this offering. |
Corporate Information We were formed on August 24, 2009 as a numberDelaware corporation under the name of patents. He has been substantially involved in the FDA approval process for several drugs,Avanyx Therapeutics, Inc. Initially, we focused on our IPOXYN drug candidate. On November 10, 2010, we entered into an Agreement and we anticipate that his expertise shall be critical as we develop the Company’s drugs through the clinical trial and FDA approval process.Plan of Merger with Boston Therapeutics, isInc., a New Hampshire corporation, which added the third start-upBTI-320 drug candidate to our pipeline. The transaction provided for (i) the merger of the New Hampshire entity into our company, foundedwith our company being the surviving entity, (ii) the issuance by Dr. Platt. The first two are International Gene Group, which later became Prospectus 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, and is now known as LaJolla Pharmaceuticals (OTC: 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.Inc. Focus on Novel Therapeutic Opportunities Provided by Carbohydrates: The CompanyOur principal executive offices are located at 1750 Elm Street, Suite 103, Manchester, NH 03104 and our telephone number is a pioneer 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.(603) 935-9799.
Products are differentiated and address significant unmet needs: Both of the Company’s lead product candidates are well differentiated diabetes formulations that address significant unmet medical needs. Diabetes management remains a critical area of unmet need. Increasingly, patients, physicians and the media are highlighting the deficiencies of current diabetes therapies and the growing population of affected individuals. Diabetes is a large unsatisfied market.
A multiple product portfolio with a balanced risk reward profile:
The Company has two lead products at various stages of development and a dietary supplement product. Accordingly, the Company is well positioned to become a competitive player in a large and growing market. The PAZ320 product candidate has an excellent safety profile with minimal side effects and its non-systemic characteristic provides a targeted and safe method to treat diabetes.Offering Efficient development strategy: The 505(b)(2) pathway lowers the risk of drug development. The Company’s strategy of combining proven drug candidates with novel delivery methods and pharmaceutical compositions reduces clinical development time and costs and lowers regulatory risks, while delivering valuable products in areas of high unmet need to the market place.| Securities Offered | Up to 25,000,000 shares of our common stock and 12,500,000 warrants to purchase common stock on a “best efforts” basis for up to $5 million of gross proceeds. | | | | Offering Price | 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. | | | Common Stock Outstanding Before the Offering | 38,597,008 shares (1) | | | | Common Stock Outstanding After the Offering (assuming the sale of all shares covered hereby and no exercise of the warrants for the shares covered by this prospectus) | 63,597,008 shares of our common stock assuming the maximum offering amount is sold. | | | | Warrants | Each warrant offered in this offering 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. | | | | No Minimum Offering; | There is no minimum amount required for us to close this offering and we may raise substantially less than the $5 million in common stock and warrants offered hereby. 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. | | | | Duration of Offering | 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. | | | Use of Proceeds | We intend to use the net proceeds from this offering for continued development of our product pipeline, including continuing Phase II clinical trials of BTI-320 and to initiate pre-clinical studies of IPOXYN, and for general working capital purposes. See “Use of Proceeds.” | | | | Risk Factors | Investing in our common stock involves substantial risk. See the section captioned “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our common stock. | | | | OTCQB Marketplace Symbol | Our common stock currently trades on the OTCQB Marketplace under the symbol “BTHE.” | | |
Solid intellectual property and market protection: The Company has secured a robust intellectual property portfolio comprised of patents, patent applications, and trademarks.| (1) | Does not include (i) outstanding stock options to purchase an aggregate of 8,192,400 shares of common stock pursuant to our 2010 and 2011 stock option plans with a weighted average exercise price of $0.41 or (ii) outstanding warrants to purchase an aggregate of 13,404,634 shares of common stock with a weighted average exercise price of $0.51. Excludes the impact of conversion of shares related to the Company’s convertible promissory note agreements entered into March 2015. In connection with these 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. |
Summary Financial Data The summary financial data below as of and for the years ended December 31, 2014, 2013 and 2012 have been derived from our audited financial statements included elsewhere in this prospectus. The summary financial data below as of and for the year ended December 31, 2011 have been derived from our audited financial statements not included in this prospectus. The following summary financial information should be read in connection with, and is qualified by reference to, our financial statements and their related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period. | | | Year Ended December 31, | | | | | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | General and administrative | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss per share - basic and diluted | | | | | | | | | | | | | | | | | Weighted average shares outstanding basic and diluted | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total stockholders' equity | | | | | | | | | | | | | | | | |
RISK FACTORS An investment in the Company’s securitiesour common stock involves significantsubstantial risks, including the risks described below. You should carefully consider the risks described below in addition to the remainder of the Memorandum before purchasing the Securities.our common stock. The risks highlighted here are not the only ones that the Company faces.we may face. For example, additional risks presently unknown to us or that we currently consider immaterial or unlikely to occur could also impair our operations. If any of the risks or uncertainties described below or any such additional risks and uncertainties actually occur, our business, prospects, financial condition or results of operations could be negatively affected, and you might lose all or part of your investment.
RISKS RELATED TO OUR BUSINESSRisks Related to Our Business
If we do not receive additional funding, we willWe have incurred significant losses since our inception and expect to curtailincur losses for the foreseeable future and may never achieve or cease operations.maintain profitability.
We have incurred losses totaling $5.1$12 million since inceptionfrom August 24, 2009 (inception) through September 30, 2013. December 31, 2014. As of September 30, 2013,December 31, 2014, we had approximately $3.9 million$157,000 of cash on hand. The opinionreport of our independent registered public accountants on our audited financial statements as of and for the year ended December 31, 2012 contains2014, contained an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon raisingour ability to generate revenue and raise capital from financing transactions. We raised approximately $5.6 million in gross proceeds in private placements during the year ended December 31, 2013. We raised $500,000 in gross proceeds during the year ended December 31, 2014, of which $250,000 of these proceeds were received during the fourth quarter of 2013 and public placementswas recorded as a stock subscription in accrued expenses and other current liabilities in the accompanying balance sheet as of December 31, 2013. 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 cost reductions during the fourth quarter of fiscal 2014 and into fiscal 2015. To stay in business, we will need to raise substantial additional capital through public or private sales of our securities, debt financing or short-term bank loans, or a combination of the foregoing. We anticipate that our expenses will increase substantially as we: Revenues generated from our operations are not presently sufficient to sustain our operations | · | conduct additional Phase II and Phase III clinical trials of, and further advance, our lead drug candidate BTI-320 and initiate pre-clinical and clinical trials for of IPOXYN; |
| · | continue the research and development of our other drug candidates, including potentially in-licensing other technologies and therapeutics; |
| · | seek to discover and develop additional drug candidates; |
| · | seek regulatory approvals for any drug candidates that successfully complete clinical trials; |
| · | potentially establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any products for which we may obtain regulatory approval; and |
| · | maintain, expand and protect our intellectual property portfolio. |
We believe we may not generate sufficient sales or other revenue from SUGARDOWN® alone to fund operations. We will need additional capital to fully implement our business, operating and development plans. However, additional funding from an alternate source or sources may not be available to us on favorable terms, if at all. To the extent that money is raised through the sale of our securities, the issuance of those securities could result in dilution to our existing security holders. If we raise money through debt financing or bank loans, we may be required to secure the financing with some or all of our business assets, which could be sold or retained by the creditor should we default in our payment obligations. If we fail to raise sufficient funds, we would have to curtail or cease operations.
Management has developed what it believes is a viable plan to continue as a going concern. TheHowever, the plan relies upon our ability to obtain additional sources of capital and financing. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
To become and remain profitable, we must succeed in developing and commercializing products that generate significant income. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our drug candidates, discovering additional drug candidates, obtaining regulatory approval for these drug candidates manufacturing, marketing and selling any products for which we may obtain regulatory approval, and establishing and managing our collaborations at various stages of each candidate’s development. We are only in the preliminary stages of many of these activities. We may never succeed in these activities and, even if we do, may never generate income that is significant enough to achieve profitability. Because of the numerous risks and uncertainties associated with pharmaceutical and dietary supplement product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the U.S. Food and Drug Administration, or FDA, or the European Medicines Agency, or EMA, to perform studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our drug candidates, our expenses could increase and revenue could be further delayed. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment. We arehave a company with limited operating history, which makes it difficult to evaluate our current business and future prospects.
We are a company with limited operating history, and our operations are subject to all of the risks inherent in establishing a new business enterprise. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the formation of a new business, the development of new technologies or those subject to clinical testing, and the competitive and regulatory environment in which we will operate. WeAlthough we have made initial sales of our SUGARDOWN® product as a dietary supplement and, while we expect to continue selling or licensing that product, we have no other products currently available for sale, and none are expected to be commercially available for at least eighteen months,before 2017, if at all. We may never obtain Food and Drug Administration (“FDA”)FDA or EMA approval of our products in development and, even if we do so and are also able to commercialize our products, we may never generate revenue sufficient to become profitable. Our failure to generate revenue and profit would likely cause our securities to decrease in value and/or become worthless. AdditionalWe will require additional financing required to implement our business plan, which may not be available on favorable terms or at all, and we may have to accept financing terms that would adversely affectplace restrictions on us.
We presently have an immediate need for capital, and if we do not raise capital in this offering or otherwise, we may be forced to curtail operations and our shareholders.
business might fail. We anticipate that our cash resources will be sufficient to fund our planned operations only for the next several weeks. Even if we are able to raise near term capital in this offering, we will need to continue to conduct significant research, development, testing and regulatory compliance activities for IPOXYN and to a lesser degree on PAZ320BTI-320 that, together with projected general and administrative expenses, we expect will result in operating losses for the foreseeable future. We may not generate sales or other revenue from SUGARDOWN® alone to fund operations and will remain dependent on outside sources of financing until that time and we will need to raise funds from additional financing. We have no commitments for any financing at this time, and any financing commitments may result in dilution to our existing stockholders. We may have difficulty obtaining additional funding, and we may have to accept terms that would adversely affect our stockholders. For example, the terms of any future financings may impose restrictions on our right to declare dividends or on the manner in which we conduct our business. Additionally, we may raise funding by issuing convertible notes, which if converted into shares of our common stock would dilute our then shareholders’ interests. Lending institutions or private investors may impose restrictions on a future decision by us to make capital expenditures, acquisitions or significant asset sales. If we are unable to raise additional funds, we may be forced to curtail or even abandon our business plan.
Our ability to grow and compete in the future will be adversely affected if adequate capital is not available.
The ability of our business to grow and compete depends on the availability of adequate capital, which in turn depends in large part on our cash flow from operations and the availability of equity and debt financing. Our cash flow from operations may not be sufficient or we may not be able to obtain equity or debt financing on acceptable terms or at all to implement our growth strategy. As a result, adequate capital may not be available to finance our current growth plans, take advantage of business opportunities or respond to competitive pressures,pressures. If we are unable to raise additional funds, we may be forced to curtail or even abandon our business plan.
Until such time, if ever, as we can generate substantial product income, we expect to finance our cash needs through a combination of equity offerings, debt financings and license and collaboration agreements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. In addition, the terms of any offuture financings may impose restrictions on our right to declare dividends or on the manner in which could harmwe conduct our business. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or making acquisitions or significant asset sales.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us and/or that may reduce the value of our common stock. Our products are based on novel, unproven technologies.
Our drug candidates in development are based on novel, unproven technologies using proprietary carbohydrate compounds in combination with FDA approved drugs currently used in the treatment of diabetes, ischemia, anemia and trauma and other diseases. Carbohydrates are difficult to synthesize, and we may not be able to synthesize carbohydrates that would be usable as delivery vehicles for the anti-hypoxia drugs we are working with or other therapeutics we intend to develop. Although we have completed certain animal and human studies that we believe were successful, pre-clinical results in animal studies are not necessarily predictive of outcomes in subsequent human clinical trials. Clinical trials are expensive, time-consuming and may not be successful. They involve the testing of potential therapeutic agents, or effective treatments, in humans, typically in three phases, to determine the safety and efficacy of the products necessary for an approved drug. Many products in human clinical trials fail to demonstrate the desired safety and efficacy characteristics. Even if our products progress successfully through initial or subsequent human testing, they may fail in later stages of development. We may engage others to conduct our clinical trials, including clinical research organizations and, possibly, government-sponsored agencies. These trials may not start or be completed as we forecast, or may not achieve desired results. Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates. All our drug candidates are unproven and their risk of failure is high. It is impossible to predict when or if our drug candidates will receive regulatory approval or, in the case of IPOXYN, prove effective and safe in humans. Before obtaining marketing approval from regulatory authorities for the sale of any drug candidate, we must conduct extensive clinical trials and, in the case of IPOXYN, first complete preclinical development, to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failed clinical trial can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their drug candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our drug candidates, including: | · | regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; |
| · | we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; |
| · | clinical trials of our drug candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs; |
| · | the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; |
| · | our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; |
| · | we may have to suspend or terminate clinical trials of our drug candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks; |
| · | regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; |
| · | the cost of clinical trials of our drug candidates may be greater than we anticipate; |
| · | the supply or quality of our drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate; |
| · | our drug candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate the trials; and |
| · | regulators may revise the requirements for approving our drug candidates, or such requirements may not be as we anticipate. |
If we are required to conduct additional clinical trials or other testing of our drug candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: | · | be delayed in obtaining marketing approval for our drug candidates; |
| · | not obtain marketing approval at all, which would seriously impair our viability; |
| · | obtain marketing approval in some countries and not in others; |
| · | obtain approval for indications or patient populations that are not as broad as we intend or desire; |
| · | obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; |
| · | be subject to additional post-marketing testing requirements; or |
| · | have the product removed from the market after obtaining marketing approval. |
We are planning to continue Phase II clinical trials and initiate Phase III clinical trials for BTI-320. In addition, we plan to initiate pre-clinical studies of IPOXYN. However, we cannot provide any assurance that we will successfully initiate or complete those planned trials and be able to initiate any other clinical trials for any of our drug candidates. The results of our clinical trials could yield negative or ambiguous results. Since BTI-320 and IPOXYN are our most advanced drug candidates, such results could adversely affect future development plans, collaborations and our stock price. Our product development costs will increase if we experience delays in clinical testing or marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our drug candidates or allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our drug candidates and harming our business and results of operations. A fast track, breakthrough therapy or other designation by the FDA may not actually lead to a faster development or regulatory review or approval process. We may seek fast track, breakthrough therapy or similar designation for some of our drug candidates. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA fast track designation. The FDA has broad discretion whether or not to grant this designation, and even if we believe a particular drug candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Additionally, we may in the future seek a breakthrough therapy designation for some of our product candidates that reach the regulatory review process. A breakthrough therapy is a drug candidate that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and that, as indicated by preliminary clinical evidence, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies by the FDA are eligible for accelerated approval and increased interaction and communication with the FDA designed to expedite the development and review process. As with fast track designation, designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and may determine not to grant such a designation. Even if we receive a breakthrough therapy designation for any of our product candidates, the designation may not result in a materially faster development process, review or approval compared to conventional FDA procedures. Further, obtaining a breakthrough therapy designation does not assure or increase the likelihood of the FDA’s approval of the applicable product candidate. In addition, even if one or more of our product candidates qualifies as a breakthrough therapy, the FDA could later determine that those products no longer meet the conditions for the designation or determine not to shorten the time period for FDA review or approval. In addition, we may seek to avail ourselves of the FDA’s 505(b)(2) approval procedure where it is appropriate to do so. Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act permits an applicant to file a new drug application (or NDA) with the FDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon published literature and the FDA’s findings of safety and effectiveness based on certain preclinical testing or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. If this approval pathway is not available to us with respect to a particular formulation or product, or at all, the time and cost associated with developing and commercializing such formulations or products may be prohibitive and our business strategy would be materially and adversely affected. We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials. We currently use third-party clinical research organizations, or CROs, to conduct our planned clinical trials and do not plan to independently conduct clinical trials of our other drug candidates. We rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct and manage our clinical trials. These agreements might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that would delay our product development activities.
Our reliance on these third parties for research and development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with regulatory standards, commonly referred to as good clinical practices, or GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Other countries’ regulatory agencies also have requirements for clinical trials with which we must comply. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our drug candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our drug candidates. We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our drug candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue. If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented. We may not be able to initiate or continue clinical trials for our drug candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States, such as the EMA. In addition, some of our competitors have ongoing clinical trials for drug candidates that treat the same indications as our drug candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ drug candidates. Patient enrollment is affected by other factors including: | · | the severity of the disease under investigation; |
| · | the patient eligibility criteria for the study in question; |
| · | the perceived risks and benefits of the drug candidate under study; |
| · | the efforts to facilitate timely enrollment in clinical trials; |
| · | our payments for conducting clinical trials; |
| · | the patient referral practices of physicians; |
| · | the ability to monitor patients adequately during and after treatment; and |
| · | the proximity and availability of clinical trial sites for prospective patients. |
We are unable to forecast with precision our ability to enroll patients. Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.
If serious adverse or unacceptable side effects are identified during the development of our drug candidates or we observe limited efficacy, we may need to abandon or limit our development of some of our drug candidates. If our drug candidates are associated with undesirable side effects in clinical trials, have limited efficacy or have characteristics that are unexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. We believe our results to date suggest an acceptable safety profile at this stage of development. However, many compounds that initially showed promise in early stage testing for treating diabetes and inflammatory diseases have later been found to cause side effects that prevented further development of the compound. Even if any of our drug candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. Even if any of our drug candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current diabetes are well established in the medical community, and physicians may continue to rely on these treatments. In addition, many new drugs have been recently approved and many more are in the pipeline for the same diseases for which we are developing our drug candidates. If our drug candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including: | · | their efficacy, safety and other potential advantages compared to alternative treatments; |
| · | our ability to offer them for sale at competitive prices; |
| · | their convenience and ease of administration compared to alternative treatments; |
| · | the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
| · | the strength of marketing and distribution support; |
| · | the availability of third-party coverage and adequate reimbursement for our drug candidates; |
| · | the prevalence and severity of their side effects; |
| · | any restrictions on the use of our products together with other medications; |
| · | interactions of our products with other medicines patients are taking; and |
| · | inability of certain types of patients to take our products. |
If we are unable to address and overcome these and similar concerns, our business and results of operations could be substantially harmed. If we are unable to establish effective sales, marketing and distribution capabilities or enter into agreements with third parties with such capabilities, we may not be successful in commercializing our drug candidates if and when they are approved. We do not have a sales or marketing infrastructure and have limited experience in the sale, marketing or distribution of our products. To achieve commercial success for any product for which we obtain marketing approval, we will need to successfully establish and maintain relationships with third parties to perform sales and marketing functions, such as Benchworks SD and Advance Pharmaceutical. In the future, we may build a focused sales and marketing infrastructure to market or co-promote some of our drug candidates in the United States and potentially elsewhere. There are risks involved with establishing our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a drug candidate or dietary supplement for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include: | · | our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; |
| · | the inability of sales personnel to obtain access to or educate physicians on the benefits of our products; |
| · | the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; |
| · | unforeseen costs and expenses associated with creating an independent sales and marketing organization; |
| · | inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies; and |
| · | inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies. |
Currently, we rely on third parties to sell, market and distribute our drug candidates. We may not be successful in entering into, or maintaining, arrangements with such third parties or may be unable to do so on terms that are favorable to us. In addition, our product revenues and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market, sell and distribute any products that we develop ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our drug candidates. If we are unable to convince physicians as to the benefits of our proposed products, we may incur delays or additional expense in our attempt to establish market acceptance. Broad use of our proposed products may require physicians to be informed regarding our proposed products and the intended benefits. Inability to carry out this physician education process may adversely affect market acceptance of our proposed products. We may be unable to timely educate physicians regarding our proposed products in sufficient numbers to achieve our marketing plans or to achieve product acceptance. Any delay in physician education may materially delay or reduce demand for our products. In addition, we may expend significant funds toward physician education before any acceptance or demand for our proposed products is created, if at all.
We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do. The development and commercialization of new drug products, particularly in the diabetes sector, is highly competitive. We face competition with respect to our current drug candidates, and will face competition with respect to any drug candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the control of blood sugar and the treatment of diabetes generally. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. A substantial number of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources, established presence in the market and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors.
Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, sales and marketing and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products. We may be unable to commercializecompete in our products.target marketplaces, which could impair our ability to generate revenues, thus causing a material adverse impact on our results of operations.
EvenOur reliance on one product and a limited number of customers for a significant portion of our revenues could materially and adversely affect our results of operations and liquidity.
During the years ended December 31, 2014 and 2013, all of our revenue was generated by sales of our SUGARDOWN® product. Advance Pharmaceutical Company, Ltd., a related party, accounted for 91% and 97%, respectively for the years ended December 31, 2014 and 2013. On May 14, 2014, we entered into an agreement with Benchworks SD, 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. However, if we are unable to expand our currentcustomer base through our new marketing efforts, and anticipated products achieve positive results in clinical trials, we are not able to secure additional business from our existing customer or our sales to this customer decline, our reliance on a limited number of customers may behave a material adverse effect on our business, result of operations, financial condition or liquidity. Furthermore, if we are unable to commercialize them. Potential products may fail to receive necessary regulatory approvals, and such products, along with products that do not require regulatory approval, may be difficult to manufactureany of our pharmaceutical drug candidates, our reliance on a large scale, be uneconomical to produce, fail to achieve market acceptance,single product may have a material adverse effect on our business, result of operations, financial condition or be precluded from commercialization by proprietary rights of third parties. liquidity. Our inability to commercialize our products would substantially impair the viability of our company.
We are dependentsuccess depends upon our two officers for managementability to retain key executives and directionto attract, retain, and motivate qualified personnel, and the loss of these persons could adversely affect our operations and results.
We are highly dependent upon bothon the principal members of our management, scientific and clinical team, including Dr. David Platt, our Chairman and Mr. Ken Tassey for implementationChief Executive Officer. We have not entered into employment agreements with our executive officers and employees and each of our proposed expansion strategy and execution of our business plan. The loss of Dr. Platt or Mr. Tassey could have a material adverse effect upon its results of operations and financial position.them may terminate their employment with us at any time. We do not maintain “key person” life insurance for Dr. Platt, although such insurance policy may not adequately compensate us for the loss of his services.
The loss of the services of our executive officers or Mr. Tassey. other key employees or key members of our scientific or medical advisory boards, could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely and expect to continue to rely to a significant degree on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited. Our lack of operating experience may cause us difficulty in managing our growth which could lead to our inability to implement our business plan.
We have limited experience in marketing and the selling of pharmaceutical products. Any growth of our company will require us to expand our management and our operational and financial systems and controls. If we are unable to do so, our business and financial condition would be materially harmed. If rapid growth occurs, it may strain our operational, managerial and financial resources.
We will depend on third parties to manufacture and market our products and to design trial protocols, arrange for and monitor the clinical trials, and collect and analyze data.
We do not have, and do not now intend to develop, facilities for the manufacture of any of our products for clinical or commercial production. In addition, we are not a party to any long-term agreement with any of our suppliers, and accordingly, we have our products manufactured on a purchase-order basis from one of two primary suppliers. We will need to develop relationships with manufacturers and enter into collaborative arrangements with licensees or have others manufacture our products on a contract basis. We expect to depend on such collaborators to supply us with products manufactured in compliance with standards imposed by the FDA and foreign regulators. In addition, we have limited experience in marketing, sales or distribution, and we recently hired an experienced sales and marketing executive to commercialize our pharmaceutical products.distribution. We currently have an agreement with Advance Pharmaceutical Co. Ltd. to develop markets in Hong Kong, China Macau and South KoreaMacau for SUGARDOWN®. 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. If we develop additional commercial products, we will need to rely on licensees, collaborators, joint venture partners or independent distributors to market and sell those products and we may need to rely on additional third parties to market our products.
Moreover, as we develop products eligible for clinical trials, we contract with independent parties to design the trial protocols, arrange for and monitor the clinical trials, collect data and analyze data. In addition, certain clinical trials for our products may be conducted by government-sponsored agencies and will be dependent on governmental participation and funding. Our dependence on independent parties and clinical sites involves risks including reduced control over the timing and other aspects of our clinical trials.
We are exposed to product liability, pre-clinical and clinical liability risks which could place a substantial financial burden upon us, should we be sued.
Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. Such claims may be asserted against us. In addition, the use in our clinical trials of pharmaceutical formulations and products that our potential collaborators may develop and the subsequent sale of these formulations or products by us or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations. We currently maintain product liability insurance for SUGARDOWN®SUGARDOWN®. There is no guarantee that such insurance will provide adequate coverage against our potential liabilities. Since we do not currently have any FDA-approved products or other formulations, we do not currently have any other product liability insurance covering commercialized products. We may not be able to obtain or maintain adequate product liability insurance, when needed, on acceptable terms, if at all, or such insurance may not provide adequate coverage against our potential liabilities. Furthermore, our current and potential partners with whom we have collaborative agreements or our future licensees may not be willing to indemnify us against these types of liabilities and may not themselves be sufficiently insured or have sufficient liquidity to satisfy any product liability claims. Claims or losses in excess of any product liability insurance coverage that may be obtained by us could have a material adverse effect on our business, financial condition and results of operations. In addition, we may be unable to obtain or to maintain clinical trial or directors and officer’s liability insurance on acceptable terms, if at all. Any inability to obtain and/or maintain insurance coverage on acceptable terms could prevent or limit the commercialization of any products we develop.
If users of our proposed products are unable to obtain adequate reimbursement from third-party payers or if new restrictive legislation is adopted, market acceptance of our proposed products may be limited and we may not achieve revenues.
The continuing efforts of government and insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners and the availability of capital. For example, in certain international markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the U.S., given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could materially harm our business, financial condition and results of operations.
Our ability to commercialize our proposed products will depend in part on the extent to which appropriate reimbursement levels for the cost of our proposed formulations and products and related treatments are obtained by governmental authorities, private health insurers and other organizations, such as HMOs. Third-party payers are increasingly challenging the prices charged for medical drugs and services. Also, the trend toward managed health care in the U.S. and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and drugs, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for or rejection of our products.
There are risks associated with our reliance on third parties for marketing, sales and distribution infrastructure and channels.
We expect that we will be required to enterhave entered into agreements with commercial partners to engage in sales, marketing and distribution efforts around our products in development. We may be unable to maintain these third-party relationships, or establish or maintain third-partynew relationships, on a commercially reasonable basis, if at all. In addition, these third parties may have similar or more established relationships with our competitors. If we do not enter into or maintain relationships with third parties for the sales and marketing of our proposed products, we will need to develop our own sales and marketing capabilities.
We may be unable to engage qualified distributors. Even Furthermore, even if engaged, these distributors may:
● | · | fail to satisfy financial or contractual obligations to us; |
● fail to adequately market our products;
● cease operations with little or no notice to us; or | · | fail to adequately market our products; |
●
| · | cease operations with little or no notice to us; or |
| · | offer, design, manufacture or promote competing formulations or products. |
If we fail to develop sales, marketing and distribution channels, we could experience delays in generating sales and incur increased costs, which would harm our financial results.
We will be subject to risks if we seek to develop our own sales force.
If we choose at some point to develop our own sales and marketing capability, our experience in developing a fully integrated commercial organization is limited. If we choose to establish a fully integrated commercial organization, we will likely incur substantial expenses in developing, training and managing such an organization. We may be unable to build a fully integrated commercial organization on a cost effective basis, or at all. Any such direct marketing and sales efforts may prove to be unsuccessful. In addition, we will compete with many other companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete against these other companies. We may be unable to establish a sufficient sales and marketing organization on a timely basis, if at all. If we are unable
Risks Related to convince physicians as to the benefits of our proposed products, we may incur delays or additional expense in our attempt to establish market acceptance.
Broad use of our proposed products may require physicians to be informed regarding our proposed products and the intended benefits. Inability to carry out this physician education process may adversely affect market acceptance of our proposed products. We may be unable to timely educate physicians regarding our proposed products in sufficient numbers to achieve our marketing plans or to achieve product acceptance. Any delay in physician education may materially delay or reduce demand for our products. In addition, we may expend significant funds toward physician education before any acceptance or demand for our proposed products is created, if at all.Our Industry
RISKS RELATED TO OUR INDUSTRY
We will need regulatory approvals to commercialize our products as drugs.
If we choose to offer PAZ320,BTI-320, IPOXYN, or any other product as a drug, we are required to obtain approval from the FDA to sell our products in the U.S. and from foreign regulatory authorities to sell our products in other countries. The FDA’s review and approval process is lengthy, expensive and uncertain. Extensive pre-clinical and clinical data and supporting information must be submitted to the FDA for each indication for each product candidate to secure FDA approval. Before receiving FDA clearance to market our proposed products, we will have to demonstrate that our products are safe and effective on the patient population and for the diseases that are to be treated. Clinical trials, manufacturing and marketing of drugs are subject to the rigorous testing and approval process of the FDA and equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and medical devices. As a result, regulatory approvals can take a number of years or longer to accomplish and require the expenditure of substantial financial, managerial and other resources. The FDA could reject an application or require us to conduct additional clinical or other studies as part of the regulatory review process. Delays in obtaining or failure to obtain FDA approvals would prevent or delay the commercialization of our product candidates, which would prevent, defer or decrease our receipt of revenues. In addition, if we receive initial regulatory approval, our product candidates will be subject to extensive and rigorous ongoing domestic and foreign government regulation.
Data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory clearances.
Data already obtained, or in the future obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that will be obtained from later pre-clinical studies and clinical trials. Moreover, pre-clinical and clinical data is susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a proposed formulation or product under development could delay or prevent regulatory clearance of the potential drug, resulting in delays to commercialization, and could materially harm our business. Our clinical trials may not demonstrate sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our drugs, and thus our proposed drugs may not be approved for marketing.
Our competitive position depends on protection of our intellectual property.
Development and protection of our intellectual property are critical to our business. All of our intellectual property has been invented and/or developed or co-developed by our CEO, Dr. David Platt. If we do not adequately protect our intellectual property, competitors may be able to practice our technologies. Our success depends in part on our ability to obtain patent protection for our products or processes in the U.S. and other countries, protect trade secrets, and prevent others from infringing on our proprietary rights. Since patent applications in the U.S. are maintained in secrecy for at least portions of their pendency periods (published on U.S. patent issuance or, if earlier, 18 months from earliest filing date for most applications) and since other publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we are the first to make the inventions to be covered by our patent applications. The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it will allow in biotechnology patents.
Some or all of our patent applications may not issue as patents or the claims of any issued patents may not afford meaningful protection for our technologies or products. In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated or circumvented. Patent litigation is widespread in the biotechnology industry and could harm our business. Litigation might be necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights, and we may not have the required resources to pursue such litigation or to protect our patent rights.
Although we will require our scientific and technical employees and consultants to enter into broad assignment of inventions agreements, and all of our employees, consultants and corporate partners with access to proprietary information to enter into confidentiality agreements, these agreements may not be honored. Currently, we do not have any scientific or technical employees. We have consultants and a network of uniquely experienced researchers, clinicians and drug developers, some of whom have signed or been asked to sign agreements.
Products we develop could be subject to infringement claims asserted by others.
We cannot assure that products based on our patents or intellectual property that we license from others will not be challenged by a third party claiming infringement of its proprietary rights. If we were not able to successfully defend our patents that may be issued to us, that we may acquire, or licensed rights,that we may license in the future, we may have to pay substantial damages, possibly including treble damages, for past infringement.
We face intense competition in the biotechnology and pharmaceutical industries.
The biotechnology and pharmaceutical industries are intensely competitive. We face direct competition from U.S. and foreign companies focusing on pharmaceutical products, which are rapidly evolving. Our competitors include major multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions. Many of these competitors have greater financial and other resources, larger research and development staffs and more effective marketing and manufacturing organizations, than we do. In addition, academic and government institutions are increasingly likely to enter into exclusive licensing agreements with commercial enterprises, including our competitors, to market commercial products based on technology developed at such institutions. Our competitors may succeed in developing or licensing technologies and products that are more effective or less costly than ours, or succeed in obtaining FDA or other regulatory approvals for product candidates before we do. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial, marketing, manufacturing and other resources.
The market for our proposed products is rapidly changing and competitive, and new drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain competitive.
The pharmaceutical and biotechnology industries are subject to rapid and substantial technological change. Developments by others may render our proposed products noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase.
As a company with nominal revenues engaged in the development of drug technologies, our resources are limited and we may experience technical challenges inherent in such technologies. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competition. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic effects compared to our proposed products. Our competitors may develop drugs that are safer, more effective or less costly than our proposed products and, therefore, present a serious competitive threat to us. The potential widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our proposed products, even if commercialized. Many of our targeted diseases and conditions can also be treated by other medication. These treatments may be widely accepted in medical communities and have a longer history of use. The established use of these competitive drugs may limit the potential for our technologies, formulations and products to receive widespread acceptance if commercialized.
Health care cost containment initiatives and the growth of managed care may limit our returns.
Our ability to commercialize our products successfully may be affected by the ongoing efforts of governmental and third-party payers to contain the cost of health care. These entities are challenging prices of health care products and services, denying or limiting coverage and reimbursement amounts for new therapeutic products, and for FDA-approved products considered experimental or investigational, or which are used for disease indications without FDA marketing approval.
Even if we succeed in bringing any products to the market, they may not be considered cost-effective and third-party reimbursement might not be available or sufficient. If adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our investment in research and product development. In addition, legislation and regulations affecting the pricing of pharmaceuticals may change in ways adverse to us before or after any of our proposed products are approved for marketing.
Risks Related to Our Intellectual Property If we are unable to obtain and maintain patent protection for our products, or if the scope of the patent protection obtained is not sufficiently broad, competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be impaired. Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our proprietary products. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our drug candidates. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States and we may fail to seek or obtain patent protection in all major markets. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned patents or pending patent applications, or that we were the first to file for patent protection of such inventions, nor can we know whether those from whom we license patents were the first to make the inventions claimed or were the first to file. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or U.S. PTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition. Moreover, we may be subject to a third-party preissuance submission of prior art to the U.S. PTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future drug candidates. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical products, or limit the duration of the patent protection of our products. Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and ultimately unsuccessful. Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly, which could adversely affect us. Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business. Our commercial success depends upon our ability to develop, manufacture, market and sell our drug candidates without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. While no such litigation has been brought against us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our products or use of our products do not infringe third-party patents. It is also possible that we have failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing, which is referred to as the priority date. Therefore, patent applications covering our products or technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our products or the use of our products. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including inter parties review, interference, or derivation proceedings before the U.S. PTO and similar bodies in other countries. Third parties may assert infringement claims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our drug candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements. Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business. We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property. Many of our employees or contractors were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims. In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management. Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. In addition to seeking patents for some of our technology and drug candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also seek to enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Our trade secrets may also be obtained by third parties by other means, such as breaches of our physical or computer security systems. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
Risks Relating to this Offering and Ownership of Our Common Stock
Stock prices for pharmaceuticalBecause there is no minimum number of shares that we must sell in this offering, we may not raise sufficient capital to implement our planned business and biotechnology companiesyour entire investment could be lost.
We are volatile.offering up to $5 million of shares of common stock and warrants on a “best-efforts basis” and there is no minimum number of securities that we must sell. 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. We may close this offering having raised substantially less than $5 million, which could leave us without capital to fund our near or longer term operations. In the event that we do not raise sufficient capital to implement our planned operations, your entire investment could be lost.
The market price for securities of pharmaceutical and biotechnology companies historically has beenour common stock may be highly volatile, and you could lose all or part of your investment. The trading price of our common stock is likely to be volatile. This volatility may prevent you from being able to sell your shares at or above the price you paid for your shares. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include: | · | any adverse results or delays in commencement or completion of our planned clinical trials for BTI-320 or IPOXYN; |
| · | changes in laws or regulations applicable to SUGARDOWN®, BTI-320 or IPOXYN or any future product candidates, including but not limited to clinical trial requirements for approvals; |
| · | unanticipated serious safety concerns related to the use of SUGARDOWN®, BTI-320 or IPOXYN or any future product candidates; |
| · | a decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial; |
| · | our inability to obtain adequate product supply for SUGARDOWN®, BTI-320 or IPOXYN or any future product candidate, or the inability to do so at acceptable prices; |
| · | adverse regulatory decisions; |
| · | the introduction of new products or technologies offered by us or our competitors; |
| · | the effectiveness of our or our potential partners' commercialization efforts; |
| · | the inability to effectively manage our growth; |
| · | actual or anticipated variations in quarterly operating results; |
| · | our failure to meet or exceed the estimates and projections of the investment community; |
| · | the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community; |
| · | the overall performance of the U.S. equity markets and general political and economic conditions; |
| · | developments concerning our sources of manufacturing supply and any commercialization partners; |
| · | announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; |
| · | disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; |
| · | additions or departures of key scientific or other consultants or management personnel; |
| · | adverse market reaction to any indebtedness we may incur or securities we may issue in the future; |
| · | sales of our common stock by our stockholders in the future; |
| · | significant lawsuits, including patent or stockholder litigation; |
| · | changes in the market valuations of similar companies; |
| · | the trading volume of our common stock; |
| · | effects of natural or man-made catastrophic events or other business interruptions; and |
| · | other events or factors, many of which are beyond our control. |
In addition, the stock market from time-to-time hasin general, and the stock of biotechnology companies in particular, have experienced significantextreme price and volume fluctuations that arehave often been unrelated or disproportionate to the operating performance of suchthese companies. Fluctuations inBroad market and industry factors may negatively affect the tradingmarket price or liquidity of our common stock, may adversely affect, among other things, the interest inregardless of our stock by purchasers on the open market and our ability to raise capital.
actual operating performance.
We have a limited market for our common stock, which makes our securities very speculative.
Trading activity in our Common Stockcommon stock is and has been limited. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of our Common Stock.common stock. There can be no assurance that a more active market for our Common Stockcommon stock will develop, or if one should develop, there is no assurance that it will be sustained. This could severely limit the liquidity of our Common Stock,common stock, and would likely have a material adverse effect on the market price of our Common Stockcommon stock and on our ability to raise additional capital. Our management will have broad discretion in how we use the net proceeds of this offering. Our management will have considerable discretion over the use of proceeds from this offering. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used in a manner which you may consider most appropriate. Furthermore, you will have no direct say on how our management allocates the net proceeds of this offering. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.
The warrants issued in this offering may not have any value. The warrants to be issued in this offering have an exercise price of $0.30 per share and expire 5 years after the date of issuance. In the event that our common stock price does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value.
There is no public market for the warrants being sold in this offering, and no such market is expected to develop. There is no established public trading market for the warrants being offered in this offering, and we do not expect a market to develop. We do not intend to apply for listing of any such warrants on any securities exchange or other trading market. Without an active market, the liquidity of the warrants will be limited.
Holders of our warrants will have no rights as common stockholders until they acquire our common stock.
Until you acquire shares of our common stock upon exercise of your warrants issued as part of this offering, you will have no rights with respect to our common stock. Upon exercise of your warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date. The financial and operational projections that we may make from time to time are subject to inherent risks. The projections that we provide herein or our management may provide from time to time (including, but not limited to, those relating to potential peak sales amounts, clinical and regulatory timelines, production and supply matters, commercial launch dates, and other financial or operational matters) reflect numerous assumptions made by management, including assumptions with respect to our specific as well as general business, regulatory, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections themselves, will prove inaccurate. There may be differences between actual and projected results, and actual results may be materially different from than those contained in the projections. The inclusion of the projections in this prospectus should not be regarded as an indication that we, our management, considered or consider the projections to be a guaranteed prediction of future events, and the projections should not be relied upon as such. You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future. You will incur immediate and substantial dilution as a result of this offering. After giving effect to the sale by us of up to 25,000,000 shares of common stock offered in this offering at the assumed public offering price of $0.20 per share, and after deducting estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $0.13 per share, or 67%, at the assumed public offering price. In addition, in the past, we issued warrants to acquire shares of common stock. To the extent that these warrants, or options we will grant to our officers, directors and employees, are ultimately exercised, you will sustain future dilution. We may also acquire or license other technologies or finance strategic alliances by issuing equity, which may result in additional dilution to our stockholders. An investment in our company may involve tax implications, and you are encouraged to consult your own advisors as neither we nor any related party is offering any tax assurances or guidance regarding our company or your investment. The formation of our company and our financings, as well as an investment in our company generally, involves complex federal, state and local income tax considerations. Neither the Internal Revenue Service nor any State or local taxing authority has reviewed the transactions described herein, and may take different positions than the ones contemplated by management. You are strongly urged to consult your own tax and other advisors prior to investing, as neither we nor any of our officers, directors or related parties is offering you tax or similar advice, nor are any such persons making any representations and warranties regarding such matters. Our ability to use our net operating loss carry-forwards and certain other tax attributes may be limited. Under Section 382 of the Internal Revenue Code of 1986, as amended, referred to as the Internal Revenue Code, if a corporation undergoes an "ownership change" (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation's ability to use its pre-change net operating loss carry-forwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We believe that, with this offering, taken together with our private placements within a three-year period and other transactions that have occurred over the past three years, we may have triggered an "ownership change" limitation. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership, including as a result of the completion of this offering when it is taken together with other transactions we may consummate in the succeeding three-year period. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carry-forwards to offset U.S. federal taxable income may be subject to limitations, which potentially could result in increased future tax liability to us. Investors may face significant restrictions on the resale of our common stock due to federal regulation of penny stocks.
Our Common Stockcommon stock is currently quoted on the OTCQB under the symbol BTHE. Our Common Stockcommon stock is subject to the requirements of Rule 15(g)-9 promulgated under the Securities Exchange Act, asso long as the price of our common stock is below $5.00 per share.share and our common stock is not listed on a U.S. national securities exchange. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser'spurchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the Commission defines a penny stock as any equity security not traded on a national exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.
We have not paid any cash dividends in the past and have no plans to issue cash dividends in the future, which could cause the value of our common stock to have a lower value than other similar companies which do pay cash dividends.
We have not paid any cash dividends on our Common Stockcommon stock to date and do not anticipate any cash dividends being paid to holders of our Common Stockcommon stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that any earnings will be retained to finance our future expansion. As we have no plans to issue cash dividends in the future, our Common Stockcommon stock could be less desirable to other investors and as a result, the value of our Common Stockcommon stock may decline, or fail to reach the valuations of other similarly situated companies who have historically paid cash dividends in the past.
Our stock price may be volatile.
The market for our Common Stock is subject to wide fluctuations in response to several factors, including, but not limited to:
(1) actual or anticipated variations in our results of operations;
(2) our ability or inability to generate new revenues;
(3) increased competition;
(4) conditions and trends in the pharmaceutical industry and/or the market for our pharmaceutical products in general; and
(5) changes in regulatory policies.
Further, our Common Stock is traded on the over the counter bulletin board, as is our intention, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock.
Future sales of our securities, or the perception in the markets that these sales may occur, could depress our stock price. AsNot including up to 12,500,000 warrants to purchase shares of November 4, 2013our common stock which may be sold in this offering, as of April 21, 2015, we had issued and outstanding approximately (i) 37,138,40638,597,008 shares of Common Stock,common stock, (ii) Investor Warrants and Placement Agent Warrantswarrants issued to the investors in our 2013 private placement collectively exercisable for 10,638,3338,829,484 shares of Common Stock,common stock (the “Investor Warrants”), (iii) warrants issued to the placement agent for our 2013 private placement exercisable for 1,716,849 shares of common stock (the "Placement Agent Warrants"), (iv) other warrants exercisable for 995,0001,878,336 shares of Common Stock,common stock, (v) a warrant issued in conjunction with our recent convertible debt financing for 979,965 shares of common stock, and (iv)(vi) outstanding stock options collectively exercisable for 5,886,4008,192,400 shares of Common Stock.common stock. These securities will be eligible for public sale only if registered under the Securities Act or if the stockholder qualifies for an exemption from registration under Rule 144 or other applicable exemption. We believe that our stockholders are currently entitled to sell our shares pursuant to Rule 144 to the extent they satisfy the conditions thereunder. An aggregate of 17,659,007 shares of outstanding Common Stockcommon stock and 10,638,3338,829,484 shares of Common Stockcommon stock issuable upon exercise of outstanding Investor Warrants and Placement Agent Warrants are being registered for resale in this prospectus.resale. The market price of our capital stock could drop significantly if the holders of the shares being registered hereunder sell them or are perceived by the market as intending to sell them. Moreover, to the extent that additional shares of our outstanding stock are registered, or otherwise become eligible for resale, and are sold, or the holders of such shares are perceived as intended to sell them, this could further depress the market price of our Common Stock.common stock. These factors could also make it more difficult for us to raise capital or make acquisitions through the issuance of additional shares of our Common Stockcommon stock or other equity securities.
Conversion of promissory note or outstanding warrants may dilute the ownership interest of other stockholders.
To the extent we issue shares of common stock upon conversion of any of the four convertible promissory note agreements executed in March 2015, with an aggregate principal total of $479,000, or the warrant executed for 979,965 shares of common stock in conjunction with one of these agreements, the conversion of some or all of the promissory note and warrant agreements will dilute the ownership interests of other stockholders. Any sales in the public market of shares of the common stock issuable upon such conversion could adversely affect prevailing market prices of shares of our common stock. Furthermore, if our stock price decreases or other triggering events described in the promissory note agreements occur, then the number of shares issuable pursuant to these agreements may be adjusted, and existing stockholders would experience greater dilution. In addition, the existence of the promissory note agreements may encourage short selling by market participants because the conversion of the promissory note agreements could depress the price of shares of our common stock. The right of the investors in our recent convertible debt financings to potentially receive additional shares of our common stock based on future public prices of our common stock could have a negative impact on our common stock price and could impair our ability to raise capital. Pursuant to the terms of our March 2015 convertible note financings, we may potentially be required to issue additional shares of common stock (which we call the Adjustment Shares) at specified times to such investors. The Adjustment Shares generally must be issued in the event that the price per share of common stock at the time we issued such notes or at the time that such investors convert their notes into shares of our common stock is greater than the price per share of our common stock, or a percentage thereof, on a later date. Additionally, the convertible notes and the warrants issued in connection therewith are subject to full-ratchet anti-dilution adjustment in the event that we issue equity-based securities in the future at a price per share lower than the applicable conversion price or exercise price. Since the right to receive additional shares would be based on our public stock price, the existence of these rights could have a negative impact on our public stock price. Moreover, the existence of these rights could materially impair our ability to obtain financing, which would have a material adverse effect on our business and viability.
The right of the investors in certain of our recent convertible debt financings to participate in future financings of ours could impair our ability to raise capital.
Under the note purchase agreements with certain of the investors in our recent convertible debt financings, in the event that we seek to raise money through the offer and sale of debt or equity securities under specified circumstances, we must first offer such investors a right to participate in at least a portion of the securities we propose to offer in such funding. The existence of such right of participation, or the exercise of such rights, may in the deter potential investors from providing us needed financing, or may deter investment banks from working with, which would have a material adverse effect on our ability to finance our company.
We have establishedOur Certificate of Incorporation permits “blank check” preferred stock, which can be designated by the Company’s boardour Board of directorsDirectors without shareholderstockholder approval.
The Company hasWe have 5,000,000 authorized 5,000,000 shares of preferred stock. The shares of our preferred stock of the Company may be issued from time to time in one or more series, each of which shall have a distinctive designation or title as shall beis determined by theour Board of Directors of the Company ("Board of Directors") prior to the issuance of any shares thereof. The preferred stock shallmay 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 adopted by the Board of Directors. Because the Board of Directors is able to designate the powers and preferences of the preferred stock without the vote of a majority of the Company's shareholders, shareholders of the Companyour stockholders, stockholders will have no control over what designations and preferences the Company'sour preferred stock will have. If preferred stock is designated and issued, then depending upon the designation and preferences, the holders of the preferred stock may exercise voting control over the Company.us. As a result, of this, the Company's shareholdersour stockholders will have no control over the designations and preferences of the preferred stock and as a result the operations of the Company.our company.
Our management and fivesix significant shareholdersstockholders collectively own a substantial majority of our common stock.
Collectively, our officers, our directors and fivesix significant shareholdersstockholders own or exercise voting and investment control of approximately 67%69.6% of our outstanding common stock. As a result, investors may be prevented from affecting matters involving the Company,our company, including:
● | · | the composition of our Board of Directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers; |
● any determinations with respect to mergers or other business combinations;
● our acquisition or disposition of assets; and | · | any determinations with respect to mergers or other business combinations; |
●
| · | our acquisition or disposition of assets; and |
| · | our corporate financing activities. |
Furthermore, this concentration of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders. This significant concentration of share ownership may also adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in a company that is controlled by a small number of stockholders.
Certain provisions of Delaware law make it more difficult for a third party to acquire us and make a takeover more difficult to complete, even if such a transaction were in the stockholders’ interest.
The Delaware General Corporation Law contain provisions that may have the effect of making it more difficult or delaying attempts by others to obtain control of the Company,us, even when these attempts may be in the best interests of our stockholders. We also are subject to the anti-takeover provisions of the Delaware General Corporation Law, which prohibit us from engaging in a “business combination” with an “interested stockholder” unless the business combination is approved in a prescribed manner and prohibit the voting of shares held by persons acquiring certain numbers of shares without obtaining requisite approval. The statutes have the effect of making it more difficult to effect a change in control of a Delaware company.
If we fail to establish and maintain an effective system of internal control or disclosure controls and procedures are not effective, we may not be able to report our financial results accurately and timely or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and, depending on our future growth, may require our independent registered public accounting firm to annually attest to our evaluation, as well as issue their own opinion on our internal controls over financial reporting. The process of implementing and maintaining proper internal controls and complying with Section 404 is expensive and time consuming. We cannot be certain that the measures we will undertake will ensure that we will maintain adequate controls over our financial processes and reporting in the future. Furthermore, if we are able to rapidly grow our business, the internal controls that we will need may become more complex, and significantly more resources will be required to ensure our internal controls remain effective. Failure to implement required controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If our auditors or we discover a material weakness in our internal controls, the disclosure of that fact, even if the weakness is quickly remedied, could diminish investors’ confidence in our financial statements and harm our stock price. In addition, non-compliance with Section 404 could subject us to a variety of administrative sanctions, including the suspension of trading, ineligibility for future listing on one of the Nasdaq Stock Markets or national securities exchanges, and the inability of registered broker-dealers to make a market in our common stock, which may reduce our stock price.
Pursuant to Section 404, we are required to include in our annual report on Form 10-K our assessment of the effectiveness of internal controls over financial reporting. Although we believe that we are currently have adequate internal control procedures in place, we cannot be certain that our internal controls over financial reporting will remain effective. If we cannot adequately maintain the effectiveness of our internal controls over financial reporting, we may be subject to liability and/or sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our common stock.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our common stock adversely, the price of our common stock and trading volume could decline. The trading market for our common stock may be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover us was to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common stock or trading volume to decline. In making your investment decision, you should understand that we have not authorized any other party to provide you with information concerning us or this offering. You should carefully evaluate all of the information in this prospectus before investing in our company. We may receive media coverage regarding our company, including coverage that is not directly attributable to statements made by our officers, that incorrectly reports on statements made by our officers or employees, or that is misleading as a result of omitting information provided by us, our officers or employees. We have not authorized any other party to provide you with information concerning us or this offering, and you should not rely on this information in making an investment decision. During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2012 and September 30, 2013, management identified a material weakness in our internal control over financial reporting due to the fact that we did not have a process established to ensure adequate levels of review of accounting and financial reporting due to the fact that we did not have a process established to ensure adequate levels of review of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments in a timely fashion. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with any policies and procedures may deteriorate.
USE OF PROCEEDS
We will not receive any proceeds from the sale of our Common Stock by the selling stockholders. However, we may receive up to an aggregate of approximately $4.7 million (net of the Placement Agent’s fees) from the sale price of any Common Stock we sell to the selling stockholders upon exercise of the outstanding Investor and Placement Agent Warrants, assuming all warrants are exercised for cash.
We anticipate that any net proceeds from the sale of stock we sell to the selling stockholders upon exercise of outstanding warrants will be used for general corporate purposes. Such general purposes may include funding clinical trials, capital expenditures, and any other purposes that we may specify in any prospectus supplement.
SPECIALCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains a number of “forward-looking statements”. Specifically, all statements other than statements of historical facts included in this prospectus regarding our financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. These forward-looking statements are based on the beliefs of management at the time these statements were made, as well as assumptions made by and information currently available to management. When used in this prospectus and the documents incorporated by reference herein, the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “continue” and “intend,” and words or phrases of similar import, as they relate to our financial position, business strategy and plans, or objectives of management, are intended to identify forward-looking statements. These statements reflect our current view with respect to future events and are subject to risks, uncertainties and assumptions related to various factors.
You should understand that the following important factors, in addition to those discussed in our periodic reports to be filed with the SEC under the Exchange Act, could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements:
We may be unable to raise the capital we will need to maintain operations and fulfill our business objectives. | · | We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. |
We are subject to extensive and costly regulation by the FDA, which must approve our product candidates in development and could restrict the sales and marketing of such products in development. | · | We are a company with limited operating history which makes it difficult to evaluate our current business and future prospects. |
We may be unable to achieve commercial viability and acceptance of our proposed products. | · | We will require additional financing to implement our business plan may not be available on favorable terms or at all, and we may have to accept financing terms that would adversely affect our stockholders. |
We may be unable to improve upon, protect and/or enforce our intellectual property. | · | Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our drug candidates and dietary supplements. |
We may be unable to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our proposed product | · | Our products are based on novel, unproven technologies. |
| · | Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates. |
| · | We may be unable to commercialize our drug candidates or expand awareness and sales of our dietary supplement SUGARDOWN®. |
| · | Our success depends upon our ability to retain key executives and to attract, retain, and motivate qualified personnel and direction and the loss of these persons could adversely affect our operations and results. |
| · | We will need regulatory approvals to commercialize our products as drugs. |
| · | Our competitive position depends on protection of our intellectual property. |
| · | The market for our proposed products is rapidly changing and competitive, and new drugs and new treatments which may be developed by others could impair our ability to maintain and grow our business and remain competitive. |
| · | We may become involved in lawsuits to protect or enforce patents that may issue to us, that we may acquire, or may license in the future, or other intellectual property, which could be expensive, time-consuming and ultimately unsuccessful. |
| · | The market price of our common stock may be highly volatile, and you could lose all or part of your investment. |
| · | We have a limited market for our common stock, which makes our securities very speculative. |
We are subject to significant competition.
| · | You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future. |
| · | Our management will have broad discretion in how we use the net proceeds of this offering. |
| · | As a public company, we must implement additional and expensive finance and accounting systems, procedures and controls as we grow our business and organization to satisfy new reporting requirements, which will increase our costs and require additional management resources. |
Although we believe that our expectations (including those on which our forward-looking statements are based) are reasonable, we cannot assure you that those expectations will prove to be correct. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in this prospectus and the documents incorporated by reference hereinour forward-looking statements as anticipated, believed, estimated, expected or intended. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to herein. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus and the documents incorporated by reference herein might not occur.
The amounts USE OF PROCEEDS
Assuming the maximum offering amount of $5 million is sold in this offering, the net proceeds to be received by us from this offering (after deducting offering-related expenses) are estimated to be $4,900,000. We currently expect to use the net proceeds from this offering as follows: | Application of Net Proceeds | | Amount | | | Percentage of Net Proceeds | | | | | | | | | | | BTI-320 Mechanism of Action Validation | | | | | | | | | | | | | | | | | | | IPOXYN Initiate Phase I | | $ | 250,000 | | | | 5% | | | SUGARDOWN® Clinical Trials | | $ | 250,000 | | | | 5% | | | General Research and Development | | $ | 500,000 | | | | 10% | | General and Administrative | | | | | | | | | | | | | | | | | |
In the event that we raise $5 million in gross proceeds in this offering, we expect to have adequate working capital for at least six months. These estimates are made without considering (i) income generated from sales of SUGARDOWN®, or (ii) cash that may be received by us upon the exercise of outstanding warrants and options (including the warrants issued in this offering). If a warrant holder exercises warrants issued in this offering, we will receive proceeds from such exercise (unless the warrants are exercised on a cashless basis). We cannot currently predict when, or if, the warrants will be exercised. It is possible that the warrants may expire and may never be exercised. However, readers are cautioned that we are permitted to close this offering having raised substantially less than $5 million, and there is no minimum amount that we are required to raise in order to close this offering. If we close this offering having raised less than $5 million, we may be unable to allocate the proceeds from the offering as set forth above are estimates, and we cannot be certain that actual costs will not vary from these estimates. The Company’smay only raise enough to maintain operations for a short period of time. Moreover, and notwithstanding the estimations set forth above, our management has significant flexibility and broad discretion in applying the net proceeds received in this Offering. We cannot assure youoffering. Our expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from clinical trials, as well as any collaborations that the Company’s financial performance estimates will prove to be accurate or thatwe may enter into with third parties for our product candidates, and any unforeseen events, problems or delays will not occur that would require us to seek additional debt and/or equity funding, which may not be available on favorable terms, sooner than expected to meet our working capital requirements. See “Risk Factors” If we do not receive additional funding, we will have to curtail or cease operations.cash needs.
Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
DIVIDEND POLICY
To date, weWe have notnever declared or paid any cash dividends on our outstanding shares. We currentlycommon stock and do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future on our common stock. Although we intendfuture. We expect to retain ourall available funds and any future earnings to finance oursupport operations and futurefund the development and growth of our business. Our Board of Directors will have discretion to declaredetermine whether we pay and paythe amount of future dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements and other factors, which our Board of Directors may deem relevant.
LEGAL PROCEEDINGS
From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS, DIRECTORS AND FIVE PERCENT STOCKHOLDERS
The following table sets forth certain information concerning the ownership of the Company's Common Stock as of November 4, 2013, with respect to: (i) each person known to the Company to be the beneficial owner of more than five percent of the Company's Common Stock; (ii) all directors; and (iii) directors and executive officers of the Company as a group. The notes accompanying the information in the table below are necessary for a complete understanding of the figures provided below. As of November 4, 2013, Boston Therapeutics had 37,138,406 shares of Common Stock outstanding. In general, “beneficial ownership” includes those shares that a stockholder has the power to vote or the power to transfer, and stock options and other rights to acquire Common Stock that are exercisable currently or become exercisable within 60 days. Unless otherwise indicated, the address for each person is Boston Therapeutics, Inc.(including cash dividends), 1750 Elm Street, Suite 103, Manchester, NH 03104.
| Name and Address of Beneficial Owner | | Number of Shares | | Percent of Class (1) | | | | | | | | | David Platt (2)** | | | 8,603,585 | (3) | | | 23.01% | (3) | | | | | | | | | | | Kenneth A. Tassey, Jr.(2)** | | | 3,040,000 | | | | 8.19% | | | | | | | | | | | | Jonathan Rome 50 Tice Boulevard Suite A35 Woodcliff Lake, NJ 07677 | | | 3,966,333 | (4) | | | 9.95% | (4) | | | | | | | | | | | Offer Binder Via Armand Fedeli 121 Perugia PG 06132 Italy | | | 2,000,000 | | | | 5.39% | |
Advance Pharmaceutical Company Ltd.(5) Rm A 2- 3F, Dai Fu Street Tai Po Industrial Est. Tai Po, New Territories, Hong Kong | | | 1,799,800 | (5) | | | 4.85% | (5) | | | | | | | | | | | | CJY Holdings Limited | | | 10,749,980 | (6) | | | 26.40% | (6) | | | | | | | | | | | | Idan Sahar | | | 1,999,996 | (7) | | | 5.29% | | | | | | | | | | | | | Dale H. Conaway(2)** | | | 52,100 | (8) | | | *% | | | | | | | | | | | | | Rom E. Eliaz(2)** | | | 28,100 | (9) | | | *% | | | | | | | | | | | | | Henry J. Esber(2)** | | | 49,000 | (10) | | | *% | | | | | | | | | | | | | Carl L. Lueders(2)** | | | 55,000 | (11) | | | *% | | | | | | | | | | | | | All Officers and Directors as a Group (6 persons) | | | 11,827,785 | (12) | | | 31.49% | (12) |
| ** Directors and Officers |
(1) Except as expressly stated, the percentages in the table are based on 37,138,406 shares of common stock outstanding as of November 4, 2013.
(2) The business address for these individuals is 1750 Elm Street, Suite 103, Manchester, NH 03104.
(3) Includes 520,000 shares owned by Dr. Platt's wife and 250,000 shares issuable pursuant to an outstanding stock option within 60 days after November 4, 2013. Excludes 20,000 shares held by Dr. Platt's daughter as to which Dr. Platt disclaims beneficial ownership.
(4) Includes 2,083,333 shares issuable pursuant to an outstanding stock option within 60 days after November 4, 2013. Includes 625,000 shares issuable pursuant to an outstanding warrant to purchase common stock within 60 days after November 4, 2013.
(5) Includes 1,799,800 shares owned by Sugardown Co., LTD., a wholly-owned subsidiary of Advance Pharmaceutical Company Ltd.
(6) Includes 3,583,320 shares issuable pursuant to outstanding warrants to purchase common stock within 60 days after November 4, 2013.
(7) Includes 666,664 shares issuable pursuant to outstanding warrants to purchase Common Stock within 60 days after November 4, 2013.
(8) Includes 50,000 shares issuable pursuant to an outstanding stock option within 60 days after November 4, 2013.
(9) Includes 28,000 shares issuable pursuant to an outstanding stock option within 60 days after November 4, 2013.
(10) Includes 45,000 shares issuable pursuant to an outstanding stock option within 60 days after November 4, 2013.
(11) Includes 55,000 Shares issuable pursuant to an outstanding stock option within 60 days after November 4, 2013.
(12) Includes 520,000 shares owned by Dr. Platt's wife and 428,000 shares issuable pursuant to outstanding stock options within 60 days after November 4, 2013. Excludes 20,000 shares held by Dr. Platt's daughter as to which Dr. Platt disclaims beneficial ownership. if any.
EXECUTIVE COMPENSATIONMARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Holders of Common Stock
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, who hold our common stock in nominee or “street name” accounts through brokers.
Market for Common Stock Our common stock is quoted on the OTCQB Marketplace under the symbol “BTHE” The following table sets forth, information concerning all cashfor the periods indicated, the high and non-cash compensation awarded to, earnedlow sales prices per share of our common stock 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 | | | | | | |
These sales prices were obtained from the OTCQB Marketplace and do not necessarily reflect actual transactions, retail markups, mark downs or paid to (i) all individuals serving as the Company’s principal executive officers or acting in a similar capacity duringcommissions. As of April 21, 2015 the last two completed fiscal years, regardlessreported sales price of compensation level, and (ii)a share of our common stock on the Company’s two most highly compensated executive officers other than the principal executive officers serving at the endOTCQB 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 last two completed fiscal years (collectively, the “Named Executive Officers”).
time. SummaryTransfer 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 TablePlans Name and Principal Position | Year | | Salary | | Bonus | | Stock Awards (2) | | Total Compensation | | David Platt, Ph.D., Chief Executive Officer and Chief Financial Officer | 2012 | | $ | 2,500 | | $ | - | | $ | 72,081 | | $ | 74,581 | | | 2011 | | $ | - | | $ | - | | $ | - | | $ | - | | Kenneth A. Tassey, Jr., President | 2012 | | $ | 37,000 | | $ | - | | $ | - | | $ | 37,000 | | | 2011 | | $ | 19,800 | | $ | - | | $ | - | | $ | 19,800 | | Jonathan Rome, Chief Operating Officer (1) | 2012 | | $ | - | | $ | - | | $ | 1,514,067 | | $ | 1,514,067 | | | 2011 | | $ | - | | $ | - | | $ | - | | $ | - |
(1) Mr. Rome became Chief Operating Officer of the Company in November 2012, and his employment with the Company terminated on September 30, 2013.
(2) Consists of grants of stock options. Details of the options are set forth on the table titled “GRANTS OF PLAN-BASED AWARDS IN FISCAL 2012” below.
Grants of Plan-Based Awards
The following table showsindicates shares of common stock authorized for the fiscal year endedissuance 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, 2012, certain information regarding grants of plan-based awards to the named executive officers.2014: GRANTS OF PLAN-BASED AWARDS IN FISCAL 2012
| | | | | | | | | | | | | | | | | | | | Name | Award Type | | Grant Date | | Approval Date | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Target ($) | | All Other Option Awards: Number of Securities Underlying Options (1) | | | | Exercise or Base Price of Option Awards ($/Sh)(2) | | | Grant Date Fair Value of Stock and Option Awards ($)(3) | | David Platt | Option | | 11/8/12 | | 11/8/12 | | ___ | | 250,000 | | | $ | 0.50 | | | $ | 72,081 | | | | | | | | | | | | | Jonathan Rome | Option | | 11/8/12 | | 11/8/12 | | ___ | | 5,000,000 | (4) | | $ | 0.50 | | | $ | 1,514,067 |
| 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 options were granted with an exercise price equal to 100%Plan (the “2010 Plan”). See Note 6 —“Stock Option Plan and Stock-Based Compensation” of the fair market valueNotes 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 datenumber of grant. The stock options granted in 2012 carry an exercise priceshares of $0.50 per share, the closing price of Boston Therapeutics, Inc.’s common stock on the grant date.issuable to 7,500,000 was approved in September 2013. |
| (2) | The dollar amounts in this column represent the grant date fair valueConsists of each stock option award granted to the named executive officers in 2012. These amounts have been calculated in accordance with ASC 718, using the Black-Scholes option-pricing model. Assumptions used in the calculation of these amounts are included in the notes to Boston Therapeutics, Inc.’s audited financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2012. |
(3) | Annual stock options were granted under our Amended and Restated 2011 Non-Qualified Stock Plan (the “2011 Plan”). |
(4) | At See Note 6 —“Stock Option Plan and Stock-Based Compensation” of the time that Mr. Rome’s employment with the Company was terminated on September 30, 2013, options to purchase 1,666,668 shares were vested. |
Outstanding Equity Awards at December 31, 2012
The following table sets forth, for the fiscal year ended December 31, 2012, certain information regarding outstanding equity awards at fiscal yearend for the named executive officers.
OUTSTANDING EQUITY AWARDS AT 2012 FISCAL-YEAR END TABLE
| | | | | | | | | | | | | | | | | | | | Option Awards | | | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#)(1) Unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | | Name | | | | | | | | David Platt | | | 250,000 | | | | — | | | $ | 0.50 | | | | 11/08/2019 | | | | | | | | Jonathan Rome | | | 416,667 | (1) | | | 4,583,333(1) | | | $ | 0.50 | | | | 11/08/2017 | | | | | | |
(1) | In additionNotes to the specific vesting schedule for each stock option award, each unvested stock option is subjectFinancial Statements included in this prospectus. The 2011 Plan has not been presented to the general terms of the 2011 Plan including the potentialCompany’s stockholders for future vesting acceleration. |
Option Exercises and Stock Vested in 2012
Our Named Executive Officers did not exercise any stock options during fiscal year 2012.
Director Compensation
The following table sets forth all compensation awarded to, earned by or paid to the non-employee directors in 2012 for service as directors:
| Name | | 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 ($) | | Dale H. Conaway, D.V.M | | $ | - | | | | - | | | $ | 5,766 | | | | - | | | | - | | | | - | | $ | 5,766 | | Henry J. Esber, Ph.D. | | $ | - | | | | - | | | $ | 5,766 | | | | - | | | | - | | | | - | | $ | 5,766 | | Rom E. Eliaz | | $ | - | | | | - | | | $ | 5,766 | | | | - | | | | - | | | | - | | $ | 5,766 | | Carl L. Lueders | | $ | - | | | | - | | | $ | 5,766 | | | | - | | | | - | | | | - | | $ | 5,766 |
(1) | The “Option Awards” columntheir consent as it does not reflect non-qualified optionsprovide for the issuance of incentive stock options. An amendment to purchase an aggregateincrease the number of 98,000 shares of the Company’s Common Stock at an exercise price of $0.50 for a period of 7 years granted effective January 1, 2013 and vesting on December 31, 2013 conditioned on the grantee having attended a minimum of 75% of the Board meetingscommon stock issuable to 17,500,000 was approved in 2013 and subject to immediate vesting upon change of control. These grants were made to compensate directors for their service inMarch 2013. |
All compensation paid to our employee directors is set forth in the tables summarizing executive officer compensation above. For the 2012 fiscal year, non-employee directors were each granted a fully vested nonqualified stock option to purchase 20,000 shares of the Company’s common stock at an exercise price of $0.50 per share, which option expires on November 8, 2019, 7 years from the date of grant.
CAPITALIZATION The amounts reported in “Option Awards” represent the aggregate grant date fair valuefollowing table sets forth our cash and cash equivalents and capitalization as of stock options awarded in each year in accordance with Accounting Standards Codification (ASC) Topic 718, Compensation — Stock Compensation (formerly Statement of Financial Accounting Standards (SFAS) No. 123R). Assumptions used in the calculation of these amounts for the fiscal year ended December 31, 2012 are included in Note 5 “Stock Option Plan and Stock-Based Compensation” to the Company’s audited financial statements for the fiscal year ended December 31, 2012 included herein. 2014: The Company cautions 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 the Company’s actual operating performance, stock price fluctuations and the director’s continued service.
| ● | 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 |
Other than the grant of options for 2013 described in theThe table above there are currently no agreements in effect entitling the non-employee directors to compensation.does not include:
Employment Contracts | ● | 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; |
In August 2011, Mr. Tassey entered into an employment contract with the Company, pursuant to which he is engaged to serve as President and Chief Operating Officer for annual compensation in the amount of $36,000. In December 2012, the Company increased Mr. Tassey’s annual compensation to $60,000. The terms of the employment contract include the following: | ● | 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 |
The employment agreement between the Company and Mr. Tassey provides for 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 $30,000 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 $5,000 to Mr. Tassey based on his then 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 benefits on the same basis as employee benefits are generally made available to other senior executives of the Company, including among other items, health, life and disability insurance and participation in any non-discretionary executive bonus or similar plans. | ● | 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 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 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 employment agreement betweenfollowing 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 reduce 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 and Mr. Tassey provides that if hehas completed development of SUGARDOWN®, a complex carbohydrate-based dietary supplement. SUGARDOWN® 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 effectcurrently in the eventinitial 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 agreementlarge pre-diabetic population in North America.
Management is terminated bycurrently seeking additional capital through private placements and public offerings of its common stock. In addition, the Company without cause other thanmay 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 death or disability,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 would resultare 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 a payment of $30,000 to Mr. Tassey based on his current salary level. There are no materialfiscal 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 contract that provide for payments in connectionincreased 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 retirement or other termination of Mr. Tassey or in connection withthe Company’s former President, the institution of an employee medical benefit program and the hiring of a change of control. In Decembernew 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 the Compensation Committee approved
Revenue Revenue for fiscal 2013 was $323,412, an increase of $281,158 as compared to Mr. Tassey’s monthly salary revenue of $42,254 for fiscal 2012. The increase was primarily the result of shipments of SUGARDOWN® to $5,000.one customer. Other thanGross 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 Mr. Tassey described above, there currently are no employment or consulting contracts betweenoption 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 Companyreported amounts of assets 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 Officersliabilities and Directors receive stock optionsdisclosure of contingent assets and liabilities at the discretiondate 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 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.critical accounting policies and estimates. Other than the agreements 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.
Compensation Risk AssessmentOff-Balance Sheet Arrangements
We formeddid 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 Compensation Committee. Priorresult 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 formationdevelopment, 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 committee, compensation decisions, includingtrial is the contract with Mr. Tassey described above, were made bymean change in HbA1c levels from baseline at 24 weeks and will be conducted at a number of international centers located in the full Board. In setting compensation,U.S., Europe, Asia and Australia. Development of IPOXYN is in 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.pre-clinical planning stage. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEIn 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.
ExceptWe were formed on August 24, 2009, as otherwise set forth herein, duringa Delaware corporation under the last two fiscal years,name of Avanyx Therapeutics, Inc. Initially, we have notfocused on our IPOXYN drug candidate. On November 10, 2010, we entered into any material transactions or seriesan Agreement and Plan 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:
Between July 3, 2009 and May 7, 2012, David Platt, the Company’s CEO and CFO and Ken Tassey, President, loaned an aggregate of $297,820 to the Company and, prior to its mergerMerger with the Company, to Boston Therapeutics, Inc., a New Hampshire corporation, (“BTHENH”),which added our BTI-320 drug candidate to fund start-up costs and current operationsour pipeline. The transaction provided for (i) the merger of the Company and BTHENH pursuantNew 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 a series of unsecured promissory notes. The Company assumed BTHENH’s obligations on the notes issued by BTHENH to Dr. Platt when BTHENH merged into the Company 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 eachstockholders of the notes were extended to June 29, 2014. On August 2, 2013, the maturity dates of eachNew Hampshire entity as consideration for 100% of the notes were extendedoutstanding common stock of the New Hampshire, and (iii) the change of our corporate name to June 29, 2015.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®
. DIRECTORS, EXECUTIVE OFFICERS,
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 AND CORPORATE GOVERNANCE 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 Chief Financial Officer Treasurer and Chairman | August 2009 to the Present | | | | November 2010 to the Present
| | | | | | | September 2009 to the Present | | | | | | | September 2009 to the Present | | | | | | | December 2011 to the Present | Carl L. LuedersS. Colin Neill
| | | | | | 63December 2013 to Present
| | | | | | | | | | | | | | September 20092014 to thePresent | | | | | | | September 2014 to Present |
David Platt, Ph.D. is our Chief Executive Officer, Chief Financial Officer, Treasurer and Chairman. He also served as our President from the inception of the Companyour 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.
Kenneth A Tassey, Jr. We believe that Dr. Platt is well qualified to serve as a member of our PresidentBoard of Directors due to his expertise in complex carbohydrate chemistry, leadership and a Director of the Company since November 2010, was President, CEO and co-founder of Boston Therapeutics, Inc., a New Hampshire corporation, from June 2009 until its acquisition by the Company in November 2010. From March 2007 thru March 2009 Mr. Tassey was President of TKCI, a consultant for commercial finance projects. From March 2005 thru June 2007 Mr. Tassey was President of Liberty Shore LLC, a consultant to businesses and commercial and residential lenders. Mr. Tassey has a background in businessextensive management and operations.experience.
Dale H. Conaway, D.V.M., a Director of the Companyour company since September 2009, is the Chief 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.
Dr. Rom E. Eliaz, Ph.D., MBA, a Director of the Companyour 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 CEO of JJ Pharma Inc. since September 2009. He has also been CEO and Managing Director ofProject Management at Intradigm Corporation, which subsequently merged with Silence Therapeutics. Dr. Eliaz then founded Elrom Ventures Corp. since May, a venture capital firm, in 2007, that specializes in the formation, financing and a strategic partner in The Colmen Group since June 2009. From January 2007 to October 2007operational development of medical devices, green Technology and biotechnology-based companies. Dr. Eliaz was a Senior Directoris the author or co-author of Development at Intradigm Corp. From March 2004 to December 2006over 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 was a Directorhas 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 Development at Pfizer Inc. (Rinat Neuroscience).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. HeDr. 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 the Companyour company since December 2011, has been a Principal in Esber D&D consultingConsulting 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 fromin 2006, he was Senior Vice President and Chief Business Officer for Bio-Quant, which he had 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 Boardsscientific 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 the Companyour 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. Carl L. Lueders, S. Colin Neill, a Director of the Companyour company since September 2009,December 2013, became President of Pharmos Corporation in January 2008, and has a broad range of experience in finance, operations, short- and long-term planning, forecasting, performance measurement, SEC reporting, and controls. Mr. Lueders served as Chief Financial Officer, (CFO)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 Micronetics,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. a manufacturer) from May 2007 to October 2011 and from April 2004 to June 2008 on the board of microwave and radio frequency products for commercial wireless, defense and aerospace applications from 2008 until August 2012 at which time Micronetics was sold. Prior to that, he was CFO for Pro-Pharmaceuticals and before that CFO for R.F. Morse & Son, a privately held agri-based company. Prior toOXIS International, Inc. We believe that Mr. Lueders spent 22Neill 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 with publicly held Polaroidserving in various finance positions, including Vice President and Controller, Treasurer and actingsenior financial management roles.
Conroy Chi-Heng Cheng, a Director of our company since December 2013, serves as the Chief Financial Officer.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. Lueders isCheng has a CPA and received his B.A.Bachelor of Arts degree majoring in Economics from the University of Massachusetts at AmherstWestern 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 M.B.A.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 Babson College.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 the shareholders of the Companyour 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, of the Company, they may receive compensation as determined by the Companyour Board of Directors from time to time by vote oftime. Vacancies in the Board of Directors. Vacancies in the BoardDirectors will be filled by majority vote of the remaining directors or in the event that our sole Director vacates his position, by our majority shareholders.stockholders. Our Directors may be reimbursed by the Companyus 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, Chief Financial Officer, Treasurer and Chairman | August 2009 to the Present | Kenneth A. Tassey, Jr.Anthony Squeglia
| | | | | Chief Financial Officer and Secretary | | | November 2010December 2013 to the Present
|
ManagementBiographical information with respect to Dr. Platt is set forth above.
Anthony Squeglia,, Vice President of Strategic Planning,Chief Financial Officer joined the Companyour company in 2012.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 the Company’sthat company’s listing on Amex,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 successfully 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: Edward SheaCharles M. Clark, Jr., Vice PresidentM.D., (Medical Advisor): Dr. Clark is Professor Emeritus of Business Development joinedMedicine at Indiana University Medical Center in Indianapolis. A past president of the Company in 2013 and brings 25 years of bio-pharmaceutical experience in commercial development, marketing and sales, having most recentlyAmerican Diabetes Association, he has served as Sr. Eastern Area Saleschairman 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 ViroPharma, Inc. Mr. Shea's diverse experience includesof 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 15 years320 publications, he is a Fellow of business development, marketingthe American College of Physicians, a Fellow of the Royal College of Physicians of Edinburgh and sales leadership positionsa 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 Glaxo SmithKine and Salix Pharmaceuticals, as well as business development experience with two start up biopharmaceutical companies, ViroPharma and Critical Therapeutics. He holds a B.S in Business/Marketing and an M.B.A from Salve Regina University in Newport, RI.the MB, BCh, BAO degree.
Audit Committee
We haveOur Board of Directors has established an audit committee, the members of which members are comprised of Carl Lueders,S. Colin Neill, Dale Conaway and Henry Esber.Esber, all of whom are independent directors. Mr. LuedersNeill 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. LuedersNeill serves as our “audit committee financial expert.” The Company believesWe 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. LuedersNeill 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
The CompanyOur Board of Directors has established a nominating and corporate governance committee, which members are comprised of Henry Esber, Dale Conaway, and Carl Lueders.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
The CompanyOur Board of Directors has established a compensation committee, which members are comprised of Carl Lueders,Rom Eliaz, Dale Conaway and Henry Esber.Esber, all of whom are independent directors. Mr. LuedersEsber 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 $50,000 in severance paid to Mr. Tassey through December 31, 2014. Mr. Tassey’s fully vested stock options granted in fiscal 2014 forfeited September 30, 2014 as they were not exercised by Mr. Tassey. | | | | (3) | In January 2013, Mr. Squeglia was hired as the Vice President of Strategic Planning and became Chief Financial Officer on December 4, 2013. | | | | (4) | Consists of grants of stock options. Details of the options are set forth on the table titled “GRANTS OF PLAN-BASED AWARDS IN FISCAL 2014” below. |
Grants of Plan-Based Awards There were no grants of plan-based awards to the named executive officers in fiscal 2013. The following table shows for the fiscal year ended December 31, 2014, certain information regarding grants of plan-based awards, or common stock options, to the named executive officers. GRANTS OF PLAN-BASED AWARDS IN FISCAL 2014 | Name | Award Type | Grant Date | Approval Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Target ($) | 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. | | |
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 established eachfrom 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 above-referenced committeesformation 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 December 2011.its compensation programs. The Compensation Committee (and the Board isof 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 the process of preparing charters for the committees but none of the committees currently has a formal charter.material adverse effect on us. DESCRIPTION OF BUSINESS
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 has 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.
OverviewBetween 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 the 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.
BostonIn 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. (, “we”, “us”,(formerly named Pro-Pharmaceuticals, Inc.) for which Dr. Platt previously served as CEO and Chairman. Galectin sought to rescind or reform the “Company”) isSeparation Agreement entered into with Dr. Platt upon his resignation from Galectin to remove a clinical stage, publicly traded pharmaceutical$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 that is focused on developing novel drug products that potentially address areas of high unmet medical needsinitially 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 treatmentarbitration. The Board decided to indemnify Dr. Platt after considering a number of diabetes. The Company intends to realize its business objectives by leveraging its expertise in complex carbohydrate chemistry. A core partfactors, including the scope of the Company’s strategy relies upon creating safeexisting indemnification obligations to officers and efficacious drug formulationsdirectors 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 can be added to existing diabetes drugs including oral medications and insulin products to treat diabetes patients. Using this strategy,Dr. Platt reimburse the Company expects to be eligible to begin Phase III trials for one of the Company’s lead products and complete pre-clinical development studies for another within twelve months.entire $182,697. The Company’s approach is expected to reduce overall clinical development risks and potentially develop valuable products in areas of unmet medical needs.
The Company’s strategy is to continue to leverage considerable industry experience, carbohydrate chemistry knowledge and development expertise to identify, develop and commercialize product candidates with strong market potentialBoard determined that can fulfill unmet medical needs in the treatment of diabetes and related medical conditions. A significant intellectual property portfolio and expertise in the clinical process supports a pathway towards market exclusivity.
We intend to seek and execute development relationships with parties that own complementary intellectual property and are capable of supporting the final stages of development of the Company’s products and their subsequent commercialization in the U.S. and in international markets. We may seek to enter into agreements with third party distributors for U.S. and international sales.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is based on, andinterest should be readcharged to Dr. Platt from the time he received the funds in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q . This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequentJuly 2014, to the date of the board meeting and that this Report on Form 10-Q.
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: PAZ320, a non-systemic chewable complex carbohydrate-based, drug candidate designed to moderate post-meal blood glucose; IPOXYN, an injectable, anti-necrosis drug specifically designed to treat lower limb ischemia associated with diabetes; SUGARDOWN®, a non-systemic tablet designed to reduce the post prandial glucose in the blood, and BTI -7, a new, chewable dose form of the diabetes drug metformin hydrochloride.
The accompanying financial statements have been prepared assumingamount would be offset against interest the Company will continue as a going concern.owes Dr. Platt. The Company has limited resources and operating history. As shownremaining amount would be considered settled in full by the accompanying financial statements, as of September 30, 2013, the Company has an accumulated deficit of approximately $5,001,000. 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.Company.
Management has plans to seek additional capital through private placements and public offerings of its common stock. 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 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.
Results of Operation
Three Months Ended September 30, 2013 compared to September 30, 2012
Revenue
Revenue for the three months ended September 30, 2013 was $217,520, an increase of $215,000 as compared to revenue of $2,520 for the three months ended September 30, 2012. The increase was primarily the result of shipments of SUGARDOWN® to one customer.
Gross Margin
Gross margin for the three months ended September 30, 2013 was $99,005 as compared to negative gross margin of ($6,600) for the three months ended September 30, 2012. The increase is primarily related to the shipment of product during the quarter. The negative gross margin for the three months ended September 30, 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 the three months ended September 30, 2013 was $151,946, an increase of $125,830 as compared to $26,116 for the three months ended September 30, 2012. The increase is primarily the result of increased research and development activity in preparation for PAZ320’s Phase II trial in France and PAZ320’s Phase III international trial.
Sales and Marketing
Sales and marketing expense for the three months ended September 30, 2013 was $102,840, an increase of $9,321 or 10% as compared to $93,519 for the three months ended September 30, 2012. The expense consists primarily of costs incurred with third parties for product marketing and public relations.
General and Administrative
General and administrative expense for the three months ended September 30, 2013 was $954,261, an increase of $719,629 as compared to $234,632 for the three months ended September 30, 2012. Approximately $407,000 of the increase is related to stock-based compensation which includes $252,000 of expense due to the future vesting of options per the terms of a terminated employee’s employment agreement and expense associated with option grants during 2012 and 2013. Consulting and professional services increased $135,000 for investor relations and maintenance of the SUGARDOWN® website, accounting and legal professional fees increased $91,000 and payroll and payroll related expense increased $82,000 due to additional personnel.
Nine Months Ended September 30, 2013 comparedPRINCIPAL 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 September 30, 2012
Revenue
Revenueus 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 has voting or investment power with respect to such shares. Shares of common stock subject to options or warrants that are exercisable as of the date of this prospectus or are exercisable within 60 days of such date are deemed to be outstanding and to be beneficially owned by the person holding such options for the nine months ended September 30, 2013 was $242,974, an increasepurpose of $219,224calculating the percentage ownership of such person but are not treated as compared to revenue of $23,750outstanding for the nine months ended September 30, 2012. The increase waspurpose of calculating the resultpercentage ownership of shipments of SUGARDOWN® to one customer primarily in the third quarter.
Gross Margin
Gross margin for the nine months ended September 30, 2013 was $68,550 as compared to negative gross margin of ($17,127) for the nine months ended September 30, 2012. The increase is primarily related to the shipment of product during the third quarter. The negative gross margin for the nine months ended September 30, 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 the nine months ended September 30, 2013 was $200,428, an increase of $54,760 as compared to $145,668 for the nine months ended September 30, 2012. The increase is primarily the result of increased research and development activity in preparation for PAZ320’s Phase II trial in France and PAZ320’s Phase III international trial.
Sales and Marketing
Sales and marketing expense for the nine months ended September 30, 2013 was $251,236, an increase of $23,639 or 10% as compared to $227,597 for the nine months ended September 30, 2012. The expense consists primarily of costs incurred with third parties for product marketing and public relations.
any other person. General and Administrative
General and administrative expense for the nine months ended September 30, 2013 was $1,904,008, an increase of $1,405,405 as compared to $498,603 for the nine months ended September 30, 2012. Approximately $677,000 of the increase is related to stock-based compensation which includes $252,000 of expense due to the future vesting of options per the terms of a terminated employee’s employment agreement and expense associated with option grants during 2012 and 2013. Additionally, consulting and professional fees increased approximately $345,000 for investor relations and maintenance of the SUGARDOWN® website, payroll and related payroll expense increased $162,000 due to additional personnel, accounting and legal professional fees increased $114,000 due to increased business operations and rent expense increased $50,000 due to the new office facility.| | | | | | | | | | (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
Results of Operations
Year ended December 31, 2012
Revenue for the year ended December 31, 2012 was $42,254 compared to $4,112 in the prior year, an increase of $38,142 primarily because SUGARDOWN® was sold for a full year. Sales in 2012 included approximately $31,000 of sales to two customers for resale and approximately $11,200 of sales to individual customers through our website. Cost of goods sold for the year ended December 31, 2012 was $56,859 compared to $6,375 in the prior year, an increase of $50,484 primarily due to a full year of cost related to the sales of SUGARDOWN®. The Company’s negative gross profit is attributable to cost of goods sold outpacing sales as a result of additional fixed costs related to moving to a new fulfillment operation, and manufacturing scale-up from small to production grade equipment.
Research and development expense for the year ended December 31, 2012 was $178,938 compared to $194,276 in the prior year, a decrease of $15,338. Product development expense increased approximately $10,000 over the prior year and direct research and development expenses decreased approximately $25,000 compared to the prior year.
Sales and marketing expense for the year ended December 31, 2012 was $232,411 compared to $206,517 in the prior year, an increase of $25,894. Advertising and promotion costs increased approximately $35,000, marketing decreased approximately $11,000, travel increased approximately $8,000 and stock based compensation decreased approximately $6,000.
General and administrative expense for the year ended December 31, 2012 was $1,036,566 compared to $408,454 in the prior year, an increase of $628,112. The overall increase is primarily the result of consulting and investor relations expenses increased approximately $200,000, filing fees increased approximately $30,000, stock based compensation increased approximately $336,000 payroll expenses increased approximately $20,000 and rent expense increased approximately $17,000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2013
As of September 30, 2013, we had cash of $3,863,556 and accounts payable and accrued expenses and other current liabilities of $342,321. During the interim period ended September 30, 2013, the Company raised $5,297,698 in private placements of unregistered common stock and warrants to purchase common stock. On August 2, 2013, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2015. We have received minimal revenues from the SUGARDOWN® product. We plan to seek additional capital through private placements and public offerings of our common stock. 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 cease operations.
We anticipate that our cash resources will be sufficient to fund our operations into the near term. However, changes may occur that would cause us to consume our existing capital prior to that time, including the scope and progress of our research and development efforts. Additionally, actual costs may ultimately vary from our current expectations, which could materially impact our use of capital and our forecast of the period of time through which our financial resources will be adequate to support our operations.
Our CEO also contributed a provisional patent, a patent and know-how to the Company. We intend to use these and other assets to attract investors in order to raise the capital required to fund operations. Even if we are able to continue our operations, the failure to obtain financing could have a substantial adverse effect on our business and financial results. In the future, we may be required to seek additional capital by selling debt or equity securities, and we may be required to cease operations, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.
OFF-BALANCE SHEET ARRANGEMENTS
| (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. | | | | (2) | The business address for these individuals is 1750 Elm Street, Suite 103, Manchester, NH 03104. | | | | (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. | | | | (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. | | | | (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. | | | | (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. | | | | (7) | Includes 666,664 shares issuable pursuant to outstanding warrants to purchase common stock currently exercisable. | | | | (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. | | | | (9) | Includes 133,000 shares issuable pursuant to outstanding stock options currently exercisable. | | | | (10) | Includes 76,000 shares issuable pursuant to outstanding stock options currently exercisable. | | | | (11) | Includes 228,000 shares issuable pursuant to outstanding stock options currently exercisable. | | | | (12) | Includes 59,000 shares issuable pursuant to an outstanding stock option currently exercisable. | | | | (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. |
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
CRITICAL ACCOUNTING POLICIES
See Note 1 Summary of Significant Accounting Policies, of the Notes to Condensed Financial Statements herein for a discussion of critical accounting policies.
PROPERTIES
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. As a result of this the Company currently pays $4,878 per month for its space; and its rental payments will increase annually to $5,591 per month for the one year lease period ending through March 31, 2018.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
DESCRIPTION OF UNITS AND CAPITAL STOCKSECURITIES
The total authorized shares of capital stock of the Companyour company currently consists of (1) 200,000,000 shares of Common Stock,common stock, par value $0.001 per share, and (2) 5,000,000 shares of preferred stock, par value $0.001 per share. AtAs of the closedate of business on November 4, 2013, 37,138,406this prospectus, 38,597,008 shares of our Common Stockcommon 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 Stockcommon stock and we are authorized under our 2011 Stock Option Plan to issue 17,500,000 shares of our Common Stock.common stock. As of September 30, 2013,the date of this prospectus, stock options were granted to purchase 5,886,4008,192,400 shares of Common Stockcommon stock from our 2010 and 2011 Plans at a weighted average exercise price of $0.42$0.41 per share outstanding. As of November 4, 2013,the date of this prospectus, there are (i) warrants held by investors and consultants to purchase 995,0001,878,336 shares of Common Stockcommon stock at a weighted average exercise price of $1.00$0.88, (ii) investor warrants held by investors to purchase 8,829,484 shares of Common Stockcommon stock at an exercise price of $0.50 per share, and (iii) Placement Agent Warrantswarrants held by former placement agents to purchase 1,808,8491,716,849 shares of Common Stockcommon stock at an exercise price of $0.30 per share outstanding.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 is 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 significant amount of shares of common stock in accordance to each agreement, subject to conversion rate adjustments.
Common Stock
Each share of our Common Stockcommon 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 Stockcommon 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,common stock, to receive any dividend declared by the boardBoard of directors.Directors. If the Company iswe are voluntarily or involuntarily liquidated, dissolved or wound-up, the holders of Common Stockcommon 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 Stockcommon stock held by them. Holders of Common Stockcommon stock have no redemption or conversion rights. The rights, preferences and privileges of holders of shares of Common Stockcommon 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 Stockcommon 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 boardBoard of directorsDirectors has the authority, without any vote or action by the shareholders,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 special rights (if any), and any qualifications, preferences, limitations or restrictions pertaining to such series which may be fixed by the boardBoard of directorsDirectors pursuant to a resolution or resolutions providing for the issuance of such series adopted by the boardBoard of directors.Directors.
Warrants Being Issued in this 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 November 4, 2013,April 21, 2015, the following warrants were outstanding: Investor Warrants:2013 Private Placement Warrants
WarrantsIn 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. Allshare, all of the warrantswhich are currently exercisable. Warrants to purchase an aggregate of 3,333,320 shares of Common Stock expire on July 23, 2018. Warrants to purchase an aggregate of 1,414,113 shares of Common Stock expire on August 6, 2018. Warrants to purchase an aggregate of 1,130,223 shares of Common Stock expire on August 30, 2018. Warrants to purchase an aggregate of 2,951,828 shares of Common Stock expire on September 30, 2018. Upon the expiration of the Warrant exercise period, the Warrants will expire and become void.exercisable, as follows:
The Company | · | 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 the Investor Warrantsthese warrants for redemption if during the period commencing on the initial exercise date of the Warrants and ending on their expiration date, the volume weighted average price of the our common stock reported by Bloomberg LP is at or above $2.00 for 15 consecutive trading days. InDuring the 45 days following thea redemption call, (the “Redemption Term”), holders of the Investor Warrantswarrants may choose to exercise the Investor Warrantswarrants, or a portion of their respective Investor Warrantsthereof, by paying the then applicable exercise price of the Investor Warrants for every share exercised and any Investor Warrantsprice. Any warrants subject to the redemption call that are unexercised at the end of the Redemption Term shallduring such 45-day period will be cancelled. The CompanyWe may call the Investor Warrants only with respect to those shares issuable upon exercise of Investor Warrants whichwarrants that are covered by an effective registration statement atfrom the time of the call through to the end of the Redemption Term.45-day period only.
Placement Agent Warrants:
WarrantsIn connection with the private placement, we issued to the placement agent warrants to purchase 1,808,849 shares of Common Stockcommon stock at an exercise price of $0.30 per share. Allshare, all of the Placement Agent Warrantswhich are currently exercisableexercisable. 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. Upon the expiration of the Warrant exercise period, the Warrants will expire and become void.
Other Warrants:Warrants
The Company hasWe have issued warrants to certain investors and to consultants after purchase of the aggregate of 995,0001,878,336 shares of Common Stock; all of these warrants are exercisable at prices between $1.00$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 recapitalization.
Holders of the Investor Warrants and Placement Agent Warrants have no voting, pre-emptive, subscription or other rights of shareholdersstockholders in respect of the Investor Warrants, Placement Agent Warrants and Other Warrants, nor shall the holders of such warrants be entitled to receive dividends. Convertible Promissory Note Agreements During March 2015, the Company entered into four separate promissory note agreements with total proceeds of $432,000, net of discounts and fees. Under such agreements, the Company is required to reserve 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 Section 203 might encourage companies interested in acquiring us to negotiate in advance with our Board of Directors since the stockholder approval requirement would be avoided if a majority of the directors then in office approve either the business 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 consummation of this 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 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; |
| · | 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 sale 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, except that any shares held by our “affiliates”, as that term is defined under Rule 144, may be sold 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 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 ours 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 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 sale.
Registration Rights
Between July 23, 2013 and September 30, 2013, the Company entered into and conducted multiple closings under a Securities Purchase Agreement with certain accredited investors in a private offering, referred to as a Private Investment in Public Equity (PIPE) offering forThe holders of an aggregate of (i) 17,659,007 shares of Common Stock and (ii) Investor Warrants to purchase an aggregate of 8,829,484 shares of Common Stock at an exercise price of $0.50 per share. The Placement Agent also received Placement Agent Warrants to purchase 1,808,849 shares of Common Stock at an exercise price of $0.30 per share.
The investors in the PIPE offeringour common stock are entitled to haverights with respect to the 17,829,007registration of their shares of Common Stock they purchased in the PIPE offering and the 8,829,484 shares of Common Stock issuable upon exercise of the Investor Warrants registered under the Securities Act pursuant to the terms and subject to the conditions set forth in a Registration Rights Agreement entered into among the Company and such holders.Act. Registration of these shares under the Securities Act would result in thesethe shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of the registration statement. The Placement Agent is also entitled to have shares of Common Stock issuable upon exercise of the Placement Agent Warrants registered under the Securities Act pursuant to the terms and subject to the conditions set forth in the Registration Rights Agreement.
Pursuant to a registration rights agreement, the Company has agreed to file this registration statement covering the resale of the shares of Common Stock issued in the PIPE offering and issuable upon the exercise of the Investor Warrants and the Placement Agent Warrants, by the investors in the PIPE offering and the Placement Agent respectively no later than November 14, 2013, and to use best efforts to have such registration statement declared effective on or before sixty (60) days following the initial filing date of the registration statement of which this prospectus formsis a part (the “Filing Date”) (in casepart. Any sales of no SEC review) or one hundred eighty (180) days followingsecurities by these stockholders could have a material adverse effect on the Filing Date (intrading price of our common stock.
Equity Incentive Plans We filed a registration statement Amended and Restated 2010 Stock Plan and 2011 Amended and Restated Non-Restricted Stock Plan on Form S-8 under the case of an SEC review). If the Company does not causeSecurities Act. Accordingly, shares registered under the registration statement are available for sale in the open market subject to be declared effective by the applicable deadline and the delay is not solely caused by publicly-available written or oral guidance, comments, requirements or requests of the Commission staff with respect to rules under the Securities Act limiting the number of shares that can be included on the registration statement, then each selling shareholder will be entitled to liquidated damages, payable in cash equal to 1% of the aggregate purchase price paid by such selling shareholder for the securities, and an additional 1% for each month that the Company does not cause the registration statement to be declared effective. Notwithstanding the foregoing, in no event shall liquidated damages exceed 6% of the aggregate gross proceeds of the offering to the selling shareholders. The investors and the Placement Agent shall have piggyback registration rights with respect to any portion of the shares of Common Stock that they are entitled to have registered under this registration statement that are not included in this registration statement.Rule 144 volume limitations.
Resale of Restricted Securities
Rule 144
Rule 144 provides an exemption from registration under the Securities Act of 1933 for sales by holders of "restricted securities" (i.e., securities acquired directly or indirectly from the issuer or an affiliate of the issuer in a transaction or chain of transactions not involving a public offering) and for sales of "control securities" (i.e., securities held by affiliates, regardless of how they acquired them).
In February 2008, amendments to Rule 144 under the Securities Act of 1933 that substantially liberalized the rules governing the resale of securities issued in private transactions or held by affiliates became effective. The amendments shortened the holding periods for restricted securities of public companies, significantly reduced the conditions applicable to sales of restricted securities by non-affiliates, and modified other aspects of the rules.
Under amended Rule 144, holders of restricted securities of reporting companies (i.e., companies that have been subject to public reporting requirements for at least 90 days before the sale) are able to sell their securities after holding them for only six months, subject to specified conditions. Sales under Rule 144 may also limited by manner of sale provisions and notice requirements and to the availability of current public information about the combined company.
Sales by Non-Affiliates under Rule 144
After six months but prior to one year from the date of acquisition of securities from the issuer or an affiliate of the issuer, non-affiliates of reporting companies may resell those securities under Rule 144 subject only to the current public information requirement described below. They will not have to file a Form 144, follow manner-of-sale requirements, or stay within the volume limitations. After holding securities for one year, non-affiliates of both reporting and non-reporting companies may resell those securities freely without any additional conditions under Rule 144.
Sales by Affiliates
In general, affiliates are subject to all of the requirements under Rule 144.
· Current public information. There must be adequate current public information available about the issuer. Reporting companies must have been subject to public reporting requirements for at least 90 days immediately before the Rule 144 sale and must have filed all required reports (other than Forms 8-K) during the 12 months (or shorter period that the company was subject to public reporting) before the sale. For non-reporting companies (including companies that have been subject to the public reporting requirements for less than 90 days), certain other specified public information must be available.PLAN OF DISTRIBUTION · Holding period. Restricted securities must be held for at least six months before they may be sold (securities issued in registered transactionsWe are not subject to a holding period). The holding period for restricted securities of non-reporting companies is one year.
· Volume limitations. For equity securities, in any three-month period, re-sales may not exceed a sales volume limitation equal to the greater of (i) the average weekly trading volume for the preceding four calendar weeks, or (ii) one percent of the outstanding securities of the class. The volume limitation for debt securities permits the sale ofoffering up to 10% of a tranche or class of debt securities in any three-month period. However, since our 25,000,000 shares are quoted on the OTC Bulletin Board, which is not an “automated quotation system,” our stockholders will not be able to rely on the market-based trading volume provision described in clause (i) above. If, in the future, our securities are listed on an exchange or quoted on NASDAQ, then our stockholders would be able to rely on the market-based trading volume provision. Unless and until our stock is so listed or quoted, our stockholders can only rely on the percentage based volume provision described in clause (ii) above.
· Manner-of-sale requirements. Resales of equity securities must be made in unsolicited "brokers' transactions" or transactions directly with a "market maker" and must comply with other specified requirements. Equity securities may be sold in "riskless principal transactions" (in addition to "brokers' transactions" and transactions directly with a "market maker").
· Filing of Form 144. The seller must file a Form 144 if the amount of securities being sold in any three-month period exceeds the lesser of 5,000 shares or $50,000 in aggregate sales price.
SELLING STOCKHOLDERS
The following table sets forth as of November 4, 2013, information regarding the current beneficial ownership of our common stock byon 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 persons identified,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 information provided to us by them, which we have not independently verified. Although we have assumed for purposesthe 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 table that the selling stockholders will sell allregistration statement of the shares offered bywhich this prospectus because theyis 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 from timedo so without notice to time offer all or some of their shares under this prospectus or in another manner,investors, although if we cancel the offering we will promptly return any funds investors may already have paid. There is no assurance can be given as to the actualminimum 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 resold by the selling stockholder (or any of them), or that will be held after completion of the resales. In addition, a selling stockholder may have sold or otherwise disposed of shares in transactions exempt from the registration requirements of the Securities Act or otherwise since the date he or she provided informationavailable to us. The selling stockholders areIn the event that we do not making any representation that the shares covered by this prospectus willraise sufficient capital to implement our planned operations, your entire investment could be offered for sale. Except as set forth below, no selling stockholder has held any position nor had any material relationship with us or our affiliates during the past three years. Except as set forth below, each of the selling stockholders has advised the Company that it is not a registered broker-dealer or an affiliate of a registered broker-dealer. | Holder | Shares of Common Stock Beneficially Owned Before Offering | % | Shares of Common Stock Being Offered | Shares of Common Stock Beneficially Owned After Offering | % | CJY Holdings Limited (3) | 10,749,980 | 26.40% | 9,999,980 | 750,000 | 2.01% | | Jan Backvall (4) | 122,501 | * | 122,501 | 0 | * | Kenneth P. Black (5) | 500,000 | 1.34% | 500,000 | 0 | * | | Richard Burgess (6) | 100,001 | * | 100,001 | 0 | * | Mark Butt (7) | 375,000 | 1.01% | 375,000 | 0 | * | | Scott L. Byer (8) | 95,001 | * | 95,001 | 0 | * | David Cantwell (9) | 137,501 | * | 137,501 | 0 | * | | Bruno J. Casatelli (10) | 1,249,998 | 3.33% | 1,249,998 | 0 | * | Kerston Coombs (11) | 210,000 | * | 210,000 | 0 | * | | Benoit Dumont (12) | 35,001 | * | 35,001 | 0 | * | Sterne Agee & Leach Inc C/F David W. Frost IRA (13) | 250,000 | * | 250,000 | 0 | * | | Walter W. Gloyer (14) | 250,002 | * | 250,002 | 0 | * | John R. Gould (15) | 249,825 | * | 249,825 | 0 | * | | Bryan J. Hanks & Michelle B. Hanks JTWROS (16) | 125,001 | * | 125,001 | 0 | * | Garfield W. Hardeman ( 17) | 400,000 | 1.07% | 400,000 | 0 | * | | Robert M. Henely (18) | 125,001 | * | 125,001 | 0 | * | Lawrence Solomon Revocable Living Trust Lawrence Solomon TTE (19) | 250,000 | * | 250,000 | 0 | * | | William Allan Lucier ( 20) | 125,001 | * | 125,001 | 0 | * |
Fernando Malvido Olascoaga (21) | 125,001 | * | 125,001 | 0 | * | | Pershing Nominees LTD: IMCLT (22) | 125,001 | * | 125,001 | 0 | * | Sterne Agee & Leach Inc C/F John L. Sommer IRA (23) | 250,000 | * | 250,000 | 0 | * | Brendan Sullivan (24) | 100,001 | * | 100,001 | 0 | * | Sandra F. Tomlinson (25) | 100,001 | * | 100,001 | 0 | * | Pedro B. Torres (26) | 55,001 | * | 55,001 | 0 | * | Lee Westwood (27) | 125,001 | * | 125,001 | 0 | * | John Bennett Williamson (28) | 75,000 | * | 75,000 | 0 | * | Dr. Gurpreet S. Ahluwalia (29) | 125,001 | * | 125,001 | 0 | * | James Allenden (30) | 20,001 | * | 20,001 | 0 | * | Lester Alvis & Rajinder Kaur JTWROS (31) | 130,001 | * | 130,001 | 0 | * | Julian Archer & Ingrid E. Archer Van Den Berg JTWROS (32) | 60,000 | * | 60,000 | 0 | * | Michael B. Carroll Sheila J. Carroll JTWROS (33) | 499,999 | 1.34% | 499,999 | 0 | * | Sten Anders Fellman (34) | 499,999 | 1.34% | 499,999 | 0 | * | Hicks Foods LTD. (35) | 49,001 | * | 49,001 | 0 | * | Douglas E. Jasek (36) | 250,000 | * | 250,000 | 0 | * | Michael C. Karsonovich (37) | 166,668 | * | 166,668 | 0 | * | Robert John Kline-Schoder Rev Living Trust Dtd 1-27-95 Robert Kline-Schoder & Barbara Kline-Schoder TTEES (38) | 250,000 | * | 250,000 | 0 | * | Robert B. Koplowitz (39) | 50,001 | * | 50,001 | 0 | * | Roberto Mendez Eliana Cardenas JTWROS (40) | 75,000 | * | 75,000 | 0 | * | Sterne Agee & Leach Inc C/F Brian Mark Miller Roth IRA (41) | 499,999 | 1.34% | 499,999 | 0 | * | William J. Solloway (42) | 90,000 | * | 90,000 | 0 | * | Timothy Wieghaus (43) | 125,001 | * | 125,001 | 0 | * | Daniel P. Wikel (44) | 375,000 | 1.01% | 375,000 | 0 | * | Georges Zanellato (45) | 125,001 | * | 125,001 | 0 | * | Sterne Agee & Leach Inc C/F Dr Gary W Chmielewski IRA (46) | 65,001 | * | 65,001 | 0 | * | David W. Frost (47) | 499,999 | 1.34% | 499,999 | 0 | * | Alan Greenhalgh & Angela Greenhalgh JTWROS (48) | 1,249,998 | 3.37% | 1,249,998 | 0 | * | Robert R. Hair (49) | 100,001 | * | 100,001 | 0 | * |
Steven A. Hobbs (50) | 125,001 | * | 125,001 | 0 | * | Island Capital Nominees LTD (51) | 749,999 | 2.01% | 749,999 | 0 | * | Sterne Agee & Leach Inc C/F Ralph Wallis Kettell II SEP IRA (52) | 93,000 | * | 93,000 | 0 | * | Steve Octaviano (53) | 250,000 | * | 250,000 | 0 | * | Stuart R. Oliver (54) | 250,000 | * | 250,000 | 0 | * | Sterne Agee & Leach Inc C/F Art Sadin IRA (55) | 499,999 | 1.34% | 499,999 | 0 | * | Art Sadin (56) | 250,000 | * | 250,000 | 0 | * | Eric Shapiro & Lynn Shapiro JTIC (57) | 125,001 | * | 125,001 | 0 | * | Jonathan Steinhouse (58) | 175,001 | * | 175,001 | 0 | * | Brett A. Verona (59) | 25,001 | * | 25,001 | 0 | * | Timothy Williams (60) | 250,000 | * | 250,000 | 0 | * | Sterne Agee & Leach Inc C/F Nabil M Yazgi R/O IRA (61) | 75,000 | * | 75,000 | 0 | * | Nabil M. Yazgi (62) | 150,000 | * | 150,000 | 0 | * | Gary W. Chimielewski Monica R. Chmielewski JTWROS (63) | 60,000 | * | 60,000 | 0 | * | Benjamin Hasty (64) | 125,001 | * | 125,001 | 0 | * | Rafael Penunuri (65) | 50,001 | * | 50,001 | 0 | * | Earl R. Richardson (66) | 250,000 | * | 250,000 | 0 | * | Sterne Agee & Leach Inc C/F Edwin A Schermerhorn Roth IRA (67) | 125,001 | * | 125,001 | 0 | * | Idan Sahar (68) | 1,999,996 | 5.37% | 1,999,996 | 0 | * |
Buff Trust (69) | 289,416 | * | 289,416 | 0 | * | Garnett Trust(70) | 289,416 | * | 289,416 | 0 | * | Laidlaw Holdings Ltd.(71) | 91,455 | * | 91,455 | 0 | * | Brian M. Robertson(72) | 5,000 | * | 5,000 | 0 | * | Kevin R. Wilson(73) | 68,000 | * | 68,000 | 0 | * | Richard G. Michalski(74) | 7,500 | * | 7,500 | 0 | * | Michael J. Murray(75) | 7,500 | * | 7,500 | 0 | * | John-Paul Eitner(76) | 10,167 | * | 10,167 | 0 | * | Henry Oliver McCormack(77) | 10,166 | * | 10,166 | 0 | * | Christopher J. Oppito(78) | 4,500 | * | 4,500 | 0 | * | Timothy C. Behr(79) | 4,500 | * | 4,500 | 0 | * | Craig A. Bonn(80) | 4,700 | * | 4,700 | 0 | * | Robert N. Rotunno(81 ) | 4,700 | * | 4,700 | 0 | * | Stephen C. Hamilton(82) | 33,890 | * | 33,890 | 0 | * | Patrick Maddren(83) | 41,650 | * | 41,650 | 0 | * | Jean-Pierre Ayala(84) | 22,997 | * | 22,997 | 0 | * | Luis Marquez(85) | 16,250 | * | 16,250 | 0 | * | Ross McKendrick(86) | 1,250 | * | 1,250 | 0 | * | Joseph Fedorko(87) | 7,500 | * | 7,500 | 0 | * | James Provenzano(88) | 833 | * | 833 | 0 | * | Hugh J. Marasa Jr. (89) | 11,784 | * | 11,784 | 0 | * | Robert Bonaventura(90) | 11,783 | * | 11,783 | 0 | * | Christopher Kane(91) | 7,500 | * | 7,500 | 0 | * | Francis Ryan Smith(92) | 26,380 | * | 26,380 | 0 | * | Ryan Turcotte(93) | 17,825 | * | 17,825 | 0 | * | Aparna Beeram(94) | 47,532 | * | 47,532 | 0 | * | Xiaowei Zhou(95) | 26,737 | * | 26,737 | 0 | * | Hugh Regan(96) | 50,928 | * | 50,928 | 0 | * | Sandesh Seth(97) | 271,732 | * | 271,732 | 0 | * | James Ahern(98) | 207,629 | * | 207,629 | 0 | * | Matthew D. Eitner(99) | 207,629 | * | 207,629 | 0 | * |
Shs Outstanding at 11/4/13 | 37,138,406 | | | | |
* Less than one percent
(1) | This table is based upon information supplied by the selling shareholder. The number and percentage of shares beneficially owned are based on an aggregate of 37,138,406 shares of our common stock outstanding as of November 4, 2013 and, to the extent applicable, the warrants to purchase common stock held by the persons for whom such number and percentage is being calculated.
| (2) | Because each of the selling shareholders identified in this table may sell some, all or none of the shares owned by it that are registered under this registration statement, and because, to our knowledge, there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares registered hereunder, no estimate can be given as to the number of shares available for resale hereby that will be held by the selling shareholders at the time of this registration statement. Therefore, we have assumed for purposes of this table that each of the selling shareholders will sell all of the shares beneficially owned by it.
| (3) | Includes 3,583,320 shares issuable upon exercise of Investor Warrants. | (4) | Includes 40,834 shares issuable upon exercise of Investor Warrants. | (5) | Includes 166,666 shares issuable upon exercise of Investor Warrants. | (6) | Includes 33,334 shares issuable upon exercise of Investor Warrants. | (7) | Includes 125,000 shares issuable upon exercise of Investor Warrants. | (8) | Includes 31,667 shares issuable upon exercise of Investor Warrants. | (9) | Includes 45,834 shares issuable upon exercise of Investor Warrants. | (10) | Includes 416,665 shares issuable upon exercise of Investor Warrants. | (11) | Includes 70,000 shares issuable upon exercise of Investor Warrants. | (12) | Includes 11,667 shares issuable upon exercise of Investor Warrants. | (13) | Includes 83,333 shares issuable upon exercise of Investor Warrants. | (14) | Includes 83,334 shares issuable upon exercise of Investor Warrants. | (15) | Includes 83,275 shares issuable upon exercise of Investor Warrants. | (16) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (17) | Includes 133,333 shares issuable upon exercise of Investor Warrants. | (18) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (19) | Includes 83,333 shares issuable upon exercise of Investor Warrants. | (20) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (21) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (22) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (23) | Includes 83,333 shares issuable upon exercise of Investor Warrants. | (24) | Includes 33,334 shares issuable upon exercise of Investor Warrants. | (25) | Includes 33,334 shares issuable upon exercise of Investor Warrants. | (26) | Includes 18,334 shares issuable upon exercise of Investor Warrants. | (27) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (28) | Includes 25,000 shares issuable upon exercise of Investor Warrants. | (29) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (30) | Includes 6,667 shares issuable upon exercise of Investor Warrants. | (31) | Includes 43,334 shares issuable upon exercise of Investor Warrants. | (32) | Includes 20,000 shares issuable upon exercise of Investor Warrants. | (33) | Includes 166,666 shares issuable upon exercise of Investor Warrants. | (34) | Includes 166,666 shares issuable upon exercise of Investor Warrants. | (35) | Includes 16,334 shares issuable upon exercise of Investor Warrants. | (36) | Includes 83,333 shares issuable upon exercise of Investor Warrants. |
(37) | Includes 55,556 shares issuable upon exercise of Investor Warrants. | (38) | Includes 83,333 shares issuable upon exercise of Investor Warrants. | (39) | Includes 16,667 shares issuable upon exercise of Investor Warrants. | (40) | Includes 25,000 shares issuable upon exercise of Investor Warrants. | (41) | Includes 166,666 shares issuable upon exercise of Investor Warrants. | (42) | Includes 30,000 shares issuable upon exercise of Investor Warrants. | (43) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (44) | Includes 125,000 shares issuable upon exercise of Investor Warrants. | (45) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (46) | Includes 21,667 shares issuable upon exercise of Investor Warrants. | (47) | Includes 166,666 shares issuable upon exercise of Investor Warrants. | (48) | Includes 416,665 shares issuable upon exercise of Investor Warrants. | (49) | Includes 33,334 shares issuable upon exercise of Investor Warrants. | (50) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (51 ) | Includes 249,999 shares issuable upon exercise of Investor Warrants. | (52) | Includes 31,000 shares issuable upon exercise of Investor Warrants. | (53) | Includes 83,333 shares issuable upon exercise of Investor Warrants. | (54) | Includes 83,333 shares issuable upon exercise of Investor Warrants. | (55) | Includes 166,666 shares issuable upon exercise of Investor Warrants. | (56) | Includes 83,333 shares issuable upon exercise of Investor Warrants. | (57) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (58) | Includes 58,334 shares issuable upon exercise of Investor Warrants. | (59) | Includes 8,334 shares issuable upon exercise of Investor Warrants. | (60) | Includes 83,333 shares issuable upon exercise of Investor Warrants. | (61 ) | Includes 25,000 shares issuable upon exercise of Investor Warrants. | (62) | Includes 50,000 shares issuable upon exercise of Investor Warrants. | (63) | Includes 20,000 shares issuable upon exercise of Investor Warrants. | (64) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (65 ) | Includes 16,667 shares issuable upon exercise of Investor Warrants. | (66) | Includes 83,333 shares issuable upon exercise of Investor Warrants. | (67) | Includes 41,667 shares issuable upon exercise of Investor Warrants. | (68) | Includes 666,664 shares issuable upon exercise of Investor Warrants. |
(69) | Includes 289,416 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (70) | Includes 289,416 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (71) | Includes 91,455 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (72) | Includes 5,000 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (73) | Includes 68,000 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (74) | Includes 7,500 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (75) | Includes 7,500 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (76) | Includes 10,167 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (77) | Includes 10,166 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (78) | Includes 4,500 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (79) | Includes 4,500 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (80) | Includes 4,700 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (81) | Includes 4,700 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (82) | Includes 33,890 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (83) | Includes 41,650 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (84) | Includes 22,997 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (85) | Includes 16,250 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (86) | Includes 1,250 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (87) | Includes 7,500 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (88) | Includes 833 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (89) | Includes 11,784 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (90) | Includes 11,783 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (91) | Includes 7,500 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (92) | Includes 26,380 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (93) | Includes 17,825 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (94) | Includes 47,532 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (95) | Includes 26,737 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (96) | Includes 50,928 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (97) | Includes 271,732 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (98) | Includes 207,629 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. | (99) | Includes 207,629 shares issuable upon exercise of the Placement Agent Warrants. Associated with Laidlaw & Company (UK) Ltd., a registered broker-dealer. |
In a series of closings between July 23, 2013 and September 30, 2013, the Company entered into and closed a Unit Purchase Agreement with certain accredited investors in a private offering, referred to as a PIPE offering for an aggregate of (i) 17,659,007 shares of Common Stock and (ii) five-year Investor Warrants to purchase an aggregate of 8,829,484 shares of Common Stock at an exercise price of $0.50 per share, which resulted in gross proceeds to the Company of approximately $5.3 million. In connection with this offering, we will issue 1 warrant for every share of common stock purchased. Each warrant entitles the PIPE offering, the Company issued warrantsholder to the Placement Agreement for the purchase one half of 1,808,849 sharesone (1/2) share of common stock at an exercise price of $0.30 per share. In connection withAfter the PIPE offering,expiration of the Company entered into a Registration Rights Agreement requiring the Company5 year exercise period, warrant holders will have no further rights to registerexercise such warrants.
The warrants may be exercised only for resale thefull shares of Common Stock purchased by the investorscommon 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 number of shares of Common Stock underlyingcommon stock purchasable upon the Investor Warrants purchased byexercise of each warrant are subject to adjustment upon the investors.happening of certain events, such as stock dividends, distributions, and splits.
PLAN OF DISTRIBUTION
Each Selling Stockholder (the “Selling Stockholders”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the OTCQB or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; |
| · | in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security; |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| · | a combination of any such methods of sale; or |
| · | any other method permitted pursuant to applicable law. |
The Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
Director Independence
Four of the members of the board of directors are “independent” as defined under the rules of the NASDAQ Stock Market.
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.
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 approximately 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. Our primary stockholders are Dr. David Platt, our chairman of the board, chief executive officer and chief financial officer who holds 7,833,385 shares of our Common Stock, Kenneth Tassey, our President, who holds 3,040,000 shares of our Common Stock, CJY Investments, which holds 7,166,660 shares of our Common Stock, Idan Sahar, who holds 1,333,332 shares of our Common Stock, Offer Binder, who holds 2,000,000 shares of our Common Stock and Advance Pharmaceutical Company Ltd. which holds 1,799,800 shares of our Common Stock through its wholly-owned subsidiary Sugardown Co., LTD (the preceding figures in each case exclude shares of Common Stock that are beneficially owned or that the aforementioned stockholders may have the right to acquire by exercise of options or warrants. See “Security Ownership of Executive Officers, Directors and Five Percent Stockholders” for further details as to their beneficial ownership of the Company’s Common Stock.) Collectively, these holders own an aggregate of 23,173,177 shares of our Common Stock, or 62.4% of our issued and outstanding shares of Common Stock.
Dividends
There have been no cash dividends declared on our Common Stock since our company was formed. Dividends are declared at the sole discretion of our Board of Directors. Our intention is not to declare cash dividends and retain all cash for our operations.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and Exchange Commission for our common stock offered in this offering. This Prospectus does not contain all of the information 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 our 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 copies of the actual contract, agreement or other document.
Our fiscal year ends on December 31. We plan to furnish our shareholders annual reports containing audited financial statements and other appropriate reports, where applicable. In addition, we intend to become a reporting company and file annual, quarterly, and current reports, and other information with the SEC, where applicable. 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 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.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's directors and executive officers are indemnified as provided by the Delaware General Corporation Law and the Company's Bylaws. These provisions state that the Company's directors may cause the Company to indemnify a director or former director against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him as a result of him acting as a director. The indemnification of costs can include an amount paid to settle an action or satisfy a judgment. Such indemnification is at the discretion of the Company's board of directors and is subject to the Securities and Exchange Commission's policy regarding indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
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, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to the court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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.
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 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.
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 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 apply in the event of a claim for indemnification thereunder.
Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise against liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against liability under the provisions of this section. The Company currently maintains such insurance.
Settlement by the Company. The right of any person to be indemnified is subject always to the right of the Company by its Board of Directors, in lieu of such indemnity, to settle any such claim, action, suit or proceeding at the expense of the Company by the payment of the amount of such settlement and the costs and expenses incurred in connection therewith.
LEGAL MATTERS
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 offor the Companyyears ended December 31, 2014 and 2013, appearing in this Prospectus and Registration Statement have been audited by McGladrey 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.
WHERE 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 information 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 our 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 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 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. 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.
INDEX TO FINANCIAL STATEMENTS
C O N T E N T S
| Page
| Unaudited interim financial statements for the three and nine month periods ended September 30, 2013 and 2012 | | Balance Sheet | F-2 | Statement of Operations | F-3 | Statements of Cash Flows | F-4 | Notes to Financial Statements | F-5 |
| Page | Audited Financial Statements forFor the years endedYears Ended December 31, 20122014 and 20112013: | | | Report of Independent Registered Public Accounting Firm | 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 |
| Page | Audited Financial Statements For the Years Ended December 31, 2013 and 2012: | | | Report of Independent Registered Public Accounting Firm | | | | | | | | | Statements of Changes in Stockholders’ Equity | | | | | | Notes to Financial Statements | | | | | | | |
Unaudited Condensed Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | Boston Therapeutics, Inc. | | | | | | | | Balance Sheet (Unaudited) | | | | | | | | September 30, 2013 and December 31, 2012 | | | | | | | | | | | | | | | | | | September 30, | | | December 31, | | | | 2013 | | | 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 | | | | | | | | | Advances - related parties | | | | | | | | | | | | | | | | | | | | | | | | | | | | COMMITMENTS AND CONTINGENCIES (Note 7) | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 at September 30, 2013 | | | | | | | | | and December 31, 2012, respectively; 37,094,546 and 18,745,706 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively | | | | | | | | | Additional paid-in capital | | | | | | | | | | | | | | | | | | Total stockholders’ equity | | | | | | | | | | | | | | | | | | | Total liabilities and stockholders’ equity | | | | | | | | | | | | | | | | | | |
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 See accompanying notes to unaudited condensed financial statements
| Boston Therapeutics, Inc. | | | | | | | | | | | | | | Statement of Operations (Unaudited) | | | | | | | | | | | | | | For the Three and Nine Months Ended September 30, 2013 and 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30, 2013 | | | September 30, | | | September 30, | | | September 30, | | | | | | | 2012 | | | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | General and administrative | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss per share- basic and diluted | | | | | | | | | | | | | | | | | Weighted average shares outstanding basic and diluted | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited condensed financial statements
| Boston Therapeutics, Inc. | | | | | | | | Statement of Cash Flows (Unaudited) | | | | | | | | For the Nine Months Ended September 30, 2013 and 2012 | | | | | | | | | | | | | | | | | | For the Nine Months Ended | | | | | September 30, | | | September 30, | | | | 2013 | | | 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 advances-related parties | | | | | | | | | Proceeds from issuance of common stock and common stock warrants (net of issuance costs) | | | | | | | | | Net cash provided by financing activities | | | | | | | | | | | | | | | | | | | Net increase (decrease) 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. | | Balance Sheets | | December 31, 2014 and 2013 |
See| | | 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 to unaudited condensedare an integral part of these financial statements 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. Notes to Unaudited Condensed Financial Statements For the threeYears Ended December 31, 2014 and nine month periods ended September 30, 2013 and 2012 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Company OverviewGENERAL ORGANIZATION AND BUSINESS
Boston Therapeutics, headquarteredInc. (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 Manchester, NH, (OTC: BTHE)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 leaderfounder 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 fieldMerger. Kenneth A. Tassey, Jr., the Company’s former President, 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. 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: PAZ320,the development of two additional drug products: BTI-320, a non-systemic, chewable therapeutic compound designed to reducenon-toxic, tablet for reduction of post-meal blood glucose elevation; IPOXYN™,in people living with diabetes that is fully developed, and IPOXYN, an injectable anti-necrosis, anti-hypoxia drug specifically designed to treat lower limb ischemia associated with diabetes; SUGARDOWN®, a non-systemic chewable complex carbohydrate designed to moderate post-meal blood glucose, and BTI-7, a new, chewable dose form of the diabetes drug metformin hydrochloride.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 cash resources, recurring cash used in operations and operating losses history. As shown in the accompanying financial statements, the Company has an accumulated deficit of approximately $5,001,000$12 million as of September 30, 2013. 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 from the development of its new business opportunities. During July and September 2013,payroll associated costs reduced by the Company conducted four closingsduring the fourth quarter 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 stockfiscal 2014 and warrants to purchase 8,829,484 additional shares of common stock at an exercise price of $0.50 per share for total gross proceeds of $5,297,698.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 BasisREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of PresentationDirectors and Stockholders of Boston Therapeutics, Inc. TheManchester, New Hampshire
We have audited the accompanying unaudited condensedbalance 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 have been preparedare 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 ("US 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, 2012 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 September 30, 2013 and the results of operations for the three and nine month periods ended September 30, 2013 and 2012.America.
The year-end balance sheet data was derived from the auditedaccompanying financial statements but does not include all disclosures required by accounting principles generally acceptedhave been prepared assuming that the Company will continue as a going concern. As discussed in the United States of America. The results disclosed in the Statements of Operations for the three and nine month periods ended September 30, 2013 are not necessarily indicative of the resultsNote 1 to be expected for the full fiscal year. Use of Estimates
The preparation of financial statements in conformity with US 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, 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 reported amountsoutcome of revenue and expenses during the reporting period. Actual results could differ from those estimates.this uncertainty.
/s/ McGladrey LLP
Boston, Massachusetts March 27, 2015 | 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. Notes to Unaudited Condensed Financial Statements For the threeYears Ended December 31, 2014 and nine month periods ended September 30, 2013 and 2012 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Accounts Receivable
Accounts receivable is stated at the amount management expects to collect from outstanding balances. Management establishes a reserve for doubtful accounts based on its assessment of the current status of individual accounts. Balances that remain outstanding after management has used reasonable collection efforts are written off against the allowance. There were no allowances for doubtful accounts as of September 30, 2013 and December 31, 2012. At September 30, 2013 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.
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 three and nine months ended September 30, 2013, one customer accounted for 100% and 97% of the Company’s revenue, respectively.
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 have a history of market prices of the 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.
Loss per Share
Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The weighted average number of common shares for the three and nine months ended September 30, 2013 did not include 5,886,400 and 11,633,337 options and warrants, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the three and nine months ended September 30, 2012 did not include 1,878,400 and 20,000 options and warrants, respectively, because of their anti-dilutive effect.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
2. 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 September 30, 2013 and December 31, 2012, 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.
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 200,000,000 shares of its $0.001 par value common stock. On May 31, 2013, record holders of 56% of the issued and outstanding voting common stock authorized the Company to amend 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.
Common Stock
On May 7, 2012 the Company issued 20,000 shares of common stock at a price per share of $1.10 and issued 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 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 has 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 is included in the accompanying December 31, 2012 balance sheet.
During June 2012 the Company issued 80,000 shares of its common stock with a fair value of $40,800 in exchange for professional consulting services.
On June 29, 2012 the Company issued 1,000,000 shares to an 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.
1. GENERAL ORGANIZATION AND BUSINESS Boston Therapeutics, Inc. Notes to Unaudited Condensed Financial Statements
For (the “Company”) was formed as a Delaware corporation on August 24, 2009, under the three and nine month periods ended September 30, 2013 and 2012
3. STOCKHOLDERS’ EQUITY - continued
Common Stock - continued
name Avanyx Therapeutics, Inc. On November 13, 201210, 2010, the Company issued 1,250,000entered 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 its common stock at a price per shareto the stockholders 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 associated with the subscription 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 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. On January 22, 2013 the Company issued 45,833 shares of its common stock with a fair value of $19,250BTI in exchange for consulting services incurred in fiscal 2012 and January of 2013. As of December 31, 2012, the Company had accrued $14,000 representing the fair value100% of the 33,333 unissued shares for services rendered in December 2012 which was included in the accompanying December 31, 2012 balance sheet. The agreement was terminated in January 2013.
On March 14, 2013 the Company issued 500,000 shares of itsoutstanding common stock at a price per share of $0.50BTI, and issued a warrant to purchase 250,000 additional shares for $1.00 per share for gross proceeds of $250,000. The warrant associated with the subscription agreement is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on termschange of the warrant agreementCompany’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer, is a founder of BTI and has determined that equity classification is appropriate. The Company estimatedwas a director and minority stockholder of BTI at the relative fair valuetime 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 17,659,007Merger. Dr. Platt received 400,000 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 exercisable immediately 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.
During September 2013Merger. Kenneth A. Tassey, Jr., the Company issued 52,000Company’s former President, 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 itsour 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.
Boston Therapeutics, Inc.
NotesThe Company’s primary business is the development, manufacture and commercialization of therapeutic drugs with a focus on complex carbohydrate chemistry to Unaudited Condensed Financial Statements
Foraddress 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 threedevelopment of two additional drug products: BTI-320, a non-systemic, non-toxic, tablet for reduction of post-meal blood glucose in people living with diabetes that is fully developed, and nine month periods ended September 30, 2013 and 2012
IPOXYN, an injectable anti-necrosis, anti-hypoxia drug that we are currently developing. 4. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
DuringThe accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has limited cash resources, recurring cash used in operations and operating losses history. As shown in the accompanying financial statements, 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. On September 7, 2013, the 2010 plan was amended to increase the number of shares of common stock issuable under the 2010 Plan to 7,500,000. As of September 30, 2013 and December 31, 2012, there were 578,400 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 September 30, 2013 and December 31, 2012, there were 5,308,000 and 7,130,000 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 or revalued for three and nine months ended September 30, 2013 and 2012 was calculated with the following assumptions:
| | | 2013 | | | 2012 | | | | | 0.47% - 1.55 | % | | | 0.31% - 1.27 | % | | | | 0 | % | | | 0 | % | | | | 85 | % | | | 90 | % | | | | | | | |
The weighted-average fair value of stock options granted during the periods ended September 30, 2013 and 2012, under the Black-Scholes option pricing model was $0.21 per share.
The Company recognized $472,820 and $44,638 of stock-based compensation costs in the accompanying statement of operations for the three months ended September 30, 2013 and 2012, respectively. The three months ended September 30, 2013 includes additional compensation expense of $252,345 relating to the future vesting of options per the terms of a terminated employee’s employment agreement. The Company recognized $857,851 and $161,504 of stock-based compensation costs in the accompanying statement of operations for the nine months ended September 30, 2013 and 2012, respectively. No actual tax benefit was realized from stock option exercises during these periods. As of September 30, 2013, there was approximately $213,000 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 1.06 years.
The following table summarizes the Company’s stock option activity during the nine months ended September 30, 2013:
| | | Shares | | | Exercise Price per Share | | | Weighted Average Exercise Price per Share | | Outstanding as of December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Options forfeited/cancelled | | | | | | | | | | | | | Outstanding as of September 30, 2013 | | | | | | | | | | | | |
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
2014. 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 September 30, 2013: | Vested or Expected to Vest | | | Exercisable Options | | | | | | | | | Weighted | | | Weighted | | | | | | | | | Weighted | | | Weighted | | | | | | | | | | | | | | | Average | | | | | | | | | Average | | | Average | | | | | | | | | | | | | | | Remaining | | | Aggregate | | | Number | | | Exercise | | | Remaining | | | Aggregate | | | Exercise | | | Number of | | | Price Per | | | Contractual | | | Intrinsic | | | of | | | Price | | | Contractual | | | Intrinsic | | | Price | | | Options | | | Share | | | Life (Years) | | | Value | | | Options | | | Per Share | | | Life (Years) | | | Value | | | $ | 0.10 | | | | 1,800,000 | | | $ | 0.10 | | | | 3.13 | | | $ | 1,026,000 | | | | 1,612,500 | | | $ | 0.10 | | | | 3.15 | | | $ | 919,125 | | | | 0.42 | | | | 98,000 | | | | 0.42 | | | | 7.26 | | | | 24,500 | | | | - | | | | 0.42 | | | | - | | | | - | | | | 0.50 | | | | 3,330,000 | | | | 0.50 | | | | 2.09 | | | | 566,100 | | | | 2,371,668 | | | | 0.50 | | | | 2.34 | | | | 403,184 | | | | 0.57 | | | | 400,000 | | | | 0.57 | | | | 4.87 | | | | 40,000 | | | | 83,280 | | | | 0.57 | | | | 4.87 | | | | 8,328 | | | | 1.00 | | | | 180,000 | | | | 1.00 | | | | 2.32 | | | | - | | | | 135,000 | | | | 1.00 | | | | 1.63 | | | | - | | | | 1.85 | | | | 78,400 | | | | 1.85 | | | | 2.00 | | | | - | | | | 78,400 | | | | 1.85 | | | | 2.00 | | | | - | | | $ | 0.10-1.85 | | | | 5,886,400 | | | $ | 0.41 | | | | 2.69 | | | $ | 1,656,600 | | | | 4,280,848 | | | $ | 0.39 | | | | 2.67 | | | $ | 1,330,637 | |
The weighted-average remaining contractual life for stock options exercisable at September 30, 2013 is 2.67 years. At September 30, 2013, the Company has 12,192,000incurred recurring operating losses since inception as it has worked to bring its SUGARDOWN® product to market and 6,921,600 options available for grant underdevelop BTI-320 and IPOXYN. Management expects such operating losses will continue until such time that substantial revenues are received from SUGARDOWN® or the 2011 Planregulatory and 2010 Plan, respectively.clinical development of BTI-320 or IPOXYN is completed. The intrinsic value for fully vested, exercisable options was $1,330,637 and $418,000Company has $157,000 cash on hand at September 30, 2013 and December 31, 2012, respectively. No actual tax benefit was realized from stock option exercises during these periods.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For2014. In March 2015, the three and nine month periods ended September 30, 2013 and 2012
5. RELATED PARTY TRANSACTIONS
Through December 31, 2011, the CEO advanced $257,820 to BTI to fund start-up costs and operations of the Company. 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 President entered into promissory notes to advance to the Company an aggregate of $40,000. The notes accrue interest at 6.5% per year 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.
As of September 30, 2013 and December 31, 2012, $58,568 and $44,090, respectively, of accrued interest had been included in accrued expenses on the accompanying balance sheet.
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 September 30, 2013 and December 31, 2012:
| | | | 2013 | | | | 2012 | | SUGARDOWN® technology and provisional patents | | $ | 900,000 | | | $ | 900,000 | | Less accumulated amortization | | | (187,500 | ) | | | (139,286 | ) | | | $ | 712,500 | | | $ | 760,714 | |
Amortization expense was $16,071 and $48,213 for the three and nine months ended September 30, 2013 and 2012, respectively.
7. COMMITMENTS AND CONTINGENCIES
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 three year lease agreement for their office lease facility commencing July 1, 2012, with escalating rental payments. On February 21, 2013,result of additional cost cutting measures surrounding the use of consultants and payroll associated costs reduced by 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 $10,132 and $59,372 during the threefourth quarter of fiscal 2014 and nine months ended September 30, 2013, respectively. The Company recognized rent expense of $7,326into fiscal 2015. Management plans to seek additional capital through private placements and $9,890 during the three and nine months ended September 30, 2012, respectively. As of September 30, 2013 and December 31, 2012, there was $25,635 and $2,267, 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 September 30, 2013 are as follows:
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
8. SUBSEQUENT EVENTS
The Company has evaluated events and transactions that occurred from September 30, 2013 through the date of filing, 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 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 sharespublic offerings of the Company’s common stock and warrantsstock. In addition, management may seek to purchase 76,666raise additional shares of common stock at an exercise price of $0.50 per share for total gross proceeds of $46,000.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
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. as of December 31, 20122014 and 2011,2013, 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, 20122014 and 2011,2013, 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 April 4, 2013March 27, 2015
| Boston Therapeutics, Inc. | | | | | | | | Balance Sheets | | | | | | | December 31, 20122014 and 2011 | | | | | | | | | | | | | 2013 |
| | December 31, 2012 | | | December 31, 2011 | | | ASSETS | | | | | | | Cash | | $ | 552,315 | | | $ | 225,995 | | Accounts receivable | | | 17,351 | | | | - | | Prepaid expenses and other current assets | | | 9,073 | | | | 5,331 | | Inventory | | | 16,809 | | | | 23,596 | | Total current assets | | | 595,548 | | | | 254,922 | | | | | | | | | | | | Property and equipment, net | | | 7,075 | | | | - | | Intangible assets | | | 760,714 | | | | 825,000 | | Goodwill | | | 69,782 | | | | 69,782 | | Other assets | | | 2,125 | | | | - | | Total assets | | $ | 1,435,244 | | | $ | 1,149,704 | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | Accounts payable | | $ | 294,187 | | | $ | 341,873 | | Accrued expenses and other current liabilities | | | 146,774 | | | | 125,316 | | Total current liabilities | | | 440,961 | | | | 467,189 | | | | | | | | | | | | | Advances - related parties | | | 297,820 | | | | 257,820 | | Total liabilities | | | 738,781 | | | | 725,009 | | | | | | | | | | | | | COMMITMENTS AND CONTINGENCIES (Note 9) | | | | | | | | | | | | | | | | | | | | 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, | | | | | | | | | 18,745,706 and 16,223,206 shares issued and outstanding | | | | | | | | | at December 31, 2012 and 2011, respectively | | | 18,746 | | | | 16,223 | | | Additional paid-in capital | | | 3,375,116 | | | | 1,621,756 | | | Accumulated deficit | | | (2,697,399 | ) | | | (1,213,284 | ) | Total stockholders’ equity | | | 696,463 | | | | 424,695 | | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 1,435,244 | | | $ | 1,149,704 | |
| | | 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, 20122014 and 2011 | 2013 |
| | | December 31, | | | December 31, | | | | | 2012 | | | 2011 | | | | | | | | | | | Revenue | | $ | 42,254 | | | $ | 4,112 | | | Cost of goods sold | | | 56,859 | | | | 6,375 | | | Gross margin | | | (14,605 | ) | | | (2,263 | ) | | | | | | | | | | | | Operating expenses: | | | | | | | | | | Research and development | | | 178,938 | | | | 194,276 | | | Sales and marketing | | | 232,411 | | | | 206,517 | | | General and administrative | | | 1,036,566 | | | | 408,454 | | | | | | | | | | | | | Total operating expenses | | | 1,447,915 | | | | 809,247 | | | | | | | | | | | | | Operating loss | | | (1,462,520 | ) | | | (811,510 | ) | | | | | | | | | | | | Interest expense | | | (18,384 | ) | | | (15,658 | ) | | Foreign currency loss | | | (3,211 | ) | | | - | | | Net loss | | $ | (1,484,115 | ) | | $ | (827,168 | ) | | | | | | | | | | | | | | | | | | | | | | Net loss per share- basic and diluted | | $ | (0.09 | ) | | $ | (0.05 | ) | | | | | | | | | | | | Weighted average shares outstanding basic and diluted | | | 16,873,903 | | | | 15,147,196 | |
| | | 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, 20122014 and 20112013 |
| | | Common Stock | | | | | | | | | | | | | | Shares | | | Amount | | | Additional Paid-in Capital | | | Accumulated Earnings (Deficit) | | | Total | | | Balance December 31, 2010 | | | 14,041,236 | | | $ | 14,041 | | | $ | 905,964 | | | $ | (386,116 | ) | | $ | 533,889 | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock | | | 2,091,470 | | | | 2,091 | | | | 520,906 | | | | - | | | | 522,997 | | | Issuance of common stock in exchange | | | | | | | | | | | | | | | | | | | | | | for consulting services | | | 90,500 | | | | 91 | | | | 45,159 | | | | - | | | | 45,250 | | | Stock based compensation | | | - | | | | - | | | | 149,727 | | | | - | | | | 149,727 | | | Net loss | | | - | | | | - | | | | - | | | | (827,168 | ) | | | (827,168 | ) | | | | | | | | | | | | | | | | | | | | | | | | Balance December 31, 2011 | | | 16,223,206 | | | | 16,223 | | | | 1,621,756 | | | | (1,213,284 | ) | | | 424,695 | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of common stock | | | 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 | | | | | | | | | | | | | | | | | | | | | | for consulting services | | | 252,500 | | | | 253 | | | | 128,522 | | | | - | | | | 128,775 | | | Stock based compensation | | | - | | | | - | | | | 480,108 | | | | - | | | | 480,108 | | | Net loss | | | - | | | | - | | | | - | | | | (1,484,115 | ) | | | (1,484,115 | ) | | Balance December 31, 2012 | | | 18,745,706 | | | $ | 18,746 | | | $ | 3,375,116 | | | $ | (2,697,399 | ) | | $ | 696,463 | |
The accompanying notes are an integral part of these financial statements.
Boston Therapeutics, Inc. | | | | Statements of Cash Flows | | | | For the Years Ended December 31, 2012 and 2011 | | | |
| | | December 31, | | | December 31, | | | | | 2012 | | | 2011 | | | Cash flows from operating activities: | | | | | | | Net loss | | $ | (1,484,115 | ) | | $ | (827,168 | ) | | Adjustments to reconcile net loss to net cash | | | | | | | | | | used in operating activities: | | | | | | | | | | Depreciation and amortization | | | 64,968 | | | | 64,286 | | | Stock based compensation | | | 480,108 | | | | 149,727 | | | Issuance of common stock for consulting services | | | 128,775 | | | | 45,250 | | | Changes in: | | | | | | | | | | Accounts receivable | | | (17,351 | ) | | | - | | | Inventory | | | 6,787 | | | | (19,447 | ) | | Prepaid expenses | | | (3,742 | ) | | | (3,603 | ) | | Other assets | | | (2,125 | ) | | | - | | | Accounts payable | | | (47,686 | ) | | | 295,956 | | | Accrued expenses | | | 21,458 | | | | (97,196 | ) | | | | | | | | | | | | Net cash used in operating activities | | | (852,923 | ) | | | (392,195 | ) | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | Purchase of property and equipment | | | (7,757 | ) | | | - | | | Net cash used in investing activities | | | (7,757 | ) | | | - | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | Proceeds from advances - related parties | | | 40,000 | | | | 80,000 | | | Proceeds from issuance of common stock and warrants | | | 1,147,000 | | | | 522,997 | | | Net cash provided by financing activities | | | 1,187,000 | | | | 602,997 | | | | | | | | | | | | | Net increase in cash and cash equivalents | | | 326,320 | | | | 210,802 | | | | | | | | | | | | | Cash and cash equivalents, beginning of period | | | 225,995 | | | | 15,193 | | | Cash and cash equivalents, end of period | | $ | 552,315 | | | $ | 225,995 | | | | | | | | | | | | | Supplemental disclosure of cash flow information | | | | | | | | | | Cash paid during the period for: | | | | | | | | | | Interest | | $ | - | | | $ | - | | | | | | | | | | | | | Income taxes | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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. Notes to Financial Statements For the Years Ended December 31, 20122014 and 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 (“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, and Chief Financial 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 former 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®SUGARDOWN®, to market and have begun to make initial sales. We are currently focused on the development of two additional drug products: PAZ320,BTI-320, a non-systemic, chewablenon-toxic, tablet for reduction of post-meal blood glucose in people living with diabetes and prediabetes that is fully developed, and IPOXYN™,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 cash resources, recurring cash used in operations and operating losses history. As shown in the accompanying financial statements, the Company has an accumulated deficit of approximately $2,697,000$12 million as of December 31, 2012. 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.
The Company has reassessed its status as a development stage entity in accordance with Accounting Standards Codification (ASC) 915, Development Stage Entities, as defined by Financial Accounting Standards Board (FASB), and has determined that its emergence from the development stage occurred during the year ended December 31, 2012 based on the accumulation of significant events that occurred through December 31, 2012. Since inception the Company has sold approximately $46,794 of its over-the-counter product SUGARDOWN® . Furthermore, the Company has completed development of one consumer product for which it has executed distribution agreements with companies in Asia and Europe and established a web presence through which the Company sells directly to consumers. The Company has also completed development of one pharmaceutical drug candidate, for which it has completed Phase 2 clinical trials. The Company has raised approximately $1,147,000 in 2012 and has recently engaged an investment banking firm to raise additional funds for supporting additional clinical studies and to expand the company’s operations capabilities. Accordingly, the Company has determined that it has commenced planned principal operations and is no longer a development stage entity. Previously, the Company has reported as a development stage entity through September 30, 2012. As a result of this change in reporting status, the Company has removed from these financial statements all 'cumulative since inception' financial information that is required by ASC 915.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2012 and 2011
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, 2014 and 2013 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 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. Revenues are recorded net of local sales tax collected. 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. AsThere were no allowances for doubtful accounts as of December 31, 20122014 and 20112013. At December 31, 2014, there were no accounts receivable. At December 31, 2013, the allowanceCompany had one customer that accounted for doubtful100% of its accounts was $0.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 adjustments to the carrying value of inventory for the years ended December 31, 2012 and 2011 were $0 and $1,667, 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, 20122014 and 2011,2013, the Company recorded depreciation expense of $682$6,662 and $0,$2,818, respectively. Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2012 and 2011
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES …continued
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, 2014 and 2013
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.
TheAs the Company testsoperates 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 2012 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 year ended December 31, 20122014 did not include consideration of 8,353,400 common stock6,483,400 and 12,516,669 options and warrants, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the year ended December 31, 20112013 did not include consideration of 1,578,400 common stock5,741,400 and 11,974,999 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, 20122014 and 2011.2013. Boston Therapeutics, Inc. Notes to Financial Statements For the Years Ended December 31, 2014 and 2013 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. 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 using level 3 inputs as defined above. The carrying value of the notes payable as of December 31, 2014 and 2013, 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. 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. Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2012 and 2011
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES…continued
Fair Value of Financial Instruments…continued
The carrying value of the advancesnotes payable as of December 31, 20122013 and 2011,2012, is not materially different from the fair value of the advancesnotes 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:
The weighted-average fair value of stock options granted during the years ended December 31, 2012 and 2011, under the Black-Scholes option pricing model was $0.30 and $0.20 per share, respectively. For the years ended December 31, 2012 and 2011, the Company recorded stock-based compensation expense of $480,108 and $149,727, respectively, in connection with share-based payment awards. As of December 31, 2012, there was approximately $1,654,000 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 2.50 years.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU allows an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test for indefinite-lived intangible assets. An organization that elects to perform a qualitative assessment is required to perform the quantitative impairment test for an indefinite-lived intangible asset if it is more likely than not that the asset is impaired. This ASU, which applies to all public, private, and not-for-profit organizations, is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements, as it was intended to simplify the impairment assessment for indefinite-lived intangible assets. In February 2013, the FASB issued Accounting Standards Update No. 2013-2, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendment, required to be applied prospectively for reporting periods beginning after December 15, 2012, requires entities to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line item of net income. Early adoption is permitted. Our financial statement presentation complies with this standards update.
Boston Therapeutics, Inc. Notes to Financial Statements For the Years Ended December 31, 2013 and 2012 and 2011
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES - continued
Recent 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, 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 applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective 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, 20122013 and 2011,2012, net of inventory reserves, were as follows: | | | 2012 | | | 2011 | | | 2013 | | 2012 | | | | $ | 13,125 | | | $ | 23,034 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,684 | | | | 562 | | | | | | | | | | | | | | | | | | | | | | $ | 16,809 | | | $ | 23,596 | | | | | | | | |
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 | | | | | | | | | | | | | | | | | |
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.
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 of common stock in connection with the merger transaction described in Note 7.
On June 21, 2011 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 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. No other issuances of preferred or common stock have been made.
On May 7, 2012 the Company issued 20,000 shares of common stock at a price per share of $1.10 and issued 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 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.
Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2012 and 2011
4. STOCKHOLDERS’ EQUITY…continued
Common Stock…continued
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 hashad 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 iswas 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 professional consulting services. On June 29, 2012 the Company issued 1,000,000 shares to an 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 December 12,November 13, 2012 the Company issued 1,250,000 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 associated with the subscription 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 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 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.
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, 2013 and December 31, 2012, there were 578,400 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 and restated 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, 2013 and December 31, 2012, there were 5,163,000 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 date of grant.
following assumptions: Boston Therapeutics, Inc. Notes to Financial Statements For the Years Ended December 31, 2013 and 2012 and 2011
5.6. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION - …continued
The weighted-average fair value of 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 underduring the Stock Plans.years ended December 31, 2013 and 2012: | | | Shares | | | Price per Share | | | Weighted Average Exercise Price | | | Shares | | | Exercise Price per Share | | | Weighted Average Exercise Price per Share | | | Outstanding, December 31, 2010 | | | 78,400 | | | $ | 1.85 | | | $ | 1.85 | | | | | | | | | | | | | | | | | | Outstanding as of December 31, 2011 | | | | 1,578,400 | | | $ | 0.10-1.85 | | | $ | 0.19 | | | Granted | | | 1,921,237 | | | 0.10 to 0.25 | | | | 0.13 | | | | 6,130,000 | | | | 0.10-0.50 | | | | 0.48 | | | Exercised | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | Options forfeited/cancelled | | | (421,237 | ) | | | - | | | | 0.25 | | | | - | | | | - | | | | - | | | Outstanding, December 31, 2011 | | | 1,578,400 | | | 0.10 to 1.85 | | | | 0.19 | | | | | | | | | | | | | | | | | | Outstanding as of December 31, 2012 | | | | 7,708,400 | | | $ | 0.10-1.85 | | | $ | 0.42 | | | Granted | | | 6,130,000 | | | 0.10 to 0.50 | | | | 0.48 | | | | 708,000 | | | | 0.42-1.00 | | | | 0.68 | | | Exercised | | | - | | | | - | | | | - | | | | (13,104 | ) | | | 0.50 | | | | 0.50 | | | Options forfeited/cancelled | | | - | | | | - | | | | - | | | | (2,661,896 | ) | | | 0.42-1.00 | | | | 0.52 | | | | | | | | | | | | | | | | | | Outstanding, December 31, 2012 | | | 7,708,400 | | | $ | 0.10 to 1.85 | | | $ | 0.42 | | | Outstanding as of December 31, 2013 | | | | 5,741,400 | | | $ | 0.10-1.85 | | | $ | 0.40 | |
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, 2012:2013:
| Vested or Expected to Vest | | | Exercisable Options | | | | | | | | | Weighted | | | Weighted | | | | | | | | | Weighted | | | Weighted | | | | | | | | | | | | Average | | | Average | | | | | | | | | Average | | | Average | | | | | | | | | | | | Exercise | | | Remaining | | | Aggregate | | | Number | | | Exercise | | | Remaining | | | Aggregate | | | Exercise | | | Number of | | | Price Per | | | Contractual | | | Intrinsic | | | of | | | Price | | | Contractual | | | Intrinsic | | | Price | | | Options | | | Share | | | Life (Years) | | | Value | | | Options | | | Per Share | | | Life (Years) | | | Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 0.10 | | 1,800,000 | | $ | 0.10 | | 3.87 | | $ | 576,000 | | | 1,306,250 | | $ | 0.10 | | 3.93 | | $ | 418,000 | | | 1.85 | | 78,400 | | | 1.85 | | 2.75 | | | - | | | 78,400 | | | 1.85 | | 2.75 | | | - | | | 0.50 | | 5,830,000 | | | 0.50 | | 5.13 | | | - | | | 934,167 | | | 0.50 | | 5.95 | | | - | | $ | 0.10-1.85 | | 7,708,400 | | $ | 0.42 | | 4.81 | | $ | 576,000 | | | 2,318,817 | | $ | 0.32 | | 4.71 | | $ | 418,000 |
F-34
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 following table sets forth the status of the Company’s non-vested stock options as of December 31, 2013:
| | | Number of Options | | | Weighted-Average Grant-Date Fair Value | | Non-vested as of December 31, 2011 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-vested as of December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-vested as of December 31, 2013 | | | | | | | | |
The weighted-average remaining contractual life for options exercisable at December 31, 20122013 is 4.713.89 years. At December 31, 20122013 the Company has 4,870,00012,337,000 and 4,421,6006,921,600 options available for grant under the 2011 Plan and 2010 Plan, respectively.
The aggregate intrinsic value for fully vested, exercisable options was $418,000$5,061,256 and $96,206$418,000 at December 31, 2013 and 2012, and 2011, respectively. NoThe aggregate intrinsic value of options exercised during the year ended December 31, 2013 was $12,449. There were no options exercised during the year ended December 31, 2012. The actual tax benefit was realized from stock option exercises during these periods.the year ended December 31, 2013 was $19,000. There was no actual tax benefit realized from stock options exercises during fiscal 2012. 67. RELATED PARTY TRANSACTIONS
Through December 31, 2011, the CEODr. Platt advanced $257,820 to BTI to fund start-up costs and operations of the Company. Advances by the CEODr. 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 CEO andCompany's President entered into promissory notes to advance to the Company an aggregate of $40,000. The notes accrue interest at 6.5% per year were due June 30, 2013. As of December 31, 2012, and December 31, 2011, $44,090 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 CEOOn August 2, 2013, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2015. As of December 31, 2013 and President intend to, but are not legally obligated, to fund2012, $63,447 and $44,090, respectively, of accrued interest had been included in accrued expenses 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 China. Advance Pharmaceutical, through a wholly owned subsidiary, has purchased an aggregate 1,799,800 shares of the Company’s operationscommon stock in this manner untilconjunction with the Company raises sufficient capital.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, 2013 and 2012 were $315,000 and $17,000, respectively. Boston Therapeutics, Inc. Notes to Financial Statements For the Years Ended December 31, 2013 and 2012
7. RELATED PARTY TRANSACTIONS - continued
On March 14, 2013 the Company issued 500,000 shares of its common stock at a price per share of $0.50 and 2011
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.
7.In December 2013, the Board of Directors agreed to indemnify Dr. Platt for legal costs incurred in connection with an arbitration 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 seeks 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 asserts he is owed and to be repaid all separation benefits paid to Dr. Platt to date. The Company capped the amount for which it will indemnify Dr. Platt at an initial maximum of $150,000 and Dr. Platt has 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, the potential impact of the arbitration on the Company and Dr. Platt’s agreement to reimburse the Company should he prevail. As of December 31, 2013, the Company recorded legal expense associated with this indemnification of $119,401.
8. INTANGIBLE ASSETS The SUGARDOWN® technology and provisional patents, 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:following as of December 31: | | | December 31, | | | | | | 2012 | | 2011 | | | 2013 | | 2012 | | SUGARDOWN® technology and provisional patents | | | | | | | | | | | | | | | Less accumulated amortization | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization expense for each of the years ended December 31, 2013 and 2012 and 2011 was $64,286.$64,285.
The estimated remaining amortization expense related to intangible assets with finite lives for each of the five succeeding years and thereafter is as follows:
| Year ending December 31: | | | | | | | | | | | | | | | | | | Fiscal year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
8.Boston Therapeutics, Inc.
Notes to Financial Statements For the Years Ended December 31, 2013 and 2012
9. PROVISION FOR INCOME TAXES Temporary differences that give riseDuring the years ended December 31, 2013 and 2012, no provision for income taxes was recorded as the Company generated net operating losses of $2,680,473 and $943,849, respectively.
A reconciliation of the U.S. federal statutory income tax rate to significantthe Company’s effective income tax rate is as follows: | | | 2013 | | | 2012 | | 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 are as follows:of December 31, 2013 and 2012 consisted of the following: | | | December 31, | | | | | 2012 | | | 2011 | | | | | | | | | | | Net operating loss carryforward | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2013 | | | 2012 | | Net operating loss carryforwards | | | | | | | | | | | | | | | | | | Non-qualified stock options | | | | | | | | | Other temporary differences | | | | | | | | | Gross deferred tax assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2012 and 2011,2013, the Company had a deferred tax asset of $21,786 related to start-up costs which are amortizable for tax purposes. The Company also had a deferred tax asset related to net operating loss carryforwards for federal and state income tax purposes of $2,697,399$4,497,182, which begin to expire in years 2029 and $1,213,2842019, respectively. The Company also has available research and development tax credit carryforwards for federal income tax purposes of $12,499, which begin to expire in year 2032. Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that expire through 2032 ascould occur in the future. These ownership changes may limit the amount of December 31, 2012 and 2011, respectively.carryforwards that can be utilized annually to offset future taxable income. The Company has provided a full valuation allowance for deferred tax assets generated since, based on the weight of available evidence,evidence; it is more likely than not that these benefits will not be realized. During 2012,the year ended December 31, 2013, the Company increased its valuation allowance by $597,654$1,729,582 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, 2012.2013. Management reevaluates the positive and negative evidence at each reporting period. Boston Therapeutics, Inc.
Notes to Financial Statements
For the Years Ended December 31, 2012 and 2011
8. PROVISION FOR INCOME TAXES…continued
The primary factors affecting the Company’s income tax rate for the years ended December 31, 2012 and 2011 are as follows:
| | | 2012 | | | 2011 | | Tax benefit at U.S. statutory rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company applies the provisions of ASC 740-10, Income Taxes, (originally issued as FASB Interpretation No. 48, Accounting for Uncertainty in 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.
9.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 2010 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.
Boston Therapeutics, Inc. Notes to Financial Statements For the Years Ended December 31, 2013 and 2012
10. COMMITMENTS AND CONTINGENCIES | 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 $73,752 and $15,759 during the years ended December 31, 2013 and 2012, with escalating rental payments. 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 $15,759 and $4,746 for the years ended December 31, 2012 and 2011, respectively. As of December 31, 2013 and 2012, there was $25,381 and $2,267, 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, 2012, are as follows:
|
| Fiscal year | | | | | 2013 | | $ | 25,917 | | | 2014 | | | 26,917 | | | 2015 | | | 16,042 | | | | | $ | 68,876 | |
10.11. SUBSEQUENT EVENTS
The Company has evaluated events and transactions that occurred from December 31, 20122013 through March 14, 2014, the date of filing,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 2014 the Company received a notice of cashless stock option exercise in which the holder elected to exercise 133,280 vested options. The stock options which were exercised had an exercise price of $0.57 per share. Based upon the Company’s stock price and the cashless exercise formula at the date of exercise, 79,016 shares were issued to the holder. On December 20, 2012,
In January 2014 the Company entered into a consulting agreement to market SUGARDOWN® in the United States. In addition to monthly cash payments, the Company will issue 500,000 shares of its common stock upon achievement of certain agreed upon milestones. In January 2014 the Company entered into an investment banking agreement under which it is required to pay an engagement fee of $25,000 and issue a warrant to purchase 25,000 shares of common stock at an exercise price of $2.00 per share. Additionally, the Company will be required to pay fees subject to completion of certain financing transactions.
During January and February 2014 the Company issued 6,000 shares of its common stock with a fair value of $7,200 in exchange for consulting services rendered during those periods in connection with a consulting agreement. During February and March 2014, the Company entered into three consulting agreements under which the Company is required to issue consultants monthly cash payments and a total of 300,000 shares of its common stock in exchange for consulting services over a period of one year.
In February 2014 the Board of Directors approved a grant of non-qualified stock options to the independent directors of the Company to purchase an aggregate of 98,000279,000 shares of the Company’s common stock, with the grant to be effective January 1, 2013.2014. The options were allocated among the directors based on service in, and chairmanship of the Company’s committees and service as lead independent director. The options vest as of December 31, 2013,2014, provided that the directors remain directors on that date and have attended at least 75% of the scheduled meetings of the Board and the committees on which such directors serve during the 20132014 calendar year. Boston Therapeutics, Inc. Notes to Financial Statements For the Years Ended December 31, 2013 and 2012
11. SUBSEQUENT EVENTS - continued In February 2014 the Company granted incentive stock options to members of management and non-management to purchase an aggregate of 700,000 shares of the Company’s common stock at the exercise price of $1.21 per share, of which 350,000 of these options vest immediately. The remainder vest quarterly over a period of one to two years. In addition, the Company granted a consultant a non-qualified stock option to purchase up to 120,00050,000 shares of the Company’s common stock at anthe exercise price of $1.00$1.21 per share as partial compensation for professional services. The option vests in four equalvesting quarterly installments with the first installment vesting onover a two year period.
On March 31, 2013. The option expires on December 31, 2018. In February 2013,12, 2014, a complaint against the Company agreed to increaseand the amount of office space it will lease effective April 1, 2013 and to increase the lease term through March 31, 2018. As a result of this amendment to its lease agreementCompany's CEO, David Platt, was filed in Middlesex Superior Court in Massachusetts by Eliezer Zomer. Mr. Zomer alleges that the Company agreedand Dr. Platt have refused to increase its monthly minimum rentdeliver 400,000 shares of the Company's Common Stock that Mr. Zomer believes are owed to $4,878 forhim, and seeks delivery of the period April 1, 2013 through March 31, 2014, $5,051 forshares and damages. The Company and Dr. Platt intend to contest the period April 1, 2014 through March 31, 2015, $5,225 for the period April 1, 2015 through March 31, 2016, $5,404 for the period April 1, 2016 through March 31, 2017 and $5,591 for the period April 1, 2017 through March 31, 2018.
On February 27, 2013, CJY Holdings Limited, an affiliate of Advance Pharmaceutical Co. Ltd., made a $250,000 investmentallegations set forth in the Company pursuant to the S-1 Registration Statement. CJY Holdings Limited received 500,000 shares of common stock priced at $0.50 and 250,000 warrants to purchase common stock with an exercise price of $1.00 and a five-year term.
complaint. In March 2013, the Company’s Board of Directors voted to amend its Certificate of Incorporation to increase the authorized number of common shares from 100,000,000 to 200,000,000; and to submit the amendment to the Company’s stockholders for their approval. The amendment will not take effect unless approved by the stockholders.
In March 2013, the Company’s Board of Directors amended the Company’s 2010 Stock Plan to increase the number of shares in the plan to 7,500,000; and to increase the Company’s 2011 Non-Qualified Stock Option Plan to increase the number of shares in the plan from 12,000,000 to 17,500,000. The amendment to the 2010 Stock Plan will not take effect unless approved by the stockholders. The amendment to the 2011 Non-Qualified Stock Option Plan took effect upon approval by the Board of Directors.
You should rely only on the information contained in this document. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. Additional risks and uncertainties not presently known or that are currently deemed immaterial may also impair our business operations. The risks and uncertainties described in this document and other risks and uncertainties which we may face in the future will have a greater impact on those who purchase our common stock. These purchasers will purchase our common stock at the market price or at a privately negotiated price and will run the risk of losing their entire investment.
Up to 25,000 Shares of Common Stock Warrants to Purchase up to 12,500,000 Shares of Common Stock
____________________________
PROSPECTUS ____________________________
April 28 , 2015 PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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.
| Description | | Amount to be Paid | | | | | | | Filing Fee - Securities and Exchange Commission | | | | | Attorney'sAttorney’s fees and expenses
| | | | | Accountant'sAccountant’s fees and expenses
| | | | | Transfer agent'sagent’s and registrar fees and expenses | | | | | Printing and engraving expenses | | | | | | | | | | | | | | |
* Estimated
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
Our certificate of Incorporationincorporation provides that we shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify and upon request shall advance expenses to any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was or has agreed to be a director or officer of ours or while a director or officer is or was serving at our request as a director, officer, partner, trustee, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’ fees and expenses), judgments, fines, penalties and amounts paid in settlement incurred in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided, however, that the foregoing shall not require us to indemnify or advance expenses to any person in connection with any action, suit, proceeding or claim initiated by or on behalf of such person or any counterclaim against us initiated by or on behalf of such person. Such indemnification shall not be exclusive of other indemnification rights arising under any by-law, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person. Any person seeking indemnification shall be deemed to have met the standard of conduct required for such limitationindemnification unless the contrary shall be established. Any repeal or modification of liability.our certificate of incorporation shall not adversely affect any right or protection of a director or officer of ours with respect to any acts or omissions of such director or officer occurring prior to such repeal or modification.
The Company’s By-lawsOur bylaws provide forwe shall, to the indemnificationfullest extent permitted under the laws of the State of Delaware, as amended and advancementsupplemented from time to time, indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such party is or was, or has agreed to become, a director or officer of ours, or is or was serving, or has agreed to serve, at our request, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan, or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such party or on such party’s behalf in connection with such action, suit or proceeding and any appeal therefrom.
Expenses incurred by such a person in defending a civil or criminal action, suit or proceeding by reason of the fact that such person is or was, or has agreed to become, a director or officer of ours, or is or was serving, or has agreed to serve, at our request, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan, or by reason of any action alleged to have been taken or omitted in such capacity shall be paid by us in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by us as authorized by relevant sections of the Delaware General Corporation Law. Notwithstanding the foregoing, we shall not be required to advance such expenses to directorsa person who is a party to an action, suit or proceeding brought by us and officersapproved by a majority of the Company (and, at the discretion of theour Board of Directors that alleges willful misappropriation of corporate assets by such person, disclosure of confidential information in violation of such person's fiduciary or contractual obligations to us or any other willful and deliberate breach in bad faith of such person's duty to us or our stockholders. We shall not indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person unless the initiation thereof was approved by our Board of Directors. The indemnification rights provided in our bylaws shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement or vote of stockholders or disinterested directors or otherwise, both as to action in their official capacities and as to action in another capacity while holding such office, continue as to such person who has ceased to be a director or officer, and inure to the benefit of the Company, employeesheirs, executors and agentsadministrators of such a person. If the CompanyDelaware General Corporation Law is amended to expand further the indemnification permitted to indemnitees, then we shall indemnify such persons to the fullest extent permitted by the Delaware General Corporation Law, as so amended. We may, to the extent that Delaware law permits the Companyauthorized from time to time by our Board of Directors, grant indemnification rights to other employees or agents of ours or other persons serving us and such rights may be equivalent to, or greater or less than, those set forth in our bylaws. Our obligation to provide indemnification under our bylaws shall be offset to such persons) in excessthe extent of theany other source of indemnification and advancementor any otherwise permittedapplicable insurance coverage under a policy maintained by us or any other person. To assure indemnification under our bylaws of all directors, officers, employees or agents who are determined by us or otherwise to be or to have been "fiduciaries" of any employee benefit plan of ours that may exist from time to time, Section 145 of the DGCL, subject onlyDelaware General Corporation Law shall, for the purposes of our bylaws, be interpreted as follows: an "other enterprise" shall be deemed to limits createdinclude such an employee benefit plan, including without limitation, any plan of ours that is governed by applicable Delaware law (statutorythe Act of Congress entitled "Employee Retirement Income Security Act of 1974," as amended from time to time; we shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to us also imposes duties on, or non-statutory),otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; and excise taxes assessed on a person with respect to actions for breachan employee benefit plan pursuant to such Act of dutyCongress shall be deemed "fines." Our bylaws shall be deemed to be a contract between us and each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the Company, its stockholdersfact that person is or was, or has agreed to become, a director or officer of ours, or is or was serving, or has agreed to serve, at our request, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan, or by reason of any action alleged to have been taken or omitted in such capacity, at any time while this by-law is in effect, and others. any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts.
The indemnification provision of our bylaws 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 apply in the event of a claim for indemnification thereunder.
Insurance. The CompanyWe may purchase and maintain insurance on behalf of any person who is or was a director, officer or employee of the Company,ours, or is or was serving at theour request of the Company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise against liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Companywe would have the power to indemnify him against liability under the provisions of this section. The CompanyWe currently maintainsmaintain such insurance.
Settlement by the Company. The right of any person to be indemnified is subject always to theour right, of the Company by its Board of Directors, in lieu of such indemnity, to settle any such claim, action, suit or proceeding at theour expense of the Company by the payment of the amount of such settlement and the costs and expenses incurred in connection therewith.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Companyour company pursuant to the foregoing provisions, or otherwise, the Company has we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
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. 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 in conjunction with the note payable as referenced in Note 7 of the accompanying Notes to the Financial Statements for the year ended December 31, 2014, included in this prospectus. The remaining amount would be considered settled in full by the Company. 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
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, we issued 10,000 shares of our Common Stock to a foreign national for an aggregate price of $10,000. The sales to a foreign national was made in reliance on the exemption from registration provided by Regulation S promulgated under the Securities Act for transactions deemed to occur outside of the United States.
On November 10, 2010, we issued 4,000,000 shares of our Common Stock to the stockholders of Boston Therapeutics, Inc., a New Hampshire corporation (“BTHENH”) in exchange for all the outstanding Common Stock of BTHENH pursuant to an Agreement and Plan of Merger we entered into with BTHENH. Our CEO is also a founder of BTHENH and was a 10% shareholder of BTHENH at the time of the merger. A valuation of our Common Stock was performed resulting in a fair value per share of $0.2466. Based on the 4,000,000 shares of Common Stock issued for BTHENH the total consideration was valued at $986,400. However, because our CEO was a 10% shareholder of BTHENH, 10% of BTHENH was valued at his historical cost basis and 90% of BTHENH was valued at fair value. The shares were sold to the stock holders in reliance upon the exemption from the registration requirements provided in Section 4(2) of the Securities Act of 1933, as amended. There was no public advertising in connection with such sale, and no commissions were paid relating to any of the securities issued.
On June 21, 2011, the Companywe 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 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.
On March 20,May 7, 2012, the Company entered into a subscription agreement to sellwe issued 20,000 shares of Common Stockcommon stock at a price per share of $1.10 and issueissued a warrant to purchase an additional 20,000 shares of Common Stockcommon stock at $1.15 per share for gross proceeds of $22,000. The warrant associated with the subscription agreement is exercisable immediately and has a five year term. The Company estimated During May 2012, we entered into a consulting agreement under which we were required to pay the relativeconsultant a monthly fee consisting of 25,000 shares of common stock beginning May 21, 2012 through May 21, 2013. As of December 31, 2012, we 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 warrant to be $8,754 using33,333 unissued shares for services rendered in December 2012 was included in the Black Scholes model, which has been recorded as a component of permanent equityaccompanying 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 additional paidJanuary 2013 for services performed in capital. On May 7, 2012, the subscriptionJanuary 2013. The agreement closed and the Company issued 20,000 shares of its Common Stock for $22,000.was terminated in January 2013.
During June 2012, the Companywe issued 105,00080,000 shares of its Common Stockour common stock with a fair value of $40,800 in exchange for professional consulting services valued at $24,895.services.
On June 29, 2012, the Companywe issued 1,000,000 shares to an 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.
During July 2012, the Companywe entered into a consulting agreement under which it waswe were required to pay the consultant a monthly fee consisting of $4,000 paid in cash and 7,500 shares of restricted Common Stock. The Companycommon stock. We had 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 December 12,November 13, 2012, the Companywe issued 1,250,000 shares of its Common Stockour 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 associated with the subscription 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 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. On January 22, 2013 the Company issued 45,833 shares of its Common Stock with a fair value of $19,250 in exchange for consulting services incurred in fiscal 2012 and January of 2013. As of December 31, 2012, the Company had accrued $14,000 representing the fair value of the 33,333 unissued shares for services rendered in December 2012. The agreement was terminated in January 2013.
On March 14, 2013, the Companywe issued 500,000 shares of its Common Stockour 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.$250,000 to CJY Holdings Limited, a company controlled by Conroy Cheng's brother Cheng Chi Him. The warrant associated with the subscription 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 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 Companywe issued a warrant to purchase 100,000 of Common Stockcommon 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 Companywe issued 52,000 shares of its Common Stockour 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 Companywe issued 40,000 shares of its Common Stockour 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.
On July 23, 2013, Boston Therapeutics, Inc. (the "Company")we conducted an initial closing of itsour private placement of securities (the “Offering”) pursuant to a Unit Purchase Agreement, dated as of July 23, 2013, (the “Purchase Agreement”)or the purchase agreement, with a certain accredited investor named therein (the “Investor”) pursuant to which the Investorsuch investor agreed to purchase (i) an aggregate of 6,666,660 shares (the “Shares”) of Common Stock of the Company (“Common Stock”)our common stock and (ii) warrants to purchase an aggregate of 3,333,320 shares of Common Stockcommon stock at an exercise price of $0.50 per share (the “Warrants”) for an aggregate purchase price of $2,000,000. As required by the Purchase Agreement,purchase agreement, at the closing, the Companywe entered into a Registration Rights Agreementregistration rights agreement pursuant to which it will bewe were required to register with the United States Securities and Exchange Commission (“SEC”)SEC such Sharesshares and the shares of common Stockstock underlying the Warrants (the “Warrant Shares”). The Company received $2,000,000 in gross proceeds from the sale of securities under the Purchase Agreement.warrants.
On August 6, 2013 and August 30, 2013, Boston Therapeutics, Inc. (the "Company")we conducted additional closings of itsour private placement of securities (the “Offering”) pursuant to a Unit Purchase Agreement, dated as of July 23, 2013 (the “Purchase Agreement”)the purchase agreement with certain accredited investors named therein, (the “Investors”) pursuant to which: (A) the Investorsinvestors at the August 6, 2013 closing agreed to purchase (i) an aggregate of 2,828,226 shares, (the “Second Closing Shares”)or the second closing shares, of Common Stock of the Company (“Common Stock”)our common stock and (ii) warrants to purchase an aggregate of 1,414,113 shares of Common Stockcommon stock at an exercise price of $0.50 per share, (the “Second Closing Warrants”)or the second closing warrants, for an aggregate purchase price of $848,465 and (B) the Investorsinvestors at the August 30, 2013 closing agreed to purchase (i) an aggregate of 2,260,449 shares, (the “Third Closing Shares”or the third closing shares and together with the Second Closing Shares,second closing shares, the “Shares”)shares, of Common Stock)common stock, and (ii) warrants to purchase an aggregate of 1,130,223 shares of Common Stockcommon stock at an exercise price of $0.50 per share, (the “Third Closing Warrants”or the third closing warrants and together with the Second Closing Warrants,second closing warrants, the “Warrants”)warrants, for an aggregate purchase price of $678,133. As required by the Purchase Agreement,purchase agreement, at the closings, the investors also became parties to the Registration Rights Agreementregistration rights agreement, dated as of July 23, 2013, or the registration rights agreement, pursuant to which the Company will bewe were required to register with the United States Securities and Exchange Commission (“SEC”)SEC such Sharesshares and the shares of Common Stockcommon stock underlying the Warrants (the “Warrant Shares”).warrants.
On September 30, 2013, Boston Therapeutics, Inc. (the "Company")we conducted the final closing (the “Final Closing”) of itsour private placement of securities (the “Offering”) pursuant to a Unit Purchase Agreement, dated as of July 23, 2013 (the “Purchase Agreement”) with certain accredited investors named therein (the “Investors”)the purchase agreement, pursuant to which: the Investorsinvestors at the Final Closingfinal closing agreed to purchase (i) an aggregate of 5,903,672 shares ( the “Shares”) of Common Stockcommon stock at $0.30 per share and (ii) warrants to purchase an aggregate of 2,951,828 shares of Common Stockcommon stock at an exercise price of $0.50 per share (the “Warrants”).share. As required by the Purchase Agreement,purchase agreement, at the closings, the investors also became parties to the Registration Rights Agreement dated as of July 23, 2013 pursuant to which the Company is required to register with the United States Securities and Exchange Commission (“SEC”) such Shares and the shares of Common Stock underlying the Warrants (the “Warrant Shares”). The Companyregistration rights agreement. We received $1,771,100 in gross proceeds from the sale of securities under the Purchase Agreementpurchase agreement at the Final Closing,final closing, bringing the total gross proceeds received by the Companyus in the Offeringoffering to $5,297,698. As required by the purchase agreement, at the closings, the investors also became parties to the registration rights agreement, dated as of July 23, 2013, or the registration rights agreement, pursuant to which we were required to register with the SEC such shares and the shares of common stock underlying the warrants.
In connection with the four closings of the private placement from July 23, 2013 through September 30, 2013, we issued, to the placement agent for the private placement, warrants to purchase the following respective numbers of shares of common stock at an exercise price of $0.30 per share: 300,000, 424,234, 339,068, and 745,547. During September 2013, the Companywe issued 52,000 shares of its Common Stockcommon 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. In connection with the four closingsDuring October 2013, we conducted an additional closing of theour private placement from July 23, 2013 through September 30, 2013,of securities to related parties and affiliates resulting in the Company issued to the placement agent for the private placementpurchase of 153,334 shares of our common stock and warrants to purchase the following respective numbers of76,666 additional shares of Common Stockcommon stock at an exercise price of $0.30$0.50 per share: 300,000, 424,234, 339,068,share for total gross proceeds of $46,000. The warrant associated with the subscription agreement is exercisable immediately and 745,547.has a five year term. We 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, we issued 43,860 shares of our 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, we 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. We 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, we issued 22,000 shares of our 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, we issued 35,316 shares of our 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 period ended March 31, 2014, we issued 99,000 shares of our 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. On March 31, 2014, we 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. We had received $250,000 of these proceeds during the fourth quarter of 2013 which was recorded as a stock subscription in accrued expenses as of December 31, 2013. The warrants are exercisable immediately and have a five year term.
During the three months ended June 30, 2014, we issued 36,000 shares of our 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 July 2014, the Company issued 6,000 shares of its common stock with a fair value of $3,120 in exchange for consulting services rendered during June 2014 and July 2014, in connection with one consulting agreement. The expense for the June services was included in accrued expenses and other current liabilities in the Company’s financial statements for the period ending June 30, 2014. 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. During the three months ended September 30, 2014, the Company issued 48,500 shares of its common stock with a fair value of $18,595 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. 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.
During the three months ended March 31, 2015, the Company issued 40,500 shares of its common stock with a fair value of $12,105 in exchange for consulting services rendered during those periods in connection with two consulting agreements.
In March 2015, the Company issued a warrant to purchase 979,965 shares of its common stock with a fair value of $112,500 in conjunction with a convertible debt financing agreement.
Except as expressly stated herein, each of the preceding sales and issuances was made in reliance on the exemption from registration provided by Section 4(2)4(a)(2) of the Securities Act for transactions not involving a public offering, except for the sale to APCAdvance Pharmaceutical, which was made in reliance on the exemption from registration provided by Regulation S promulgated under the Securities Act for transactions deemed to occur outside of the United States.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| | | Certificate of Incorporation, as amended (filed as Exhibit 3.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-192344) filed with the SEC on November 14, 2013 and incorporated herein by reference) | | Bylaws (filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-164785) filed with the SEC on February 8, 2010 and incorporated herein by reference) | Bylaws | | Certificate of Merger (filed as Exhibit 3.1 to the Company’s Current Report on Form of Investor Warrant8-K filed with the SEC on November 18, 2010 and incorporated herein by reference) | | Form of Placement Agent Warrant | Exhibit 5.1* | Opinion and consent of Seyfarth Shaw LLP re: the legality of the shares being registered issued to investors in this offering. | | Opinion of Ellenoff Grossman & Schole LLP | | Technology Assignment Agreement dated as of August 24, 2009 by and between the Company and David Platt (filed as Exhibit 10.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-164785) filed with the SEC on June 24, 2010 and incorporated herein by reference) | | Amended and Restated Boston Therapeutics, Inc. Amended and Restated 2010 Stock Plan (filed as Exhibit 10.1 to Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 13, 2013 and incorporated herein by reference) | | Boston Therapeutics, Inc. 2011 Non-Qualified Stock Plan | | Promissory Note dated as of February 9, 2010 issued by the Company to David Platt (filed as Exhibit 10.3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-164785) filed with the SEC on June 24, 2010 and incorporated herein by reference) | | Agreement and Plan of Merger dated November 10, 2010 by and among Avanyx Therapeutics, Inc. and Boston Therapeutics, Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 18, 2010 and incorporated herein by reference) | | Certificate of Merger | | Form of Subscription Agreement dated June 21, 2011, among Boston Therapeutics, Inc. and the Investors named therein (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 22, 2011 and incorporated herein by reference) | | License and Manufacturing Agreement between Boston Therapeutics, Inc. and Advance Pharmaceutical Company Limited effective as of June 24, 2011 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 15, 2011 and incorporated herein by reference) | | Employment Agreement between Boston Therapeutics, Inc. and Ken Tassey dated as of August 11, 2011 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 15, 2011 and incorporated herein by reference) | | Amended and Restated Boston Therapeutics, Inc. 2011 Non-Qualified Stock Plan (filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (File No. 333-185355) filed with the SEC on December 7, 2012 and incorporated herein by reference) | | Unit Purchase Agreement between Boston Therapeutics, Inc. and the investors named therein dated as of July 23, 2013, as amended (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 13, 2013 and incorporated herein by reference) | | Registration Rights Agreement between Boston Therapeutics, Inc. and the investors named therein dated as of July 23, 2013, as amended (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 13, 2013 and incorporated herein by reference) | | Separation Agreement and General Release between Boston Therapeutics, Inc. and Kenneth A. Tassey, Jr., effective June 30, 2014 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on August 8, 2014 and incorporated herein by reference) | | Marketing Agreement, dated as of May 14, 2014, by and between Boston Therapeutics, Inc. and Benchworks SD LLC (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 7, 2014 and incorporated herein by reference) | | 10.13* | Form of Subscription Agreement | | | Exhibit | Consent of Seyfarth ShawEllenoff Grossman & Schole LLP (included in Exhibit 5.1) | | Power of Attorney (included on signature page of this Registration Statement) |
* Filed herewith * To be* Previously filed by amendment to this Form S-1 Registration Statement
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
| 1. | To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: |
| | a. | To include any prospectus required by Section 10(a)(3) of the Securities Act; |
| | b. | To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and rise represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation“Calculation of Registration Fee"Fee” table in the effective registration statement; and |
| | c. | To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material changes to such information in the Registration Statement. |
| 2. | For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. |
| 3. | To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. |
| 4. | For determining liability of the undersigned issuer under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned issuer undertakes that in a primary offering of securities of the undersigned issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| | i. | Any preliminary prospectus or prospectus of the undersigned issuer relating to the offering required to be filed pursuant to Rule 424; |
| | ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned issuer or used or referred to by the undersigned issuer; |
| | iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned issuer or its securities provided by or on behalf of the undersigned issuer; and |
| | iv. | Any other communication that is an offer in the offering made by the undersigned issuer to the purchaser. |
| 5. | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer of controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
| 6. | For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective. |
| 7. | For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. |
| 8. | That, for the purpose of determining liability under the Securities Act to any purchaser: |
| | a. | If the issuer is relying on Rule 430B: |
| | 1. | Each prospectus filed by the undersigned issuer pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
| | 2. | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 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 effective date, 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 effective date; or |
| | | | b. | If the issuer is subject to Rule 430C: |
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.
SIGNATURES
In accordance withPursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements of filing on Form S-1 and authorizedduly caused this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Manchester, State of New Hampshire, on November __, 2013.April 28, 2015.
| | BOSTON THERAPEUTICS, INC. | | | | | /s/ David Platt | | Name: David Platt | | | | | Title: Chief Executive Officer and Chairman (Principal Executive Officer) | | Chief Financial Officer (Principal Accounting Officer) |
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.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statementregistration statement has been signed by the following persons in the capacities and on the dates stated.indicated.
| Signature | | Title | | Date | | | | | | | | /s/ David Platt | | Director, Chief Executive Officer and Chairman | | November __, 2013April 28, 2015 | | David Platt | | (Principal Executive Officer) and | | | | | Chief Financial Officer | | | | | (Principal Financial and Accounting Officer) | | | | | | | | | /s/ Kenneth A. Tassey, Jr. Anthony D. Squeglia | | Director, PresidentChief Financial Officer | | November __, 2013 |
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