UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the quarterly period ended March 31, 2020
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the transition period from ________________ to
________________
Commission
file number: 000-54586
BOSTON
THERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware |
|
27-0801073 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
|
|
|
|
|
354
Merrimack Street #4, Lawrence, MA |
|
01843 |
|
(Address
of principal executive offices) |
|
(Zip
Code) |
603-935-9799
(Registrant’s
telephone number, including area code)
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of “large
accelerated filer” “accelerated filer” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
|
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
|
Non-accelerated
filer |
☐ |
Smaller
Reporting Company |
☒ |
|
Emerging
growth company |
☐ |
|
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEEDING FIVE YEARS;
Indicate
by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes ☐ No ☐
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
|
|
|
|
|
|
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
|
Class |
|
Outstanding
at November 23, 2020 |
|
Common
Stock, $0.001 par value per share |
|
111,131,373
shares |
BOSTON
THERAPEUTICS, INC.
FORM
10-Q
TABLE
OF CONTENTS
Except
as otherwise required by the context, all references in this report
to “we”, “us”, “our”, “BTI” or “Company” refer to the operations of
Boston Therapeutics, Inc., a Delaware corporation, formerly called
Avanyx Therapeutics, Inc.
PART I - FINANCIAL
INFORMATION
Item 1. Unaudited
Condensed Consolidated Financial Statements
Boston
Therapeutics, Inc.
Condensed
Consolidated Balance Sheets
|
|
|
March
31, |
|
|
December 31, |
|
|
|
|
2020 |
|
|
2019 |
|
|
|
|
(Unaudited) |
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash |
|
$ |
52,113 |
|
|
$ |
6,701 |
|
|
Prepaid expenses and other current assets |
|
|
4,468 |
|
|
|
12,662 |
|
|
Inventory, net |
|
|
3,774 |
|
|
|
3,909 |
|
|
Total current assets |
|
|
60,355 |
|
|
|
23,272 |
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
— |
|
|
|
509 |
|
|
Total assets |
|
$ |
60,355 |
|
|
$ |
23,781 |
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’
DEFICIT |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
450,597 |
|
|
$ |
458,175 |
|
|
Accounts payable – related party |
|
|
302,302 |
|
|
|
152,302 |
|
|
Accrued expenses and other current liabilities |
|
|
940,636 |
|
|
|
963,263 |
|
|
Accrued expenses – related party |
|
|
1,444,587 |
|
|
|
1,495,905 |
|
|
Deferred revenue |
|
|
104,782 |
|
|
|
104,782 |
|
|
Convertible note payable, related party, net of discount |
|
|
1,402,000 |
|
|
|
1,402,000 |
|
|
Convertible note payable |
|
|
200,000 |
|
|
|
250,000 |
|
|
Notes payable – related parties |
|
|
2,198,429 |
|
|
|
1,948,429 |
|
|
Note payable – marketing agreement |
|
|
450,000 |
|
|
|
450,000 |
|
|
Derivative liability |
|
|
5,902 |
|
|
|
9,451 |
|
|
Warrant liability |
|
|
359,751 |
|
|
|
461,744 |
|
|
Total current liabilities |
|
|
7,858,986 |
|
|
|
7,696,051 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
7,858,986 |
|
|
|
7,696,051 |
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 13) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
|
| Preferred
stock, $0.001 par value, 5,000,000 shares authorized: |
|
|
|
|
|
|
|
|
|
Series A preferred stock, 150,000 shares designated, 82,500 shares
issued and outstanding at March 31, 2019 and December 31,
2018. |
|
|
83 |
|
|
|
83 |
|
|
Common stock, $0.001 par value, 2,000,000,000 shares authorized,
111,131,373 shares issued and outstanding at March 31, 2020 and
December 31, 2019, respectively. |
|
|
111,131 |
|
|
|
111,131 |
|
|
Additional paid-in capital |
|
|
19,322,864 |
|
|
|
19,322,864 |
|
|
Accumulated deficit |
|
|
(27,232,709 |
) |
|
|
(27,106,348 |
) |
|
Total stockholders’ deficit |
|
|
(7,798,631 |
) |
|
|
(7,672,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit |
|
$ |
60,355 |
|
|
$ |
23,781 |
|
See
accompanying notes to unaudited condensed consolidated financial
statements
Boston
Therapeutics, Inc.
Condensed
Consolidated Statements of Operations (Unaudited)
|
|
|
For The Three Months Ended |
|
|
|
|
March
31, |
|
|
March
31, |
|
|
|
|
2020 |
|
|
2019 |
|
|
Revenue |
|
$ |
3,093 |
|
|
$ |
4,085 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
4,902 |
|
|
|
6,912 |
|
|
Research and development |
|
|
— |
|
|
|
488,450 |
|
|
Sales and marketing |
|
|
541 |
|
|
|
30,941 |
|
|
General and administrative |
|
|
131,361 |
|
|
|
213,701 |
|
|
Total operating expenses |
|
|
136,804 |
|
|
|
740,004 |
|
| |
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(133,711 |
) |
|
|
(735,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(98,192 |
) |
|
|
(85,602 |
) |
|
Change in fair value of warrant liability |
|
|
101,993 |
|
|
|
(136,605 |
) |
|
Change in fair value of derivative liabilities |
|
|
3,549 |
|
|
|
6,246 |
|
|
Total other income (expenses) |
|
|
7,350 |
|
|
|
(215,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(126,361 |
) |
|
$ |
(951,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss per share- basic and diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
| Weighted
average shares outstanding basic and diluted |
|
|
111,131,373 |
|
|
|
111,131,373 |
|
See
accompanying notes to unaudited condensed consolidated financial
statements
Boston
Therapeutics, Inc
Condensed
Consolidated Statement of Stockholders’ Deficit
(Unaudited)
For
the three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
|
Common
Stock |
|
|
Preferred
Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Stockholders’ |
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
| Balance,
December 31, 2019 |
|
|
111,131,373 |
|
|
$ |
111,131 |
|
|
|
82,500 |
|
|
$ |
83 |
|
|
$ |
19,322,864 |
|
|
$ |
(27,106,348 |
) |
|
$ |
(7,672,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended March 31, 2020 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(126,361 |
) |
|
|
(126,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020 (unaudited) |
|
|
111,131,373 |
|
|
$ |
111,131 |
|
|
|
82,500 |
|
|
$ |
83 |
|
|
$ |
19,322,864 |
|
|
$ |
(27,232,709 |
) |
|
$ |
(7,798,631 |
) |
Boston
Therapeutics, Inc
Condensed
Consolidated Statement of Stockholders’ Deficit
(Unaudited)
For
the Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
|
Common Stock |
|
|
Preferred Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Stockholders’ |
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
| Balance,
December 31, 2018 |
|
|
110,131,373 |
|
|
$ |
110,131 |
|
|
|
82,500 |
|
|
$ |
83 |
|
|
$ |
19,156,138 |
|
|
$ |
(23,412,269 |
) |
|
$ |
(4,145,917 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,593 |
|
|
|
— |
|
|
|
13,593 |
|
|
Issuance of common stock in exchange for consulting services |
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
— |
|
|
|
— |
|
|
|
21,900 |
|
|
|
— |
|
|
|
22,900 |
|
|
Net loss for the three months ended March 31, 2019 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(951,880 |
) |
|
|
(951,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019 (unaudited) |
|
|
111,131,373 |
|
|
$ |
111,131 |
|
|
|
82,500 |
|
|
$ |
83 |
|
|
$ |
19,191,631 |
|
|
$ |
(24,364,149 |
) |
|
$ |
(5,061,304 |
) |
See
accompanying notes to unaudited condensed consolidated financial
statements
Boston
Therapeutics, Inc.
Condensed
Consolidated Statements of Cash Flows (Unaudited)
| |
|
For the Three Months Ended |
|
| |
|
March
31, |
|
|
March
31, |
|
| |
|
2020 |
|
|
2019 |
|
| Cash flows from operating
activities: |
|
|
|
|
|
|
| Net loss |
|
$ |
(126,361 |
) |
|
$ |
(951,880 |
) |
| Adjustments to reconcile net loss to
net cash used in operating activities: |
|
|
|
|
|
|
|
|
| Depreciation
and amortization |
|
|
509 |
|
|
|
38,856 |
|
| Stock-based
compensation |
|
|
— |
|
|
|
13,593 |
|
| Amortization of
discount on debt and deferred financing costs |
|
|
— |
|
|
|
23,094 |
|
| Change in fair
value of warrant liability |
|
|
(101,993 |
) |
|
|
136,605 |
|
| Change in fair
value of derivative liabilities |
|
|
(3,549 |
) |
|
|
(6,246 |
) |
| Issuance of
common stock for consulting services |
|
|
— |
|
|
|
22,900 |
|
| Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
— |
|
|
|
384 |
|
| Inventory |
|
|
135 |
|
|
|
(6,624 |
) |
| Prepaid
expenses and other current assets |
|
|
8,194 |
|
|
|
472,077 |
|
| Accounts
payable |
|
|
(7,578 |
) |
|
|
41,433 |
|
| Accounts
payable – related party |
|
|
150,000 |
|
|
|
— |
|
| Accrued
expenses |
|
|
(193,604 |
) |
|
|
— |
|
|
Accrued expenses – related party |
|
|
119,659 |
|
|
|
161,460 |
|
| Net cash used in
operating activities |
|
|
(154,588 |
) |
|
|
(54,348 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
| Net cash
provided by investing activities |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
| Cash received
from issuance of related party notes payable |
|
|
250,000 |
|
|
|
50,000 |
|
|
Repayments of convertible notes payable |
|
|
(50,000 |
) |
|
|
— |
|
| Net cash
provided by financing activities |
|
|
200,000 |
|
|
|
50,000 |
|
| |
|
|
|
|
|
|
|
|
| Net (decrease) increase in cash |
|
|
45,412 |
|
|
|
(4,348 |
) |
| Cash, beginning of period |
|
|
6,701 |
|
|
|
12,467 |
|
| Cash, end of period |
|
$ |
52,113 |
|
|
$ |
8,119 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental disclosure of cash flow
information |
|
|
|
|
|
|
|
|
| Cash paid
during the period for: |
|
|
|
|
|
|
|
|
| Interest |
|
$ |
7,627 |
|
|
$ |
— |
|
|
Income taxes |
|
$ |
— |
|
|
$ |
— |
|
See
accompanying notes to unaudited condensed consolidated financial
statements
Boston
Therapeutics, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2020 and 2019
|
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. On
February 12, 2018, the Company acquired CureDM Group Holdings LLC
(“CureDM”), for 47,741,140 shares of common stock of which
25,000,000 were delivered at closing and 22,741,140 were to be
delivered in four equal tranches of 5,685,285 each upon the
achievement of specific milestones. See Note 12.
The
Company’s primary business is the development, manufacture and
commercialization of therapeutic drugs with a focus on complex
carbohydrate chemistry to address unmet medical needs in diabetes
and inflammatory diseases. We have brought one product, SUGARDOWN®,
to market and have begun to make initial sales. We are currently
focused on the development of two additional drug products:
BTI-320, a non-systemic, non-toxic, tablet for 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. Due to the lack
of adequate funding, the Company has not done any work with respect
to IPOXYN to date.
Going
Concern
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 consolidated financial
statements, the Company has an accumulated deficit of approximately
$27.2 million as of March 31, 2020 and used cash in operations of
$154,588 during the three months ended March 31, 2020. These
factors among others, raise substantial doubt about the Company’s
ability to continue as a going concern.
The
Company has incurred recurring operating losses since inception as
it has worked to bring its SUGARDOWN® product to market and
develop BTI-320 and IPOXYN. Management expects such operating
losses will continue until such time that substantial revenues are
received from SUGARDOWN® or the regulatory and clinical
development of BTI-320 or IPOXYN is completed. The Company has
$52,113 cash on hand at March 31, 2020. Management is currently
seeking additional capital through private placements and public
offerings of its common stock. In addition, the Company may seek to
raise additional capital through public or private debt or equity
financings as well as collaboration activities in order to fund our
operations. The Company was advanced $250,000 through the issuance
of 10% notes payable to a related party during the first quarter of
2020. The Company was advanced $330,000 through the issuance of 10%
notes payable to a related party during the second quarter of 2020.
The Company was advanced $230,000 through the issuance of 10% notes
payable to a related party during the third quarter of 2020.
Management anticipates that cash resources will be sufficient to
fund our planned operations into the fourth quarter of 2020. The
future of the Company is dependent upon its ability to obtain
continued financing and upon future profitable operations from the
partnering, development and clarity of its new business
opportunities.
There
can be no assurance that we will be successful in accomplishing our
objectives. Without such additional capital, we may be required to
cease operations. The accompanying financial statements do not
include any adjustments that might result should the Company be
unable to continue as a going concern.
Boston
Therapeutics, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2020 and 2019
|
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”).
Principles
of Consolidation
The
consolidated financial statements include the Company and its
wholly owned subsidiary, CureDM, from the date of acquisition. All
significant intercompany transactions are eliminated in
consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with original
maturities of 90 days or less at the time of acquisition to be cash
equivalents. The Company maintains its cash in institutions insured
by the Federal Deposit Insurance Corporation. The Company had no
cash equivalents at March 31, 2020 and December 31,
2019.
Revenue
Recognition
For
revenue from product sales, the Company recognizes revenue in
accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 606 (“ASC 606”). A
five-step analysis must be met as outlined in ASC 606: (i) identify
the contract with the customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price,
(iv) allocate the transaction price to the performance obligations,
and (v) recognize revenue when (or as) performance obligations are
satisfied. Provisions for discounts and rebates to customers,
estimated returns and allowances, and other adjustments are
provided for in the same period the related sales are recorded. The
Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company
and the customer jointly determine that the product has been
delivered or no refund will be required.
The
Company generates revenues from sales of SUGARDOWN®. In practice,
the Company has not experienced or granted significant returns of
product. Shipping fees charged to customers are included in revenue
and shipping costs are included in costs of sales.
The
Company generates revenue from royalties pursuant to a licensing
and manufacturing agreement with Advance Pharmaceutical Company
Limited (“APC”), whereby the licensee sells and distributes
territory licensed products, excluding those manufactured and
supplied by the Company in the territory. APC is a related party as
a director and significant stockholder of the Company is an owner
and director of APC. The Company did not recognize any revenue from
royalties from APC during the three months ended March 31, 2020 and
2019 respectively.
Boston
Therapeutics, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2020 and 2019
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 March 31, 2020 and December 31, 2019.
Inventory
Inventory
consists of raw materials, work-in-process and finished goods of
SUGARDOWN®. Inventories are stated at the lower of cost (weighted
average cost method) or market, not in excess of net realizable
value. The Company adjusts the carrying value of its inventory for
excess and obsolete inventory. The Company continues to monitor the
valuation of its inventory.
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 |
|
5
years |
|
Computer
Equipment and Software |
|
3
years |
The
Company begins to depreciate assets when they are placed in
service. The costs of repairs and maintenance are expensed as
incurred; major renewals and betterments are capitalized. Upon sale
or retirement, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is
included in the statement of operations. For the three months ended
March 31, 2020 and 2019, the Company recorded depreciation expense
of $509 and $406, respectively.
Intangible
Assets
Intangible
assets consist of identifiable finite-lived assets acquired in
business acquisitions. Acquired intangible assets are recorded at
fair value on the date of acquisition and are amortized over their
economic useful lives on a straight line basis.
Impairment
of Long-lived Assets
The
Company 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.
The
Company performed its impairment review of intangible assets for
the year ended December 31, 2019 and concluded that intangibles
were impaired at December 31, 2019. The Company recorded impairment
of intangibles in the amount of $367,181 for the year ended
December 31, 2019. The Company has no intangible assets at March
31, 2020.
Boston
Therapeutics, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2020 and 2019
Loss
per Share
Basic
net loss per share is computed based on the net loss for the period
divided by the weighted average actual shares outstanding during
the period. Diluted net loss per share is computed based on the net
loss for the period divided by the weighted average number of
common shares and common equivalent shares outstanding during each
period unless the effect of such common equivalent shares would be
anti-dilutive. Common stock equivalents represent the dilutive
effect of the assumed exercise of certain outstanding stock options
using the treasury stock method. The weighted average number of
common shares for the three months ended March 31, 2020 did not
include 9,184,000, 38,458,320, 39,046,937 and 8,250,000 for
options, warrants and shares to be issued upon conversion of notes
payable and Series A Preferred Stock, respectively, because of
their anti-dilutive effect. The weighted average number of common
shares for the three months ended March 31, 2019 did not include
9,594,000, 38,583,320, 39,516,617 and 8,250,000 for options,
warrants and shares to be issued upon conversion of notes payable
and Series A Preferred Stock, respectively, because of their
anti-dilutive effect.
Income
Taxes
The
Company accounts for income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences
are expected to be recovered or be settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. A
valuation allowance is provided when 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
three months ended March 31, 2020 and 2019.
Advertising
Costs
Advertising
costs are expensed as incurred and are reported as a component of
operating expenses in the sales and marketing expenses in the
statements of operations. The Company did not incur any advertising
costs for either three month period ended March 31, 2020 and 2019,
respectively.
Research
and Development Costs
Research
and development expenditures are charged to the statement of
operations as incurred. Such costs include proprietary research and
development activities, purchased research and development, and
expenses associated with 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, accounts receivable, prepaid
expenses, accounts payable, accrued expenses, and notes payable.
The carrying value of cash, accounts receivable, prepaid expenses,
accounts payable and accrued expenses approximates fair value due
to their short-term nature using level 1 and level 2 inputs as
defined above. The carrying value of the notes payable as of March
31, 2020 and December 31, 2019, 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. The carrying value of,
Derivative liability and warrant liability as of March 31, 2020 and
December 31, 2019 were determined using Level 3 inputs as defined
above.
Boston
Therapeutics, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2020 and 2019
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations
of credit risk are principally cash. The Company places its cash
and cash equivalents in highly rated financial institutions. The
Company maintains cash balances with financial institutions that
occasionally exceed federally insured limits. The Company has not
experienced any losses related to these balances, and management
believes its credit risk to be minimal.
Convertible
Instruments
U.S.
GAAP requires companies to bifurcate conversion options from their
host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria
include circumstances in which (a) the economic characteristics and
risks of the embedded derivative instrument are not clearly and
closely related to the economic characteristics and risks of the
host contract, (b) the hybrid instrument that embodies both the
embedded derivative instrument and the host contract is not
re-measured at fair value under otherwise applicable generally
accepted accounting principles with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the
same terms as the embedded derivative instrument would be
considered a derivative instrument. An exception to this rule is
when the host instrument is deemed to be conventional, as that term
is described under applicable ASC 480-10.
When
the Company has determined that the embedded conversion options
should not be bifurcated from their host instruments, the Company
records, when necessary, discounts to convertible notes for the
intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying
common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts
under these arrangements are amortized over the term of the related
debt to their stated date of redemption.
Common
Stock Purchase Warrants and Other Derivative Financial
Instruments
The
Company classifies as equity any contracts that (i) require
physical settlement or net-share settlement or (ii) provide the
Company with a choice of net-cash settlement or settlement in its
own shares (physical settlement or net-share settlement) providing
that such contracts are indexed to the Company’s own stock. The
Company classifies as assets or liabilities any contracts that (i)
require net-cash settlement (including a requirement to net cash
settle the contract if an event occurs and if that event is outside
the Company’s control) or (ii) gives the counterparty a choice of
net-cash settlement or settlement in shares (physical settlement or
net-share settlement). The Company assesses classification of its
common stock purchase warrants and other free standing derivatives
at each reporting date to determine whether a change in
classification between assets and liabilities is
required.
The
Company’s free standing derivatives consisted of warrants to
purchase common stock that were issued in connection with the
issuance of debt and of embedded conversion options with senior
convertible debentures. The Company evaluated these derivatives to
assess their proper classification in the balance sheet as of March
31, 2020 and December 31, 2019 using the applicable classification
criteria enumerated under ASC 815-Derivatives and Hedging. The
Company determined that certain embedded conversion and/or exercise
features do not contain fixed settlement provisions. The
convertible debentures contain a conversion feature such that the
Company could not ensure it would have adequate authorized shares
to meet all possible conversion demands.
As
such, the Company was required to record the debt and warrant
derivatives which do not have fixed settlement provisions as
liabilities and mark to market all such derivatives to fair value
at the end of each reporting period.
Boston
Therapeutics, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2020 and 2019
Stock-Based
Compensation
Stock–based
compensation, including grants of employee and non-employee stock
options and modifications to existing stock options, is recognized
in the income statement based on the estimated fair value of the
awards. The Company 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
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.
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.
Recent
Accounting Pronouncements
In
February 2016, the FASB established ASC Topic 842, Leases (Topic
842), by issuing ASU No. 2016-02, which requires lessees to
recognize leases on-balance sheet and disclose key information
about leasing arrangements. Topic 842 was subsequently amended by
ASU No. 2018-01, Land Easement Practical Expedient for Transition
to Topic 842; ASU No. 2018-10, Codification Improvements to Topic
842, Leases; and ASU No. 2018-11, Targeted Improvements. The new
standard establishes a right-of-use (ROU) model that requires a
lessee to recognize a ROU asset and lease liability on the balance
sheet. Leases will be classified as finance or operating, with
classification affecting the pattern and classification of expense
recognition in the statement of operations. The Company adopted the
new standard on January 1, 2019.
The
new standard provides a number of optional practical expedients in
transition. The Company has elected the ‘package of practical
expedients’, which permit it not to reassess under the new standard
its prior conclusions about lease identification, lease
classification and initial direct costs. The Company did not elect
the use-of-hindsight or the practical expedient pertaining to land
easements; the latter is not applicable to the Company.
The
new standard did not have a material effect on the Company’s
consolidated Financial statements as the Company does not have any
leases that meet the requirements for recognition.
There
are various updates recently issued, most of which represented
technical corrections to the accounting literature or application
to specific industries and are not expected to have a material
impact on the Company’s financial position, results of operations
or cash flows.
Boston
Therapeutics, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2020 and 2019
Inventory
consist of material, labor and manufacturing overhead and are
recorded at the lower of cost, using the weighted average cost
method, or net realizable value. The components of inventory at
March 31, 2020 and December 31, 2019, net of inventory reserves,
were as follows:
| |
|
2020 |
|
|
2019 |
|
| Finished goods |
|
$ |
3,774 |
|
|
$ |
3,909 |
|
The
Company periodically reviews quantities of inventory on hand and
compares these amounts to expected usage of each particular product
or product line. The Company records, as a charge to cost of sales,
any amounts required to reduce the carrying value to net realizable
value.
The
SUGARDOWN® technology and patent applications, which were obtained
through the acquisition of BTI in 2010, were being amortized on a
straight-line basis over their estimated useful lives of 14 years.
The BTI-420 technology and patent applications, which were obtained
through the acquisition of CureDM in 2018, were being amortized on
a straight-line basis over their estimated useful lives of 5
years.
Intangible
assets consist of the following at March 31, 2020 and December 31,
2019:
| |
|
2020 |
|
|
2019 |
|
| SUGARDOWN® technology and
patent applications |
|
$ |
1,134,122 |
|
|
$ |
1,134,122 |
|
| Less
accumulated amortization |
|
|
(1,134,122 |
) |
|
|
(1,134,122 |
) |
| Intangible
assets, net |
|
$ |
- |
|
|
$ |
- |
|
Amortization
expense was $0 and $38,450 for the three months ended March 31,
2020 and 2019, respectively.
The
Company performed its impairment review of intangible assets for
the year ended December 31, 2019 and concluded that intangibles
were impaired at December 31, 2019. The Company recorded impairment
of intangibles in the amount of $367,181 for the year ended
December 31, 2019.
|
5. |
ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES |
The
following table represents the major components of accrued expenses
and other current liabilities at March 31, 2020 and December 31,
2019:
| |
|
2020 |
|
|
2019 |
|
| Accrued payroll |
|
$ |
188,716 |
|
|
$ |
188,716 |
|
| Professional fees |
|
|
62,054 |
|
|
|
89,027 |
|
| Accrued consulting fees |
|
|
400,000 |
|
|
|
400,000 |
|
| Interest |
|
|
96,376 |
|
|
|
92,003 |
|
| Accrued expense
reimbursement and other |
|
|
193,490 |
|
|
|
193,517 |
|
| Total |
|
$ |
940,636 |
|
|
$ |
963,263 |
|
Boston
Therapeutics, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2020 and 2019
|
6. |
FAIR
VALUE OF FINANCIAL INSTRUMENTS |
The
Company measures the fair value of financial assets and liabilities
based on the guidance of ASC 820 “Fair Value Measurements and
Disclosures” which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements. ASC 820 defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. ASC 820 also establishes a
fair value hierarchy, which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs
when measuring fair value.
ASC
820 describes three levels of inputs that may be used to measure
fair value:
|
|
Level 1 - |
quoted prices in active markets for identical assets or
liabilities |
|
|
Level 2 - |
quoted prices for similar assets and liabilities in active markets
or inputs that are observable |
|
|
Level
3 - |
inputs that are unobservable based on an entity’s own assumptions,
as there is little, if any, related market activity (for example,
cash flow modeling inputs based on assumptions) |
Financial
liabilities as of March 31, 2020 measured at fair value on a
recurring basis are summarized below:
| |
|
March 31,
2020 |
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
| Derivative liability |
|
$ |
5,902 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,902 |
|
| Warrant
liability |
|
|
359,751 |
|
|
|
— |
|
|
|
— |
|
|
|
359,751 |
|
| Total |
|
$ |
365,653 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
365,653 |
|
Financial
liabilities as of December 31, 2019 measured at fair value on a
recurring basis are summarized below:
| |
|
December 31,
2019 |
|
|
Quoted
Prices
in Active
Markets for
Identical Assets
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
| Derivative liability |
|
$ |
9,451 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,451 |
|
| Warrant
liability |
|
|
461,744 |
|
|
|
— |
|
|
|
— |
|
|
|
461,744 |
|
| Total |
|
$ |
471,195 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
471,195 |
|
The
Company determined that certain conversion/exercise option related
to a convertible note and issued warrants did not have fixed
settlement provisions and are deemed to be derivative financial
instruments, since the conversion/exercise prices was subject to
reset adjustment should the Company issue any option to acquire the
Company’s common stock lower than the conversion /exercise price.
Accordingly, the Company was required to record such
conversion/exercise options as a liability and mark such
derivative to fair value each reporting period. Such instrument was
classified within Level 3 of the valuation hierarchy.
Boston
Therapeutics, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2020 and 2019
The
fair value of the conversion/exercise options were calculated using
a Black-Scholes formula with the following weighted average
assumptions during the three months ended March 31, 2020 and the
year ended December 31, 2019. No options were converted or
exercised during the year ended December 31, 2019 or for the three
month period ended March 31, 2020.
The
risk-free interest rate is the United States Treasury rate on the
measurement date having a term equal to the remaining contractual
life of the instrument. The volatility is a measure of the amount
by which the Company’s share price has fluctuated or is expected to
fluctuate. The dividend yield is 0% as the Company has not made any
dividend payment and has no plans to pay dividends in the
foreseeable future. Level 3 liabilities are valued using
unobservable inputs to the valuation methodology that are
significant to the measurement of the fair value of the derivative
liabilities. For fair value measurements categorized within Level 3
of the fair value hierarchy, the Company’s Chief Financial Officer,
who reports to the Chief Executive Officer, determine its valuation
policies and procedures. The development and determination of the
unobservable inputs for Level 3 fair value measurements and fair
value calculations are the responsibility of the Company’s Chief
Financial Officer and are approved by the Chief Executive Officer.
Level 3 financial liabilities consist of the derivative liabilities
for which there is no current market for these securities such that
the determination of fair value requires significant judgment or
estimation. Changes in fair value measurements categorized within
Level 3 of the fair value hierarchy are analyzed each period based
on changes in estimates or assumptions and recorded as appropriate.
Significant observable and unobservable inputs include stock price,
exercise price, annual risk free rate, term, and expected
volatility, and are classified within Level 3 of the valuation
hierarchy. An increase or decrease in volatility or interest free
rate, in isolation, can significantly increase or decrease the fair
value of the derivative liabilities. Changes in the values of the
derivative liabilities are recorded as a component of other income
(expense) on the Company’s statements of operations.
The
following tables set forth a summary of the changes in the fair
value of the Company’s Level 3 financial liabilities that are
measured at fair value on a recurring basis using significant
unobservable input for the three months ended March 31, 2020 and
2019:
|
|
|
Debt |
|
|
Warrant |
|
|
|
|
Derivative |
|
|
Liability |
|
|
Balance, December 31, 2019 |
|
$ |
9,451 |
|
|
$ |
461,744 |
|
|
Aggregate amount of derivative instruments issued |
|
|
— |
|
|
|
— |
|
|
Transferred in due to conversions |
|
|
— |
|
|
|
— |
|
|
Change in fair value of derivative liabilities |
|
|
(3,549 |
) |
|
|
(101,993 |
) |
|
Balance, March 31, 2020 |
|
$ |
5,902 |
|
|
$ |
359,751 |
|
|
|
|
Debt |
|
|
Warrant |
|
|
|
|
Derivative |
|
|
Liability |
|
|
Balance, December 31, 2018 |
|
$ |
54,242 |
|
|
$ |
925,806 |
|
|
Aggregate amount of derivative instruments issued |
|
|
— |
|
|
|
— |
|
|
Transferred in due to conversions |
|
|
— |
|
|
|
— |
|
|
Change in fair value of derivative liabilities |
|
|
(6,246 |
) |
|
|
136,605 |
|
|
Balance, March 31, 2019 |
|
$ |
47,996 |
|
|
$ |
1,062,411 |
|
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
| 7. |
CONVERTIBLE NOTES
PAYABLE |
In August and September 2016, the Company issued senior convertible
debentures for an aggregate of $1,600,000 (the “Convertible
Debentures”) in exchange for an aggregate net cash proceeds of
$1,327,300, net of financing costs. The Convertible Debentures have
a stated interest rate of 6% per annum payable quarterly beginning
June 30, 2017 and were due two years from the date of issuance, the
latest due September 15, 2018 and are convertible into shares of
the Company’s common stock at the option of the holder at a
conversion price of $0.075 with certain anti-dilutive (reset)
provisions and are subject to forced conversion if either i) the
volume weighted average common stock price for each of any 10
consecutive trading days equals or exceeds $0.50, or (ii) the
Company’s elects to lists a class of securities on a national
securities exchange.
As long as the convertible notes remain outstanding, the Company is
restricted from incurring any indebtedness or liens, except as
permitted (as defined), amend its charter in any matter that
materially effects rights of noteholders, repay or repurchase more
than de minimis number of shares of common stock other than
conversion or warrant shares, repay or repurchase all or any
portion of any indebtedness or pay cash dividends.
In connection with the issuance of the Convertible Debentures, the
Company issued an aggregate of 16,000,000 warrants to purchase the
Company’s common stock at $0.10 per share, expiring five years from
the date of issuance, the latest being September 15, 2021. These
warrants contain a cashless exercise and certain anti-dilutive
(reset) provisions.
The Company determined that certain conversion/exercise option
related to a convertible note and issued warrants did not have
fixed settlement provisions and are deemed to be derivative
financial instruments due to price protection features present in
the conversion/ exercise price that are not consistent with a fixed
for fixed model.
The accounting treatment of derivative financial instruments
requires that the Company record the fair value of the derivative
as of the issuance date of the debenture and warrants and to
re-measure the derivatives at fair value as of each subsequent
reporting date.
The Company recognized the value attributable to the conversion
feature of the convertible debenture and issued warrants of
$2,203,336 and together with financing costs of $272,700 (aggregate
of $2,476,036) as a discount against the notes up to $1,600,000
with the excess of $876,036 charged to current period interest. The
Company valued the conversion option and the warrants using the
Black-Scholes pricing model as described in Note 6. The debt
discount was amortized over the note’s maturity period as interest
expense.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
During the first quarter of 2020, the Company paid the note of one
of the two remaining investors of $50,000. The Company also paid
accrued interest on that note totaling $7,627
For the three months ended March 31, 2020 and 2019, the Company
amortized $0 and $30,332, respectively, of debt discount to
operations as interest expense.
Convertible notes payable consist of the following at March 31,
2020 and December 31, 2019:
|
|
|
2020 |
|
|
2019 |
|
|
Principal balance |
|
$ |
200,000 |
|
|
$ |
250,000 |
|
| Debt
discount |
|
|
— |
|
|
|
— |
|
|
Deferred finance costs |
|
|
— |
|
|
|
— |
|
|
Outstanding, net of debt discount |
|
$ |
200,000 |
|
|
$ |
250,000 |
|
On June 26, 2018, the Company entered into a License Agreement with
Level Brands, Inc. (NYSE: LEVB), an innovative licensing, marketing
and brand management company with a focus on lifestyle-based
products which includes an exclusive license to the kathy
ireland® Health & Wellness™ brand. Under the terms of the
License Agreement, the Company received a non-exclusive,
non-transferrable license to use the kathy ireland Health
& Wellness™ trademark in the marketing, development,
manufacture, sale and distribution of the Sugardown® product
domestically and internationally. The initial term of the License
Agreement is seven years, with an automatic two-year extension
unless either party notifies the other of non-renewal at least 90
days prior to the end of the then current term. Level Brands has
agreed to use its commercially reasonable efforts to perform
certain promotional obligations, including: (i) producing four
branded videos to promote the licensed product and/or the Company;
(ii) creation of an electronic press kit; (iii) making their media
and marketing teams available for use in creating the video content
for which the Company will separately compensate; and (iv) curate
social media posts in multiple social media channels.
As compensation, the Company will provide Level Brands with the
following:
| |
● |
A marketing fee of $850,000, for
development of video content and an electronic press kit which will
be used ongoing to support product marketing. This fee is paid with
a promissory note of $450,000 and a number of shares of stock of
the Company valued at $400,000, based on the closing price on the
day prior to the effective date; |
| |
● |
Quarterly fees for the first two
years of up to $100,000 and issuance of 100,000 shares each
quarter, based on sales volumes. The Company has the right to make
all the stock payments in cash; and |
| |
● |
a royalty of 5% of the gross
licensed marks sales up to $10,000,000, 7.5% royalty on sales from
$10,000,000 to $50,000,0000 and 10% on sales over $50,000,000,
payable monthly as well as a 1% of all revenue for all Company
products as of the date hereof. |
The Note Payable of $450,000 bears interest at 8% and matures
December 31, 2019, unless the Company raises $750,000 through Level
Brands prior to that date in which case the Note is to be repaid in
full including accrued interest. Accrued interest at March 31, 2020
and December 31, 2019 totaled $63,493 and $54,493,
respectively.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
As of March 31, 2020, the Company has not issued the $400,000 of
common stock.
Level Brands sued the Company for non-performance under the
contract. The matter was taken to arbitration with both parties
claiming non performance under the contract. In October 2019, the
arbitration was dismissed without prejudice. See Note 12.
The Company is authorized to issue up to 5,000,000 shares of its
$0.001 par value preferred stock and up to 2,000,000,000 shares of
its $0.001 par value common stock. During the year ended December
31, 2013, the Company amended its certificate of incorporation to
increase the number of common shares from 100,000,000 to
200,000,000. The amendment went into effect September 7, 2013.
On January 9, 2018, the Company’s Board of Directors voted to
approve an increase in authorized common stock shares outstanding
from 200 million shares to 2 billion shares of the Company’s common
stock. This increase was approved by the shareholders in the first
quarter of 2018.
Series A Preferred Stock
The Company has designated 150,000 shares of its preferred stock as
Series A Preferred Stock. Each share of Series A Preferred Stock
has a stated value of $10. The Series A Preferred Stock is
convertible into shares of the Company’s common stock by dividing
the stated value by a conversion price of $0.10 per share. The
Series A Preferred Stock shall have voting rights on an as
converted basis (subject to limitations) and liquidation preference
for each share of Series A Preferred Stock at an amount equal to
the stated value per share. As of March 31, 2020 and December 31,
2019, the Company has 82,500 shares of Series A Preferred Stock
outstanding.
On August 14, 2017, the Company entered into Securities Purchase
Agreements with two accredited investors. In connection with these
agreements, the Company issued 45,000 shares of Series A Preferred
Stock and warrants to acquire 9,000,000 shares of common stock. The
shares of Series A Preferred Stock are convertible, at any time at
the option of the holder, into an aggregate of 4,500,000 shares of
the Company’s common stock. The Warrants shall be exercisable for a
period of five years at an exercise price of $0.15 per share.
The Company recognized the value attributable to the conversion
feature of the issued warrants of $650,421 as a charge against
additional paid in capital up to $450,000 with the excess of
$200,421 charged to change in fair value of warrant liability
during the year ended December 31, 2017. The Company valued the
warrants using the Black-Scholes pricing model as described in Note
6.
On October 24, 2017, the Company entered into Securities Purchase
Agreements with an accredited investor. In connection with the
agreement, the Company issued 10,000 shares of Series A Preferred
Stock and warrants to acquire 2,000,000 shares of common stock. The
shares of Series A Preferred Stock are convertible, at any time at
the option of the holder, into an aggregate of 1,000,000 shares of
the Company’s common stock. The Warrants shall be exercisable for a
period of five years at an exercise price of $0.15 per share.
The Company recognized the value attributable to the conversion
feature of the issued warrants of $93,312 as a charge against
additional paid in capital. The Company valued the warrants using
the Black-Scholes pricing model as described in Note 6.
On February 2, 2018, the Company entered into Securities Purchase
Agreements with four accredited investors. In connection with these
agreements, the Company issued 27,500 shares of Series A Preferred
Stock and warrants to acquire 5,500,000 shares of common stock in
consideration of $275,000. The shares of Series A Preferred Stock
are convertible, at any time at the option of the holder, into an
aggregate of 2,750,000 shares of the Company’s common stock. The
Warrants shall be exercisable for a period of five years at an
exercise price of $0.15 per share.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
The Company recognized the value attributable to the conversion
feature of the issued warrants of $226,833 as a charge against
additional paid in capital. The Company valued the warrants using
the Black-Scholes pricing model as described in Note 6.
Common Stock
On January 10, 2019, the Company issued 1,000,000 shares of its
common stock in exchange for consulting services amounting to
$22,900 pursuant to a consulting agreement entered into and
approved by the Board of Directors on November 23, 2018.
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 March 31, 2020, the Company had 38,458,320
warrants outstanding which are all classified as equity instruments
and are fully exercisable.
The following tables summarize the Company’s common stock warrants
activity for the three months ended March 31, 2020 and 2019:
|
|
|
Warrants |
|
|
Weighted
Average
Exercise
Price |
|
|
Aggregate
Intrinsic
Value |
|
|
Outstanding as of December 31, 2019 |
|
|
38,458,320 |
|
|
$ |
0.16 |
|
|
$ |
— |
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeited/Canceled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Outstanding as of March 31, 2020 |
|
|
38,458,320 |
|
|
$ |
0.16 |
|
|
$ |
— |
|
|
|
|
Warrants |
|
|
Weighted
Average
Exercise
Price |
|
|
Aggregate
Intrinsic
Value |
|
|
Outstanding as of December 31, 2018 |
|
|
38,999,990 |
|
|
$ |
0.17 |
|
|
$ |
— |
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeited/Canceled |
|
|
(416,670 |
) |
|
|
1.00 |
|
|
|
— |
|
|
Outstanding as of March 31, 2019 |
|
|
38,583,320 |
|
|
$ |
0.16 |
|
|
$ |
— |
|
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
The aggregate intrinsic value represents the pretax intrinsic
value, based on the warrants with an exercise price less than the
Company’s stock price of $0.01 as of March 31, 2020, which would
have been received by the warrant holders had those warrant holders
exercised their warrants as of that date.
| 10. |
STOCK OPTION PLAN AND
STOCK-BASED COMPENSATION |
During the year ended December 31, 2010, the Company adopted a
stock option plan entitled “The 2010 Stock Plan” (2010 Plan) 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 March 31, 2020 and December
31, 2019, there were 250,000 and 250,000 options outstanding under
the 2010 Plan, respectively.
During the year ended December 31, 2011, the Company adopted a
non-qualified stock option plan entitled “2011 Non-Qualified Stock
Plan” (2011 Plan) 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 March 31, 2020 and December 31, 2019, there
were 8,934,000 and 8,934,000 options outstanding under the 2011
Plan.
Under the terms of the stock plans, the Board of Directors shall
specify the exercise price and vesting period of each stock option
on the grant date. Vesting of the options is typically three to
four years and the options typically expire in five to ten
years.
On March 1, 2018 the Board of Directors approved a reduction in the
exercise price of 6,000,000 stock options issued to the Company’s
CEO on August 22, 2016. The First tranche of 2,000,000 will be
exercisable at $0.10 per share and the second and third tranches of
2,000,000 will be exercisable at $0.15 per share. The remainder of
the terms remain unchanged. On August 22, 2016, the Company granted
6,000,000 options to purchase its common shares to its new CEO as a
part of his employment agreement. The options consist of 3 separate
tranches with different exercise prices and vest upon reaching
certain milestones. All 6 million options have a five year life.
The first 2,000,000 shares have an exercise price of $0.20 per
share and vest upon the Company raising at least $1 million in
financing. The second 2,000,000 shares carry an exercise price of
$0.40 per share and vest upon the Company raising $5 million in
financing. The third 2,000,000 shares carry an exercise price of
$0.60 per share and vest upon the Company entering into a
significant corporate alliance for substantial marketing and
selling of the Company’s product portfolio.
In addition, the Company amended 1,500,000 stock options previously
granted to the new CEO to extend the expiration date to August 22,
2026. These options were all previously vested.
No stock options were issued under either plan during the three
months ended March 31, 2020 or 2019.
For the three months ended March 31, 2020 and 2019, the Company
recorded stock-based compensation expense of $0 and $13,593,
respectively, in connection with share-based payment awards. As of
March 31, 2020 and 2019, there was $0 and $131,398, respectively of
unrecognized compensation expense related to non-vested stock
option awards.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
The following table summarizes the Company’s stock option activity
during the three months ended March 31, 2020:
|
|
|
Shares |
|
|
Exercise
Price per
Share |
|
|
Weighted
Average
Exercise Price
per Share |
|
|
Outstanding as of December 31, 2019 |
|
|
9,184,000 |
|
|
$ |
0.10 – 1.21 |
|
|
$ |
0.36 |
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Options forfeited/cancelled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Outstanding as of March 31, 2020 |
|
|
9,184,000 |
|
|
$ |
0.10 – 1.21 |
|
|
$ |
0.36 |
|
The following table summarizes the Company’s stock option activity
during the three months ended March 31, 2019:
|
|
|
Shares |
|
|
Exercise
Price per
Share |
|
|
Weighted
Average
Exercise Price
per Share |
|
|
Outstanding as of December 31, 2018 |
|
|
9,594,000 |
|
|
$ |
0.10 – 1.21 |
|
|
$ |
0.36 |
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Options forfeited/cancelled |
|
|
100,000 |
|
|
|
0.10 |
|
|
|
0.10 |
|
|
Outstanding as of March 31, 2019 |
|
|
9,494,000 |
|
|
$ |
0.10 – 1.21 |
|
|
$ |
0.37 |
|
The following table summarizes information about stock options that
are vested or expected to vest at March 31, 2020:
|
|
|
|
|
|
|
Options
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
Exercisable Options |
|
|
Exercise
Price
|
|
|
Number of
Options |
|
|
Weighted Average
Exercise Price
Per Share
|
|
|
Weighted
Average Remaining Contractual Life (Years) |
|
|
Aggregate Intrinsic
Value
|
|
|
Number of
Options |
|
|
Weighted
Average Exercise Price Per Share |
|
|
Weighted
Average Remaining Contractual Life (Years) |
|
|
Aggregate
Intrinsic Value |
|
| $ |
0.10 |
|
|
|
3,500,000 |
|
|
$ |
0.10 |
|
|
|
3.54 |
|
|
$ |
— |
|
|
|
3,500,000 |
|
|
$ |
0.10 |
|
|
|
3.79 |
|
|
$ |
— |
|
| |
0.15 |
|
|
|
4,000,000 |
|
|
|
0.15 |
|
|
|
1.40 |
|
|
|
— |
|
|
|
— |
|
|
|
0.15 |
|
|
|
|
|
|
|
— |
|
| |
0.18 |
|
|
|
934,000 |
|
|
|
0.18 |
|
|
|
3.23 |
|
|
|
— |
|
|
|
934,000 |
|
|
|
0.18 |
|
|
|
3.23 |
|
|
|
— |
|
| |
0.20 |
|
|
|
150,000 |
|
|
|
0.20 |
|
|
|
4.99 |
|
|
|
— |
|
|
|
150,000 |
|
|
|
0.20 |
|
|
|
4.99 |
|
|
|
— |
|
| |
0.37 |
|
|
|
58,000 |
|
|
|
0.37 |
|
|
|
2.43 |
|
|
|
— |
|
|
|
58,000 |
|
|
|
0.37 |
|
|
|
2.43 |
|
|
|
— |
|
| |
0.42 |
|
|
|
63,000 |
|
|
|
0.42 |
|
|
|
0.75 |
|
|
|
— |
|
|
|
63,000 |
|
|
|
0.42 |
|
|
|
0.75 |
|
|
|
— |
|
| |
0.69 |
|
|
|
100,000 |
|
|
|
0.69 |
|
|
|
3.95 |
|
|
|
— |
|
|
|
100,000 |
|
|
|
0.69 |
|
|
|
3.95 |
|
|
|
— |
|
| |
1.21 |
|
|
|
379,000 |
|
|
|
1.21 |
|
|
|
3.78 |
|
|
|
— |
|
|
|
379,000 |
|
|
|
1.21 |
|
|
|
3.78 |
|
|
|
— |
|
| $ |
0.10-1.21 |
|
|
|
9,184,000 |
|
|
$ |
0.29 |
|
|
|
3.35 |
|
|
$ |
— |
|
|
|
5,184,000 |
|
|
$ |
0.27 |
|
|
|
3.35 |
|
|
$ |
— |
|
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
The following table sets forth the status of the Company’s
non-vested stock options as of March 31, 2020 and December 31,
2019:
|
|
|
|
Number
of
Options |
|
|
Weighted-
Average
Grant-Date
Fair Value |
|
|
Non-vested as of December 31, 2019 |
|
|
|
4,000,000 |
|
|
$ |
0.50 |
|
|
Granted |
|
|
|
— |
|
|
|
— |
|
|
Forfeited |
|
|
|
— |
|
|
|
— |
|
|
Vested |
|
|
|
— |
|
|
|
— |
|
|
Non-vested as of March 31, 2020 |
|
|
|
4,000,000 |
|
|
$ |
0.50 |
|
The weighted-average remaining contractual life for options
exercisable at March 31, 2019 is 3.35 years. At March 31, 2020 the
Company has 8,566,000 and 7,250,000 options available for grant
under the 2011 Plan and 2010 Plan, respectively.
The aggregate intrinsic value for fully vested, exercisable options
was $0 at March 31, 2020. The aggregate intrinsic value of options
exercised during the three months ended March 31, 2020 was $0 as no
options were exercised. The actual tax benefit realized from stock
option exercises during the three months ended March 31, 2019 was
$0 as no options were exercised.
| 11. |
RELATED PARTY
TRANSACTIONS |
Through December 31, 2011, a founder of the company and significant
shareholder, Dr. David Platt advanced $257,820 to the Company to
fund start-up costs and operations. Advances by Dr. Platt carry an
interest rate of 6.5% and were due on June 29, 2013. On May 7,
2012, Dr. Platt and the Company’s former President and also a
significant shareholder entered into promissory notes to advance to
the Company an aggregate of $40,000. The notes accrue interest at
6.5% per year and were due June 30, 2013. The outstanding notes of
$297,820 were amended each year to extend the maturity dates.
Effective June 30, 2015, the outstanding notes for Dr. Platt were
amended to extend the maturity dates to June 30, 2017. During 2017,
the Company made principal payments totaling $20,000 to the former
President of the Company, reducing the total balance of the
outstanding notes to $277,820. As of March 31, 2020 and December
31, 2019, the remaining notes to Dr. Platt are in default and are
classified as current liabilities.
On June 24, 2011, the Company entered into a definitive Licensing
and Manufacturing Agreement (the “Agreement”) with Advance
Pharmaceutical Company Ltd. (“Advance Pharmaceutical”), a Hong
Kong-based privately-held company. Under terms of the Agreement,
the Company manufactures and supplies product in bulk for Advance
Pharmaceutical. Advance Pharmaceutical is responsible for the
packaging, marketing and distribution of SUGARDOWN® in certain
territories within Asia. In addition, APC is able to purchase the
SUGARDOWN product directly from the US manufacturer and sell it
within APC’s distribution area. In these situations, the Company is
entitled to royalty payments from APC of 10% of the total sales
price paid upon shipment of the product. Advance Pharmaceutical,
through a wholly owned subsidiary, has purchased an aggregate
1,799,800 shares of the Company’s common stock in conjunction with
the Company’s private placement offerings during the years ended
December 31, 2012 and 2011. The shares were purchased on the same
terms as the other participants acquiring shares in the respective
offerings. Conroy Chi-Heng Cheng is a director of Advance
Pharmaceutical and joined the Company’s Board in December 2013. No
revenue was generated pursuant to the Agreement for the three
months ended March 31, 2020 or 2019.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
In December 2013, the Board of Directors agreed to indemnify Dr.
Platt for legal costs incurred in connection with an arbitration
(now concluded) initiated before the American Arbitration
Association by Galectin Therapeutics, Inc. (formerly named
Pro-Pharmaceuticals, Inc.) for which Dr. Platt previously served as
CEO and Chairman. Galectin sought to rescind or reform the
Separation Agreement entered into with Dr. Platt upon his
resignation from Galectin to remove a $1.0 million milestone
payment which Dr. Platt asserted he was entitled to receive and to
be repaid all separation benefits paid to Dr. Platt. The Company
initially capped the amount for which it would indemnify Dr. Platt
at $150,000 in December 2013 and Dr. Platt agreed to reimburse the
indemnification amounts paid by the Company should he prevail in
the arbitration. The Board decided to indemnify Dr. Platt after
considering a number of factors, including the scope of the
Company’s existing indemnification obligations to officers and
directors and the potential impact of the arbitration on the
Company. In May 2014, the Board approved a $50,000 increase in
indemnification support, solely for the payment of outside legal
expenses. The Company recorded a total of $182,697 in costs
associated with Dr. Platt’s indemnification, of which $119,401 was
expensed in the year ended December 31, 2013 and of which $63,296
was expensed in the year ended December 31, 2014. In July 2014, the
arbitration was concluded in favor of Dr. Platt, confirming the
effectiveness of the separation agreement and payment was made to
Dr. Platt in July 2014.
On March 2, 2015, the Board of Directors voted to reduce the amount
that Dr. Platt was required to reimburse the Company to $82,355 and
to offset this amount against interest accrued in respect of the
outstanding note payable to Dr. Platt. In addition, the Board
determined that Dr. Platt would be charged interest related to the
$182,697 indemnification payment since funds were received by Dr.
Platt in July 2014. The Board of Directors concluded the foregoing
constituted complete satisfaction of Dr. Platt’s indemnification by
the Company. Accordingly, the Company recorded the reduction in
accrued interest through equity during the year ended December 31,
2015. As of March 31, 2020 and December 31, 2019, $86,065 and
$80,815, respectively, of accrued interest in connection with the
related party promissory notes, had been included in accrued
expenses and other current liabilities on the accompanying balance
sheet.
During September 2015, the Company entered into a securities
purchase agreement with CJY. Pursuant to this agreement, the
Company issued to CJY a convertible promissory note in the
principal amount of $750,000. The Note was amended during the
fourth quarter of 2015 to $1,200,000. During 2016, the Note was
amended to $1,752,000. This Note provided necessary bridge
financing to the Company prior to a financing of $1,600,000
completed in the third quarter of 2016. Interest accrues at the
rate of 10% per annum and is due upon maturity of the note in
August 2018. The Company may prepay this Note and any accrued
interest at any time. At any time amounts outstanding under the CJY
Note are convertible into the Company’s common stock, in whole or
in part, at the option of the lender, at a conversion price of
$0.05 per share. A beneficial conversion feature of $1,642,000 was
calculated and capped at the value of the note pursuant to ASC 470
- 20. The beneficial conversion feature was fully amortized during
2018. No amortization was recorded during the three months ended
March 31, 2020 and 2019, respectively.
On October 6, 2017, in accordance with the terms of the Securities
Purchase Agreement, CJY Holdings converted $500,000 of Notes in
exchange for 10,000,000 shares of the Company’s common stock. The
cost basis for the shares issued was $0.05. Upon conversion, a loss
on extinguishment of $15,354 was charged to additional paid in
capital.
On October 16, 2017, CJY holdings converted an additional $50,000
of the Notes along with $150,000 of accrued interest into 4,000,000
shares of the Company’s common stock. The cost basis for the shares
issued was $0.05. Upon conversion, a loss on extinguishment of
$155,459 was charged to additional paid in capital.
The CJY Holdings Notes are currently in default and are classified
as current liabilities.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
On April 26, 2017, Boston Therapeutics, Inc. (the “Company”)
entered into Securities Purchase Agreement with CJY Holdings
Limited (“CJY”) providing for the sale by the Company to CJY of 6%
Subordinated Convertible Debenture in an amount of up to $1,000,000
(the “Debentures”). In addition to the Debentures, CJY will also
receive stock purchase warrants (the “Warrants”) to acquire 500,000
shares of common stock of the Company for every $50,000 in
Debentures purchased. The Warrants are exercisable for five years
at an exercise price of $0.10 and may be exercised on a cashless
basis. The Company may only use the proceeds for the payment of
services or materials associated with clinical trials. The Company
closed on $200,000 in financing and issued the related Debentures
and Warrants under this agreement on April 26, 2017.
The Debentures bear interest at 6% per annum and mature two years
from issuance. CJY may elect to convert all or part of the
Debentures, plus accrued interest, at any time into shares of
common stock of the Company at a conversion price of $0.10 per
share. Interest on the Debentures is payable in cash or shares of
common stock at $0.10 per share quarterly commencing June 30, 2017.
The conversion price is subject to adjustment for stock dividends
and stock splits. In addition, if after the original issue date of
the Debentures, either (i) the volume weighted average price equals
or exceeds $0.50 for 10 consecutive trading days or (ii) the
Company elects to list a class of securities on a national
securities exchange, the Company may cause CJY to convert all or
part of the then outstanding principal amount of the Debentures
plus, accrued but unpaid interest, liquidated damages and other
amounts owed.
CJY agreed to restrict its ability to convert the Debentures and
exercise the Warrants and receive shares of common stock such that
the number of shares of common stock held by CJY after such
conversion or exercise does not exceed 4.99% of the then issued and
outstanding shares of common stock.
A beneficial conversion feature of $186,939 was calculated and
capped at the value of the note pursuant to ASC 470 - 20. The
Company recorded amortization of the beneficial conversion feature
as interest expense in the amount of $0 and $23,094 during the
three months ended March 31, 2020 and 2019, respectively. In
connection with this borrowing, the Company also issued warrants to
purchase 2,000,000 shares of the Company’s common stock at $0.10
per share.
Convertible notes payable – related party consist of the following
at March 31, 2020 and December 31, 2019:
| |
|
2020 |
|
|
2019 |
|
|
Principal balance |
|
$ |
1,402,000 |
|
|
$ |
1,402,000 |
|
| Debt discount |
|
|
- |
|
|
|
- |
|
| Outstanding, net of
debt |
|
$ |
1,402,000 |
|
|
$ |
1,402,000 |
|
On June 12, 2018, the Company issued a note payable for $100,000 to
World Technology East II Limited (“WTE2”). WTE2 is a Hong Kong
company owned by Carl W. Rausch, the Company’s former CEO. The WTE2
Note is an unsecured obligation of the Company. Principal and
interest under the WTE2 Note is due and payable June 12, 2019,
however, in the event that the Company raises in excess of
$1,000,000 in equity financing, then the Company will use part of
its proceeds to pay off the WTE2 Note. During the fourth quarter of
2018, the Company increased the amount of the note payable to
$174,500 with borrowings of $44,500 on October 4, $15,000 on
November 5 and $15,000 on December 7. During the first quarter of
2019, the Company increased the amount of the note payable to
$224,500 with borrowings of $30,000 on January 17 and $20,000 on
February 11. During the second quarter of 2019, the Company
increased the amount of the note payable to $324,500 with
borrowings of $50,000 on April 4 and $50,000 on May 31. On July 31,
2019, the Company borrowed $50,000 increasing the total amount of
notes payable to $374,500. On November 18, 2019, the Company
borrowed $30,000 increasing the total amount of notes payable to
$404,500 which remain outstanding at December 31, 2019. The notes
payable are due on various dates through November 18, 2020
including $224,500 which came due on during 2019 and the first
quarter of 2020 and are currently in default and are classified as
current liabilities. Interest accrues on the WTE2 Notes at the rate
of 10.0% per annum. Accrued interest at March 31, 2020 and December
31, 2019 totaled $47,628 and $37,516, respectively.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
On September 26, 2018, the Company issued a note payable for
$305,937 to CJY Holdings, Ltd (“CJY”). CJY is a Hong Kong company
owned by Conroy Chi- Heng Cheng, a director of the Company. The CJY
Note is an unsecured obligation of the Company. Principal and
interest under the CJY Note is due and payable September 26, 2019.
During the second quarter of 2019, the Company increased the amount
of the note payable to $595,081 with a borrowing of $289,144 on
April 12. During the third quarter of 2019, the Company increased
the amount of the note payable to $947,108 with a borrowing of
$157,671 on July 2 and $194,356 on July 31. During the third
quarter of 2019, the Company increased the amount of the note
payable to $1,266,108 with a borrowing of $319,000 on November 29.
The notes are due on various dates through October 29, 2020,
including the $305,937 note which was due on September 26, 2019 and
is currently in default. Interest accrues on the CJY Note at the
rate of 10% per annum. Accrued interest at March 31, 2020 and
December 31, 2019 totaled $118,448 and $80,546, respectively.
Notes payable-related party consist of the following at March 31,
2020 and December 31, 2019:
| |
|
2020 |
|
|
2019 |
|
| Founder |
|
$ |
277,821 |
|
|
$ |
277,821 |
|
| CJY Holdings Ltd |
|
|
1,516,108 |
|
|
|
1,266,108 |
|
| World
Technology East Ltd II |
|
|
404,500 |
|
|
|
404,500 |
|
| |
|
$ |
2,198,429 |
|
|
$ |
1,948,429 |
|
Included in accounts payable at both March 31, 2020 and December
31, 2019 are amounts due shareholders, officers and directors of
the Company in the amounts of $302,302 and $152,302,
respectively.
Included in accrued expenses at both March 31, 2020 and December
31, 2019 are amounts due shareholders, officers and directors of
the Company in the amounts of $1,444,587 and $1,495,905,
respectively.
| 12. |
COMMITMENTS AND
CONTINGENCIES |
Pending litigation
In March 2019, we were served with notification of complaint filed
by CureDM Inc. as agent for the members of CureDM Group Holdings,
LLC filed with the Supreme Court of the State of New York County of
New York regarding breach of contract and other matters relating to
their desire to unwind the acquisition of CureDM Group Holdings LLC
according to the original Contribution Agreement. The complaint was
withdrawn by CureDM, Inc. in December 2019. The Company is
continuing to work with the representatives from CureDM Inc. to
settle this claim and unwind the Contribution Agreement.
In addition to the above matter, we are also in a dispute with
Level Brands, Inc. regarding a License Agreement dated June 21,
2018 (JAMS Ref. No.: 1220061261). The Company filed an Answer to
Complaint and Counter-complaint on June 25, 2019. Both parties are
claiming non-performance under the License Agreement. The matter
was scheduled for arbitration in October 2019. In October 2019, the
arbitration was dismissed without prejudice.
On October 16, 2019 the Company received a Summons and Complaint
filed by Microcap Headlines Inc. against the Company in the Supreme
Court of the United States of New York County of Suffolk claiming
damages of $18,000 and the costs and disbursements of the action.
The Company filed an Answer on November 15, 2019. The Company
intends to vigorously defend against the claim.
Leases
The Company leased office space at 354 Merrimack Street, Lawrence,
MA 01843 on a month to month basis. The Company ended the lease on
August 31, 2019. No further obligation exists. The Company
recognized rent expense of $0 and $1,200 for the three months ended
March 31, 2020 and 2019, respectively.
Contingent share liability
On February 12, 2018, the Company entered into a Contribution
Agreement with the members of CureDM Group Holdings, LLC, a limited
liability company, all of which except five are accredited
investors (“CureDM Group Members”) pursuant to which the CureDM
Group Members agreed to contribute 100% of the outstanding
securities
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
of CureDM Group in exchange for an aggregate of 47,741,140 shares
of common stock of the Company (the “BTHE Contribution Shares”) of
which 25,000,000 BTHE Contribution Shares were delivered at closing
and 22,741,140 BTHE Contribution Shares (the “Milestone BTHE
Shares”) shall be delivered in four equal tranches of 5,685,285
BTHE Contribution Shares each upon the achievement of specific
milestones (the “CureDM Group Contribution”). The closing of the
CureDM Group Contribution occurred on February 12, 2018.
Under the agreement, BTI was to use its best efforts to secure a
binding commitment to close an equity financing with net proceeds
of at least $1,000,000 within 180 days after the closing date. The
use of the equity financing proceeds would be designated as working
capital for at least, but not limited to the synthesis of HIP2B
clinical material. In the event the equity financing is not closed
by the required date, then, if both BTI and CureDM, Inc. mutually
agree, (i) this Acquisition Agreement will then be null and void
and have no further force and effect and all other rights and
liabilities of the parties will terminate without any liability of
any party to any other party and (ii) each party shall have
released the other party. Further, if such event occurs, the CureDM
Members will return all shares to BTI for cancellation.
Subsequent to June 30, 2018, the 180 day time period elapsed and
the Company did not raise the required funding.
The Company believes the milestones noted above will not be
achieved and that the Milestone BTHE Shares will not be issued.
Therefore, the Company has not established a contingent liability
to recognize the milestone shares obligations.
Employment Agreement
The Company entered into an Employment Agreement with Carl W.
Rausch pursuant to which Mr. Rausch was engaged as the Chief
Executive Officer of the Company for a period of three years. Mr.
Rausch was initially required to relocate from Hong Kong to the
United States. However, due to his continued efforts in Hong Kong,
the Company and Mr. Rausch, in March 2017, have amended the
employment agreement to remove the provision requiring Mr. Rausch
to relocate to the United States. Mr. Rausch received a signing
bonus of $60,000 and an annual salary of $224,000, which will be
increased to $264,000 upon Mr. Rausch relocating to the United
States. Further, upon the Company being listed on a national
exchange, Mr. Rausch’s salary will be increased by $20,000. The
Company granted Mr. Rausch a Stock Option (the “Rausch Option”) to
acquire an aggregate of 6,000,000 shares of common stock of the
Company, exercisable for five (5) years, subject to vesting. The
Rausch Option shall be earned and vested in three equal tranches of
2,000,000 upon the Company raising $1,000,000 in financing, the
Company raising $5,000,000 in financing and the Company entering
into a significant corporate alliance for substantial marketing and
selling of the Company’s product portfolio. The initial tranche
shall be exercisable at $0.20 per share, the second tranche will be
$0.40 per share and the third tranche shall be $0.60 per share,
which such vesting is subject to Mr. Rausch’s continued employment
as an executive with the Company as of the vesting date. In
addition, as additional consideration for Mr. Rausch’s commitment
to the Company, the stock options previously granted to Mr. Rausch
shall be amended to extend the expiration date to the ten year
anniversary of signing date and such options shall be considered
fully vested. Mr. Rausch shall be entitled to certain raises and
milestones subject to the achievement of certain milestones to be
agreed upon. In the event the Employment Agreement is terminated
prior to the expiration of the term by the Company without cause or
by Mr. Rausch with good reason, the Company shall pay Mr. Rausch an
amount equal to Mr. Rausch’s accrued but unpaid base salary and
earned but unpaid bonus prior to the termination date,
reimbursement for any reimbursable business expenses and Mr.
Rausch’s salary for a period of one year. On December 12, 2019, Mr.
Rausch resigned as the Chief Executive Officer and Board Chairman.
In January 2020, Mr. Rausch agreed to remain a paid advisor to the
Company. Under the agreement, Mr. Rausch’s options were not
canceled as a result of his voluntary termination
On March 1, 2018 the Board of Directors approved a reduction in the
exercise price of 6,000,000 stock options issued to the Company’s
CEO on August 22, 2016. The First tranche of 2,000,000 will be
exercisable at $0.10 per share and the second and third tranches of
2,000,000 will be exercisable at $0.15 per share. The remainder of
the terms remain unchanged.
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
On February 12, 2018, Loraine Upham was appointed as Chief
Operating Officer. The Company and Ms. Upham entered into an
Executive Retention Agreement pursuant to which Ms. Upham was
engaged as Chief Operating Officer with an annual salary of
$200,000. However, Ms. Upham’s salary shall accrue until the
Company has raised a minimum of $1,250,000. Ms. Upham is eligible
for bonuses as determined by the Board of Directors. These include
a bonus of $20,000 is to be paid upon the Company successfully
raising $1,250,000 through the sale of equity; an annual
performance bonus based on milestones related to clinical progress,
partnering and fund raising success to be established by the Board
of Directors or the Compensation Committee, if in existence on an
annual basis. In addition, Ms. Upham received a stock option to
purchase 4,000,000 shares of common stock under the Company’s
Amended and Restated 2011 Stock Incentive Plan, vesting over three
(3) years, one third on the first anniversary of the effective date
and the balance in equal quarterly installments. The exercise price
of the initial tranche of options (1,333,334 shares) shall be $0.06
per share, the second tranche (1,333,333 shares) shall be $0.10 per
share and the final tranche (1,333,333 shares) shall be $0.20 per
share. The term of the options is five years. Ms. Upham resigned
from the Company on November 30, 2018. As a result of her
resignation all of her stock options were terminated and returned
to the option pool. Her accrued salary and vacation of $188,716
will be paid once the funding is obtained.
Consulting Agreement
On April 1, 2018, the Company entered into a Corporate Advisory
Agreement with a consultant. Services commenced May 1, 2018 for a
term of one year with an option to renew for an additional six
months. Compensation pursuant to the agreement is as follows: (1) a
monthly fee of $6,500 paid in cash, and (2) 3,000,000 shares of
restricted common stock of which 1,400,000 shares were deliverable
upon execution of the agreement and the remaining 1,600,000
delivered in monthly installments of 400,000 shares as long as the
agreement has not been terminated. Included in accrued expenses is
the monthly fee totaling $110,500 and the fair value of the shares
of common stock totaling $211,600, as the shares have not been
issued as of March 31, 2020.
The Company has evaluated events and transactions that occurred
from March 31, 2020 through the date of the filing for possible
disclosure and recognition in the financial statements.
On April 2, 2020, the company borrowed $200,000 from a related
party. The Note bears interest at 10% and is due in twelve
months.
On May 20, 2020, the Company borrowed $50,000 from a related party.
The Note bears interest at 10% and is due in twelve months.
On June 10, 2020, the Company borrowed $60,000 from a related
party. The Note bears interest at 10% and is due in twelve
months.
On June 30, 2020, the Company borrowed $20,000 from a related
party. The Note bears interest at 10% and is due in twelve
months.
On July 10, 2020, the Company borrowed $80,000 from a related
party. The Note bears interest at 10% and is due in twelve
months.
On August 4, 2020, the Company borrowed $150,000 from a related
party. The Note bears interest at 10% and is due in twelve
months.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis is based on, and should be
read in conjunction with, the unaudited condensed consolidated
financial statements and the notes thereto included elsewhere in
this Form 10-Q. This Quarterly Report on Form 10-Q contains
“forward-looking statements” within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended. These statements
are often identified by the use of words such as “may,” “will,”
“expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,”
or “continue,” and similar expressions or variations. Such
forward-looking statements are subject to risks, uncertainties and
other factors that could cause actual results and the timing of
certain events to differ materially from future results expressed
or implied by such forward-looking statements. The forward-looking
statements in this Quarterly Report on Form 10-Q represent our
views as of the date of this Quarterly Report on Form 10-Q. We
anticipate that subsequent events and developments will cause our
views to change. However, while we may elect to update these
forward-looking statements at some point in the future, we have no
current intention of doing so except to the extent required by
applicable law. You should, therefore, not rely on these
forward-looking statements as representing our views as of any date
subsequent to the date of this Report on Form 10-Q.
Overview
Boston Therapeutics, headquartered in Lawrence, MA, (OTCQB: BTHE)
is a leader in the field of complex carbohydrate chemistry and
peptide therapeutic drug discovery and development. The Company’s
initial product pipeline is focused on developing and
commercializing therapeutic molecules for sugar control more
specifically prediabetics and diabetes: investigative material
BTI-320, a non- systemic, non-toxic, investigative therapeutic
compound designed to reduce post-meal glucose elevation. In
addition, under manufacturing control, SUGARDOWN®, a similar
base material to BTI-320 has progressed into market testing as a
dietary supplement designed to manage post-meal sugar spikes.
Recently, with the acquisition of CureDM in the first quarter of
2018, a new investigative material BTI-410, an injectable peptide,
may fulfill the medical need to replace injection of insulin by
stimulating the beta cell maturation. And the adjunctive
therapeutic material called IPOXYN, is an investigative intravenous
fluid therapy for the prevention of necrosis and a treatment for
ischemia, with an initial target indication of lower limb ischemic
events often associated with diabetes. This covers a wider combined
prevention and therapeutic option for the growing worldwide
epidemic related to metabolic diseases with diabetes being the
leader.
The Company has incurred recurring operating losses since inception
as it has worked to bring its SUGARDOWN® product to market
and develop BTI-320 and IPOXYN. Management expects such operating
losses will continue until such time that substantial revenues are
received from SUGARDOWN® or the regulatory and clinical
development of BTI-320 or IPOXYN is completed. The Company has
$52,113 cash on hand at March 31, 2020. Management is currently
seeking additional capital through private placements and public
offerings of its common stock. In addition, the Company may seek to
raise additional capital through public or private debt or equity
financings as well as collaboration activities in order to fund our
operations. The Company was advanced $250,000 through the issuance
of 10% notes payable to a related party during the first quarter of
2020. The Company was advanced $330,000 through the issuance of 10%
notes payable to a related party during the second quarter of 2020.
The Company was advanced $230,000 through the issuance of 10% notes
payable to a related party during the third quarter of 2020.
Management anticipates that cash resources will be sufficient to
fund our planned operations into the fourth quarter of 2020. The
future of the Company is dependent upon its ability to obtain
continued financing and upon future profitable operations from the
partnering, development and clarity of its new business
opportunities.
There can be no assurance that we will be successful in
accomplishing our objectives. Without such additional capital, we
may be required to cease operations. The accompanying financial
statements do not include any adjustments that might result should
the Company be unable to continue as a going concern.
These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts of and
classification of liabilities that might be necessary in the event
the Company cannot continue operations.
Results of Operations
Three Months Ended March 31, 2020 compared to March 31,
2019
Revenue
Revenue for the three months ended March 31, 2020 was $3,093, a
decrease of $992 as compared to revenue of $4,085 for the three
months ended March 31, 2019. The decrease is attributable to the
Company’s lack of financial resources to assist with sales and
marketing costs.
Direct Expenses
Direct expenses related to revenue for the three months ended March
31, 2020 totaled $4,902 as compared to $6,912 for the three months
ended March 31, 2019. Costs for fulfillment were lower in 2020 due
to the reduced volume of units sold.
Research and Development
Research and development expense for the three months ended March
31, 2020 was $0, a decrease of $488,450 as compared to $488,450 for
the three months ended March 31, 2019. We had no research and
development activities during the first quarter of 2020 and all
intangible assets were written off in the fourth quarter of 2019
resulting in no amortization expense in 2020. During the first
quarter of 2019 we incurred cash expenses of $450,000 of costs
related to the domestic clinical trials being conducted for
Sugardown. The remainder of the 2019 expense is non cash
amortization of patents.
Sales and Marketing
Sales and marketing expense for the three months ended March 31,
2020 was $541, a decrease of $30,400 as compared to $30,941 for the
three months ended March 31, 2019. The 2019 expense is related to
the marketing agreement entered into with Level Brands, Inc. The
Company is currently in arbitration with Level Brands, Inc., in an
effort to end the contract which the Company believes is not
beneficial. We wrote off the prepaid asset during the fourth
quarter of 2019 as we no longer expect to use the agreement. There
are currently no employees dedicated to sales and marketing.
General and Administrative
General and administrative expense for the three months ended March
31, 2020 was $131,361, a decrease of $82,340 as compared to
$213,701 for the three months ended March 31, 2019. The Company
currently has zero employees as all of the general and
administrative tasks are performed by outside consultants. The 2020
expenses related to profession fees including legal, accounting and
audit fees, as well as insurance, IT and other operating
expenses.
Other (Expenses) Income
Total other income was $7,350 for the three months ended March 31,
2020 compared to total other expense ($215,961) for the three
months ended March 31, 2019. Interest expense increased by
approximately $12,590 for the three months ended March 31, 2020 as
compared to the same period in 2019. This was due to the increase
of related party debt during 2019 and into 2020. The Company
recognized a gain of $101,993 from the change in the valuation of
its warrant liability for the three months ended March 31, 2020
compared to a loss of approximately ($137,000) for the first three
months of 2019. The Company also recognized a gain of approximately
$3,500 from the change in the valuation of its derivative liability
for the three months ended March 31, 2020 compared to a gain of
approximately ($6,000) for the first three months of 2019.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2020
As of March 31, 2020, we had cash of $52,113 and accounts payable
and accrued expenses totaling $3,138,122. During the three months
ended March 31, 2020, the Company used $154,588 of cash in
operations.
The Company has incurred recurring operating losses since inception
as it has worked to bring its SUGARDOWN® product to market
and develop BTI-320 and IPOXYN. Management expects such operating
losses will continue until such time that substantial revenues are
received from SUGARDOWN® or the regulatory and clinical
development of BTI-320 or IPOXYN is completed. The Company has
$52,113 cash on hand at March 31, 2020. Management is currently
seeking additional capital through private placements and public
offerings of its common stock. In addition, the Company may seek to
raise additional capital through public or private debt or equity
financings as well as collaboration activities in order to fund our
operations. The Company was advanced $250,000 through the issuance
of 10% notes payable to a related party during the first quarter of
2020. The Company was advanced $330,000 through the issuance of 10%
notes payable to a related party during the second quarter of 2020.
The Company was advanced $230,000 through the issuance of 10% notes
payable to a related party during the third quarter of 2020.
Management anticipates that cash resources will be sufficient to
fund our planned operations into the fourth quarter of 2020. The
future of the Company is dependent upon its ability to obtain
continued financing and upon future profitable operations from the
partnering, development and clarity of its new business
opportunities.
The Company may seek to raise additional capital or private debt or
public or private equity financings, and partnerships or licensing
opportunities 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 cease operations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to our investors.
CRITICAL ACCOUNTING POLICIES
See Note 2 Summary of Significant Accounting Policies, of the Notes
to Unaudited Condensed Consolidated Financial Statements in Part I,
Item 1 herein for a discussion of critical accounting policies.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk
As a “smaller reporting company” as defined by Item 10 of
Regulation S-K, we are not required to provide the information
requested by this item, as provided by Regulation S-K Item
305(e).
Item 4. Controls and
Procedures
Disclosure Controls and Procedures
Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Securities
Exchange Act of 1934, as amended (“Exchange Act”), the Company
carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer and
Chief Financial Officer (“CEO/CFO”) of the effectiveness of the
Company’s disclosure controls and procedures as of the end of the
period covered by this report. The term “disclosure controls and
procedures”, as defined under Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures of a company
that are designed to ensure that information required to be
disclosed by a company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal
executive and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
As disclosed in our annual report filing for the year ended
December 31, 2019, there was a material weakness in the Company’s
internal control over financial reporting due to the fact that the
Company does not have an adequate process established to ensure
appropriate levels of review of accounting and financial reporting
matters, which resulted in our closing process not identifying all
required adjustments and disclosures in a timely fashion. The
Company’s CEO/CFO has identified control deficiencies regarding the
lack of segregation of duties and the need for a stronger internal
control environment. The small size of the Company’s accounting
staff may prevent adequate controls in the future, such as
segregation of duties, due to the cost/benefit of such remediation.
Based upon the evaluation of the disclosure controls and procedures
at the end of the period covered by this report, the Company’s
CEO/CFO concluded that the Company’s disclosure controls and
procedures were not effective due to a material weakness in the
Company’s internal control over financial reporting.
Through the use of external consultants and the review process,
management believes that the financial statements and other
information presented herewith are materially correct.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over
financial reporting (as defined in Rule 13a-15f of the Exchange
Act) that occurred during the first three months of 2020 that has
materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Limitations on Internal Controls
In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the
fact that there are resource constraints and that management is
required to apply its judgment in evaluating the benefits of
possible controls and procedures relative to their costs.
PART II - OTHER
INFORMATION
Item 1. Legal
Proceedings
In March 2019, we were served with notification of complaint filed
by CureDM Inc. as agent for the members of CureDM Group Holdings,
LLC filed with the Supreme Court of the State of New York County of
New York regarding breach of contract and other matters relating to
their desire to unwind the acquisition of CureDM Group Holdings LLC
according to the original Contribution Agreement. The complaint was
withdrawn by CureDM, Inc. in December 2019. The Company is
continuing to work with the representatives from CureDM Inc. to
settle this claim and unwind the Contribution Agreement.
In addition to the above matter, we are also in a dispute with
Level Brands, Inc. regarding a License Agreement dated June 21,
2018 (JAMS Ref. No.: 1220061261). The Company filed an Answer to
Complaint and Counter-complaint on June 25, 2019. Both parties are
claiming non-performance under the License Agreement. The matter
was scheduled for arbitration in October 2019. In October 2019, the
arbitration was dismissed without prejudice.
On October 16, 2019 the Company received a Summons and Complaint
filed by Microcap Headlines Inc. against the Company in the Supreme
Court of the United States of New York County of Suffolk claiming
damages of $18,000 and the costs and disbursements of the action.
The Company filed an Answer on November 15, 2019. The Company
intends to vigorously defend against the claim.
The Company may become involved in certain legal proceedings and
claims which arise in the normal course of business. The Company is
not aware of any other outstanding or pending litigation.
Item 1A. Risk
Factors
There have not been any material changes in the risk factors from
those previously disclosed in our Annual Report on Form 10-K for
the year ended December 31, 2019.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon
Senior Securities
None.
Item 4. Mine Safety
Disclosures
Not Applicable.
Item 5. Other
Information
None.
Item 6.
Exhibits
|
* |
Filed as an exhibit
hereto. |
|
** |
These certificates are furnished
to, but shall not be deemed to be filed with, the Securities and
Exchange Commission. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
| |
BOSTON THERAPEUTICS, INC. |
| |
|
|
| Date: November 30, 2020 |
By: |
/s/ Conroy Chi-Heng
Cheng |
| |
|
Conroy Chi-Heng Cheng |
| |
|
Chief Executive Officer |
32
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