Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Boston Therapeutics, Inc. | Financial_Report.xls |
| EX-4.2 - EXHIBIT 4.2 - Boston Therapeutics, Inc. | exh4_2.htm |
| EX-4.1 - EXHIBIT 4.1 - Boston Therapeutics, Inc. | exh4_1.htm |
| EX-32.2 - EXHIBIT 32.2 - Boston Therapeutics, Inc. | exh32_2.htm |
| EX-32.1 - EXHIBIT 32.1 - Boston Therapeutics, Inc. | exh32_1.htm |
| EX-10.3 - EXHIBIT 10.3 - Boston Therapeutics, Inc. | exh10_3.htm |
| EX-10.2 - EXHIBIT 10.2 - Boston Therapeutics, Inc. | exh10_2.htm |
| EX-10.1 - EXHIBIT 10.1 - Boston Therapeutics, Inc. | exh10_1.htm |
| EX-31.2 - EXHIBIT 31.2 - Boston Therapeutics, Inc. | exh31_2.htm |
| EX-31.1 - EXHIBIT 31.1 - Boston Therapeutics, Inc. | exh31_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES EXCHANGE ACT OF 1934
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|
| For the quarterly period ended September 30, 2013 | |
| OR | |
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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| 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)
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Delaware
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27-0801073
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(State or other jurisdiction of
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(I.R.S. Employer
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|
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incorporation or organization)
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Identification No.)
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1750 Elm Street, Suite 103, Manchester, NH
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03104
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(Address of principal executive offices)
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(Zip Code)
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603-935-9799
(Registrant’s telephone number, including area code)
33 South Commercial Street Manchester, NH 03101
(Former address)
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller Reporting Company x
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
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Class
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Outstanding at November 4, 2013
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Common Stock, $0.001 par value per share
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37,138,406 shares
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1
BOSTON THERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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3
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Item 1. Unaudited Condensed Financial Statements
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3
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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14
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
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17
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Item 4. Controls and Procedures
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17
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PART II - OTHER INFORMATION
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18
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Item 1. Legal Proceedings
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18
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Item 1A. Risk Factors
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18
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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18
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Item 3. Defaults Upon Senior Securities
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18
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Item 4. Mine Safety Disclosures
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18
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Item 5. Other Information
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18
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Item 6. Exhibits
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19
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SIGNATURES
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20
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Except as otherwise required by the context, all references in this report to "we", "us”, "our", “BTI” or "Company" refer to the consolidated operations of Boston Therapeutics, Inc., a Delaware corporation, formerly called Avanyx Therapeutics, Inc., and its wholly owned subsidiaries.
2
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Financial Statements
|
Boston Therapeutics, Inc.
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||||||||
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Balance Sheet (Unaudited)
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||||||||
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September 30, 2013 and December 31, 2012
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||||||||
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September 30,
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December 31,
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|||||||
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2013
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2012
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|||||||
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ASSETS
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||||||||
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Cash and cash equivalents
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$
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3,863,556
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$
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552,315
|
||||
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Accounts receivable
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217,118
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17,351
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||||||
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Prepaid expenses and other current assets
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69,136
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9,073
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||||||
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Inventory
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189,972
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16,809
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||||||
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Total current assets
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4,339,782
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595,548
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||||||
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Property and equipment, net
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10,277
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7,075
|
||||||
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Intangible assets
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712,500
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760,714
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||||||
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Goodwill
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69,782
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69,782
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||||||
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Other assets
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2,125
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2,125
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||||||
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Total assets
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$
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5,134,466
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$
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1,435,244
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||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
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Current liabilities:
|
||||||||
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Accounts payable
|
$
|
114,819
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$
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294,187
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||||
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Accrued expenses and other current liabilities
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227,502
|
146,774
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||||||
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Total current liabilities
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342,321
|
440,961
|
||||||
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Advances - related parties
|
297,820
|
297,820
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||||||
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Total liabilities
|
640,141
|
738,781
|
||||||
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COMMITMENTS AND CONTINGENCIES (Note 7)
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||||||||
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Stockholders’ equity:
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||||||||
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Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding
|
-
|
-
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||||||
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Common stock, $0.001 par value, 200,000,000 and 100,000,000 shares authorized at September 30, 2013 and December 31, 2012, respectively; 37,094,546 and 18,745,706 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively
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37,094
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18,746
|
||||||
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Additional paid-in capital
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9,458,162
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3,375,116
|
||||||
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Accumulated deficit
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(5,000,931
|
)
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(2,697,399
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)
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||||
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Total stockholders’ equity
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4,494,325
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696,463
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||||||
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Total liabilities and stockholders’ equity
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$
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5,134,466
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$
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1,435,244
|
||||
See accompanying notes to unaudited condensed financial statements
3
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Boston Therapeutics, Inc.
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||||||||||||||||
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Statement of Operations (Unaudited)
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||||||||||||||||
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For the Three and Nine Months Ended September 30, 2013 and 2012
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||||||||||||||||
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For the Three
Months Ended
|
For the Nine Months
Ended
|
|||||||||||||||
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September 30,
2013
|
September 30,
|
September 30,
|
September 30,
|
|||||||||||||
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2012
|
2013
|
2012
|
||||||||||||||
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Revenue
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$
|
217,520
|
$
|
2,520
|
$
|
242,974
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$
|
23,750
|
||||||||
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Cost of goods sold
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118,515
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9,120
|
174,424
|
40,877
|
||||||||||||
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Gross margin
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99,005
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(6,600
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)
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68,550
|
(17,127
|
)
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||||||||||
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Operating expenses:
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||||||||||||||||
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Research and development
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151,946
|
26,116
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200,428
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145,668
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||||||||||||
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Sales and marketing
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102,840
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93,519
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251,236
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227,597
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||||||||||||
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General and administrative
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954,261
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234,632
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1,904,008
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498,603
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||||||||||||
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Total operating expenses
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1,209,047
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354,267
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2,355,672
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871,868
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||||||||||||
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Operating loss
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(1,110,042
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)
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(360,867
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)
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(2,287,122
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)
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(888,995
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)
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||||||||
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Interest expense
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(4,842
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)
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(5,166
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)
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(14,431
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)
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(13,522
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)
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||||||||
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Foreign currency loss
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(1,979
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)
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(301
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)
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(1,979
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)
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(3,211
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)
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||||||||
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Net loss
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$
|
(1,116,863
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)
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$
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(366,334
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)
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$
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(2,303,532
|
)
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$
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(905,728
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)
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||||
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Net loss per share- basic and diluted
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$
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(0.04
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)
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$
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(0.02
|
)
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$
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(0.11
|
)
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$
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(0.05
|
)
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||||
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Weighted average shares outstanding basic and diluted
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26,025,815
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17,348,206
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21,411,649
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16,619,598
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||||||||||||
See accompanying notes to unaudited condensed financial statements
4
|
Boston Therapeutics, Inc.
|
||||||||
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Statement of Cash Flows (Unaudited)
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||||||||
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For the Nine Months Ended September 30, 2013 and 2012
|
||||||||
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For the Nine Months Ended
|
||||||||
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September 30,
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September 30,
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|||||||
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2013
|
2012
|
|||||||
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Cash flows from operating activities:
|
||||||||
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Net loss
|
$
|
(2,303,532
|
)
|
$
|
(905,728
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
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||||||||
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Depreciation and amortization
|
49,710
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48,526
|
||||||
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Stock-based compensation
|
857,851
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161,504
|
||||||
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Issuance of common stock and common stock warrants for consulting services
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104,115
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53,550
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||||||
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Changes in operating assets and liabilities:
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||||||||
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Accounts receivable
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(199,767
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)
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-
|
|||||
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Inventory
|
(173,163
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)
|
(398
|
)
|
||||
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Prepaid expenses and other current assets
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(60,063
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)
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(11,358
|
)
|
||||
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Accounts payable
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(179,368
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)
|
9,947
|
|||||
|
Accrued expenses
|
80,728
|
33,039
|
||||||
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Net cash used in operating activities
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(1,823,489
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)
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(610,918
|
)
|
||||
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Cash flows from investing activities:
|
||||||||
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Purchase of property and equipment
|
(4,698
|
)
|
(7,756
|
)
|
||||
|
Net cash used in investing activities
|
(4,698
|
)
|
(7,756
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from advances-related parties
|
-
|
40,000
|
||||||
|
Proceeds from issuance of common stock and common stock warrants (net of issuance costs)
|
5,139,428
|
522,000
|
||||||
|
Net cash provided by financing activities
|
5,139,428
|
562,000
|
||||||
|
Net increase (decrease) in cash and cash equivalents
|
3,311,241
|
(56,674
|
)
|
|||||
|
Cash and cash equivalents, beginning of period
|
552,315
|
225,995
|
||||||
|
Cash and cash equivalents, end of period
|
$
|
3,863,556
|
$
|
169,321
|
||||
|
Supplemental disclosure of cash flow information
|
||||||||
|
Cash paid during the period for:
|
||||||||
|
Interest
|
$
|
-
|
$
|
-
|
||||
|
Income taxes
|
$
|
-
|
$
|
-
|
||||
See accompanying notes to unaudited condensed financial statements
5
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Overview
Boston Therapeutics, headquartered in Manchester, NH, (OTC: BTHE) is a leader in the field of complex carbohydrate chemistry. The Company's initial product pipeline is focused on developing and commercializing therapeutic molecules for diabetes: PAZ320, a non-systemic chewable therapeutic compound designed to reduce post-meal glucose elevation; IPOXYN™, an injectable anti-necrosis drug specifically designed to treat lower limb ischemia associated with diabetes; SUGARDOWN®, a non-systemic chewable complex carbohydrate designed to moderate post-meal blood glucose, and BTI-7, a new, chewable dose form of the diabetes drug metformin hydrochloride.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has limited resources and operating history. As shown in the accompanying financial statements, the Company has an accumulated deficit of approximately $5,001,000 as of September 30, 2013. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities. During July and September 2013, the Company conducted four closings of its private placement of securities with accredited investors pursuant to which the investors purchased in aggregate 17,659,007 shares of the Company’s common stock and warrants to purchase 8,829,484 additional shares of common stock at an exercise price of $0.50 per share for total gross proceeds of $5,297,698. Management has plans to seek additional capital through private placements and public offerings of its common stock. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations.
These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information and the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q. It is suggested that these condensed financial statements be read in conjunction with the Company's financial statements for its year ended December 31, 2012 included in its Form 10-K. In the opinion of management, the statements contain all adjustments, including normal recurring adjustments necessary in order to present fairly the financial position as of September 30, 2013 and the results of operations for the three and nine month periods ended September 30, 2013 and 2012.
The year-end balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results disclosed in the Statements of Operations for the three and nine month periods ended September 30, 2013 are not necessarily indicative of the results to be expected for the full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
6
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Accounts Receivable
Accounts receivable is stated at the amount management expects to collect from outstanding balances. Management establishes a reserve for doubtful accounts based on its assessment of the current status of individual accounts. Balances that remain outstanding after management has used reasonable collection efforts are written off against the allowance. There were no allowances for doubtful accounts as of September 30, 2013 and December 31, 2012. At September 30, 2013 the Company has one customer that accounts for 100% of its accounts receivable. The Company believes there is minimal risk associated with this receivable.
Inventory
Inventory consists of raw materials, work-in-process and finished goods of SUGARDOWN®. Inventories are stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. The Company continues to monitor the valuation of its inventory.
Revenue Recognition
The Company generates revenues from sales of SUGARDOWN®. Revenue is recognized when there is persuasive evidence that an arrangement exists, the price is fixed and determinable, the product is shipped and collectability is reasonably assured. Revenue is recognized as product is shipped from an outside fulfillment operation. In practice, the Company has not experienced or granted significant returns of product. Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales.
During the three and nine months ended September 30, 2013, one customer accounted for 100% and 97% of the Company’s revenue, respectively.
Stock-Based Compensation
Stock–based compensation, including grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statement based on the estimated fair value of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted and recognizes the compensation cost of share-based awards on a straight-line basis over the vesting period of the award.
The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company does not have a history of market prices of the common stock as, and as such volatility is estimated using historical volatilities of similar public entities. The expected life of the awards is estimated based on the simplified method. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense is recognized in the financial statements on a straight-line basis over the vesting period, based on awards that are ultimately expected to vest.
The Company grants stock options to non-employee consultants from time to time in exchange for services performed for the Company. Equity instruments granted to non-employees are subject to periodic revaluation over their vesting terms. In general, the options vest over the contractual period of the respective consulting arrangement and, therefore, the Company revalues the options periodically and records additional compensation expense related to these options over the remaining vesting period.
Loss per Share
Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The weighted average number of common shares for the three and nine months ended September 30, 2013 did not include 5,886,400 and 11,633,337 options and warrants, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the three and nine months ended September 30, 2012 did not include 1,878,400 and 20,000 options and warrants, respectively, because of their anti-dilutive effect.
7
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
2. INVENTORIES
Inventories consist of material, labor and manufacturing overhead and are recorded at the lower of cost, using the weighted average cost method, or net realizable value.
The components of inventories at September 30, 2013 and December 31, 2012, net of inventory reserves, were as follows:
|
2013
|
2012
|
|||||||
|
Raw materials
|
$
|
31,311
|
$
|
13,125
|
||||
|
Work in process
|
2,077
|
-
|
||||||
|
Finished goods
|
156,584
|
3,684
|
||||||
|
$
|
189,972
|
$
|
16,809
|
|||||
The Company periodically reviews quantities of inventory on hand and compares these amounts to expected usage of each particular product or product line. The Company records, as a charge to cost of sales, any amounts required to reduce the carrying value to net realizable value.
3. STOCKHOLDERS’ EQUITY
The Company is authorized to issue up to 5,000,000 shares of its $0.001 par value preferred stock and up to 200,000,000 shares of its $0.001 par value common stock. On May 31, 2013, record holders of 56% of the issued and outstanding voting common stock authorized the Company to amend its certificate of incorporation to increase the number of common shares from 100,000,000 to 200,000,000. The amendment went into effect September 7, 2013.
Common Stock
On May 7, 2012 the Company issued 20,000 shares of common stock at a price per share of $1.10 and issued a warrant to purchase an additional 20,000 shares of common stock at $1.15 per share for gross proceeds of $22,000. The warrant associated with the subscription agreement is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the relative fair value of the warrant to be $8,754 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
During May 2012 the Company entered into a consulting agreement under which it is required to pay the consultant a monthly fee consisting of 25,000 shares of restricted common stock beginning May 21, 2012 through May 21, 2013. As of December 31, 2012 the Company has issued 150,000 shares due under this agreement for services rendered during June through November 2012 with a fair value of $76,500. An accrual in the amount of $14,000 representing the fair value of the 33,333 unissued shares for services rendered in December 2012 is included in the accompanying December 31, 2012 balance sheet.
During June 2012 the Company issued 80,000 shares of its common stock with a fair value of $40,800 in exchange for professional consulting services.
On June 29, 2012 the Company issued 1,000,000 shares to an affiliate of Advance Pharmaceutical Co., Ltd. (APC) in a private placement for net proceeds of $500,000. APC is licensed to distribute SUGARDOWN® in Hong Kong, China and Macau. The Company reviewed the private placement issuance and determined that the issuance price of $0.50 per share approximates fair value as of the date of issuance.
During July 2012 the Company entered into a consulting agreement under which it is required to pay the consultant a monthly fee consisting of $4,000 paid in cash and 7,500 shares of restricted common stock. As of December 31, 2012 the Company has issued the 22,500 total shares due under this agreement for services rendered during July, August and September 2012 with an aggregate fair value of $11,475. The agreement was terminated as of September 30, 2012.
8
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
3. STOCKHOLDERS’ EQUITY - continued
Common Stock - continued
On November 13, 2012 the Company issued 1,250,000 shares of its common stock at a price per share of $0.50 and issued a warrant to purchase 625,000 additional shares for $1.00 per share for gross proceeds of $625,000. The warrant associated with the subscription agreement is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the relative fair value of the warrant to be $124,019 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
On January 22, 2013 the Company issued 45,833 shares of its common stock with a fair value of $19,250 in exchange for consulting services incurred in fiscal 2012 and January of 2013. As of December 31, 2012, the Company had accrued $14,000 representing the fair value of the 33,333 unissued shares for services rendered in December 2012 which was included in the accompanying December 31, 2012 balance sheet. The agreement was terminated in January 2013.
On March 14, 2013 the Company issued 500,000 shares of its common stock at a price per share of $0.50 and issued a warrant to purchase 250,000 additional shares for $1.00 per share for gross proceeds of $250,000. The warrant associated with the subscription agreement is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the relative fair value of the warrant to be $35,457 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
On April 29, 2013 the Company issued a warrant to purchase 100,000 of common stock for $1.00 per share in exchange for consulting services rendered. The warrant associated with the consulting agreement is exercisable immediately and has a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreement and has determined that equity classification is appropriate. The Company estimated the fair value of the warrant to be $19,865 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
On April 30, 2013 the Company issued 52,000 shares of its common stock with a fair value of $28,080 in exchange for consulting services rendered during February through April 2013 in connection with two separate consulting agreements.
On June 28, 2013 the Company issued 40,000 shares of its common stock with a fair value of $14,000 in exchange for consulting services rendered during May and June in connection with two separate consulting agreements.
Between July and September 2013, the Company conducted four closings of its private placement of securities with accredited investors pursuant to which the investors purchased in aggregate 17,659,007 shares of the Company’s common stock and warrants to purchase an additional 8,829,484 shares of common stock at an exercise price of $0.50 per share (the Investor Warrants) for total gross proceeds of $5,297,698. In addition, the Company issued warrants to the Placement Agent in exchange for services to purchase in aggregate 1,808,849 shares for $0.30 per share (the Placement Agent Warrants). The Investor Warrants and Placement Agent Warrants are exercisable immediately and have a five year term. The Company has evaluated these warrants for proper classification based on terms of the warrant agreements and has determined that equity classification is appropriate. The Company estimated the relative fair value of the Investor Warrants associated with the investor subscription agreements and Placement Agent Warrants as $1,279,093 and $288,101, respectively, using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital. In addition, issuance costs paid by the Company in connection with the private placement offering totaled $408,270.
During September 2013 the Company issued 52,000 shares of its common stock with a fair value of $22,920 in exchange for consulting services rendered during July through September 2013 in connection with two separate consulting agreements.
9
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
4. 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 September 30, 2013 and December 31, 2012, there were 578,400 options outstanding under the 2010 Plan.
During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock. In December 2012, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 12,000,000 shares. During the period ended March 31, 2013, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 17,500,000. As of September 30, 2013 and December 31, 2012, there were 5,308,000 and 7,130,000 options outstanding under the 2011 Plan, respectively.
Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically three to four years and the options typically expire in five to seven years.
The fair value of stock options granted or revalued for three and nine months ended September 30, 2013 and 2012 was calculated with the following assumptions:
|
2013
|
2012
|
|||||||
|
Risk-free interest rate
|
0.47% - 1.55 | % | 0.31% - 1.27 | % | ||||
|
Expected dividend yield
|
0 | % | 0 | % | ||||
|
Volatility factor
|
85 | % | 90 | % | ||||
|
Expected life of option
|
3.25 to 6 years
|
2.90 to 7 years
|
||||||
The weighted-average fair value of stock options granted during the periods ended September 30, 2013 and 2012, under the Black-Scholes option pricing model was $0.21 per share.
The Company recognized $472,820 and $44,638 of stock-based compensation costs in the accompanying statement of operations for the three months ended September 30, 2013 and 2012, respectively. The three months ended September 30, 2013 includes additional compensation expense of $252,345 relating to the future vesting of options per the terms of a terminated employee’s employment agreement. The Company recognized $857,851 and $161,504 of stock-based compensation costs in the accompanying statement of operations for the nine months ended September 30, 2013 and 2012, respectively. No actual tax benefit was realized from stock option exercises during these periods. As of September 30, 2013, there was approximately $213,000 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 1.06 years.
The following table summarizes the Company’s stock option activity during the nine months ended September 30, 2013:
|
|
Shares
|
Exercise Price per Share
|
Weighted Average Exercise Price per Share
|
|||||||||
|
Outstanding as of December 31, 2012
|
7,708,400
|
$
|
0.10-1.85
|
$
|
0.42
|
|||||||
|
Granted
|
708,000
|
0.42-1.00
|
0.68
|
|||||||||
|
Exercised
|
-
|
-
|
-
|
|||||||||
|
Options forfeited/cancelled
|
(2,530,000
|
)
|
0.50-1.00
|
0.51
|
||||||||
|
Outstanding as of September 30, 2013
|
5,886,400
|
$
|
0.10-1.85
|
$
|
0.42
|
|||||||
10
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
4. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION - continued
The following table summarizes information about stock options that are vested or expected to vest at September 30, 2013:
|
Vested or Expected to Vest
|
Exercisable Options
|
|||||||||||||||||||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||||||||||||||||
|
Average
|
Average
|
Average
|
Average
|
|||||||||||||||||||||||||||||||
|
Exercise
|
Remaining
|
Aggregate
|
Number
|
Exercise
|
Remaining
|
Aggregate
|
||||||||||||||||||||||||||||
|
Exercise
|
Number of
|
Price Per
|
Contractual
|
Intrinsic
|
of
|
Price
|
Contractual
|
Intrinsic
|
||||||||||||||||||||||||||
|
Price
|
Options
|
Share
|
Life (Years)
|
Value |
Options
|
Per Share
|
Life (Years)
|
Value | ||||||||||||||||||||||||||
| $ | 0.10 | 1,800,000 | $ | 0.10 | 3.13 | $ | 1,026,000 | 1,612,500 | $ | 0.10 | 3.15 | $ | 919,125 | |||||||||||||||||||||
| 0.42 | 98,000 | 0.42 | 7.26 | 24,500 | - | 0.42 | - | - | ||||||||||||||||||||||||||
| 0.50 | 3,330,000 | 0.50 | 2.09 | 566,100 | 2,371,668 | 0.50 | 2.34 | 403,184 | ||||||||||||||||||||||||||
| 0.57 | 400,000 | 0.57 | 4.87 | 40,000 | 83,280 | 0.57 | 4.87 | 8,328 | ||||||||||||||||||||||||||
| 1.00 | 180,000 | 1.00 | 2.32 | - | 135,000 | 1.00 | 1.63 | - | ||||||||||||||||||||||||||
| 1.85 | 78,400 | 1.85 | 2.00 | - | 78,400 | 1.85 | 2.00 | - | ||||||||||||||||||||||||||
| $ | 0.10-1.85 | 5,886,400 | $ | 0.41 | 2.69 | $ | 1,656,600 | 4,280,848 | $ | 0.39 | 2.67 | $ | 1,330,637 | |||||||||||||||||||||
The weighted-average remaining contractual life for stock options exercisable at September 30, 2013 is 2.67 years. At September 30, 2013, the Company has 12,192,000 and 6,921,600 options available for grant under the 2011 Plan and 2010 Plan, respectively. The intrinsic value for fully vested, exercisable options was $1,330,637 and $418,000 at September 30, 2013 and December 31, 2012, respectively. No actual tax benefit was realized from stock option exercises during these periods.
11
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
5. RELATED PARTY TRANSACTIONS
Through December 31, 2011, the CEO advanced $257,820 to BTI to fund start-up costs and operations of the Company. Advances by the CEO carry an interest rate of 6.5% and were due on June 29, 2013. On May 7, 2012, the Company’s CEO and President entered into promissory notes to advance to the Company an aggregate of $40,000. The notes accrue interest at 6.5% per year were due June 30, 2013. On August 6, 2012, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2014. On August 2, 2013, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2015.
As of September 30, 2013 and December 31, 2012, $58,568 and $44,090, respectively, of accrued interest had been included in accrued expenses on the accompanying balance sheet.
6. INTANGIBLE ASSETS
The SUGARDOWN® technology and provisional patents are being amortized on a straight-line basis over their useful lives of 14 years. Goodwill is not amortized, but is evaluated annually for impairment.
Intangible assets consist of the following at September 30, 2013 and December 31, 2012:
| 2013 | 2012 | |||||||
|
SUGARDOWN® technology and provisional patents
|
$ | 900,000 | $ | 900,000 | ||||
|
Less accumulated amortization
|
(187,500 | ) | (139,286 | ) | ||||
|
Intangible assets, net
|
$ | 712,500 | $ | 760,714 |
Amortization expense was $16,071 and $48,213 for the three and nine months ended September 30, 2013 and 2012, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company entered into a three year lease agreement for their office lease facility commencing July 1, 2012, with escalating rental payments. On February 21, 2013, the Company amended the lease agreement to extend the lease through March 2018 and increase rental space. The effects of variable rent disbursements have been expensed on a straight-line basis over the life of the lease. The Company recognized rent expense of $10,132 and $59,372 during the three and nine months ended September 30, 2013, respectively. The Company recognized rent expense of $7,326 and $9,890 during the three and nine months ended September 30, 2012, respectively. As of September 30, 2013 and December 31, 2012, there was $25,635 and $2,267, respectively, of deferred rent included in accrued expenses and other current liabilities in the accompanying balance sheets.
Future minimum lease payments under all non-cancelable operating leases as of September 30, 2013 are as follows:
|
Fiscal year
|
||||
|
2013
|
$
|
14,634
|
||
|
2014
|
60,093
|
|||
|
2015
|
62,169
|
|||
|
2016
|
64,299
|
|||
|
2017
|
66,519
|
|||
|
2018
|
16,770
|
|||
|
$
|
284,484
|
|||
12
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the three and nine month periods ended September 30, 2013 and 2012
8. SUBSEQUENT EVENTS
The Company has evaluated events and transactions that occurred from September 30, 2013 through the date of filing, for possible disclosure and recognition in the financial statements. Except as discussed below, the Company did not have any material subsequent events that impact its financial statements or disclosures.
In October 2013, the Company conducted an additional closing of its private placement of securities to related parties and affiliates resulting in the purchase of 153,334 shares of the Company’s common stock and warrants to purchase 76,666 additional shares of common stock at an exercise price of $0.50 per share for total gross proceeds of $46,000.
13
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 Manchester, NH, (OTC: BTHE) is a leader in the field of complex carbohydrate chemistry. The Company's initial product pipeline is focused on developing and commercializing therapeutic molecules for diabetes: PAZ320, a non-systemic chewable complex carbohydrate-based, drug candidate designed to moderate post-meal blood glucose; IPOXYN, an injectable, anti-necrosis drug specifically designed to treat lower limb ischemia associated with diabetes; SUGARDOWN®, a non-systemic tablet designed to reduce the post prandial glucose in the blood, and BTI -7, a new, chewable dose form of the diabetes drug metformin hydrochloride.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has limited resources and operating history. As shown in the accompanying financial statements, as of September 30, 2013, the Company has an accumulated deficit of approximately $5,001,000. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities.
Management has plans to seek additional capital through private placements and public offerings of its common stock. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations.
These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
14
Results of Operation
Three Months Ended September 30, 2013 compared to September 30, 2012
Revenue
Revenue for the three months ended September 30, 2013 was $217,520, an increase of $215,000 as compared to revenue of $2,520 for the three months ended September 30, 2012. The increase was primarily the result of shipments of SUGARDOWN® to one customer.
Gross Margin
Gross margin for the three months ended September 30, 2013 was $99,005 as compared to negative gross margin of ($6,600) for the three months ended September 30, 2012. The increase is primarily related to the shipment of product during the quarter. The negative gross margin for the three months ended September 30, 2012 was primarily the result of fixed overhead costs related to moving to a new fulfillment operations and manufacturing scale-up from small to production grade equipment exceeding revenue.
Research and Development
Research and development expense for the three months ended September 30, 2013 was $151,946, an increase of $125,830 as compared to $26,116 for the three months ended September 30, 2012. The increase is primarily the result of increased research and development activity in preparation for PAZ320’s Phase II trial in France and PAZ320’s Phase III international trial.
Sales and Marketing
Sales and marketing expense for the three months ended September 30, 2013 was $102,840, an increase of $9,321 or 10% as compared to $93,519 for the three months ended September 30, 2012. The expense consists primarily of costs incurred with third parties for product marketing and public relations.
General and Administrative
General and administrative expense for the three months ended September 30, 2013 was $954,261, an increase of $719,629 as compared to $234,632 for the three months ended September 30, 2012. Approximately $407,000 of the increase is related to stock-based compensation which includes $252,000 of expense due to the future vesting of options per the terms of a terminated employee’s employment agreement and expense associated with option grants during 2012 and 2013. Consulting and professional services increased $135,000 for investor relations and maintenance of the SUGARDOWN® website, accounting and legal professional fees increased $91,000 and payroll and payroll related expense increased $82,000 due to additional personnel.
Nine Months Ended September 30, 2013 compared to September 30, 2012
Revenue
Revenue for the nine months ended September 30, 2013 was $242,974, an increase of $219,224 as compared to revenue of $23,750 for the nine months ended September 30, 2012. The increase was the result of shipments of SUGARDOWN® to one customer primarily in the third quarter.
Gross Margin
Gross margin for the nine months ended September 30, 2013 was $68,550 as compared to negative gross margin of ($17,127) for the nine months ended September 30, 2012. The increase is primarily related to the shipment of product during the third quarter. The negative gross margin for the nine months ended September 30, 2012 was primarily the result of fixed overhead costs related to moving to a new fulfillment operations and manufacturing scale-up from small to production grade equipment exceeding revenue.
Research and Development
Research and development expense for the nine months ended September 30, 2013 was $200,428, an increase of $54,760 as compared to $145,668 for the nine months ended September 30, 2012. The increase is primarily the result of increased research and development activity in preparation for PAZ320’s Phase II trial in France and PAZ320’s Phase III international trial.
15
Sales and Marketing
Sales and marketing expense for the nine months ended September 30, 2013 was $251,236, an increase of $23,639 or 10% as compared to $227,597 for the nine months ended September 30, 2012. The expense consists primarily of costs incurred with third parties for product marketing and public relations.
General and Administrative
General and administrative expense for the nine months ended September 30, 2013 was $1,904,008, an increase of $1,405,405 as compared to $498,603 for the nine months ended September 30, 2012. Approximately $677,000 of the increase is related to stock-based compensation which includes $252,000 of expense due to the future vesting of options per the terms of a terminated employee’s employment agreement and expense associated with option grants during 2012 and 2013. Additionally, consulting and professional fees increased approximately $345,000 for investor relations and maintenance of the SUGARDOWN® website, payroll and related payroll expense increased $162,000 due to additional personnel, accounting and legal professional fees increased $114,000 due to increased business operations and rent expense increased $50,000 due to the new office facility.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2013
As of September 30, 2013, we had cash of $3,863,556 and accounts payable and accrued expenses and other current liabilities of $342,321. During the interim period ended September 30, 2013, the Company raised $5,297,698 in private placements of unregistered common stock and warrants to purchase common stock. On August 2, 2013, the outstanding notes of $297,820 were amended to extend the maturity dates to June 29, 2015. We have received minimal revenues from the SUGARDOWN® product.
We plan to seek additional capital through private placements and public offerings of our common stock. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital, the Company may be required to cease operations.
We anticipate that our cash resources will be sufficient to fund our operations into the near term. However, changes may occur that would cause us to consume our existing capital prior to that time, including the scope and progress of our research and development efforts. Additionally, actual costs may ultimately vary from our current expectations, which could materially impact our use of capital and our forecast of the period of time through which our financial resources will be adequate to support our operations.
Our CEO also contributed a provisional patent, a patent and know-how to the Company. We intend to use these and other assets to attract investors in order to raise the capital required to fund operations. Even if we are able to continue our operations, the failure to obtain financing could have a substantial adverse effect on our business and financial results. In the future, we may be required to seek additional capital by selling debt or equity securities, and we may be required to cease operations, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms acceptable to us, or at all.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
CRITICAL ACCOUNTING POLICIES
See Note 1 Summary of Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 herein for a discussion of critical accounting policies.
16
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”) (the Company’s principal financial and accounting officer), 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. 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 as discussed below.
Changes in Internal Control Over Financial Reporting
The Company has evaluated the changes in its internal control over financial reporting that occurred during the quarter ended September 30, 2013 and concluded that the following matters have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As of September 30, 2013, there was a material weakness in the Company’s internal control over financial reporting due to the fact that the Company did not have a process established to ensure adequate levels of review of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments in a timely fashion.
Although the Company has hired consultants to assist with SEC reporting and accounting matters, we expect that the Company will need to hire accounting personnel with the requisite knowledge to improve the levels of review of accounting and financial reporting matters. The Company may experience delays in doing so and any such additional employees would require time and training to learn the Company’s business and operating processes and procedures. For the near-term future, until such personnel are in place, this will continue to constitute a material weakness in the Company’s internal control over financial reporting that could result in material misstatements in the Company’s financial statements not being prevented or detected. The Company’s management, including the Company’s CEO/CFO, does not expect that the Company’s internal control over financial reporting will prevent all errors and all fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
17
PART II - OTHER INFORMATION
|
Item 1. Legal Proceedings
|
|
|
None.
|
|
|
Item 1A. Risk Factors
|
|
|
There have not been any material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.
|
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
|
The only unregistered sales of equity securities made by the Company during the quarter ended September 30, 2013 and not previously reported on Form 8-K are as follows:
During September 2013 the Company issued 52,000 shares of its common stock with a fair value of $22,920 in exchange for consulting services rendered during July through August 2013 in connection with two separate consulting agreements.
Each of the preceding sales and issuances was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act for transactions not involving a public offering.
|
|
|
Item 3. Defaults Upon Senior Securities
|
|
|
None.
|
|
|
Item 4. (Removed and Reserved)
|
|
|
Item 5. Other Information
|
|
|
None.
|
|
18
Item 6. Exhibits
|
Exhibit No.
|
|
Title of Document
|
|
3.1
|
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September __, 2013)
|
|
|
|
||
|
Form of Investor Warrant*
|
||
|
Form of Private Placement Warrant*
|
||
|
Boston Therapeutics, Inc. Amended and Restated 2010 Stock Plan*
|
||
|
Unit Purchase Agreement between Boston Therapeutics, Inc. and the investors named therein dated as of July 23, 2013, as amended*
|
||
|
Registration Rights Agreement between Boston Therapeutics, Inc. and the investors named therein dated as of July 23, 2013, as amended*
|
||
|
Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended*
|
||
|
Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended*
|
||
|
Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Executive Officer)**
|
||
|
Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Financial Officer)**
|
||
|
101
|
The following financial statements from the Quarterly Report on Form 10-Q of Boston Therapeutics, Inc. for the quarter ended September 30, 2013 formatted in XBRL: (i) Condensed Balance Sheets (unaudited), (ii) Condensed Statements of Operations (unaudited), (iii) Condensed Statements of Cash Flows (unaudited), and (iv) Notes to Condensed Financial Statements (unaudited), tagged as blocks of text.*
|
*Filed as an exhibit hereto.
**These certificates are furnished to, but shall not be deemed to be filed with, the Securities and Exchange Commission.
19
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 13, 2013
|
By:
|
/s/ David Platt
|
|
|
David Platt
|
|||
|
Chief Executive Officer and Chief Financial Officer
|
|||