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 June 30, 2016
 
 
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
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
1750 Elm Street, Manchester, NH
 
03104
(Address of principal executive offices)
 
(Zip Code)
603-935-9799
 (Registrant's telephone number, including area code)


1750 Elm Street Manchester, NH 03104
(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             No  
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes             No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer                                                                       Accelerated filer                                                      
Non-accelerated filer                                                                         Smaller Reporting Company                                  
(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   No
 
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 August 12, 2016
Common Stock, $0.001 par value per share
 
44,319,507 shares

 
1

 
BOSTON THERAPEUTICS, INC.
FORM 10-Q

TABLE OF CONTENTS

 
PART I - FINANCIAL INFORMATION
 
 
 
Item 1. Unaudited Condensed Financial Statements
3
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
15
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
18
 
 
Item 4. Controls and Procedures
18
 
 
PART II - OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
20
 
 
Item 1A. Risk Factors
20
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
20
 
 
Item 3. Defaults Upon Senior Securities
20
 
 
Item 4. Mine Safety Disclosures
20
 
 
Item 5. Other Information
20
 
 
Item 6. Exhibits
22
 
 
SIGNATURES
23
 
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.
 
Condensed Balance Sheets
 
 
 
June 30,
   
December 31,
 
 
 
2016
   
2015
 
 
 
(Unaudited)
       
ASSETS
           
Cash and cash equivalents
 
$
21,153
   
$
40,995
 
Accounts receivable
   
4,662
     
-
 
Prepaid expenses and other current assets
   
432,450
     
78,356
 
Inventory
   
102,851
     
109,751
 
Total current assets
   
561,116
     
229,102
 
 
               
Property and equipment, net
   
4,379
     
7,668
 
Intangible assets, net
   
535,714
     
567,857
 
Goodwill
   
69,782
     
69,782
 
Other assets
   
-
     
3,625
 
Total assets
 
$
1,170,991
   
$
878,034
 
 
               
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
 
               
Current liabilities:
               
Accounts payable
 
$
522,734
   
$
575,068
 
Accrued expenses and other current liabilities
   
247,543
     
278,225
 
Deferred revenue
   
164,285
     
164,285
 
Notes payable – related party, current portion
   
297,820
     
20,000
 
Total current liabilities
   
1,232,382
     
1,037,578
 
 
               
Convertible notes payable, related party, net of discount
   
464,200
     
93,177
 
Notes payable - related parties
   
-
     
277,820
 
Total liabilities
   
1,696,582
     
1,408,575
 
 
               
COMMITMENTS AND CONTINGENCIES (Note 8)
               
 
               
Stockholders' deficit:
               
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding
   
-
     
-
 
Common stock, $0.001 par value, 400,000,000 shares authorized, 44,319,507 and 39,319,507 shares
issued and outstanding at June 30, 2016 and December 31, 2015, respectively.
   
44,319
     
39,319
 
Common stock subscribed
   
200,000
     
200,000
 
Additional paid-in capital
   
14,505,795
     
13,718,795
 
Accumulated deficit
   
(15,275,705
)
   
(14,488,655
)
Total stockholders' deficit
   
(525,591
)
   
(530,541
)
 
               
Total liabilities and stockholders' deficit
 
$
1,170,991
   
$
878,034
 
 
See accompanying notes to unaudited condensed financial statements


3

 
Boston Therapeutics, Inc.
Condensed Statements of Operations (Unaudited)
 
For the Three Months
   
For the Six Months
 
 
 
Ended
   
Ended
 
 
 
June 30,
   
June 30,
   
June 30,
   
June 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
 
                       
Revenue
 
$
16,281
   
$
38,851
   
$
28,588
   
$
90,180
 
Cost of goods sold
   
8,707
     
66,778
     
24,629
     
98,888
 
    Gross margin (deficit
   
7,574
     
(27,927
)
   
3,959
     
(8,708
)
 
                               
Operating expenses:
                               
  Research and development
   
19,929
     
96,992
     
41,701
     
302,411
 
  Sales and marketing
   
52,864
     
2,143
     
71,514
     
34,894
 
  General and administrative
   
112,816
     
384,175
     
326,773
     
900,097
 
    Total operating expenses
   
185,609
     
483,310
     
439,988
     
1,237,402
 
 
                               
  Operating loss
   
(178,035
)
   
(511,237
)
   
(436,029
)
   
(1,246,110
)
 
                               
  Interest expense
   
(189,671
)
   
(218,419
)
   
(347,012
)
   
(235,907
)
  Other income (expense)
   
-
     
(71
)
   
( 4,009
)
   
77,575
 
  Change in fair value of warrant liability
   
-
     
9,800
     
-
     
19,600
 
  Change in fair value of derivative liabilities
   
-
     
33,689
     
-
     
22,317
 
    Net loss
 
$
(367,706
)
 
$
(686,238
)
 
$
(787,050
)
 
$
(1,362,525
)
 
                               
 
                               
Net loss per share- basic and diluted
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.02
)
 
$
(0.04
)
Weighted average shares outstanding basic and diluted
   
43,825,002
     
38,645,870
     
41,584,700
     
38,605,392
 
 
 
See accompanying notes to unaudited condensed financial statements
 
4

 
Boston Therapeutics, Inc.
Condensed Statements of Cash Flows (Unaudited)
 
 
For the Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2016
   
2015
 
Cash flows from operating activities:
           
Net loss
 
$
(787,050
)
 
$
(1,362,525
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
  Depreciation and amortization
   
35,432
     
35,578
 
  Stock-based compensation
   
-
     
241,246
 
  Amortization of discount on debt
   
261,023
     
-
 
 Non-cash interest expense
   
-
     
204,195
 
 Provision for inventory obsolescence
   
-
     
26,062
 
  Change in fair value of warrant liability
   
-
     
(19,600
)
  Change in fair value of derivative liabilities
   
-
     
(22,317
)
  Issuance of common stock for consulting services
   
-
     
13,682
 
     Changes in operating assets and liabilities:
               
       Accounts receivable
   
(4,662
)
   
-
 
       Inventory
   
6,900
     
45,201
 
       Prepaid expenses and other current assets
   
(4,094
)
   
(19,256
)
       Other assets
   
3,625
     
-
 
       Accounts payable
   
(52,334
)
   
270,637
 
       Deferred revenue
   
-
     
62,610
 
       Accrued expenses
   
(30,682
)
   
143,058
 
     Net cash used in operating activities
   
(571,842
)
   
(381,429
)
 
               
Cash flows from investing activities:
   
-
     
-
 
 
               
Cash flows from financing activities:
               
  Proceeds from issuance of convertible notes payable (net of issuance discounts and fees)
   
552,000
     
432,000
 
     Net cash provided by financing activities
   
552,000
     
432,000
 
 
               
Net (decrease) increase in cash and cash equivalents
   
(19,842
)
   
50,571
 
Cash and cash equivalents, beginning of period
   
40,995
     
157,278
 
Cash and cash equivalents, end of period
 
$
21,153
   
$
207,849
 
 
               
Supplemental disclosure of cash flow information
               
  Cash paid during the period for:
               
     Interest
 
$
-
   
$
-
 
     Income taxes
 
$
4,000
   
$
5,000
 
  Non-cash financing activities:
               
   Issuance of common stock in exchange for settlement of outstanding payables
 
$
350,000
   
$
22,179
 
    Warrant liability associated with Typenex Convertible Note
 
$
-
   
$
146,995
 
    Derivative liabilities associated with convertible notes payable
 
$
-
   
$
274,331
 
    Beneficial conversion features associated with convertible notes payable
 
$
442,000
   
$
-
 

See accompanying notes to unaudited condensed financial statements
 
5

 
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015



 
1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Company Overview
 
Boston Therapeutics, Inc., headquartered in Manchester, NH, (OTC: BTHE) is a leader in the field of complex carbohydrate chemistry. The Company's initial product pipeline is focused on developing and commercializing therapeutic molecules for diabetes: BTI-320, a non-systemic, non-toxic, therapeutic compound designed to reduce post-meal glucose elevation, SUGARDOWN®, a dietary supplement designed to reduce post-meal sugar spikes and IPOXYN, a continuous intravenous drug for the prevention of necrosis and treatment of ischemia with an initial target indication of lower limb ischemia often associated with diabetes.
 
The accompanying unaudited condensed 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 unaudited condensed financial statements, the Company has an accumulated deficit of approximately $15.3 million and $21,000 cash on hand as of June 30, 2016. Management is currently seeking additional capital through private placements and public offerings of its common stock.  In addition, the Company may seek to raise additional capital through public or private debt or equity financings in order to fund our operations.  The Company has received ongoing funding through a fixed price convertible note from a related party and significant shareholder. Management anticipates that cash resources will be sufficient to fund our planned operations into the fourth quarter of 2016 as a result of this funding and cash management. The Company has entered into an advisory agreement with an investment banking firm whereby the Company is hopeful to receive funding for its operations. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its new business opportunities. There can be no assurance that 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 operations.
 
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 ("U.S. GAAP") for interim financial information and the rules of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q. These condensed financial statements should be read in conjunction with the Company's financial statements for its year ended December 31, 2015 included in its Form 10-K filed with the SEC on March 30, 2016. In the opinion of management, the statements contain all adjustments, including normal recurring adjustments necessary in order to present fairly the financial position as of June 30, 2016 and the results of operations for the three and six month periods ended June 30, 2016 and 2015.
 
The year-end balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results disclosed in the statements of operations for the three and six month periods ended June 30, 2016 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 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.
 
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 June 30, 2016 and December 31, 2015. At June 30, 2016, no single customer accounted for 10% of its accounts receivable. At December 31, 2015, there were no accounts receivable.


6


Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015



 
1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
 
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 in accordance with the customers' Free On Board (FOB) shipping point terms and collectability is reasonably assured.  In practice, the Company has not experienced or granted significant returns of product. Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales.
 
As disclosed in Note 5 of the Notes to Unaudited Condensed Financial Statements, Advance Pharmaceutical Company Ltd., a related party, accounted for 0% and 91% of the Company's revenue during the three months ended June 30, 2016 and 2015, respectively.  During the six months ended June 30, 2016 and 2015, Advance Pharmaceutical accounted for 0% and 78% of the Company's revenue, respectively.    
 
Fair Value of Financial Instruments
 
Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions. The Company's financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature using level 3 inputs as defined above. The carrying value of the notes payable as of June 30, 2016 and December 31, 2015, evaluated using level 3 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.
 
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 has a limited 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.
 
7


Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015



 
1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Loss per Share
 
Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method.  The weighted average number of common shares for the three and six month periods ended June 30, 2016 did not include 6,289,000 and 12,424,669 options and warrants, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the three and six month periods ended June 30, 2015 did not include 8,117,400 and 13,404,634 options and warrants, respectively, because of their anti-dilutive effect.

Recent Adopted Accounting Pronouncements

 
In April 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-03 "Simplifying the Presentation of Debt Issuance Costs," which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of debt discounts or premiums.  The ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  The Company elected early adoption of this standard during the period ended March 31, 2015, which did not have a material impact on its financial statements.

Recent Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU No 2014-09 supersedes the revenue recognition requirements in "Topic 605, Revenue Recognition" and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective retrospectively for annual or interim reporting periods beginning after December 15, 2016, with early application not permitted. The Company is currently evaluating the impact of this standard on its financial statements.
 
In August 2014, the FASB issued Accounting Standard Update (ASU) 2014-15, Presentation of Financial Statements – Going Concern. The new standard addresses management's responsibility to evaluate whether there is a substantial doubt about the Company's ability to continue as a going concern.  It requires management to perform interim and annual assessments of the Company ability to continue as a going concern and to provide related disclosures.  The standard will be effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016.  The Company is currently evaluating the impact of this standard on its financial statements.
 
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 June 30, 2016 and December 31, 2015, net of inventory reserves, were as follows:
 
 
 
2016
   
2015
 
 Raw materials
 
$
34,919
   
$
34,919
 
 Finished goods
   
67,932
     
74,832
 
 
 
$
102,851
   
$
109,751
 
 
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. 
 
8

 
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015


 
 
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. During the year ended December 31, 2013, the Company amended its certificate of incorporation to increase the number of common shares from 100,000,000 to 200,000,000.  The amendment went into effect on September 7, 2013. On November 2, 2015, the Company's Board of Directors voted to approve an increase in authorized common stock shares from 200,000,000 shares to 400,000,000 shares of the Company's common stock.  This increase is subject to shareholder approval.
 
Common Stock
 
In April 2016, the Company issued a total of 5,000,000 shares of its common stock with a fair value of $350,000 to two parties in exchange for investment advisory services.

During the three months ended March 31, 2015, the Company issued 40,500 shares of its common stock with a fair value of $12,105 in exchange for consulting services rendered during those periods in connection with two consulting agreements.
 
In May 2015, the Company's Board of Directors approved up to 2,000,000 shares of the Company's common stock to be available to the Company to satisfy vendor and consultant payments.  In June 2015, the Company issued 158,428 shares of its common stock to two vendors in exchange for services previously recorded. The fair value of these shares was $22,179.

In June 2015, the Company issued 10,500 shares of its common stock with a fair value of $1,575 in exchange for consulting services rendered during the three months ended June 30, 2015 in connection with one consulting agreement.

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 June 30, 2016, the Company had 12,424,669 warrants outstanding which are all classified as equity instruments and are fully exercisable.
 
The following table summarizes the Company's common stock warrant activity during the six months ended June 30, 2016:

  
 
Warrants
   
Weighted Average
Exercise Price
 
Outstanding as of December 31, 2015
   
12,424,669
   
$
0.53
 
      Granted
   
-
     
-
 
      Exercised
   
-
     
-
 
      Forfeited/cancelled
   
-
     
-
 
Outstanding as of June 30, 2016
   
12,424,669
   
$
0.53
 
 
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 June 30, 2016 and December 31, 2015, 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 June, 2016 and December 31, 2015, there were 6,039,000 and 6,039,000 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 one to four years and the options typically expire in five to ten years.
 
9

 
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015



 
4.          STOCK OPTION PLAN AND STOCK-BASED COMPENSATION - continued

In March 2015, the Board of Directors approved a grant of non-qualified stock options to the independent directors of the Company to purchase an aggregate of 384,000 shares of the Company's common stock at an exercise price of $0.18. The options were allocated among the directors based on service in, and chairmanship of the Company's committees and service as lead independent director. The options vest as of December 31, 2015, provided that the directors remain directors on that date and have attended at least 75% of the scheduled meetings of the Board and the committees on which such directors serve during the 2015 calendar year. In addition, during the period ended March 31, 2015, the Company granted incentive stock options to members of management and non-management of the Company to purchase an aggregate of 700,000 shares of the Company's common stock at exercises prices ranging from $0.18 to $0.20 per share, all of which vested immediately. The Company also granted non-qualified stock options to consultants of the Company to purchase an aggregate of 625,000 shares of the Company's common stock at an exercise price of $0.18, all of which vested immediately.

During the three months ended June 30, 2015, the Company granted a non-qualified stock option, to a consultant to purchase an aggregate of 100,000 shares of the Company's common stock at an exercise price of $0.20, which vested immediately.

No stock options were granted during the six months ended June 30, 2016

The fair value of stock options granted or revalued for the six months ended June 30, 2016 and 2015 was calculated with the following assumptions:
 
       2016        2015  
Risk-free interest rate
 
 
-
 
 
 
1.3% - 1.9
%
Expected dividend yield
 
 
-
 
 
 
0
%
Volatility factor
 
 
-
 
 
 
79 – 91
%
Expected life of option
 
-
 
 
4.60 to 10 years
 
 
The weighted-average fair value of stock options granted during the six month period ended June, 2016 and 2015, under the Black-Scholes option pricing model, was $0.00 and $0.14 per share, respectively.

The Company recognized $0 and $36,071 of stock-based compensation costs in the accompanying statement of operations for the three months ended June 30, 2016 and 2015, respectively.  The Company recognized $0 and $241,246 of stock-based compensation costs in the accompanying statement of operations for the six months ended June 30, 2016 and 2015, respectively.  As of June 30, 2016, there was no unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized in future periods. 

The following table summarizes the Company's stock option activity during the six months ended June 30, 2016:

  
 
Shares
   
Exercise Price per Share
   
Weighted Average
Exercise Price per Share
 
Outstanding as of December 31, 2015
   
6,289,000
   
$
0.10-1.21
   
$
0.37
 
      Granted
   
-
     
-
     
-
 
      Exercised
   
-
     
-
     
-
 
      Options forfeited/cancelled
   
-
     
-
     
-
 
Outstanding as of June 30, 2016
   
6,289,000
   
$
0.10-1.21
   
$
0.37
 
 
There were no stock option exercises during the three and six months ended June 30, 2016 or June 30, 2015. 
 
10

 
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015



 
4.          STOCK OPTION PLAN AND STOCK-BASED COMPENSATION - continued

The following table summarizes information about stock options that are vested or expected to vest at June 39, 2016: 
 
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
     
1,795,000
   
$
0.10
     
0.38
   
$
-
     
1,795,000
   
$
0.10
     
0.38
   
$
-
 
   
0.18
     
934,000
     
0.18
     
8.75
     
-
     
934,000
     
0.18
     
8.75
     
-
 
   
0.20
     
150,000
     
0.20
     
8.75
     
-
     
150,000
     
0.20
     
8.75
     
-
 
   
0.37
     
58,000
     
0.37
     
6.18
     
-
     
58,000
     
0.37
     
6.18
     
-
 
   
0.42
     
63,000
     
0.42
     
4.51
     
-
     
63,000
     
0.42
     
4.51
     
-
 
   
0.50
     
2,810,000
     
0.50
     
2.50
     
-
     
2,810,000
     
0.50
     
2.50
     
-
 
   
0.69
     
100,000
     
0.69
     
7.71
     
-
     
100,000
     
0.69
     
7.71
     
-
 
   
1.21
     
379,000
     
1.21
     
7.57
     
-
     
379,000
     
1.21
     
7.57
     
-
 
 
$
0.10-1.21
     
6,289,000
   
$
0.37
     
3.41
   
$
-
     
6,289,000
   
$
0.37
     
3.41
   
$
-
 

The weighted-average remaining contractual life for stock options exercisable at June 30, 2016 is 3.41 years. At June 30, 2016, the Company has 11,363,880 and 7,250,000 options available for grant under the 2011 Plan and 2010 Plan, respectively. There was $0 intrinsic value for fully vested, exercisable options at both June 30, 2016 and December 31, 2015. There were no options exercised in the three or six months ended June 30, 2016 or June 30, 2015. No actual tax benefit was realized from stock option exercises during these periods.
 
As of June 30, 2016, all of the stock options issued by the Company are fully vested.
 
5.           RELATED PARTY TRANSACTIONS
 
Through December 31, 2011, Dr. Platt, the Company's former CEO and Chairman of the Board, advanced $257,820 to the Company to fund start-up costs and operations. Advances by Dr. Platt carry an interest rate of 6.5% and were due on June 29, 2013. On May 7, 2012, Dr. Platt and the Company's former President entered into promissory notes to advance to the Company an aggregate of $40,000. The notes accrue interest at 6.5% per year and were due June 30, 2013. The outstanding notes of $297,820 have been amended each year to extend the maturity dates.  Most recently, effective June 30, 2015, the outstanding notes for Dr. Platt were amended to extend the maturity dates to June 30, 2017. The maturity date for the Company's former President remain June 30, 2016 and have been classified as a current liability within the accompanying balance sheet.

On June 24, 2011, the Company entered into a definitive Licensing and Manufacturing Agreement (the "Agreement") with Advance Pharmaceutical Company Ltd. ("Advance Pharmaceutical"), a Hong Kong-based privately-held company.  Under terms of the Agreement, the Company manufactures and supplies product in bulk for Advance Pharmaceutical.  Advance Pharmaceutical is responsible for the packaging, marketing and distribution of SUGARDOWN® in certain territories within Asia.  Advance Pharmaceutical, through a wholly owned subsidiary, has purchased an aggregate 1,799,800 shares of the Company's common stock in conjunction with the Company's private placement offerings during the years ended December 31, 2012 and 2011.   The shares were purchased on the same terms as the other participants acquiring shares in the respective offerings.   Conroy Chi-Heng Cheng is interim CEO, interim CFO and a director of Advance Pharmaceutical and joined the Company's Board in December 2013.  There has been no revenue generated pursuant to the Agreement during the first six months of 2016.  Revenue generated pursuant to the Agreement for the three and six month periods ended June 30, 2015, were $35,231 and $70,137, respectively.  
 
11

 
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015
 


In June 2015, the Company received $200,000 of cash proceeds from CJY Holdings Limited, in connection with a potential future exercise of its warrant.  On November 12, 2015, the Company entered into a modification of a previously issued warrant agreement to CJY.  The Board approved the reduction in the common stock warrant exercise prices from $0.50 to $1.00 per share to $0.17 per share. In connection with the June 2015 proceeds of $200,000 previously received by the Company and the reduction in the warrant exercise price, the Board approved the issuance of 1,194,440 shares of Common Stock to CJY in connection with the modified warrant agreement.  As of June 30, 2016, the common stock has not been issued and the $200,000 remains in common stock subscribed.

During September 2015, the Company entered into a securities purchase agreement with CJY.  Pursuant to this agreement, the Company issued to CJY a convertible promissory note in the principal amount of $750,000. The Note was amended during the fourth quarter to $1,200,000 and in the first quarter of 2016 to $1,602,000. During the second quarter of 2016, the Note was amended again to $1,752,000.  This Note is intended to provide necessary bridge financing to the Company prior to an anticipated financing in the near future of an amount up to $1,500,000. Interest accrues at the rate of 10% per annum and is due upon maturity of the note in September 2018.  The Company may prepay this Note and any accrued interest at any time.  At any time on, amounts outstanding under the CJY Note are convertible into the Company's common stock, in whole or in part, at the option of the lender, at a conversion price of $0.05 per share. A beneficial conversion feature of $1,752,000 was calculated and capped at the value of the note pursuant to ASC 470 - 20. The Company recorded amortization of the beneficial conversion feature as interest expense in the amount of approximately $143,369 and $261,023 during the three and six months ended June 30, 2016.

 
Convertible notes payable – related party consist of the following at June 30, 2016 and December 31, 2015:

 
 
 
2016
   
2015
 
Principal balance
 
$
1,752,000
   
$
1,200,000
 
Debt discount
   
(1,287,800
)
   
(1,106,823
)
Outstanding, net of debt discount
 
$
464,200
   
$
93,177
 

6.           INTANGIBLE ASSETS
 
The SUGARDOWN® technology and patent applications are being amortized on a straight-line basis over their useful lives of 14 years.  Goodwill is not amortized, but is evaluated annually for impairment.
 
Intangible assets consist of the following at June, 2016 and December 31, 2015:
 
 
 
2016
   
2015
 
SUGARDOWN® technology and patent applications
 
$
900,000
   
$
900,000
 
Less accumulated amortization
   
(364,286
)
   
(332,143
)
Intangible assets, net
 
$
535,714
   
$
567,857
 
 
Amortization expense was $32,143 for the six months ended June 30, 2016 and 2015.
 
12

 
Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015
 



7.           COMMITMENTS AND CONTINGENCIES
 
Leases
 
The Company leases office space in Newton MA under a 4 month lease that expires July 31, 2016. At that point, the lease will end with no further obligation. The Company recognized rent expense of $5,400 and $14,380 during the three months ended June 30, 2016 and 2015, respectively.  The Company recognized rent expense of $10,350 and $28,761 during the six months ended June 30, 2016 and 2015, respectively
 
Future minimum lease payments under all non-cancelable operating leases as of June 30, 2016, are as follows:
 
Fiscal Year
     
2016
 
$
1,800
 
 
Marketing Agreement
 
On May 14, 2014, the Company entered into a definitive Marketing Agreement with Benchworks SD, LLC (Benchworks), a company engaged in the marketing, promotion and offering for distribution and sale of pharmaceutical, healthcare and consumer products. Under the terms of the agreement, the Company granted Benchworks the exclusive right to promote, market, sell and distribute SUGARDOWN® in North America for an initial term of one year, subject to extension in accordance with the terms of the agreement. Benchworks was responsible and bears the expense for marketing and commercializing SUGARDOWN®, including the creation and payment for marketing, creative and promotional materials. The agreement defined certain minimum net sales levels that Benchworks must achieve to maintain exclusivity; and the agreement also provided for net sales splits with Benchworks receiving 65% of the first $10 million in net sales from the sale of SUGARDOWN® in North America, with a declining share to 50% for net sales in excess of $40 million. The agreement was terminated in July 2015. Revenue generated pursuant to the Marketing Agreement for the three and six months ended June 30, 2015, were $3,206 and $19,122, respectively.
 
8.         SUBSEQUENT EVENTS
 
The Company has evaluated events and transactions that occurred from June 30, 2016 through the date of filing, for possible disclosure and recognition in the financial statements.  See discussed below material subsequent events that impact its financial statements or disclosures.
 
On August 12, 2016 (the "Closing Date"), the Company entered into Securities Purchase Agreements with several accredited investors (the "Investors") providing for the sale by the Company to the Investors of 6% Convertible Promissory Notes in the aggregate amount of $1,322,500 (the "Notes") pursuant to which it received net proceeds of $1,083,050.  In addition to the Notes, the Investors also received stock purchase warrants (the "Warrants") to acquire an aggregate of 13,225,000 shares of common stock of the Company. The Warrants are exercisable for five years at an exercise price of $0.10 and contain full price protection for a period of one year from the date of issuance.  On the six month anniversary, the Holder may exercise the Warrants on a cashless basis if the underlying shares of common stock are not registered for re-sale on a Form S-1 Registration Statement.  The Notes bear interest at 6% per annum and mature two years from issuance. The Investors may elect to convert all or part of the Notes, plus accrued interest, at any time into shares of common stock of the Company at a conversion price of $0.075 per share.   Interest on the Notes is payable in cash quarterly commencing June 30, 2017 or, subject to certain equity conditions, shares of common stock at the Company's option the price equal to the lower of $0.75 or 90% of the lesser of the average of the VWAPs for the 20 consecutive trading days prior to the payment date or the average of the VWAPs for the 20 consecutive trading days ending on the trading day prior to the payment date. Late payments of interest are subject to a late fee. The conversion price is subject to adjustment for stock dividends and stock splits and the Investors will have participation rights to subsequent rights offering and pro rata distributions.  Holders will also have anti-dilution protection.  In addition, if after the original issue date of the Notes, either (i) the volume weighted average price equals or exceeds $0.50 for 10 consecutive trading days or (ii) the Company's elects to lists a class of securities on a national securities exchange, the Company may cause the Investors to convert all or part of the then outstanding principal amount of the Notes plus, accrued but unpaid interest, liquidated damages and other amounts owed.  The Company may not, without receiving the consent of the Investors holding 51% of the then outstanding Notes, incur debt senior to the Notes, create liens on its property, repay or repurchase its common stock or common stock equivalents other than the Conversion Shares and Warrant Shares or repurchases of stock of departing officers and directors under an aggregate of $100,000, repay or repurchase any indebtedness other than the payments under the Notes or currently existing regularly scheduled principal and interest payments as long as there is no event of default under the Notes, pay cash dividends or distributions on any Company equity securities or enter into any agreement with respect to any of the foregoing.

13

Boston Therapeutics, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three and Six Months Ended June 30, 2016 and 2015
 

 
 
The Company granted the Investors piggy back registration rights with respect to the shares of common stock underlying the Notes and the Warrants.
 
The Investors agreed to restrict its ability to convert the Notes and exercise the Warrants and receive shares of common stock such that the number of shares of common stock held by the Investors after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. 
 
The Company claims an exemption from the registration requirements of the Securities Act of 1933 (the "Securities Act") for the private placement of these securities pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act. The Investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act. As of the date hereof, the Company is obligated on $1,322,500 in face amount of Notes issued to the Investors. The Notes are a debt obligation arising other than in the ordinary course of business which constitute a direct financial obligation of the Company.  A registered broker-dealer (member, FINRA/SIPC), acted as the placement agent for the offering and received $132,250 in fees and a common stock purchase warrant to acquire 1,763,333 shares of common stock for a period of five years at an exercise price of $0.075 per share.
On August 12, 2016, 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. Conroy Cheng resigned as an executive officer concurrent with Mr. Raush's appointment.  Mr. Change shall continue to serve on the Board.  Mr. Rausch will initially be located in Hong Kong but is expected to relocate to the United States within six months.  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 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 have been amended to provide an expiration date of August 12, 2026 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.   From 2008 to present, Mr. Rausch has served as an independent consultant for biopharmaceutical industrial clients, university based development facilities and contract research organizations for preclinical and clinical strategic management of investigative biological materials for registration with the European Medicines Agency and the US Food and Drug Administration.

The Company has entered into a Securities Purchase Agreement with CJY Holdings Limited ("CJY") whereby CJY on September 24, 2015, October 20, 2015, November 30, 2015,  March 1, 2016, March 11, 2016, May 6, 2016 and June 28, 2016 provided the Company financing and the Company issued to CJY Convertible Promissory Notes (the "CJY Notes") in the amounts of $750,000, $300,000, $150,000, $250,000, $152,000, $100,000 and $50,000, respectively.  The CJY Notes bear interest of 10% and are payable three years from the date of issuance.  Prior to the maturity dates of the CJY Notes, CJY may elect to convert all or part of the CJY Notes, plus accrued interest, into shares of common stock of the Company at a conversion rate of $0.05 per share.  On August 12, 2016, the Company and CJY entered into a letter agreement providing that the CJY Notes will have a maturity date of August 12, 2018 and provided CJY with anti-dilution price protection.

On August 12, 2016, the Company issued $1,304,800 million of convertible notes, (the "Notes"), in a private offering. Net proceeds from the issuance of the Notes after commissions and expenses from the issuance was $1 million. The Notes are due August 12, 2018 and bear interest at 6% per annum. The Notes and any accrued interest are convertible in whole or in part into shares of the Company's common stock at a conversion price of $0.075 per share. In addition, the Company issued warrants to purchase an additional 13,000,000 shares of the Company's common shares at $0.10 per share.
 
14

 
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, Inc., headquartered in Manchester, NH, (OTC: BTHE) is a leader in the field of complex carbohydrate chemistry. The Company's initial product pipeline is focused on developing and commercializing therapeutic molecules for diabetes:  BTI-320 is a non-systemic, non-toxic, therapeutic compound designed to reduce post-meal glucose elevation, and IPOXYN, an injectable anti-necrosis drug specifically designed to treat lower limb ischemia associated with diabetes.  In addition, the Company has completed development of SUGARDOWN®, a complex carbohydrate-based dietary supplement.  SUGARDOWN® is currently in the initial stage of market introduction, and in June 2011, we entered into an agreement with Advance Pharmaceutical to develop markets in Hong Kong, China and Macau.  In November 2014, we agreed to expand this marketing agreement to include 12 additional countries:  Korea, Taiwan, Singapore, Thailand, Malaysia, Vietnam, Philippines, Myanmar, Indonesia, Laos, Brunei and Cambodia.  In March 2015, we agreed to further expand their authorized territories to include Japan.  
 
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 $15.3 million and $21,000 cash on hand as of June 30, 2016. Management is currently seeking additional capital through private placements and public offerings of its common stock.  In addition, the Company may seek to raise additional capital through public or private debt or equity financings in order to fund our operations.  The Company has received ongoing funding through a fixed price convertible note from a related party and significant shareholder. Management anticipates that cash resources will be sufficient to fund our planned operations into the third quarter of 2016 as a result of this funding and cash management. 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 is currently seeking additional capital through private placements and public offerings of its stock.  In addition, the Company may seek to raise additional capital through public or private debt or equity financings in order to fund our operations.  There can be no assurance that the Company will be successful in accomplishing its objectives.  Without such additional capital, the Company may be required to 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 operations.

Results of Operations

Three Months Ended June 30, 2016 compared to June 30, 2015
 
Revenue
 
Revenue for the three months ended June 30, 2016 was $16,281, a decrease of $22,570 as compared to revenue of $38,851 for the three months ended June 30, 2015.  The decrease is primarily related to revenue generated from sales to Advanced Pharmaceutical, a related party, during the three months ended June 30, 2015 and through the Company's marketing partnership with Benchworks during the three months ended June 30, 2015 that was canceled in July 2015.
 
Gross Margin
 
The Company generated a gross margin for the three months ended June 30, 2016 of $7,574 as compared to a gross deficit of ($27,927) for the three months ended June, 2015.  The increase is primarily related to a charge for inventory obsolescence for approximately $26,000 during the three months ended June 30, 2015.
 
15

 
Research and Development

Research and development expense for the three months ended June 30, 2016 was $19,929, a decrease of $77,063 as compared to $96,992 for the three months ended June 30, 2015.  The decrease is attributed to the Company ceasing nearly all if its research and development activities due to the lack of adequate funding. The majority of the expense in 2016 is related to non-cash amortization of the intangible assets and part time consulting work.

Sales and Marketing

Sales and marketing expense for the three months ended June 30, 2016 was $52,864, an increase of $50,721 as compared to $2,143 for the three months ended June 30, 2015. The increase in 2016 is related to advertising costs on radio and newspaper as the Company continues a new program to sell the Sugardown product into new markets. The Company has also hired various consultants to assist with market development.

General and Administrative

General and administrative expense for the three months ended June 30, 2016 was $112,816, a decrease of $271,359 as compared to $384,175 for the three months ended June 30, 2015.  Payroll and related expenses including benefits decreased by approximately $40,000 as all employees were terminated during 2015 and the company was maintained by outside consultants. Non-cash stock-based compensation expense decreased approximately $30,000 primarily due to all options becoming fully vested or canceled due to employee termination.  Investor relation related expenses also decreased by approximately $80,000 as the company was unable to support investor initiatives due to funding.  The Company's cost reduction initiatives also resulted in a reduction of approximately $120,000 of legal, accounting and other professional services.   
 

16


Six Months Ended June 30, 2016 compared to June 30, 2015
 
Revenue
 
Revenue for the six months ended June 30, 2016 was $28,588, a decrease of $61,622 as compared to revenue of $90,180 for the six months ended June 30, 2015.  The decrease is primarily related to revenue generated from sales to Advanced Pharmaceutical, a related party, during the six months ended June 30, 2015 and through the Company's marketing partnership with Benchworks during the six months ended June 30, 2015.
 
Gross Margin
 
The Company generated a gross margin deficit for the six months ended June 30, 2016 of $3,959 as compared to a gross deficit of ($8,708) for the six months ended June 30, 2015.  The difference in the margins in primarily caused by a charge for inventory obsolescence of $26,000 taken in the first six months of 2015.
 
Research and Development

Research and development expense for the six months ended June 30, 2016 was $41,701, a decrease of $260,710 as compared to $302,411 for the six months ended June 30, 2015.  The decrease is attributed to the Company ceasing nearly all if its research and development activities due to the lack of adequate funding. The majority of the expense in 2016 is related to non-cash amortization of the intangible assets and part time consulting work.

Sales and Marketing

Sales and marketing expense for the six months ended June 30, 2016 was $71,514, an increase of $36,620 as compared to $34,894 for the six months ended June 30, 2015. The increase in 2016 is related to advertising costs on radio and newspaper as the Company continues a new program to sell the Sugardown product into new markets. The Company has also hired various consultants to assist with market development.
  
General and Administrative

General and administrative expense for the six months ended June 30, 2016 was $326,773, a decrease of $573,324 as compared to $900,097 for the six months ended June 30, 2015.  Payroll and related expenses including benefits decreased by approximately $114,000 as all employees were terminated during 2015 and the company was maintained by outside consultants. Non-cash stock-based compensation expense decreased approximately $156,000 primarily due to all options becoming fully vested or canceled due to employee termination.  Investor relation related expenses also decreased by approximately $95,000 as the company was unable to support investor initiatives due to funding.  The Company's cost reduction initiatives also resulted in a reduction of approximately $160,000 of legal, accounting and other professional services.   
 
17

 
LIQUIDITY AND CAPITAL RESOURCES
 
As of June 30, 2016, we had cash of $21,153 and accounts payable and accrued expenses and other current liabilities of $1,232,382. During the six months ended June, 2016, the Company used $571,842 of cash in operations

We have incurred recurring operating losses since inception as we have worked to bring our SUGARDOWN® product to market and develop BTI-320 and IPOXYN.  We expect such operating losses will continue until such time that we receive substantial revenues from SUGARDOWN® or we complete the regulatory and clinical development of BTI-320 or IPOXYN.   Management is currently seeking additional capital through private placements and public offerings of its common stock.  In addition, the Company may seek to raise additional capital through public or private debt or equity financings in order to fund our operations.  The Company has received ongoing funding through a fixed price convertible note from a related party and significant shareholder. Management anticipates that cash resources will be sufficient to fund our planned operations into the third quarter of 2016 as a result of this funding and cash management. The Company has entered into an advisory agreement with an investment banking firm whereby the Company is hopeful to receive funding for its operations. 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.

On August 12, 2016, the Company entered into Securities Purchase Agreements with several accredited investors (the "Investors") providing for the sale by the Company to the Investors of 6% Convertible Promissory Notes in the aggregate amount of $1,322,500 (the "Notes") pursuant to which it received net proceeds of $1,083,050.  In addition to the Notes, the Investors also received stock purchase warrants to acquire an aggregate of 13,225,000 shares of common stock of the Company.
 
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 Unaudited Condensed 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, 2015, there was a material weakness in the Company's internal control over financial reporting due to the fact that the Company experienced significant turnover in its accounting function, including the resignation of the Company's consulting Director of Finance during August 2015 and the retirement of the Company's former Chief Financial Officer on August 31, 2015.  While the Company hired a new consulting Director of Finance in August 2015, the Company did 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.  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.

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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 six months of 2016 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.

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PART II - OTHER INFORMATION
 
 Item 1.  Legal Proceedings
 
 
 
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 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, 2015.
 
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
There following are unregistered sales of equity securities made by the Company during the three months ended June 30, 2016 and not previously reported on Form 8-K.
 
In April, 2016, in accordance with the terms of a financial advisory agreement, the Company issued 3,000,000 shares and 2,000,000 shares to two separate parties.  The cost basis for the shares issued was $0.07.
 
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.  Mine Safety Disclosures
 
 
 
Not Applicable.
 
 
 
Item 5.  Other Information
 
 
 
On August 12, 2016 (the "Closing Date"), the Company entered into Securities Purchase Agreements with several accredited investors (the "Investors") providing for the sale by the Company to the Investors of 6% Convertible Promissory Notes in the aggregate amount of $1,322,500 (the "Notes") pursuant to which it received net proceeds of $1,083,050.  In addition to the Notes, the Investors also received stock purchase warrants (the "Warrants") to acquire an aggregate of 13,225,000 shares of common stock of the Company. The Warrants are exercisable for five years at an exercise price of $0.10 and contain full price protection for a period of one year from the date of issuance.  On the six month anniversary, the Holder may exercise the Warrants on a cashless basis if the underlying shares of common stock are not registered for re-sale on a Form S-1 Registration Statement.  The Notes bear interest at 6% per annum and mature two years from issuance. The Investors may elect to convert all or part of the Notes, plus accrued interest, at any time into shares of common stock of the Company at a conversion price of $0.075 per share.   Interest on the Notes is payable in cash quarterly commencing June 30, 2017 or, subject to certain equity conditions, shares of common stock at the Company's option the price equal to the lower of $0.75 or 90% of the lesser of the average of the VWAPs for the 20 consecutive trading days prior to the payment date or  the average of the VWAPs for the 20 consecutive trading days ending on the trading day prior to the payment date. Late payments of interest are subject to a late fee. The conversion price is subject to adjustment for stock dividends and stock splits and the Investors will have participation rights to subsequent rights offering and pro rata distributions.  Holders will also have anti-dilution protection.  In addition, if after the original issue date of the Notes, either (i) the volume weighted average price equals or exceeds $0.50 for 10 consecutive trading days or (ii) the Company's elects to lists a class of securities on a national securities exchange, the Company may cause the Investors to convert all or part of the then outstanding principal amount of the Notes plus, accrued but unpaid interest, liquidated damages and other amounts owed.  The Company may not, without receiving the consent of the Investors holding 51% of the then outstanding Notes, incur debt senior to the Notes, create liens on its property and engage in other corporate actions as defined in the Notes.  The Company granted the Investors piggy back registration rights with respect to the shares of common stock underlying the Notes and the Warrants.
 
The Investors agreed to restrict its ability to convert the Notes and exercise the Warrants and receive shares of common stock such that the number of shares of common stock held by the Investors after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. 
 
The Company claims an exemption from the registration requirements of the Securities Act of 1933 (the "Securities Act") for the private placement of these securities pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act. The Investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act. As of the date hereof, the Company is obligated on $1,322,500 in face amount of Notes issued to the Investors. The Notes are a debt obligation arising other than in the ordinary course of business which constitute a direct financial obligation of the Company.  A registered broker-dealer (member, FINRA/SIPC), acted as the placement agent for the offering and received $132,250 in fees and a common stock purchase warrant to acquire 1,763,333 shares of common stock for a period of five years at an exercise price of $0.075 per share.
 
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Item 5. Other Information - continued
 
 
 
On August 12, 2016, 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. Conroy Cheng resigned as an executive officer concurrent with Mr. Raush's appointment. Mr. Change shall continue to serve on the Board. Mr. Rausch will initially be located in Hong Kong but is expected to relocate to the United States within six months. 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 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 have been amended to provide an expiration date of August 12, 2026 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. From 2008 to present, Mr. Rausch has served as an independent consultant for biopharmaceutical industrial clients, university based development facilities and contract research organizations for preclinical and clinical strategic management of investigative biological materials for registration with the European Medicines Agency and the US Food and Drug Administration. From 2006 to 2008, Mr. Rausch was a principal with Biotechnology Partners, which provided advisory services to biotechnology clients. Mr. Rausch served as the Vice Chairman and Chief Technical Officer of Biopure Corporation ("Biopure") from 2002 to 2005. Mr. Rausch cofounded Biopure in 1984. From 1984 until 2002, Mr. Rausch served as Chairman and Chief Executive Officer. Following Mr. Rausch's resignation as Chief Executive Officer of Biopure, the SEC filed a Complaint against, Biopure, other senior management and Mr. Rausch. However, on September 24, 2005, simultaneously a settlement with final judgment was entered with Mr. Rausch only. Without admitting or denying the allegations of the Complaint, Mr. Rausch and the SEC settled with an agreement to avoid any future violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-11 and 13a-13 thereunder and to pay a civil penalty of $40,000 in installments. Prior to Biopure's founding, Mr. Rausch was Vice President, Preparative and Process, at Millipore Corporation. He holds an M.S. degree in chemical engineering from the Massachusetts Institute of Technology and holds an M.S. degree in medical engineering and a B.S. degree in chemical engineering from Tufts University.

The Company has entered into a Securities Purchase Agreement with CJY Holdings Limited ("CJY") whereby CJY on September 24, 2015, October 20, 2015, November 30, 2015, March 1, 2016, March 11, 2016, May 6, 2016 and June 28, 2016 provided the Company financing and the Company issued to CJY Convertible Promissory Notes (the "CJY Notes") in the amounts of $750,000, $300,000, $150,000, $250,000, $152,000, $100,000 and $50,000, respectively. The CJY Notes bear interest of 10% and are payable three years from the date of issuance. Prior to the maturity dates of the CJY Notes, CJY may elect to convert all or part of the CJY Notes, plus accrued interest, into shares of common stock of the Company at a conversion rate of $0.05 per share. On August 12, 2016, the Company and CJY entered into a letter agreement providing that the CJY Notes will have a maturity date of August 12, 2018 and provided CJY with anti-dilution price protection.
 
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Item 6.  Exhibits
 
 
 
Exhibit No.
  
Title of Document
 
 
 
4.1   Form of Securities Purchase Agreement entered with the August 2016 Accredited Investors
     
4.2   Form of 6% Senior Convertible Debuenture
     
4.3   Form of Stock Purchase Warrant
     
4.4   Letter Agreement between the Company and CJY Holdings Limited dated August 12, 2016
     
10.1   Executive Employment Agreement between the Company and Carl. W. Rausch dated August 12, 2016
     
 
Certification of Principal Executive and Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended*
     
 
Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Interim Chief Executive and Financial Officer)**
     
101
 
The following financial statements from the Quarterly Report on Form 10-Q of Boston Therapeutics, Inc. for the quarter ended June 30, 2016 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.
 
 
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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:  August 15, 2016
By:
/s/ Carl W. Rausch                                   
 
 
 
Carl W. Rausch
 
 
 
Chief Executive Officer
 
 
 
 
  

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