UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended March 31, 2012
   
 
OR
   
o
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.)
     
33 South Commercial Street Manchester, NH
 
03101
(Address of principal executive offices)
 
(Zip Code)
978-886-0421
 (Registrant’s telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  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.
Class
 
Outstanding at May 10, 2011
Common Stock, $0.001 par value per share
 
16,243,206 shares
 
 
 
 

 
 

BOSTON THERAPEUTICS, INC.
FORM 10-Q

TABLE OF CONTENTS
 


PART I - FINANCIAL INFORMATION
3
   
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
17
   
Item 4. Controls and Procedures
17
   
PART II - OTHER INFORMATION
18
   
Item 1. Legal Proceedings
18
   
Item 1A. Risk Factors
18
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
18
   
Item 3. Defaults Upon Senior Securities
19
   
Item 4. (Removed and Reserved)
19
   
Item 5. Other Information
19
   
Item 6. Exhibits
20
   
SIGNATURES
21
 
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.
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
PART I - FINANCIAL INFORMATION

Item 1.  Unaudited Condensed Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
3

 
 
Boston Therapeutics, Inc.
           
(Formerly Avanyx Therapeutics, Inc.)
           
(A Development Stage Company)
           
Balance Sheets
           
March 31, 2012 and December 31, 2011
           
             
   
March 31, 2012
   
December 31, 2011
 
             
ASSETS
           
             
Cash
  $ 25,535     $ 225,995  
Accounts receivable
    8,188       -  
Prepaid expenses and other current assets
    5,858       5,331  
Inventory, net
    24,726       23,596  
Total current assets
    64,307       254,922  
                 
Intangible assets
    808,929       825,000  
Goodwill
    69,782       69,782  
Total assets
  $ 943,018     $ 1,149,704  
                 
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable
  $ 320,962     $ 341,873  
Accrued expenses and other current liabilities
    123,464       125,316  
Total current liabilities
    444,426       467,189  
                 
Advances - related party
    257,820       257,820  
Total liabilities
    702,246       725,009  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
Stockholders’ equity:
               
   Preferred stock, $0.001 par value, 5,000,000 shares authorized,
               
       none issued and outstanding
    -       -  
Common stock, $0.001 par value, 100,000,000 shares authorized,
               
16,223,206 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively
    16,223       16,223  
Additional paid-in capital
    1,717,238       1,621,756  
Stock subscription receivable (see Note 3)
    (22,000 )     -  
Deficit accumulated during the development stage
    (1,470,689 )     (1,213,284 )
Total stockholders’ equity
    240,772       424,695  
                 
Total liabilities and stockholders’ equity
  $ 943,018     $ 1,149,704  

 
 
 
4

 
 

 
Boston Therapeutics, Inc.
Formerly Avanyx Therapeutics, Inc.)
                 
(A Development Stage Company)
Statements of Operations
                 
For the Three Month Periods Ended March 31, 2012 and 2011
and the Period from Inception (August 24, 2009) through March 31, 2012
             
                   
   
For the Three Months Ended March 31, 2012
   
For the Three Months Ended March 31, 2011
   
Period From Inception (August 24, 2009) to March 31, 2012
 
                   
Revenue
  $ 18,854     $ 480     $ 23,394  
                         
Cost of goods sold
    27,595       963       34,368  
                         
Gross margin
    (8,741 )     (483 )     (10,974 )
                         
Operating expenses:
                       
Research and development
    51,628       17,139       256,676  
Sales and marketing
    67,180       455       277,373  
General and administrative
    124,536       74,836       896,674  
Total operating expenses
    243,344       92,430       1,430,723  
                         
Operating loss
    (252,085 )     (92,913 )     (1,441,697 )
                         
Other expenses:
                       
Interest expense-related party
    4,178       3,106       27,850  
Foreign currency loss
    1,142       -       1,142  
Total other expense
    5,320       3,106       28,992  
                         
    Net loss
  $ (257,405 )   $ (96,019 )   $ (1,470,689 )
                         
                         
Net loss per share - basic and diluted
  $ (0.02 )   $ (0.01 )        
                         
Weighted average shares outstanding - basic and diluted
    16,223,206       14,041,236          
                         

 
5

 

Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
                 
(A Development Stage Company)
Statements of Cash Flows
                 
For the Three Month Periods Ended March 31, 2012 and 2011
and the Period from Inception (August 24, 2009) through March 31, 2012
             
   
For the Three Months Ended March 31, 2012
   
For the Three Months Ended March 31, 2011
   
Period From Inception (August 24, 2009) to March 31, 2012
 
Cash flows from operating activities:
                 
Net loss
  $ (257,405 )   $ (96,019 )   $ (1,470,689 )
Adjustments to reconcile net loss to cash
                       
used in operating activities:
                       
   Amortization of intangible assets
    16,071       16,072       91,071  
   Stock based compensation
    73,482       8,857       223,331  
   Issuance of common stock in exchange for consulting services
    -       -       45,250  
Changes in:
                       
Accounts receivable
    (8,188 )     -       (8,188 )
Inventory
    (1,130 )     (10,708 )     (20,356 )
Prepaid expenses and other current assets
    (527 )     1,728       (2,941 )
Accounts payable
    (20,911 )     104,993       320,962  
Accrued expenses and other current liabilities
    (1,852 )     (97,242 )     76,645  
                         
Net cash used in operating activities
    (200,460 )     (72,319 )     (744,915 )
Cash flows from investing activities:
                       
Net cash acquired in acquisition of Boston Therapeutics, Inc.
    -       -       8,397  
Net cash provided by investing activities
    -       -       8,397  
Cash flows from financing activities
                       
  Proceeds from advances - related party
    -       70,000       197,820  
  Proceeds from issuance of common stock - related party
    -       -       21,236  
  Proceeds from issuance of common stock
    -       -       542,997  
Net cash provided by financing activities
    -       70,000       762,053  
Net increase (decrease) in cash and cash equivalents
    (200,460 )     (2,319 )     25,535  
                         
Cash and cash equivalents, beginning of period
    225,995       15,193       -  
Cash and cash equivalents, end of period
  $ 25,535     $ 12,874     $ 25,535  
Supplemental disclosure of cash flow information:
                       
Cash paid during the period for:
                       
Interest
  $ -     $ -     $ -  
Income taxes
  $ -     $ -     $ -  
Acquisition of Boston Therapeutics, Inc.:
                       
Fair value of assets acquired
  $ -     $ -     $ 985,466  
Assumed liabilities
    -       -       (106,819 )
Fair value of common stock issued
  $ -     $ -     $ 878,647  
 
 
6

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three month periods ended March 31, 2012 and 2011 and Period from Inception (August 24, 2009) to March 31, 2012

 
1.           GENERAL ORGANIZATION AND BUSINESS
 
Boston Therapeutics, Inc. (the “Company”) was formed as a Delaware corporation on August 24, 2009 under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“Target”) providing for the merger of Target into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of Target in exchange for 100% of the outstanding common stock of Target, and the change of the Company’s name to Boston Therapeutics, Inc. David Platt, the Company’s Chief Executive Officer and Chief Financial Officer, is a founder of Target and was a director and minority stockholder of Target at the time of the Merger. Dr. Platt received 400,000 shares of the Company’s common stock in connection with the Merger. Kenneth A. Tassey, Jr., who became the Company’s President shortly after the Merger, was the Chief Executive Officer, President and principal stockholder of Target at the time of the Merger. Mr. Tassey received 3,200,000 shares of our common stock in connection with the Merger.
 
The Company’s primary business is the development, manufacture and commercialization of therapeutic drugs and dietary supplements with a focus on glyco-pathology, a specialized field involving understanding the importance of carbohydrates in biochemistry and progression of diseases. We are currently focusing on three products: IPOXYN™, an injectable anti-hypoxia drug that we are currently developing, PAZ320, a non-systemic, chewable drug candidate for reduction of blood glucose in diabetics currently in development and SUGARDOWN®, a complex carbohydrate-based chewable dietary supplement that we are currently marketing.
 
The Company has minimal operations and is considered to be in the development stage as of March 31, 2012.  The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company is a recently formed entity with limited resources and operating history. As shown in the accompanying financial statements, the Company has incurred net losses of $1,470,689 for the period from August 24, 2009 (inception) to March 31, 2012 and has negative working capital of $380,119 as of March 31, 2012. 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.
 
2.    SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
 
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, 2011 included in its Form 10-K. In the opinion of management, the statements contain all adjustments, including normal recurring adjustments necessary in order to present fairly the financial position as of March 31, 2012 and the results of operations for the three month period ended March 31, 2012 and 2011 and the period from inception (August 24, 2009) through March 31, 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 month period ended March 31, 2012 are not necessarily indicative of the results to be expected for the full fiscal year.
 
 
7

 
 Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three month periods ended March 31, 2012 and 2011 and Period from Inception (August 24, 2009) to March 31, 2012

2.    SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES...continued
 
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.
 
Segment Information
 
Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.
 
Cash and Cash Equivalents
 
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid investments with original maturities of 90 days or less at the time of acquisition to be cash equivalents.
 
The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation.
 
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 are still outstanding after management has used resasonable collection efforts are written off against the allowance. Based on management's assement, no allowance was necessary as of March 31, 2012.
 
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.  Terms of product sales contain no contractual rights of return or multiple elements.  In practice, the Company has not experienced or granted returns of product.  Shipping fees charged to customers are included in revenue and shipping costs are included in costs of sales.
 
Inventory
 
Inventory consists of raw materials and finished goods of SUGARDOWN®. 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 obselete inventory. This reserve was $1,667 at March 31, 2012 and December 31, 2011. The Company continues to monitor the valuation of its inventories.
 
 

 
8

 
 Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three month periods ended March 31, 2012 and 2011 and Period from Inception (August 24, 2009) to March 31, 2012

2.           SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES…continued
 
Intangible Assets
Intangible assets consist of identifiable finite-lived assets acquired in business acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition.
Certain acquired intangible assets, including developed technology, products and trade names, are amortized over their economic useful lives on a straight line basis.
 
Goodwill
 
The Company follows the guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, Goodwill and Other Intangible Assets. Under
ASC 350, goodwill and certain other intangible assets with indefinite lives are not amortized, but instead are reviewed for impairment at least annually.
 
Impairment of Long-lived Assets
 
The Company reviews long-lived assets, which include the Company’s intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Future undiscounted cash flows of the underlying assets are compared to the assets’ carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash flows is less than book value. To date, no adjustments for impairment have been made.
 
Loss per Share
 
Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method.    The weighted average number of common shares for the three months ended March 31, 2012  and 2011 did not include 1,898,400 and 499,637 options and warrants, respectively, because of their anti-dilutive effect.
 
 
 
 
9

 
 Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three month periods ended March 31, 2012 and 2011 and Period from Inception (August 24, 2009) to March 31, 2012

 
2.           SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES…continued
 
Income Taxes
 
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or be settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion of the gross deferred tax asset will not be realized.
 
Fair Value of Financial Instruments
 
The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, and notes payable. The carrying value of cash and cash equivalents, accounts payable and accrued expenses approximates fair value due to their short-term nature.
 
The carrying value of the notes payable as of March 31, 2012 and December 31, 2011 is not materially different from the fair value of the notes payable.
 
Stock-Based Compensation
 
Stock–based compensation, including grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statement based on the estimated fair value of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted and recognizes the compensation cost of share-based awards on a straight-line basis over the vesting period of the award.
 
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.
 
 
 
10

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three month periods ended March 31, 2012 and 2011 and Period from Inception (August 24, 2009) to March 31, 2012

 
2.           SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES…continued
 
Recent Accounting Pronouncements
 
Accounting Standards Update (“ASU”) 2010-28, Intangibles – Goodwill and Other (Topic 350) - When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts - a consensus of the FASB Emerging Issues Task Force, modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment
 
This ASU gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company has adopted the pronouncement as of the effective date and does not expect there to be a material impact on the financial statements.
 
3.           STOCKHOLDERS’ EQUITY
 
The Company is authorized to issue up to 5,000,000 shares of its $0.001 par value preferred stock and up to 100,000,000 shares of its $0.001 par value common stock.
 
Preferred Stock
 
No shares of preferred stock have been issued and the terms of such preferred stock have not been designated by the Board of Directors.
 
Common Stock
 
On August 26, 2009, the Company issued 10,000,000 shares of its $0.001 par value common stock to its two founders.  Eight million shares were issued to the Company’s Chief Executive Officer (CEO), Chairman of the Board of Directors and co-founder, in exchange for a patent, a provisional patent and know-how. In accordance with ASC 845-10-S99, Transfers of Non-monetary Assets from Promoters or Shareholders, the transfer of nonmonetary assets to a company by its shareholders in exchange for stock prior to the Company’s initial public offering  should be recorded at the transferor’s historical cost basis determined under GAAP.  As a result, the value of the patent, provisional patent and know-how was valued at the CEO’s historical cost basis of zero because no records exist to support an historical cost basis in accordance with GAAP. The patent and provisional patent were assigned to the Company on December 10, 2009.  The remaining 2,000,000 shares were issued to the co-founder for $10,000 in cash.
 
On March 31, 2010, the Company issued 20,000 shares of common stock for $10,000 cash to an investor.  On April 9, 2010, the Company issued 11,236 shares of common stock in exchange for $11,236 to a related party.  On October 4, 2010, the Company issued 10,000 shares for $10,000 cash to an investor.  On November 6, 2010, the Company issued 4,000,000 shares of common stock in connection with the merger transaction described in Note 1.
 
On June 21, 2011, the Company sold 2,035,470 shares for $508,867 in a private placement offering. During August 2011, an additional 56,000 shares were sold for $14,130 in the private placement.  On November 1, 2011, 80,500 shares were issued to a consultant for marketing services valued at $40,250.  On December 22, 2011, 10,000 shares were issued to a consultant for services rendered valued at $5,000.  No other issuances of preferred or common stock have been made during the period covered by the accompanying financial statements.  Note 8 describes an issuance of common stock subsequent to the period covered by the accompanying financial statements.
 

 
11

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three month periods ended March 31, 2012 and 2011 and Period from Inception (August 24, 2009) to March 31, 2012

 
3.            STOCKHOLDERS’ EQUITY…continued
 
Common Stock...continued
 
On March 20, 2012 the Company entered into a subscription agreement to sell 20,000 shares of common stock at price per share of $1.10 and issue a warrant to purchase an additional 20,000 shares of common stock at $1.15 per share for gross proceeds of $22,000.   As of March 31, 2011 the transaction had not closed and the Company recorded the agreement as a stock subscription receivable within equity in the accompanying balance sheet.  The warrant associated with the subscription agreement is exercisable immediately and has five year term.  The Company has estimated the relative fair value of the warrant to be $9,000 using the Black Scholes model, which has been recorded as a component of permanent equity in additional paid in capital.
  
4.    STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
 
The 2010 Stock Plan
 
The Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. As of March 31, 2012, there were 78,400 options outstanding under the 2010 Plan.
 
During the year ended December 31, 2010, the Company granted options to purchase 78,400 shares of common stock with an exercise price of $1.85 to a consultant. The options began vesting January 1, 2011 at a rate of 9,800 options per quarter until the final vesting date of October 1, 2012. Stock-based compensation relating to this grant was $333 for the three month period ending March 31, 2012 and the unrecognized compensation at March 31, 2012 was $1,730. The options have a contractual life of 4.83 years.
 
The 2011 Stock Plan
 
The Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock. As of March 31, 2012, there were 1,800,000 options outstanding under the 2011 Plan.
 
On September 15, 2011, the Company granted options to purchase 1,500,000 shares of common stock to a consultant with an exercise price of $0.10 and immediate vesting of 562,500 shares. Beginning December 15, 2011, the remaining shares will vest at 93,750 shares per quarter. The options have a fair value of $0.20 per share and an estimated remaining life of 4.5 years. Stock-based compensation relating to this grant was $18,807 for the three month periods ending March 31, 2012 and the unrecognized compensation at March 31, 2012 was $150,455.
 
On January 1, 2012, the Company granted options to purchase 200,000 shares of common stock to a consultant with an exercise price of $0.10 and immediate vesting of 150,000 shares. Beginning July 1, 2012, the remaining shares will vest at 25,000 shares per six month period. The options have a fair value of $0.22 per share and an estimated remaining life of 4.75 years. Stock-based compensation relating to this grant was $32,462 for the three month period ending March 31, 2012 and the unrecognized compensation at March 31, 2012 was $10,821.
 
On February 1, 2012, the Company granted options to purchase 100,000 shares of common stock to a consultant with an exercise price of $0.10 and immediately vested on date of grant. The options have a fair value of $0.22 per share and an estimated remaining life of 6.83 years. Stock-based compensation relating to this grant was $21,641 for the three month period ending March 31, 2012 and the unrecognized compensation at March 31, 2012 was $0.
 
 
 
 
12

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three month periods ended March 31, 2012 and 2011 and Period from Inception (August 24, 2009) to March 31, 2012

 
4.           STOCK OPTION PLAN AND STOCK-BASED COMPENSATION…continued
 
The Company used the Black-Scholes option-pricing model to determine the fair value of the option grants and the related compensation expense. The Company recorded $73,482 in compensation expense for the three month period ended March 31, 2012, related to the non-employee options. The Company measures and recognizes compensation expense as they vest for stock-based awards issued to non-employees over the service period.
 
Expected volatility for the options issued during the three months ended March 31, 2012 was 90%. The Company does not have a history of market prices of their common stock, and as such volatility is estimated using historical volatilities of similar public entities.
 
The risk-free interest rate used for each grant is equal to the U.S. Treasury yield in effect at the time of grant for instruments with a similar expected life. The risk-free interest rate was 1.27% for grants made during the three month period ending March 31, 2012. The intrinsic value for fully vested, exercisable options was $150,000 at March 31, 2012 based on the Company’s latest valuation of its common stock of $0.25.
 
 
 
 
 
 
13

 
Boston Therapeutics, Inc.
(Formerly Avanyx Therapeutics, Inc.)
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
For the three month periods ended March 31, 2012 and 2011 and Period from Inception (August 24, 2009) to March 31, 2012

 
 
5.           RELATED PARTY TRANSACTIONS
 
The CEO advanced $187,820 to the Company and $60,000 to Target to fund start-up costs and operations of the Company and Target.  Advances by the CEO carry an interest rate of 6.5%.  On January 16, 2012, the outstanding notes of $257,820 were amended to extend the various maturity dates to June 29, 2013.  As of March 31, 2012, and December 31, 2011, $29,819 and $25,641, respectively, of accrued interest had been included in accrued expenses on the accompanying balance sheet.  The CEO intends, but is not legally obligated, to fund the Company’s operations in this manner until the Company raises sufficient capital.
 
6.           INTANGIBLE ASSETS
 
The SUGARDOWN® technology and provisional patents are being amortized on a straight-line basis over their useful lives of 14 years.  Goodwill is not amortized, but is evaluated annually for impairment.
 
Intangible assets consist of the following at March 31, 2012 and December 31, 2011:
 
 
   
2012
   
2011
 
SUGARDOWN® technology and provisional patents
  $ 900,000     $ 900,000  
Less accumulated amortization
    (91,071 )     (75,000 )
Intangible assets, net
  $ 808,929     $ 825,000  
 
Amortization expense was $16,071 for the three months ended March 31, 2012 and 2011, respectively.
 
7.           COMMITMENTS AND CONTINGENCIES
 
The Company entered into a lease agreement for their office facility in December 2011 which require monthly installment payments of $557 through June 30, 2012 for a total future contractual obligation of $1,671.
 
8.           SUBSEQUENT EVENTS
 
The Company has evaluated events and transactions that occurred from December 31, 2011 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.
 
As discussed in Note 3, in March 2012, the Company entered into a subscription agreement to sell 20,000 shares of common stock for $22,000 with a warrant to purchase an additional 20,000 shares of common stock for $1.15 per share.  The transaction closed on May 7, 2012.
 
On May 7, 2012, the Company’s CEO and COO entered into promissory notes to advance the Company an aggregate $40,000.  The notes accrue interest at 6.5% per year and are due June 30, 2013.
 


 
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.   
 

 
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 COMPARED TO MARCH 31, 2011
 
Overview

We are a development-stage company that was formed on August 24, 2009.

Our Chief Executive Officer (“CEO”) and founder contributed a provisional patent, a patent and know-how to the Company.  In accordance with ASC 845-1-S99, Transfers of Non-Monetary Assets from Promoters or Shareholders, the transfer of non-monetary assets to a company by its shareholders in exchange for stock prior to the Company’s initial public offering should be recorded at the transferor’s historical cost basis determined under GAAP.  Because no records exist to support a historical cost basis in accordance with GAAP, the patent, provisional patent and know-how were valued at the CEO’s historical cost basis of zero.

On November 10, 2010, we entered into an Agreement and Plan of Merger with Boston Therapeutics, Inc. (“BTI”).  BTI was in the business of developing, manufacturing and selling, among other things, dietary supplements including its initial product, SUGARDOWN®, a complex carbohydrate based dietary supplement based upon BTI’s proprietary processes and technology. SUGARDOWN® is currently in the initial stage of market introduction, and in June 2011 we entered into an agreement with Advance Pharmaceutical Co. Ltd. to develop markets in Hong Kong, China and Macau for SUGARDOWN®.  We believe that SUGARDOWN® has significant revenue and positive cash flow potential.

We issued 4,000,000 shares of common stock to the stockholders of BTI in exchange for all the outstanding common stock of BTI, and the Company’s name was changed to Boston Therapeutics, Inc.  The CEO is also a founder of BTI and was a 10% shareholder of BTI at the time of the merger. A valuation of the Company’s common stock was performed resulting in a fair value per share of $0.2466.  Based on the 4,000,000 shares of common stock issued for BTI the total consideration was valued at $986,400.  However, because the Company’s CEO was a 10% shareholder of BTI, 10% of BTI was valued at his historical cost basis and 90% of Target was valued at fair value.

We must raise new capital to continue our business operations and intend to use the provisional patent, patent and know-how contributed by our CEO and the assets acquired from BTI (as described in Notes 1 and 3 to the financial statements included elsewhere in this Form 10-Q) to raise capital.  Our CEO intends to provide minimal cash to fund critical needs until shares are sold to raise capital.  We anticipate the need for approximately $3,000,000 in additional funding to support the planned expansion of our operations over the next approximately 12 months.  There is no guarantee that we will be successful in raising additional funds.

 
15

 
Overall Results
 
Revenue for the three month period ended March 31, 2012 was $18,854, compared to $480 for the same period in the prior year, an increase of $18,374.  Revenues for both periods were generated from the sale of the SUGARDOWN® product.  The increase was a result of increased distribution through a new reseller and increased marketing efforts.
 
Costs of Goods Sold
 
Cost of goods sold for the three months ended March 31, 2012 were $27,595, compared to $963 for the same period in the prior year, an increase of $26,632. Cost of goods sold consisted primarily of the cost of the materials and labor to manufacture SUGARDOWN®  product, shipping and fulfillment costs.  The increase was a result of additional costs of moving to a new fulfillment center and costs related to scaling up production for additional sales.
 
Operating Expenses
 
We had research and development expense for the three months ended March 31, 2012 of $51,628, compared to $17,139 for the same period in the prior year, an increase of $34,489 or 201%.  Costs associated with clinical trials of SUGARDOWN® and PAZ320 represented approximately $24,000 of the increase.  The balance of the increase is attributable to ongoing development of the SUGARDOWN® product.

We had sales and marketing expense for the three months ended March 31, 2012 of $67,180, compared to $455 for the same period in the prior year, an increase of $66,725.  Marketing and promotion costs represented approximately $17,000 of the increase with stock based compensation representing $42,553 of the increase.

General and administrative expense for the three months ended March 31, 2012 was $124,536, compared to $74,836 for the same period in the prior year, an increase of $49,700 or 66%.  This consists primarily of legal and accounting fees associated with SEC filings and quarterly financial statement preparation for the Company.  Legal and accounting fees represented $21,000 of the increase.  Payroll and stock based compensation represented $30,929 of the increase for the period.  The balance is primarily a decrease in consulting fees and travel expenses.
 
 

 
LIQUIDITY AND CAPITAL RESOURCES
 
As of March 31, 2012
 
As of March 31, 2012, we had cash of $25,535 and accounts payable and accrued expenses and other current liabilities of $444,426.  The cash is largely attributable to cash received from revenues generated in the period and the balance from the proceeds from our private placement of common stock in June 2011.
 

 
16

 
LIQUIDITY AND CAPITAL RESOURCES
 
We have received minimal revenues from our acquisition of the SUGARDOWN® product.  Without substantial revenue and known, adequate and available financing, there is uncertainty regarding the Company's ability to continue as a going concern.
 
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.
 
Our CEO and our President intend to provide minimal cash to fund critical needs once the proceeds of the private placement are exhausted until additional shares are sold to raise capital or SUGARDOWN® or other products generate sufficient revenues to fund the operations of the Company.
 
On March 20, 2012, the Company entered into an agreement to sell 20,000 shares for $22,000 with a warrant to purchase an additional 20,000 shares for $1.15 per share.  The transaction closed on May 7, 2012. Additionally, on May 7, 2012, the Company’s CEO and COO entered into promissory notes to advance to the Company $20,000 each.  The notes accrue interest at 6.5% per year and are due June 30, 2013.
 
Our CEO also contributed a provisional patent, a patent and know-how to the Company.  We intend to use these assets and SUGARDOWN® to attract investors in order to raise the capital required to fund operations.
 
Other than our CEO’s and our President's intention to provide minimal cash, we have no current commitment from our officers and directors or any of our shareholders, to supplement our operations or provide us with financing in the future.  If we are unable to raise additional capital from conventional sources and/or additional sales of stock in the future, we may be forced to curtail or cease our 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 2 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.
 
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 defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.  Based upon that evaluation, the Company’s CEO/CFO concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2012 to ensure that information required to be disclosed by the Company in the reports that the Company 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, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO/CFO, as appropriate, to allow timely decisions regarding required disclosure.

 
17

 
Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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.




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 under Item 1A of our amended Annual Report on Form 10-K/A for the year ended December 31, 2011.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

    On March 20, 2012, the Company entered into an agreement to sell 20,000 shares of its common stock at a share price of $1.10 with a warrant to purchase an additional 20,000 shares for $1.15 per share. The warrants were issued upon execution of the agreement on March 20, 2012. As of March 31, 2012 proceeds for the purchase of shares had not been received, nor had the shares of common stock been issued. The shares and warrants described were offered and sold solely to a single “accredited investor” in reliance on the exemption from registration afforded by Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act.  In connection with the sale of these securities, the Company relied on the investor’s written representations that it was an "accredited investor" as defined in Rule 501(a) of Regulation D.  In addition, neither the Company nor anyone acting on its behalf has offered or sold these securities by any form of general solicitation or general advertising.  At the time of their issuance, the securities will be deemed to be restricted securities for purposes of the Securities Act, and the certificates representing the securities shall bear legends to that effect.  The securities may not be resold or offered in the United States without registration or an exemption from registration.

 
18

 
Item 3.  Defaults Upon Senior Securities
 
None.

 
Item 4.  (Removed and Reserved)
 
 
Item 5.  Other Information
 
None.
 
 
19

 
Item 6.  Exhibits
 
 
Exhibit No.
  
Title of Document
     
     
 
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 March 31, 2012 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.*
     
101.INS  
XBRL Instance Document
     
101.SCH
 
XBRL Taxonomy Extension Schema Document
     
101.CAL  
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB  
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE
 
 
XBRL Taxonomy Extension Presentation Linkbase Document
*Filed as an exhibit hereto.

**These certificates are furnished to, but shall not be deemed to be filed with, the Securities and Exchange Commission.
 
 
 
 
 
 
 
 
20

 
 
 

 
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:  May 16, 2012
By:
/s/ David Platt                                                          
 
   
David Platt
 
   
Chief Executive Officer and Chief Financial Officer
 
 


 
 
 
 
 
 
21