(Former name, former address and former
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Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained here, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”,
and “emerging growth company”. in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by
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accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At June 28, 2019, the last business day of
the registrant’s most recently completed second quarter, the aggregate market value of the voting common stock held by non-affiliates
of the Registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) was approximately
$3,580,585.
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date.
This Annual Report on Form 10-K, including
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements include, among others, those concerning our expected financial performance and strategic
and operational plans, as well as assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned
that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties
could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking
statements. The words “believe,” “expect,” “plan,” “estimate,” “anticipate,”
“project,” “targets,” “optimistic,” “potential,” “intend,” “aim,”
“may,” “will,” “continue” or similar expressions, or the negative thereof, are intended to
identify forward-looking statements.
These forward-looking statements involve
known and unknown risks and uncertainties. Our actual results may differ materially from those projected or assumed in such forward-looking
statements. Among the factors, risks and uncertainties that could cause actual results to differ materially are the following:
For a discussion of these and additional
factors, risks and uncertainties which could impact us and the statements contained herein, see “Risk Factors” in Item
1A of this Annual Report on Form 10-K, as may be supplemented in our Quarterly Reports on Form 10-Q. Readers are urged to carefully
review and consider the various disclosures made by us in this Report and our other filings with the SEC. These reports attempt
to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations
and prospects. All forward-looking statements and risk factors included in this Report are made as of the date hereof, based on
information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement or risk
factor to reflect changes in our expectations, future events, new information or otherwise.
PART I
Item 1. Business.
GENERAL ORGANIZATION AND BUSINESS
Boston Therapeutics, Inc. (the “Company”)
was formed as a Delaware corporation on August 24, 2009, under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire
corporation (“BTI”) providing for the merger of BTI into the Company with the Company being the surviving entity (the
“Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of BTI in exchange for
100% of the outstanding common stock of BTI, and the change of the Company’s name to Boston Therapeutics, Inc. On February
12, 2018, the Company acquired CureDM Group Holdings LLC (“CureDM”), for 47,741,140 shares of common stock of which
25,000,000 were delivered at closing and 22,741,140 shall be delivered in four equal tranches of 5,685,285 each upon the achievement
of specific milestones. Boston Therapeutics, headquartered in Lawrence, MA, (OTCQB: BTHE) is a leader in the field of complex carbohydrate
chemistry and peptide therapeutic drug discovery and development. The Company’s initial product pipeline is focused on developing
and commercializing therapeutic molecules for sugar control more specifically prediabetics and diabetes: investigative material
BTI-320, a non- systemic, non-toxic, investigative therapeutic compound designed to reduce post-meal glucose elevation. In addition,
under manufacturing control, SUGARDOWN®, a similar base material to BTI-320 has progressed into market testing as a
dietary supplement designed to manage post-meal sugar spikes. Recently, with the acquisition of CureDM in the first quarter of
2018, a new investigative material BTI-410, an injectable peptide, may fulfill the medical need to replace injection of insulin
by stimulating the beta cell maturation. And the adjunctive therapeutic material called IPOXYN, is an investigative intravenous
fluid therapy for the prevention of necrosis and a treatment for ischemia, with an initial target indication of lower limb ischemic
events often associated with diabetes. This covers a wider combined prevention and therapeutic option for the growing worldwide
epidemic related to metabolic diseases with diabetes being the leader.
Going Concern
The accompanying financial statements have
been prepared assuming the Company will continue as a going concern. The Company has limited cash resources, recurring cash used
in operations and operating losses history. As shown in the accompanying consolidated financial statements, the Company has an
accumulated deficit of approximately $27.1 million as of December 31, 2019 and used cash in operations of $1,195,938 during the
year ended December 31, 2019. These factors among others, raise substantial doubt about the Company’s ability to continue
as a going concern.
The Company has incurred recurring operating
losses since inception as it has worked to bring its SUGARDOWN® product to market and develop BTI-320 and IPOXYN. Management
expects such operating losses will continue until such time that substantial revenues are received from SUGARDOWN® or
the regulatory and clinical development of BTI-320 or IPOXYN is completed. The Company has approximately $6,700 cash on hand at
December 31, 2019. Management is currently seeking additional capital through private placements and public offerings of its common
stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financings as well
as collaboration activities in order to fund our operations. The Company was advanced $50,000 through the issuance of 10% notes
payable to a related party during the first quarter of 2019. The Company was advanced $339,144 during April 2019, from two related
parties. The Company was advanced $50,000 from a related party during May 2019. During July, the Company was advanced $402,027
from two related parties. During October and November 2019, the Company was advanced an additional $349,000 from a related party.
In addition, on January 3, 2020, the Company was advanced an additional $250,000 from a related party. Management anticipates that
cash resources will be sufficient to fund our planned operations into the second quarter of 2020. The future of the Company is dependent
upon its ability to obtain continued financing and upon future profitable operations from the partnering, development and clarity
of its new business opportunities.
There can be no assurance that we will
be successful in accomplishing our objectives. Without such additional capital, we may be required to cease operations. The accompanying
financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
Overview
We are a pre-clinical and clinical-stage
pharmaceutical development company focused on the clinical development, outsourced contract manufacture and test marketing for
commercialization of carbohydrate-based patented formulation of investigative materials as medical food, supplements, drug and
drug combination, and other clinical exploratory out sourced exploratory peptide therapeutic options. All agents are targeted for
new approaches to help manage blood sugar. The new treatment for pre-diabetes and diabetes related pathologies we feel is the most
important global unmet medical need. Our present early market entry is under dietary supplements regulation and patented “food’
formulation.
Currently, our lead pharmaceutical drug
candidates are:
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BTI-320, a non-systemic carbohydrate-based compound designed to reduce “post-meal elevation” of blood glucose levels in all individuals. This is especially important for pre-diabetes patients and type 2 diabetes patients; and
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BTI-410, a peptide injectable compound designed to stimulate beta cell maturation, which has been seeking a partnership or appropriate divestiture for development as a new insulin producing cell agent for the pancreas. If approved, this will alleviate stress on existing cells in type 2 diabetes patients and in type 1 patients who are on immunosuppression therapy after having undergone kidney transplant surgery.
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IPOXYN, a carbohydrate-based, injectable drug intended to prevent necrosis, or cell death, and to treat hypoxic conditions, such as diabetic foot ulcers and other vascular/neurological complications. We are currently only maintaining Intellectual Property which the sourcing of Hemoglobin can be secured.
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BTI-320
Following Phase II clinical trial results
reported in 2013 and the Phase IIb clinical trial concluded in October 2014, the U.S. Food and Drug Administration (“FDA”)
accepted the Investigational New Drug Application (or IND), which we filed for BTI-320 to treat Type 2 diabetes and partial weight
management in 2014. The final filing included 4 new active sites while Joslin Diabetes Center in Boston MA and the site in New
Mexico were dropped due to apparent enrollment conflicts and poor rate of recruitment. This first phase of our multi-center, that
anticipated expanding to multi-country trial, commencing in the fourth quarter of 2018 completed enrollment in November 2019. The
trial enrolled 66 patients and will suspend pending and FDA agreed upon plan for the expansion of up to 360 patients in a 24-week
evaluation study. This execution will be designed as a randomized, placebo-controlled, double blind “international”
multi-center study with two treatment arms. The trial will employ precision medical monitoring and will target the primary efficacy
endpoint of Post Prandial Glucose (PPG) or immediate blood sugar excursion reductions projected to have a mean change in HbA1c
levels from baseline at 24 weeks. When this adaptive and exploratory trial has been evaluated and agreed to as part of the FDA
plans, we anticipate enrollment at a number of international centers in Europe, Asia and Australia once the US reporting centers
have completed the initial evaluation of the cohort of 60 patients. Confirming, we suspended one additional new trial and the China
site that was to pioneer a risk based retinal analysis in pre-diabetic patients that was being set-up in Hong Kong. This was to
employ a state of the art retinal image analysis to evaluate the compounds effect on reduction of stroke risk.
We negotiated with Mr. Conroy Chi-Heng
Cheng, our current CEO and Director, pursuant to which Mr. Cheng or an affiliate to Mr. Cheng did fund such trial. There is no
guarantee that we will be able to successfully continue such financing. Mr. Cheng is a director and a shareholder of the Company
and a director of Advance Pharmaceutical Company (“Advance Pharmaceutical”), a Hong Kong based, privately held company.
On June 24, 2011, prior to his election to the Company’s Board, the Company entered into a definitive Licensing and Manufacturing
Agreement with Advance Pharmaceutical. In addition, CJY Holdings Limited, a Company controlled by Mr. Cheng’s brother, Cheng
Chi Him, holds a significant amount of convertible debentures payable by the Company. Mr., Cheng assumed the title of CEO so that
further US employment expenses could be reduced and all funding could be focused toward the clinical program.
BTI-410
Following successful IND application in 2012, a Phase 1a First-in-Man
study was completed in which ascending doses of BTI-410, ranging from 60 mg to 720 mg, appeared to be safe and well tolerated by
all subjects in the study. Phase 1b, entitled “A Randomized, Double-blind, Placebo-controlled Study of the Effect of 49 days
of Treatment with Repeated Subcutaneous Doses of HIP2B (BTI-410) to Assess Safety, Tolerability and Measures of islet β-cell
Function in Subjects with Type 2 Diabetes Mellitus Treated with Metformin”, was completed in 2015. Two new pivotal clinical
trials are designed for the study of BTI-410. One Phase II study may be conducted in 36 type 1 patients on immunosuppression therapy
after kidney transplant surgery. A second Phase II study may be conducted in 120 type 2 diabetes patients pending the appropriate
funding and/or the appropriate material manufacture. A China based Peptide Company was contacted several times over the last year
to quote on the synthesis of material needed for these studies, however, it should be clear that this program has received another
set-back with the resignation of our COO in 2018, the inability to execute in a timely manner without financing during 2018 and
with the loss of the firm collaboration to make the material. We did progress and locate a CRO, that we believe is capable of creating
a clinical program once a clinical trials material has been established and the FDA IND has been refiled. However, we are progressing
on unwinding the merger with CureDM Holdings that was done in the first quarter of 2018. At the time of this filing we are now
in discussions with a founder of CureDM Inc., the former parent company of CureDM Holdings. Certain parties associated with CureDM
Inc., have dropped all litigation against us to unwind the merger.
Development of IPOXYN remains in pre-clinical
suspension. The patent was progressed, however, no inhouse work has been done to date due to lack of financial resources. The Company
is exploring a partnering alliance for the participation with a funded program in China. We do not anticipate any activity will
occur until support funding is obtained.
We currently continue test digital selling
SUGARDOWN® in the US (Amazon.com), this non-systemic, polysaccharide based dietary supplement designed to support healthy blood
glucose levels, is sustaining incremental sales via the Internet and by targeted purchase orders through a piloting program in
specialty independent pharmacies in one city. However, there is no management focus on these sales, we are seeking a partnering
opportunity in 2020 for SUGARDOWN®.
Novelty of Complex Carbohydrate Science
Carbohydrate molecules, which are essential
to the transmission and recognition of cellular information, have been shown to play an important role in major diseases including
cancer, cardiovascular disease, Alzheimer’s disease, inflammatory disease and viral infections. We believe this offers a
largely untapped area for treatment by utilizing:
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in the case of BTI-320 and SUGARDOWN®, modified mannan (a polymer found in plants) to lower the rapid rise and peak amplitude in post-prandial blood glucose (PPG, or post-meal blood sugar), and
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in the case of IPOXYN, stabilized hemoglobin as modified by carbohydrate chemistry to deliver oxygen to cells in hypoxic condition sustaining vascular integrity.
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We use naturally derived, available and
specially processed plant extracts as starting material to create proprietary complex carbohydrate formulations with specific molecular
weights and other pharmaceutical properties. We have received our first patent in the EU and continue to expand the US and global
position. These complex carbohydrate molecules are then formulated into an acceptable pharmaceutical material through establishment
of dose effect and stability maintenance process. Using these novel carbohydrate-based candidate compounds that largely bind and
inhibit enzymes, we are undertaking the focused pursuit of developing therapies for metabolic diseases like diabetes and other
serious diseases in which enzyme activity have a demonstrated role in disease management.
During the 4th quarter of 2019,
our management team changed as Conroy Chi-Heng Cheng took over as CEO. Mr. Carl W. Rausch, who has played a role in the applications
associated with the development of complex carbohydrate science in Asia, stepped down as CEO to move into a consulting role for
the possible pipeline of carbohydrate-based therapeutics in cell metabolism and other protein chemistries. These new applications
can address a variety of unmet medical needs. We believe this expertise is particularly valuable as we progress with specialty
processes and clinical development of our products. The Company is working to confirm the next phase of clinical development, to
partner and to build Company and market awareness of these technologies through the introductory sales of SUGARDOWN®.
Removal from Boston Therapeutics: Novelty
of Human Peptide Therapeutics and Proteomic Platform Technology
Following the completion of the human genome
project, certain human proteins that are in low availability and only transiently expressed became known. The REG3A protein is
known to be a trigger in the development pathway of endocrine function in the pancreas. BTI-410 was derived from the active region
of this larger protein, stabilized for use as a therapeutic and extensively studied in vitro and in animal models. The human proteomic
pathway was established using a novel proteomic approach to discovery of potential new mechanisms of action.
Peptides are recognized for being highly
selective and efficacious and, at the same time, relatively safe and well tolerated. In general, peptides are selective and efficacious
signaling molecules and given their attractive pharmacological profile and intrinsic properties, peptides represent an excellent
starting point for the design of novel therapeutics and their specificity has been seen to translate into excellent safety, tolerability,
and efficacy profiles in humans. This aspect might also be the primary differentiating factor of peptides compared with traditional
small molecules. Furthermore, peptide therapeutics are typically associated with lower production complexity compared with protein-based
biopharmaceuticals and, therefore, the production costs are also lower, generally approaching those of small molecules. Thus, in
several ways, peptides are in the sweet spot between small molecules and biopharmaceuticals.
Using human protein interaction technology
and public and proprietary databases to elucidate pathways of interest, BTI-410 was discovered and developed at CureDM. Preclinical
data showed the unique specificity and efficacy of the compound with respect to a novel mechanism of beta cell maturation and the
US Food and Drug Administration (FDA) accepted the application for Investigational New Drug (IND) in 2012. Subsequently, Phase
1a studies in healthy human subjects proved that the drug was very well-tolerated and lead to no adverse events. Phase 1b study
in type 2 diabetes patients resulted in statistically significant increases in pre-hepatic insulin secretion, increases in fasting
insulin and improved response to glucose challenge.
The cause of both type 1 and type 2 diabetes
mellitus (T1DM and T2DM) is the loss of functional pancreatic islet mass due to abnormally high rates of destruction that outpace
the natural mechanisms for replacement of the islet mass. Currently, there is no treatment option that promotes the regeneration
of islets and maturation of beta cells to impact the underlying causes of this disease. BTI-410 is such a compound. We were unable
to address this opportunity during 2019 due to loss of the management of this project and the lack of funding. No clinical studies
were to be conducted to show efficacy by this mechanism, so at present the only expense was to maintain the Intellectual Property.
BTI-320 and SUGARDOWN® Mechanisms of Action
Diabetes is a chronic disease in which
a patient’s inability to produce the hormone insulin in sufficient amounts is compromised if not totally lost. This defect
leads to high levels of glucose in the blood stream, which in turn leads to many systemic vascular and organ complications such
as heart, kidney and retina dysfunction and even premature death. To address this “immediate” overload the modified
mannan in BTI-320 formulation, works to lower the rapid rise in post-meal blood glucose from processed foods, which contain minimal
fiber and free sugar loads in several ways. First, we have evidence that it binds to long-chain starch polysaccharides in foods
and also to the digestive enzymes that cleave these large sugars into glucose. Second, it appears to temporarily coat the inside
of the small intestine to slow the early absorption of glucose. Together, these mechanisms have been shown to lower the rate and
the availability for glucose absorption in the small intestine and thus slows the amount entering the blood. This delays the exposure
time for the digestive process to a region lower in the gut.
This effect of BTI-320 is measured by monitoring
the amount of glucose absorption as a difference in sugar increases in the bloodstream over time and in sugar peak height as well
as an immediate excursion that is not addressed by all the present hypo-glycemic drugs that actively eliminate glucose from the
blood given their presence in any concentration. Most anti-diabetes drugs, also considered to cause hypoglycemic events, if not
managed well, force blood sugar levels down from the presence in the blood streams by targeting organ systems such as the pancreas,
the liver, the kidneys and the body’s cells, thereby increasing the risk of serious side effects if not carefully managed.
This whole clinical effect has become known and managing your glycemic variability. High variability means poor control of blood
sugar. This has been evidenced in recent FDA findings and concerns for cardiac insult, kidney disease, and even brain dysfunction.
In contrast, BTI-320 targets enzymes in the mouth and small intestine to reduce the uptake of glucose during the digestion of carbohydrate
foods. We believe this preemptive, non-systemic approach to blood sugar management provides for a broader safety profile as well
as a greater ability to work with other systemic blood lowering agents like insulin. All this leads to lower prescription drug
dosing and longer-term effectiveness. The BTI-320 profile is enhanced due to its GRAS (Generally Regarded as Safe) classification
of its components. SUGARDOWN® has a similar mechanism of action and designation.
In February 2013, we reported positive
results from a Phase II clinical study conducted at Dartmouth-Hitchcock Medical Center that evaluated the safety and efficacy of
BTI-320. The study evaluated BTI-320 in 24 patients with Type 2 diabetes between the ages of 18 and 75 with a body mass index (BMI)
of 25-40 kg/m2 and with a HbA1c (a lab test that shows the average level of blood glucose over the previous three months) of less
than or equal to 9 percent. The primary endpoint of this study was to demonstrate a reduction of incremental area under the curve
(AUC) of post-meal blood glucose by 20%.
In this study, forty-five percent (45%)
of patients responded positively with a forty percent (40%) reduction of post-meal glucose in the blood compared to baseline in
a dose-dependent manner. Additionally, results showed the effect of BTI-320 does not correlate with duration of diabetes, and worked
safely, (no-direct-hyopglycemic effect) regardless of concurrent diabetes medications. There was no severe hypoglycemia (low blood
sugar episodes), gastrointestinal side effects were mild and satiety (fullness) was observed. In the article published in the July/August
2013 issue of the peer reviewed journal, Endocrine Practice, there were no serious adverse events (SAEs) from the data analysis
of the open-label dose escalation crossover trial on patients with Type 2 diabetes.
In 2012, with Advance Pharmaceutical Ltd,
Hong Kong, we conducted a clinical study glycemic test at the University of Sydney in Australia. The results showed the post-meal
incremental area under the curve (iAUC) for glucose and insulin were significantly lower following consumption of SUGARDOWN®
prior to a controlled high carbohydrate meal of rice in a dose-dependent manner. This resulted in a reduction of up to 61 percent
in post-meal elevation of blood glucose compared with the rice consumed alone. On average, there was a 32 percent reduction in
the post-meal iAUC for glucose and a 24 percent reduction in post-meal insulin response for the volunteers in the study. No severe
adverse effects were reported or observed during the study. SUGARDOWN® was tested in healthy, but overweight, adults with a
mean body mass index (BMI) value of 27.3 kg/m2. This clinical study indicated that SUGARDOWN® can maintain healthy glucose
levels even after meals, when sugar tends to spike. (Studies are under monograph review)
In October 2014, we reported results from
a pilot Phase IIb study of BTI-320 in patients with Type 2 diabetes conducted in the U.S. by Accumed Research Associates. The trial
enrolled 23 patients with Type 2 diabetes diagnosed for at least one year and who were on a stable daily dose of metformin for
at least three months. The patients were administered BTI-320 and metformin using a randomized, double-blind, placebo-controlled,
dose-ranging, three-way cross-over study design. Of the 23 patients that completed the trial, 15 patients did not demonstrate a
measurable difference in response by reporting a significant reduction from normal to the rice test meal. The remaining eight patients
responded to BTI-320 with up to a 34% reduction in post meal blood glucose levels. Patients were given one to two chewable BTI-320
tablets, half of the dose of the Dartmouth study and one third the dose of the University of Sydney trial. The results of the trial
showed BTI-320 to be as safe and as well tolerated, with no serious adverse events reported and provided information on different
patient populations to be used to design the appropriate protocols for future clinical trials. This also demonstrated the value
and the need for continuous glucose monitoring as a way to capture the post prandial effect on sugar reduction, an effect not seen
with the present medications in the US.
In 2016, Advance Pharmaceuticals Ltd. HK,
completed and reported the 60 patient continuous glucose monitoring (CGM) proof of concept trial, and reported no increases in
fructosamine, a short term measure of glycation of plasma protein (none was anticipated due to the non-diabetic population), and
a significant decrease in the post prandial blood glucose acute rise in blood sugar in high risk Asia pre-diabetic patients.
The trial was fully reported on Clinicaltrials.gov and the abstract was accepted and presented at the June 2017 American Diabetic
Association meeting in June. The data sets and the manuscript has been submitted for publication.
We began a new clinical trial during the
fourth quarter of 2018. The trial completed enrollment of 66 patients with the analysis to be complete in the first quarter of
2020. Pending 360-1000 patient trial (expansion of the exploratory) of the 24 week evaluation study which is designed as a randomized,
placebo-controlled, double blind “international” multi-center study with two treatment arms. The exploratory trial
employed precision medical monitoring and targeted the primary efficacy endpoint of Post Prandial Glucose (PPG) or immediate blood
sugar excursion reductions. The projected trend is to have a mean change in HbA1c levels from baseline at 24 weeks is not powered
for significance but will report confidence intervals. We completed enrollment at 4 centers located in the U.S. with the initial
66 patients.
We began a proof of concept trial for vascular
effect by the proprietary analysis of retinal vasculature in 2018. However, this study which was to be supported with 40% grant
funds from the Hong Kong granting agency, was suspended and terminated before enrollment due to a severe lack of capability to
work with new continuous glucose monitoring technology. The Company has suspended licensing discussions for securing rights for
the use of the proprietary retinal analysis technology.
BTI-410 Mechanism of Action
Both type 1 and type 2 diabetes are the
result of a loss of endogenous islet structures, in which mature beta cells are housed in the pancreas. Type 1 diabetes is an autoimmune
disease in which the immune system destroys existing insulin producing cells rendering the patient immediately insulin dependent
for life. Type 2 diabetes is a slow progressive destructive process of over taxing and “wearing out” of insulin producing
cells that leads eventually to insulin dependence. Most medications currently on the market for diabetes are either and insulin
derivative or a treatment that affects only the symptoms of diabetes, and not the underlying pathology for the destruction of insulin
production and proper control. This beta cell burn out results from insufficient islet mass and function.
BTI-410 or Human proIslet peptide (HIP)
has been shown to increase islet mass and insulin secretion. Islet mass includes functional mature beta cells which are the cells
that secrete insulin. However, the mechanism of action is still being fully elucidated and appears to be a complicated pathway
with several potential modulators. HIP is an active binding fragment of the REG3a protein that is encoded by the REG3a gene (Dusetti
et.al., 1994). REG3a binds to the membrane bound receptor EXTL3 on the surface of progenitor cells in the pancreas. This
pathway is key in the development of new insulin producing islet structures in the pancreas. These structures contain all cell
types required for insulin secretion, its control and appropriate response to glucose in the blood. Increased insulin production
and appropriate control has been at least partially restored after treatment with BTI-410 in a 32 patient Phase 1b study in type
2 diabetes. A further definitive Phase II study in type 2 diabetes will provide pivotal outcome results.
In 2012, a Phase 1a First-in-Man study
was completed in which ascending doses of BTI-410, ranging from 60 mg to 720 mg, appeared to be safe and well tolerated by all
subjects in the study.
In 2014 a Phase 1b, entitled “A Randomized,
Double-blind, Placebo-controlled Study of the Effect of 49 days of Treatment with Repeated Subcutaneous Doses of HIP2B (BTI-410)
to Assess Safety, Tolerability and Measures of islet β-cell Function in Subjects with Type 2 Diabetes Mellitus Treated with
Metformin”, was initiated.
In 2015, BTI-410 (HIP2B) Phase 1b was completed.
Despite the small sample size, compared to treatment with placebo, treatment with HIP2B resulted in improvements in mean insulin
concentrations measured by GGI from baseline to Day 46 that trended toward significance. Similarly, mean change in pre-hepatic
insulin secretion rate from baseline to Day 46 was statistically significant in the combined HIP2B treatment groups compared to
placebo. Trends in increased mean insulin concentrations (as measured via GGI and IVGTT) continued following the cessation of treatment
to the follow-up visit in the HIP2B dosing groups.
A study with a larger sample size powered
for efficacy along with a longer duration of treatment will be required to more fully describe the magnitude of efficacy of HIP2B
on glycemic and insulin secretion parameters.
Based on post-hoc subgroup analyses, subjects
with low FPG and HbA1c levels at baseline showed a more consistent response to HIP2B with respect to changes in insulin
and C-peptide levels when compared to placebo. In addition, when data were analyzed by excluding three hyperinsulinemic subjects,
the effects of HIP2B on fasting insulin levels measured during the study achieved statistical significance after 84 days. These
data also suggest that the effects of HIP2B continue for at least one month after stopping treatment.
IPOXYN and OXYFEX
IPOXYN (research investigative material)
is a carbohydrate-based protein associated material with matching purified protein sources of API (Active Pharmaceutical Ingredient)
from a sister company). This investigative intravenous injectable solution may potentially prevent hypoxic conditions and cell
death due to oxygen debt. Treating these hypoxic conditions may also relate to wound healing (both internal and external) such
as diabetic foot ulcers and other vascular complications of diabetes. IPOXYN, an oxygen carrier blood substitute type of agent
or red blood cell bridging therapy, has a very broad range of potential applications, including but not limited to, tissue death
prevention, wound healing, traumatic blood loss, traumatic brain injury, stroke, cancer, surgery, transplant and anemia. In addition,
since donated human blood needs refrigeration and has a shelf life of less than one month, IPOXYN can serve as an adjunct to or
immediate replacement for volume and oxygen supply in trauma and surgery cases when there are human blood supply deficiencies.
Hypoxia is a condition in which cells lack
sufficient oxygen delivery to support metabolic function. As evidenced by the well-established record of data relating to similar
products, the IPOXYN carbohydrate molecule contains oxygen rechargeable iron which picks up oxygen in the lungs, is 1,000 times
smaller than a red blood cell (or RBC), and can reach hypoxic tissue more effectively than RBCs. IPOXYN is stable at room temperature,
has up to a three year shelf life and requires no blood type matching. We presently have no 2020 plans to introduce this product
in any clinical trials for hypoxic medical conditions at this time.
Our pharmaceutical agents are intended
for intravenous administration into the circulatory system to target acute and late stage diseases that, we believe, have a great
unmet medical need. Acute hypoxic conditions, which we intend to treat with IPOXYN, result from a lack of oxygen supply to living
cells. Hypoxia will lead to ischemia, inflammation and the death of living cells. Ischemia is a restriction in blood supply, generally
due to factors in the blood vessels, with resultant damage or dysfunction of tissue. Diabetic foot ulcer, which occurs in 15% of
patients with diabetes and precedes more than 80% of all lower leg amputations, is one of the major complications of diabetes mellitus.
Two major risk factors that cause diabetic foot ulcer are diabetic neuropathy and micro/macro ischemia. Increases in mortality
among diabetic patients observed over the past 20 years are considered to be due to the development of macro and micro vascular
complications including the failure of the wound healing process. A failure of effective treatment of wounds in this population
can often lead to infection, tissue death and amputation of the lower leg and foot as the only treatment option. We believe that
IPOXYN may represent a potentially effective treatment for lower limb complications of diabetes.
We do not intend to raise the appropriate
capital, we have to suspend development of OXYFEX, a veterinary analog to IPOXYN. However, we are unaware of any drug currently
on the market for animals that can deliver oxygen, and yet there is only limited “blood banking” for animals despite
a constant need. OXYFEX™ technology may serve as the only available oxygen delivery mechanism for animals suffering ischemia
or traumatic and surgical blood loss events.
IPOXYN and OXYFEX consist of a stabilized
glycoprotein composition containing oxygen-rechargeable iron, targeting both human and animal tissues and organ systems deprived
of oxygen and in need of metabolic support. We have not conducted any clinical trials to confirm the efficacy of or filed any applications
with the FDA with respect to, IPOXYN. We suspended the process of developing IPOXYN for pre-clinical studies, in order to conduct
other clinical trials and to file applications with the FDA as applicable. We need to have access to a pilot-scale manufacturing
facility of a third party with adequate capacity to produce IPOXYN for clinical trials and market introduction.
We may have access, subject to adequate
funding, to both sufficient raw materials at commodity pricing and processing facilities to produce sufficient quantities of IPOXYN
to initiate pre- clinical pharmacokinetic, safety and efficacy studies in support of an investigative new drug (IND) filing in
the United States in 2020. The primary raw material for IPOXYN is extracted from controlled sourced bovine blood, which can be
obtained from multiple sources at commodity prices under Good Manufacturing Practice (GMP). There are numerous facilities capable
of processing source verified red blood cell extract. We anticipate a 6 month lead time to put in place agreements for obtaining
and processing these materials upon funding.
Drug Development Status
BTI-320 is one of our lead product candidates
and is currently in Phase II clinical development. We have contracted a CRO (contract research organization) in New York City and
began trials in the 4th quarter of 2018 with the completion of enrollment in November of 2019. Following Phase II clinical trial
results reported in 2013 and the Phase IIb clinical trial concluded in October 2014, the FDA accepted the first Investigational
New Drug Application (or IND) We proposed for BTI-320 to treat some aspects of Type 2 diabetes and weight management. Joslin Diabetes
Center in Boston we have dropped as a lead clinic for the multi-center, multi-country trial that will be planned to commence in
2020 subject to use receiving adequate funding and the positive meeting with the FDA brfore starting the phase 3 confirmatory trial.
The trial may enroll up to 360 to 1000 patients in the 24-week study which is being designed as a randomized, placebo-controlled,
double blind international multi-center study with two treatment arms. One of the primary endpoints of efficacy of the trial is
the mean indication for decrease change in HbA1c levels from baseline at 24 weeks. This is anticipated to be conducted at a number
of international centers located possibly in the U.S., Europe, Asia and Australia. BTI-410 is no longer a lead product candidate
and, pending the out licensing and the production of new Active Pharmaceutical Ingredient (API) material, it is believed to be
ready for Phase II development in both type 1 and type 2 diabetes patients, pending sufficient funding by the new out license holder.
Development of IPOXYN has been suspended for all pre-clinical planning stage and further development is on hold pending the securing
of adequate funding or appropriate partnering.
BTI-320
In March 2014, following the successful
results of the Dartmouth study, we received and additional Institutional Review Board (IRB) approval to initiate a clinical study
of BTI-320 in the United States. In October 2014, we completed a Phase II trial in the United States and we are currently delaying
any additional Phase II trial efforts in France due to enrollment performance issues and lack of resources to support the effort.
These trials were designed to add CGM (continuous glucose monitoring) and better define PPG effects that support the results from
our Dartmouth study for BTI-320. In the Dartmouth study, BTI-320 was well tolerated in patients taking various anti-diabetic agents,
including Metformin. The recent additional clinical trial in the U.S. showed BTI-320 was safe and well tolerated with no serious
adverse events reported. The FDA has accepted an IND, which was filed for BTI-320 to treat Type 2 Diabetes and weight management.
Subject to adequate funding, we tentatively are planning to commence additional future clinical trials for BTI-320.
BTI-410
In January 2018, Boston Therapeutics acquired
the exclusive worldwide rights to the patent portfolio for the HIP2B peptide. In 2012, a Phase 1a study established a good safety
and tolerability profile of BTI-410. In 2015, with the completion of Phase 1b study and based on promising results in type 2 diabetes
patients, the company is not planning any pivotal clinical studies pending out-licensing and then sufficient funding. One study
was to be in type 1 diabetes patients who are immunosuppressed after having undergone kidney transplant, and one study was be in
type 2 diabetes patients on metformin, but who are still experiencing post-prandial high glucoses and remain on the trajectory
toward the need for insulin.
IPOXYN
We continue to believe IPOXYN (as a oxygen
agent of development) can be a safe and effective intervention for reversing acute hypoxia, fulfilling an unmet clinical need;
and that IPOXYN could alleviate acute deficiency of oxygen and avert further life-threatening complications and muscle and tissue
death which can result from a sustained deficiency of oxygen. Our belief about the safety and efficacy of IPOXYN is based on preliminary
good laboratory practices (GLP) testing of a material that is proposed to be bio-similar to IPOXYN, where it was found that such
bio-similar formulation had no material toxicity on a small group of animals. We understand that this testing of GLP intent investigative
materials produced bio-similar materials or, for that matter, pre-clinical testing, will not necessarily predict levels of toxicity
and efficacy in humans. However, if clinical trials ultimately support this belief, in many clinical situations IPOXYN could become
a significant new management tool to moderate the inconsistencies and logistics of RBC transfusion in all parts of the world.
In addition to the expansive and broad
application field development of human medical management, we might envision a sizable and very accepting market in the veterinary
field. We could expect to make a registration filing for this market as soon as we can complete pre-clinical safety and efficacy
studies. Clinical safety and efficacy studies under Good Manufacturing Practices have not yet been initiated.
Preliminary data from animal testing conducted
by third parties as well as similarity testing suggests successful use of OXYFEX in hypoxia and critical anemic situations, where
hypoxic conditions were critical to animal survival. Other early experiments with similarly experimental materials with dogs suggest
intervention with OXYFEX will significantly improve survival in induced canine anemia models. This veterinary treatment of signs
and symptom of canine anemia may be one of our first targets for seeking early regulatory approval in the European Union. As there
is substantial commonality between the metabolic functions of humans and other mammals, animal testing becomes a starting point
for many clinical development programs that can directly translate into clinical development programs for humans. The third-party
testing described here was conducted by a company that developed a bio-similar product to OXYFEX. Testing included repeated intravenous
infusions of the product in dogs that was reported in documented literature and private regulatory filings, and the testing did
not result in reported mortality/morbidity of the subject animals. Reports concerning anemic dogs infused with the bio-similar
materials showed increased plasma hemoglobin levels resulting in an increase of the oxygen carrying capacity of the treated animals.
We have no agreements with the third party that conducted these toxicity tests, or its successors. No further development work
has been conducted on IPOXYN pending securing adequate funding and finalizing strategy as to the best development plan. We also
will move forward with new designations at to these investigative similar materials as the funding or alliance partnering is secured.
We recently were issued composition of matter patents in this line of material development. We also have secured a relationship
with a company now making the base material. They may gain facility approval during 2019.
Market Opportunity
Diabetes and Metabolic Disease Related
Illness
According to the International Diabetes
Federation, in 2017, 425 million people worldwide are living with diabetes and that number is projected to increase to 629 million
by 2045. In the United States alone, the Center for Disease Control estimated that there were 30.3 million people living with diabetes
and an estimated 84 million people who were pre-diabetic in 2017. Standard therapies for diabetes include physician recommended
diet and exercise, oral hypoglycemic drugs such as metformin for Type 2 diabetes and insulin injection regimens for people with
Type 1 diabetes. The objective of each is to manage a daily blood glucose level range recommended by a physician. Each of the current
therapies alone has its limitations including numerous side effects and all treat the lack of control the system has to reduce
the excesses of immediate sugar exposure absorbed in the gut.
According to Standard & Poor’s,
the diabetes drug market is estimated to be $26.8 billion in 2016 and is on pace to grow to more than $64 billion by 2025. Pharmaceutical
companies have been investigating new approaches to treating diabetes and market value has been maintained in the industry due
to the introduction of these new products. We believe that both BTI-320 and BTI-410 represents a near-term commercial opportunity
in a large and growing diabetes market worldwide. BTI-320 is pharmacologically differentiated from commercially available PPG drugs
via its apparent efficacy without severe side effect. BTI-410 is pharmacologically differentiated from commercially available diabetes
treatments by virtue of its novel mechanism and long pharmacodynamics profile, and therefore short term treatment phase.
Hypoxia
Development of IPOXYN (investigational
material) is in the pre-clinical stage and no work has been done in the past 2 years due to the lack of funding. Our injectable
drug candidate, IPOXYN, will potentially compete with existing therapies for the treatment of hypoxia or anti-necrosis that according
to Global Industry Analysts, Inc. has a global market opportunity of $1 billion. Hypoxia is a condition in which cells lack sufficient
oxygen supply to support metabolic function. The standard therapy for acute anemia resulting from blood loss is infusion of RBCs
mainly from supplies of donated blood. For prophylactic or long-term treatment of anticipated or chronic anemia, medications that
stimulate the creation of new RBCs are frequently used.
Presently, there is no substitute for human
red blood cells to deliver oxygen to the body; and transfusions involve many risks and limitations, the most significant is
the ability to “deliver oxygen”. The standard therapy for reversing hypoxia is blood infusion, RBCs or hyperbaric oxygen.
Hyperbaric medicine or hyperbaric oxygen therapy (HBOT) is a medical term for using oxygen at a level higher than atmospheric pressure.
The HBOT treatment can only be done at a medical facility and each session can cost from $200 to more than $1,000 for the 90-minute
chamber exposure. For decades, oxygen carriers have been developed for perfusion and oxygenation of ischemic tissue; none
have yet succeeded in becoming an artificial blood component or an immediate blood or oxygen carrier substitute for the RBC’s.
These past products were either expired blood-derived elements, synthetic perfluorocarbons, or red blood cell modifiers. According
to a Brown University study, there is a global shortage of safe transfusion suitable blood of 110 million units, and the need for
blood is rising 6-7% annually. IPOXYN, a blood substitute, has a broad range of potential applications, including but not limited
to, tissue death prevention, wound healing, traumatic blood loss, traumatic brain injury, stroke, cancer, surgery, transplant and
anemia.
Veterinary Market
Development of OXYFEX™ is in the
pre-clinical stage and no work has been done to date due to the lack of funding. We plan to commence marketing OXYFEX™ for
veterinary applications, which we view as a potentially lucrative market once we receive the necessary approvals in the U.S. and
globally. As of now, no development work has been conducted on OXYFEX pending securing adequate funding and finalizing strategy
as to the development plan. We estimate that there are at least 15,000 small animal veterinary practices in the United States,
another 4,000 mixed animal practices treating small and large animals in the United States and approximately 22,000 small animal
practices in Europe. We believe that the average veterinary practice treats only a small percentage of canine anemia cases with
red blood cell transfusion. The remaining animals receive either cage rest or treatment such as fluid administration, iron supplements,
dietary supplements or inspired oxygen.
Our Product Candidates
Our primary business is the development,
manufacture and commercialization of therapeutic drugs with a focus on complex carbohydrate chemistry and peptide therapeutics
to address diabetes and diabetes related complications. We are currently focusing on two drug candidates. BTI-320, a non-systemic,
non-toxic, drug candidate taken before carbohydrate meals, is designed to improve post-meal blood sugar control in patients with
Type 2 diabetes. BTI-410 is a peptide injectable compound designed to stimulate development of new insulin producing cells in the
pancreas to alleviate stress on existing cells in type 2 diabetes patients and in type 1 diabetes patients who are on immune suppression
after having undergone kidney transplant surgery. We intend to develop BTI-320 and BTI-410 to commercialization or commercial partnership
to the extent that opportunities exist.
We intend to explore an appropriate path
to value the IPOXYN asset pending securing adequate financing and finalizing strategy, which may include partnerships, to establish
the best development plan. We may also license IPOXYN, an injectable drug candidate for prevention of necrosis and treatment of
hypoxia. IPOXYN is a polysaccharide based therapeutic agent using proprietary processes and patented technology. Our IPOXYN drug
consists of a stabilized polysaccharide composition containing oxygen-rechargeable iron, targeting both human and animal tissues
and organ systems deprived of oxygen and in need of metabolic support.
According to Global Industry Analysts,
Inc., the global market opportunity for anti-hypoxia or anti-necrosis technology is $1 billion. Early entry global markets include
the following:
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Asia (replace Hepatitis C contaminated blood products)
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Africa (AIDS contaminated blood)
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Lower Limb Ischemia and other vascular complications of diabetes
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BTI-320
Overview
BTI-320 is one of our lead product candidates
and is currently in Phase II clinical development. We began additional clinical trials during 2019 and were able to conclude the
exploratory trial with reporting in the first half of 2020..
BTI-320 may act in a similar fashion to
a Carbohydrate Hydrolyzing Enzyme Inhibitors (CHEI) for treatment of patients with Type 2 diabetes. BTI-320 initially targets improved
management of post-meal blood sugar excursions in patients currently taking metformin and potentially other anti-diabetic agents,
it also may assist in better glucose variability control. This fact alone, and as a non-systemic compound we believe becomes a
broad safe alternative to most if not all prescription drug dose managements.
BTI-320, a non-systemic, non-toxic, drug
candidate taken before carbohydrate and other free sugar associated drinks and meals, is designed to improve post-meal blood glucose
control (manage glucose variability) in patients with Type 2 diabetes. BTI-320 acts non-systemically in the gastrointestinal tract
to inhibit the enzymes that cleave complex carbohydrates from foods into simple sugars, reducing available glucose during the period
following a meal. BTI-320 initially targets improved management of post-meal blood sugar in patients currently taking metformin
and potentially other anti-diabetic agents as well as reducing insulin needs.
According to the International Diabetes
Federations 2011 report, Guideline for Management of Post-meal Glucose in Diabetes, addressing both post-meal plasma glucose and
fasting plasma glucose is an important strategy for achieving optimal glucose control (the all important Time in Range), and that
evidence points to a relationship between an acute increase in blood sugar, particularly after a meal, and cardiovascular disease.
We completed a BTI-320 Phase II clinical trial in patients with Type 2 diabetes.
Status of Development of BTI-320
BTI-320 is developed as a drug candidate.
In October 2011, we announced the initiation of our clinical trial at Dartmouth-Hitchcock Medical Center in New Hampshire to evaluate
the safety and efficacy of BTI-320 when added to oral agents or insulin regimen in patients with Type 2 Diabetes Mellitus. In July
2012, we announced the completion of patient enrollment. In February 2013, we announced that BTI-320 reduced the elevation of post-meal
blood sugar by forty percent with no serious adverse events. The study evaluated BTI-320 in 24 patients with Type 2 diabetes between
the ages of 18 and 75 with a body mass index (BMI) of 25-40 kg/m2 and with HbA1c of less than or equal to nine percent. HbA1c is
a lab test that indicates the average level of blood sugar (glucose) over the previous three months.
Forty-five percent of patients responded
with an average forty percent reduction of post-meal glucose in the blood compared to baseline in a dose-dependent manner. Additionally,
results showed the effect of BTI-320 does not correlate with duration of diabetes and works regardless of concurrent diabetes medications.
There was no severe hypoglycemia and gastrointestinal side effects were mild. Satiety was also observed. There were no serious
adverse events from the data analysis of the open-label dose escalation crossover trial on Type 2 diabetic patients.
The full article for the clinical study
was published in the July/August 2013 issue of Endocrine Practice, a peer-reviewed journal.
In October 2014, we reported results from
a Phase IIb study of BTI-320 in patients with Type 2 diabetes conducted in the U.S. by Accumed Research Associates. The trial enrolled
23 patients with Type 2 diabetes diagnosed for at least one year and who were on a stable daily dose of Metformin for at least
three months. The patients were administered BTI-320 and Metformin using a randomized, double-blind, placebo-controlled, dose-ranging,
three-way cross-over study design. Of the 23 patients that completed the trial, 15 patients did not yield measurement differences
from normal to the rice test meal. The remaining eight patients responded to BTI-320 with up to a 34% reduction in post meal blood
glucose levels. Patients were given one to two BTI-320 tablets, half of the dose of the Dartmouth study and one third the dose
of the University of Sydney trial. The results of the trial showed BTI-320 as safe and well tolerated, with no serious adverse
events reported and provided information on different patient populations to be used to design the proper protocols for future
clinical trials. We have advanced this study to a publication.
BTI-410
Overview
BTI-410 is being out sourced and licensed
as a lead product candidates and it licensee is currently seeking manufacture for Phase II clinical development, subject to outsourcing
and obtaining adequate funding.
BTI-410 is a Beta Cell Maturation Stimulator
(BCMS) for treatment of patients with Type 2 diabetes and type 1 diabetes patients who are on immunosuppression. The potential
license holder for BTI-410 is initially targeted to improved insulin secretion in type 2 patients currently taking metformin and
potentially other anti-diabetic agents. However, type 1 patients who are immunosuppressed are a specific population in need of
this type of treatment and may provide a faster path to approval.
BTI-410, a short term, injectable drug
candidate taken twice daily, is designed to stimulate beta cell maturation in patients with Type 2 diabetes. BTI-410 acts in the
pancreas to stimulate the pathway that leads to the differentiation of new islet structures that include new populations of beta
cells. BTI-410 initially targets improved management insulin secretion in patients currently taking Metformin and potentially other
anti-diabetic agents.
Development of BTI-410 has been suspended
for the last 2 years
BTI-410 was developed as a drug candidate.
In 2011, IND was established and Phase 1a was completed with Celerion in Lincoln, NE. In 2014, patient enrollment began and for
Phase 1b in type 2 diabetes patients on Metformin with Profile Institute for Clinical Research in Chula Vista, CA. In 2015, dataset
was locked and in 2016 results of this study were presented at the 77th Conference of the American Diabetes Association. Publication
is being completed for submission in 2018.
As the primary objective, results indicated
that twice daily subcutaneous injections of HIP2B at 400 mg and 600 mg for 49 days were well tolerated in subjects with T2DM on
metformin, with no clinically significant changes in clinical laboratory values, ECGs or vital signs during the study, and no deaths
or withdrawals due to AEs.
Despite the small sample size, compared
to treatment with placebo, treatment with HIP2B resulted in improvements in mean insulin concentrations measured by GGI from baseline
to Day 46 that trended toward significance, mean change in pre-hepatic insulin secretion rate from baseline to Day 46 was statistically
significant in the combined HIP2B treatment groups compared to placebo, improvements in mean insulin concentrations as measured
by GGI and IVGTT, including some that seemed to persist during the post- treatment period. Improvements in insulin secretion levels,
and improvements in control of insulin secretion under glucose challenge, is the benefit of beta cell maturation as a mechanism,
which lead to improvement in HbA1c. Based on these results, we plan a larger definitive Phase II study will quantitatively elucidate
these effects of HIP2B as an important new treatment option for Type 2 Diabetes.
We do not plan any Phase II studies in
type 1 diabetes patients who are on immunosuppression as a function of a kidney transplant. This patient population produces almost
no endogenous insulin, so stimulation of new insulin producing beta cells in this population will be transformative and a clear
proof of concept for BTI-410 as an important therapeutic strategy in the treatment of diabetes.
Products Competitive with BTI-320 and
BTI-410
Anti-diabetic drugs. Anti-diabetic
drugs treat diabetes mellitus by lowering glucose levels in the blood. With the exceptions of insulin, insulin analogues and Glucagon-like
Peptide-1 Agonists, all are administered orally and are thus also called oral hypoglycemic agents or oral anti-hyperglycemic agents.
There are different classes of anti-diabetic drugs, and their selection depends on the nature of the diabetes, age and situation
of the person, as well as other factors. BTI-320 is the first compound in a new class of therapies called Carbohydrate-Hydrolyzing
Enzyme like Inhibitor (CHEI) for treatment of patients with Type 2 diabetes. BTI-320 acts non-systematically in the gastrointestinal
tract to inhibit the enzymes that cleave complex carbohydrates from foods into simple sugars, reducing postprandial glucose excursion
(post-meal blood sugar elevation). BTI-410 is a first in the new class compounds that stimulate beta cell maturation to regenerate
endogenous insulin production and its control.
Secretagogues. Secretagogues, which
include Sulfonylureas and Meglitinides, help enhance insulin secretion. Sulfonylureas were the first widely used oral hypoglycemic
medications. They are insulin secretagogues, triggering insulin release by direct action on the KATP channel of the pancreatic
beta cells. Glipizide (Glucotrol®) falls into this category with side effects including GI discomfort, diarrhea and hypoglycemia.
Sensitizers. Insulin sensitizers
address the core problem in Type 2 diabetes—insulin resistance—and include Biguanides and Thiazolidinediones. Among
oral hypoglycemic agents, insulin sensitizers are the largest category. Biguanides reduce hepatic glucose output and increase uptake
of glucose by the periphery, including skeletal muscle. Although it must be used with caution in patients with impaired liver or
kidney function, metformin, a biguanide, has become the most commonly used agent for Type 2 diabetes in children and teenagers.
Amongst common diabetic drugs, metformin is the only widely used oral drug that does not cause weight gain. Metformin is the most
prescribed drug in this category whose side effects may be hypoglycemia and lactic acidosis.
Thiazolidinediones (TZDs), also known as
“glitazones,” bind to PPARγ, a type of nuclear regulatory protein involved in transcription of genes regulating
glucose and fat metabolism. Rosiglitazone (Avandia®) and Pioglitazone (Actos®) fall into this category of anti-diabetic
agent.
Alpha-glucosidase inhibitors. Alpha-glucosidase
inhibitors are “diabetes pills” but not technically hypoglycemic agents because they do not have a direct effect on
insulin secretion or sensitivity. These agents slow the digestion of starch in the small intestine, so that glucose from the starch
of a meal enters the bloodstream more slowly and can be matched more effectively by an impaired insulin response or sensitivity.
These agents are effective by themselves only in the earliest stages of impaired glucose tolerance but can be helpful in combination
with other agents in Type 2 diabetes. Acarbose, marketed as Prandase® and Glucobay® is an Alpha-glucosidase Inhibitor.
IPOXYN and OXYFEX™
Overview
Development of IPOXYN has been suspended
in the pre-clinical stage and no work has progressed due to financial constraints. IPOXYN was initially designed for delivery as
an intravenous solution, with the expectation that it can support an inadequate supply of RBC oxygen needed to maintain metabolic
functions in the body. It may function without the limitations of compatibility, availability, short shelf life, volume and logistical
challenges commonly associated with transfusions of whole blood and packed red blood cells. Other intravenous fluids commonly used
in emergency trauma to restore blood volume, such as Ringer’s lactate or saline, are not designed to and do not carry oxygen.
At present we have not conducted any clinical trials to confirm the efficacy of or filed any applications with the FDA with respect
to, IPOXYN. IPOXYN will not be ready for commercialization until these steps are completed. Preclinical animal study results for
IPOXYN were presented at the XIII International Symposium on Blood Substitutes and Oxygen Therapeutics in July 2011.
We do not plan to introduce this investigational
product into clinical trials for hypoxic medical conditions. However, from a historical perspective consider the following: Hypoxia
promotes resistance to conventional treatments, as well as treatments for other diseases. IPOXYN has the potential to greatly improve
survival of patients in multiple indications in which hypoxia is a factor. Hypoxia is a condition in which cells lack sufficient
oxygen supply to support normal metabolic functions. It is widely known through research that lack of oxygen will result in a cascade
of biochemical reactions which promote resistance to many helpful therapeutic substances and which interfere with the body’s
own repair mechanisms. Antibiotics for the treatment of infection are less effective when hypoxic conditions are involved. Similarly,
hypoxic cancer cells are resistant to chemotherapy treatments; most chemotherapy drugs rely on rapid cell division which requires
normal oxygenation of cells, but in a hypoxic condition, cells proliferate by other pathways and therefore resist many chemotherapy
treatments.
Another unmet clinical need is in various
acute ischemic conditions, where hypoxia can develop from a local restriction of constrained blood vessels, or poor and compromised
flow which leads to insufficient supply of oxygen by otherwise well-oxygenated and distributed RBCs, e.g. cerebral ischemia, ischemic
heart disease and intrauterine hypoxia which is an unchallenged cause of perinatal death. In these cases, IPOXYN, as a rechargeable
soluble oxygen delivery agent, may not be restrained whereas well-oxygenated RBCs may be prevented due to size from free flow and
distribution and thus the delivery of oxygen. RBCs are large biological structures compared to the size of IPOXYN, which is a modified
single-protein function oxygen carrier. In ischemic and hypoxic conditions, RBCs may not be able to perfuse the small vessels which
have lost their ability to permit RBC distribution and thus oxygen delivery. Due to its small molecular size, IPOXYN can carry
and distribute oxygen widely without risk of clot formation and flow stoppage.
In veterinary medicine applications, OXYFEX™
will be used as an oxygen delivery agent similar to an RBC replacement for ischemia and trauma, as well as for blood loss during
surgery.
Status of development of IPOXYN
We are in the process of outsourcing IPOXYN
for pre-clinical studies, in order to conduct clinical trials and to file applications with the FDA as applicable.
Products Competitive with IPOXYN
Many biotechnology and pharmaceutical companies
are developing new technologies for the treatment of hypoxia and other diseases. The standard therapy for reversing hypoxia due
to acute blood loss may be blood infusion, RBCs or hyperbaric oxygen. Hyperbaric medicine, also known as hyperbaric oxygen therapy
(HBOT), is the medical terminology for using oxygen at a level higher than atmospheric pressure. There are many conditions being
treated using this approach including acute blood loss (Hart GB, Lennon PA, Strauss MB. (1987) “Hyperbaric oxygen in exceptional
acute blood-loss anemia,” J. Hyperbaric Med 2 (4): 205–210). In the United States, HBOT is recognized as a reimbursable
treatment for 14 “approved” conditions and an HBOT session can cost anywhere from $200 in private clinics, to over
$1,000 in hospitals. The most common intervention in hypoxic patients is RBC transfusion. The need for intervention to reduce hypoxia
can also be affected by medical conditions such as ischemia or cardiopulmonary failure, claudication (cramping caused by blocked
arteries in the leg), poor perfusion and other indications, where a combination of below optimal flow and capacity are compromising
oxygen delivery.
When compared to RBC transfusion, we believe
IPOXYN will have the following advantages:
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Availability: readily available, with at least three year shelf-life (much longer than the five week plus shelf life for RBCs) and easier to perfuse.
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Stability: stored at room temperature for years while maintaining its full capacity for oxygen delivery and release and logistical convenience.
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Sterile: when manufactured and processed consistently through good manufacturing practices, free of infectious agents and unnecessary elements.
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Compatibility: safe for all blood types in a wide range of conditions and does not require pre-infusion typing or testing for compatibility.
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Critical care: IPOXYN can be safely applied outside the hospital to treat or prevent ischemic conditions in cases like shock and trauma, heart attack or stroke where low flow or suspended local flow are disrupted. A readily available infusion package makes it a straightforward tool for emergency medical teams to use on site in order to save a patient’s life when time is of the essence for survival.
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Molecular structure: Chemically, IPOXYN features a small molecular size compared to RBCs, so it possesses better flow characteristics and circumvents constricted and partially occluded vessels that restrict flow of RBCs and thus the supply of oxygen to tissues and organs.
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Oxygenation: Due to its high solubility, it has high capacity and faster exchange of oxygen in tissues, as well as facilitating the release of oxygen from RBCs for overall unparalleled efficiency.
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For chronic anemia situations, erythropoietin-based
formulations are available from two suppliers. Erythropoietin stimulates the erythropoietic system in the bone marrow to produce
its own RBCs. These products are slow acting, and only administered in anticipation of blood loss during surgery and are not effective
for temporary use or in emergency situations when acute blood loss requires RBC infusion to deliver oxygen.
The fields of treatment of oxygen-deprived
states have been approached in many ways. These include such techniques as high oxygen concentration, hyperbaric chambers, as well
as the more mechanical approaches of vessel dilation and blood thinning. All have met with minor measures of improvement. In the
early 1980’s a number of companies focused on creating specific oxygen carriers that were either (a) blood derived elements,
(b) synthetics consisting of Perfluoro chemicals or (c) elements created using recombinant and molecular engineering approaches
(red cell modifiers). Companies including Baxter, Abbot, and Biopure and OPK Biotech, for example, used the blood derived approach;
Green Cross, Alliance Pharmaceuticals and Synthetic blood focused on synthetics, and Somatogen and Allos Therapeutics tried recombinant
and molecular engineering. All of these approaches were early attempts to meet a need whose main focus has been on a “blood
substitute”. Our approach is fundamentally different. Instead of a blood substitute, we are offering a new chemical entity
that will deliver oxygen to hypoxic cells.
We are aware of other companies researching
the use of hemoglobin as a therapeutic, including programs in China and Japan. We expect IPOXYN to compete with traditional therapies
and with other oxygen delivery pharmaceuticals. Some of our competitors and potential competitors may have greater financial and
other resources to develop, manufacture and market their products. We believe the most immediate competition comes from companies
currently conducting clinical trials of investigational hemoglobin solutions.
We believe that these programs are still
in the preclinical stage of development. We believe that our use of controlled source bovine materials for the production of IPOXYN
is an advantage over products made from donated expired human red blood cells stored for a long period of time and other competitive
approaches because of the availability, abundance, ability to control source, cost and relative safety of bovine red blood cells.
SUGARDOWN®
Overview
We have developed and currently produce
and test market sell SUGARDOWN®, a non-systemic complex carbohydrate-based US registered dietary food supplement to support
healthy post-meal blood glucose using proprietary processes and technology. We will have unrestricted access to both sufficient
raw materials at commodity pricing and processing facilities to produce sufficient supply of SUGARDOWN® to support product
distribution across multiple sales channels regulated as a dietary supplement. Our SUGARDOWN® designated dietary supplement
consists of a complex carbohydrate composition.
Status of Development of SUGARDOWN®
We completed development of SUGARDOWN®
as an over the counter (OTC) US dietary supplement. We filed a structure and function claim application with the United States
Food and Drug Administration (FDA) with respect to SUGARDOWN®, which describes the proposed mechanism of action of SUGARDOWN®
in reducing post-meal elevation of glucose in the blood. We have submitted thirty structural and functional claims with the
FDA. We currently have strategically received awarded patents that are directed to the Composition of purified mannans, which are
utilized in the formulation of SUGARDOWN®. We have also received a registered mark for SUGARDOWN®. General
Product Liability Insurance for SUGARDOWN® has been in effect since April 2010. On January 24, 2012, we announced the
clinical test results in healthy volunteers performed at the Sydney University Glycemic Institute for Research with SUGARDOWN®.
On January 28, 2013, we announced the final results of the study conducted at the University of Sydney that showed the post- meal
incremental area under the curve (iAUC) for glucose and insulin were significantly lower following consumption of SUGARDOWN®
tablets prior to a high carbohydrate meal of rice in a dose-dependent manner. This resulted in a reduction of up to 61% in
post-meal elevation of blood glucose compared with the rice consumed alone. On average, there was a 25.5% reduction in the post-meal
iAUC for glucose and a 20% reduction in post-meal insulin response for the 10 volunteers in the study. No severe adverse effects
were reported or observed during the study. As of December 2019 we have been party to the completion of several additional clinical
trials all supported by Clinical.trials.gov. and we are publishing to secure a standing and to confirm the integrity of the data.
In the first half of 2020 we anticipate the announcement of the phase 2 exploratory trial for our pivitol phase 3. This is anticipated
to confirm the safety and efficacy for the potential drug filing of the investigative materials.
Licensing Agreement with Advance Pharmaceutical
Company
On June 24, 2011, we entered into a definitive
Licensing and Manufacturing Agreement (the “Agreement”) with Advance Pharmaceutical Company (“Advance Pharmaceutical”),
a Hong Kong-based, privately-held company and a significant stockholder of ours.
Under terms of the Agreement, we will manufacture
and supply product in bulk for Advance Pharmaceutical. Advance Pharmaceutical may be responsible for the packaging, marketing and
distribution of SUGARDOWN™ in Hong Kong, China and Macau. In November 2014, we agreed to expand their marketing agreement
to include 12 additional countries: Korea, Taiwan, Singapore, Thailand, Malaysia, Vietnam, Philippines, Myanmar, Indonesia, Laos,
Brunei and Cambodia. In March 2015, we agreed to expand their marketing agreement to include Japan. Advance Pharmaceutical will
also have rights to develop and manufacture SUGARDOWN™ for commercial sale in these countries, subject to establishment of
quality assurance and quality control standards set forth by us. The Agreement provides that Advance Pharmaceutical will pay royalties
to us for SUGARDOWN™ and related products developed by us and a reduced royalty rate for products based on our intellectual
property and developed by Advance Pharmaceutical. No revenue was generated through this agreement for the years ended December
31, 2019 and 2018, respectively.
Marketing SUGARDOWN®
We believe SUGARDOWN® is a safe and
effective designated US dietary supplement that can help support healthy after-meal blood sugar excursions out of normal ranges
and support a weight management plan by helping to curb appetite if taken before meals. The product is ready for limited market
release and is currently available for distribution in some Asian markets and is available for sale in the U.S. through our product
website, www.sugardown.com.
To date, our US marketing plan for SUGARDOWN®
has been test marketing and to out-license marketing rights to strategic partners in their jurisdictions of expertise. In June
2011, we entered into an agreement with Advance Pharmaceutical Co. Ltd., our Hong Kong-based strategic partner that is also a significant
stockholder of ours, to develop markets for SUGARDOWN® in Hong Kong, China and Macau. (See licensing partnership above)
Overview of Diabetes
Diabetes Mellitus
Diabetes mellitus, known simply as diabetes,
is a chronic metabolic disorder in which a person has abnormally high levels of glucose in the circulating blood. This condition
is caused by a failure of the pancreas to produce sufficient insulin and/or an inability of the body to respond adequately to circulating
insulin. When glucose builds up in the blood instead of going into cells, it can lead to diabetes complications, which include
limb Ischemia and neuropathy, retinopathy, kidney, cardiovascular and cerebrovascular diseases. According to the Centers for Disease
Control and Prevention (CDC), diabetes affected approximately 30.3 million people in the United States in 2017. The estimated cost
of diabetes in the United States alone is $245 billion, according to a study commissioned by the American Diabetes Association
entitled, Economic Costs of Diabetes in the U.S. in 2012.
Pre-Diabetes
Pre-diabetes is the state in which a person
has higher than normal blood glucose level, but not high enough to be diagnosed with diabetes. While in this range between normal
and diabetic, patients are at risk for not only developing Type 2 diabetes, but also for cardiovascular complications. According
to the CDC, pre-diabetes affected an estimated 84 million Americans in 2017.
Diabetes Mellitus is categorized into three
general areas:
Type 1 diabetes: results from the
body’s failure to produce insulin, and presently requires the person to inject insulin. Only 5-10% of people with diabetes
have this form of the disease. It is considered an auto-immune disease, since the body’s immune system attacks and destroys
insulin producing beta cells in the pancreas.
Type 2 diabetes: results from insulin
resistance by the body’s cells, deficient insulin production by the Pancreas or a combination of both. Insulin resistance
is a condition in which the cells in the body ignore or have become desensitized to insulin.
Gestational diabetes: is determined
when pregnant women, who have never had diabetes before, have a high blood glucose level during pregnancy. It may precede development
of Type 2 diabetes and affects approximately 4% of all pregnant women.
People with Type 2 and Type 1 diabetes
generally manage their blood glucose level on a meal-to-meal basis. High levels of glucose in the bloodstream for prolonged periods
can lead to complications of diabetes caused by reduced oxygen supply and nerve tissue damage to eyes, kidney, brain, heart and
limbs.
Standard therapies for diabetes include
physician-recommended exercise and diet, oral hypoglycemic drugs such as Metformin for Type 2 diabetics, and insulin injection
regimens for Type 1 diabetics. The objective of each is to maintain a daily blood glucose level range recommended by a physician.
Overview of Hypoxia
Hypoxic conditions are detrimental to maintaining
normal functionality in all living tissues. In mammals, red blood cells (RBCs) deliver oxygen throughout the body using red blood
cell contained (RBC) hemoglobin, a protein responsible for carrying and releasing oxygen to the body’s tissues. Under normal
conditions, approximately 98% of oxygen is delivered by hemoglobin in the RBCs, while less than two percent is dissolved in the
plasma, the fluid part of the blood.
As the heart pumps blood, RBCs take up
oxygen in the lungs and carry it to various parts of the body. Blood travels through progressively smaller blood vessels to the
capillaries, some of which are so narrow that RBCs can only pass through them in single file. Most of the oxygen release occurs
in the capillaries. Oxygen depleted RBCs return to the lungs to be reloaded. Adequate blood flow, pressure and RBC counts are crucial
to this process. Hypoxia, or oxygen deprivation, even for several minutes, can result in cell damage, organ dysfunction and, if
prolonged, death.
The causes of inadequate tissue oxygenation
generally can be classified into three major categories:
Ischemia: inadequate RBC flow for
tissue oxygenation. Ischemia may be caused by obstructed or constricted blood vessels and can lead to stroke, heart attack or other
organ or tissue dysfunction.
Cardiopulmonary failure: impaired
function of the heart or lungs. Cardiopulmonary failure may be caused by the inability of the heart to pump sufficient quantities
of blood to meet the needs of the tissues or the failure of the lungs to oxygenate blood adequately.
Anemia: insufficient RBCs in circulation.
This condition can be caused by chronic disorders affecting RBCs functionality or production like chemotherapy and radiation for
treatment of cancer, or blood borne diseases like bone marrow diseases. Anemia may be also caused by acute blood loss from accidental
injury or surgery.
The standard therapy for acute anemia resulting
from blood loss is infusion of RBCs mainly from supplies of donated blood. For prophylactic or long-term treatment of anticipated
or chronic anemia, medications that stimulate the creation of new RBCs are frequently used.
Presently, there is no substitute for human
blood to deliver oxygen to the body; and transfusions involve certain risks and limitations. Despite the effort by blood banks
around the world to screen the blood supply for HIV, hepatitis and other blood borne diseases, there is a continuing risk of an
unsafe blood supply in many parts of the world; donated blood continues to carry the risk of disease transmission.
Blood compatibility and handling and storage
requirements and limitations limit the use of RBCs transfusions to hospital environment only. Shortages of certain types of blood
thus occur due to seasonal factors or disasters. Since RBCs’ oxygen-delivering capacity breaks down with storage (approximately
75% capacity remains after eight days of storage) their shelf-life is less than 42 days, limiting the ability for significant stockpiles
of RBCs. In addition, for ischemic conditions due to constricted blood vessels where normal passage of RBCs is restricted or due
to impaired heart or lung function, RBC transfusions are generally not effective.
Business Strategy
Our business strategy primarily consists
of the following:
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to advance our leading clinical stage drug candidates by the appropriate resources both inhouse and out-licensing; BTI-320, BTI-410, and IPOXYN/OXYFEX through staged regulatory approvals in the United States and the European Union and, if successful, to commercialize BTI-320 and BTI-410 either on our own or with one or more strategic partners in the U.S. and/or outside of the U.S.; and
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to drive brand awareness and increase sales of SUGARDOWN® in North America and globally in 2020 and beyond and to further study the potential beneficial characteristics of SUGARDOWN®.
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We intend to define and implement with
appropriate resource a clinical development programs that add value to our business in the shortest period of time possible and
to seek strategic partners when a program becomes advanced and requires additional resources. We intend to continue focusing our
expertise and resources, in Asia for the moment, to develop novel formulations, and to leverage development partnerships to apply
our complex carbohydrate chemistry and the leverage of peptide therapeutic design in other medical indications. We may seek to
enter into licensing, co-marketing, or co-development agreements across different geographic regions, in order to avail ourselves
of the marketing expertise of one or more seasoned marketing and/or pharmaceutical companies. Our strategy is to leverage considerable
industry experience, expertise in complex carbohydrate chemistry, specific peptide therapeutic discovery and development and clinical
development experience to continue to identify, develop and commercialize product candidates with strong market potential that
can fulfill unmet medical needs in the treatment of diabetes and diabetes related complications. We plan to further develop new
and proprietary drug candidates and combinations to provide improved efficacy and safety by using novel development pathways specific
to each candidate.
A core part of our strategy relies upon
creating safe and efficacious drug formulations that can be administered as stand-alone therapies or in combination with existing
medications. We believe our novel approach of creating safe and efficacious drug formulations that can be combined with existing
therapies and potentially deliver valuable products in areas of high unmet medical needs. We intend to assemble a new scientific
medical advisory board consisting of scientists and medical people with both academic and corporate research and development experience
that will provide leadership and counsel in the medical, scientific, technological and regulatory aspects of our current and future
projects.
We believe that our uniquely experienced
drug development leadership provides us with a significant competitive advantage in designing highly efficient clinical programs
to deliver valuable products in areas of high unmet medical needs.
Key Strengths
We believe that our key differentiating
elements include:
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Focus on novel therapeutic opportunities provided by carbohydrates: We are focused on development of carbohydrate-based compounds to safely and cost effectively better manage blood glucose and diabetes related complications. As a result of its structural complexity, carbohydrates have not received as much scientific attention as nucleic acids and proteins. Carbohydrate-based therapeutics have proven to be efficacious and safe, while elimination many common side effects from other types of drugs.
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Focus on novel therapeutic opportunities provided by Peptides in this area: We are focused on development of peptide-based compounds to better manage blood glucose and diabetes related complications. Peptides are recognized for being highly selective and efficacious and, at the same time, relatively safe and well tolerated. In general, peptides are selective and efficacious signaling molecules and given their attractive pharmacological profile and intrinsic properties, peptides represent an excellent starting point for the design of novel therapeutics and their specificity has been seen to translate into excellent safety, tolerability, and efficacy profiles in humans.
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Experienced management: Carl Rausch (key consultant) is a leader in the field of oxygen therapeutic products and through the years was responsible for the only manufactured, tested, and approved protein materials in this field as supported through publications and product approvals in Russia and South Africa for the human version and for the Veterinary world in the European Union and for the US FDA.
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Products are differentiated from other investigative materials and address significant unmet needs: Our three lead product candidates, BTI-320, BTI-410 and IPOXYN, are well-differentiated diabetes-related formulations that address important unmet medical needs. Diabetes prevention and management, including excessive blood sugar management, regeneration of insulin production and control, and treatment of diabetes related complications, remains a critical area of unmet need. Increasingly, patients, physicians and the media are highlighting the deficiencies of current diabetes-related therapies and the growing population of affected individuals.
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A multiple product portfolio with a balanced risk reward profile: We have three lead product categories and a dietary supplement product currently generating a small revenue with what we believe can lead to significant growth prospects given marketing and sales support. We out licensing a peptide therapeutic and peptide therapeutic discovery and development in the pipeline. Accordingly, we believe that the revenues we generate from our advanced products and drug candidates will offset costs related to developing our existing and future pipeline.
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Efficient development strategy: We believe that our strategy of development of the patented dietary supplement in parallel with BTI-320 will shorten the approval process of BTI-320 by providing a broad history of safety. We believe that outsourced investigative material with a Phase II study of BTI-410 in type 1 patients with kidney transplants will provide a shortened path to approval based on an orphan drug approval pathway. We believe that the FDA’s 505(b)(2) regulatory pathway for IPOXYN and its veterinary analog, OXYFEX, lowers the risk of drug development of these drug candidates and fits for transformative and translational development from animal to man. Our strategy of combining these drugs, once approved, with novel delivery methods and pharmaceutical compositions is expected to significantly reduce clinical development time and costs and lowers regulatory risks, while delivering valuable products in areas of high unmet need to the market place.
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Subsidiaries
Effective January 1, 2018, we acquired
CureDM Group Holdings, LLC as a wholly owned subsidiary. This provides for our exclusive world-wide rights to the peptide composition
and uses for both type 1 and type 2 diabetes. Due to our limited capital and management resources, we have not pursued the development
of this asset. We are uncertain when any development of this asset will occur if at all.
Employees
We have no full time employees. We employ
consultants to assist with the operation of the business as needed.
Facilities
The Company leased office space at 354
Merrimack Street, Lawrence, MA 01843 on a month to month basis. The Company ended the lease on August 31, 2019. No further obligation
exists.
Manufacturing
We currently contract with a third-party
to manufacture BTI-320 and SUGARDOWN® in the United States at a Good Manufacturing Practices (GMP) compliant facility. We are
evaluating whether to gain access to a pilot-scale manufacturing facility with adequate capacity to produce IPOXYN for clinical
trials and market introduction following FDA/European Medicines Evaluation Agency (EMEA) approval, but no agreement for such access
is currently in place. We intend to only utilize manufacturing facilities that we believe are fully compliant with GMP as required
by the regulatory authorities in Europe or the United States. We in the evaluating a contract with Chinese Peptide Company (CPC)
in Hangzhou, China to manufacture the Active Pharmaceutical Ingredient (API) of BTI-410 and the formulation, fill and finish will
be completed through third-party suppliers in the US. CPC and all other contractors are fully FDA compliant and are required to
pass regular FDA inspections.
Environmental Regulation
Pharmaceutical research and development
involves the controlled use of hazardous materials. Biotechnology and pharmaceutical companies must comply with laws and regulations
governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials,
biological specimens and wastes. We do not anticipate building in-house research, development or manufacturing facilities, and,
accordingly, do not expect to have to comply directly with environmental regulation. However, our contractors and others conducting
research, development or manufacturing activities for us may be required to incur significant compliance cost, and this could in
turn could increase our expense or delay our completion of research or manufacturing programs.
Lack of Major Customers
To date we have had limited sales of our
products in the United States. We have one significant customer, Advance Pharmaceutical Co. Ltd., the Hong Kong-based pharmaceutical
company (alliance partner), a significant stockholder of ours, for distribution of SUGARDOWN® in Hong Kong, China and
Macau. These authorized territories were recently expanded to include Korea, Taiwan, Singapore, Thailand, Malaysia, Vietnam, Philippines,
Myanmar, Indonesia, Laos, Brunei, Cambodia and Japan. Our director, Conroy Chi-Heng Cheng, is also a director of Advance Pharmaceutical
Co. Ltd.
Intellectual Property
Patents, trademarks, trade secrets, technological
know-how and other proprietary rights are important to our business. Our patent portfolio is directed to four main areas, peptide
composition of matter and uses, mannans, hemoglobin composition and methods of use, and taste masking in chewable tablets. The
active ingredient in BTI-410 is a peptide derived from a human protein. It is synthesized chemically and not extracted or purified
from a biologic source. It is stabilized and all compositions and modifications are patent protected. The uses of this peptide
for the treatment of type 1 and type 2 diabetes is also protected. The active ingredient in BTI-320 is a mannan, and BTI-320 is
a proprietary fractionated mannan. Mannans are a group of plant-derived complex carbohydrates, or polysaccharides, which consist
mainly of polymers of the sugar mannose. Some of the plants from which mannans are derived are guar, locust bean, fenugreek, barley
and konjac. Published studies on mannans have shown that they possess significant biological activity ranging from inhibition of
cholesterol absorption to promoting wound healing and inhibiting tumor growth. Studies have also shown that consuming mannans before
a meal may lessen the rise in blood glucose after the meal. Therefore, supplementation with mannans may be beneficial in the management
of diabetes by supporting healthy blood sugar levels. We seek to strengthen our patent portfolio and increase market exclusivity
as we progress in our clinical development process. During the clinical development and commercial scale up of our products, we
anticipate additional intellectual property may be realized from the creation of novel therapeutic formulations, methods of manufacture,
methods of use and novel quality control assays for each of our products. Our intellectual property estate directed to our technology
and products consists of four international patent applications and their related national stage applications entitled: Composition
of Purified Soluble Mannans for Dietary Supplements and Methods of Use Thereof (W02012/061675); Hemoglobin Compositions and Methods
of Use (WO2012/78850); Encapsulation of Pharmaceuticals for Taste Masking in Chewable Tablets (PCT/US14/27243); and Compositions
for Inhibiting Amylase Mediated Hydrolysis of Alpha (1-4) Linked Glucose Polymers (WO PCT/US16/31120). The international patent
application entitled Hemoglobin Compositions and Methods of Use and its related national stage filings, which were assigned to
us by Dr. Platt, are directed to our IPOXYN and OXYFEX technologies. National patent applications related to Hemoglobin Compositions
have been recently allowed in the jurisdictions of Europe and China. Additional Hemoglobin Composition applications are pending
in the United States and Hong Kong. The international patent application entitled Composition of Purified Soluble Mannans for Dietary
Supplements and Methods of Use Thereof and its related national stage filings, which were assigned to us by Dr. Platt, are directed
to our BTI-320 and SUGARDOWN® technologies. National patent applications related to the Purified Soluble Mannans have
been recently allowed in China and Hong Kong. Additional Purified Soluble Mannans applications are pending in the United States,
Korea and Europe. The international application entitled: Compositions for Inhibiting Amylase Mediated Hydrolysis of Alpha (1-4)
Linked Glucose Polymers will enter its national phase in November of 2017. Dr. Platt also has assigned the trademarks IPOXYN (U.S.
Trademark Application No. 77754473) and Avanyx Therapeutics™ (U.S. Trademark Application No. 77806120) to us. Dr. Platt and
our former President Mr. Tassey have assigned the trademark SUGARDOWN® (U.S. Trademark Reg. No. 3,955,414, registered May 3,
2011) to us.
BTI-410 is protected under the following
Issued Patents:
Methods and Pharmaceutical Compositions for Treating Type I
Diabetes Mellitus and Other Conditions (11/367,682 8,211,430 U.S.); Peptides, Derivatives and Analogs Thereof, and Methods of Using
Same (7,393,919 (11/441,491 U.S.) Peptides, Derivatives and Analogs Thereof, and Methods of Using Same (7,714,103 (12/121,123)
and 7,989,415 (12/635,053) and 8,383,578 (13/168,461) and 8,829,158 (13/745706) and 2609667 Canada, and 2295066 Europe, 2295066
France, 60 2006 048 912.9 Germany, 2295066 Great Britain, 2295066 Ireland, 252532 India. Methods and Therapies Relating to Islet
Cell Neogenesis (8,785,400 11/943,991 U.S. Compositions and Methods of Using ProIslet Peptides and Analogs Thereof 8816047 (12/674,573)
U.S. and 2698100 Canada and 2008292913 Australia, 200880114452.5 (08798997.6) Europe, 2193142 China, France, Germany, Great Britain,
Ireland, Italy, Netherlands, Spain, Switzerland, HK1144823 (10111411.6) Hong Kong, and 5960661 Japan
The following patents are also pending or granted for BTI-410:
Compositions and Methods of Using ProIslet Peptides and Analogs
Thereof, 204183 Israel, 233024 Israel Div, PI2010000893 Malaysia, 308103 Mexico, 337147 Mexico, 159273 Singapore, 200880114452.5
China; Peptides, Derivatives and Analogs Thereof, and Methods of Using Same, 1926/MUMNP/2012 India
It is not economically practicable to determine
in advance whether our products, product components, manufacturing processes or the intended uses for our products infringe the
patent rights of others. It is likely that, from time to time, we will receive notices from others of claims or potential claims
of intellectual property infringement or we may be called upon to defend a customer, vendee or licensee against such third party
claims. Responding to these kinds of claims, regardless of merit, could consume valuable time, result in costly litigation or cause
delays, all of which could harm our business.
Responding to these claims could also require
us to enter into royalty or licensing agreements with third parties claiming infringement. Such royalty or licensing agreements,
if available, may not be available on terms acceptable to us.
Government Regulation
New drug approval for clinical use requires
extensive research, manufacturing, pre-clinical and clinical studies, packaging, labeling, advertising, promotion, export and marketing,
among other things. BTI-320, BTI-410 and IPOXYN will be subject to extensive regulation by governmental authorities in the United
States and other countries. As a therapeutic drug administered by subcutaneous injection, BTI-410 will be regulated as a drug and
will require extensive safety and efficacy studies for regulatory approval before it may be commercialized As a therapeutic product
administered by intravenous infusion IPOXYN will be regulated as a drug and will require extensive safety and efficacy studies
for regulatory approval before it may be commercialized.
Drug Approval Process
In the United States, IPOXYN is a new chemical
entity and will require FDA approval. BTI-320, as a drug candidate, will also require FDA approval. Before final approval for marketing
for either IPOXYN or BTI-320 could occur, the following steps must be completed: preclinical safety animal studies, GMP manufacturing,
submission of Investigational New Drug, or IND application for extensive clinical trials to show proof of concept to significant
health benefit. BTI-410 has achieved Investigational New Drug status and based on the phase 1a and Phase Ib safety profile, will
proceed to Phase II study in type 2 diabetes, and Phase II study in type 1 diabetes patients with kidney transplants pending the
establishment of protocols and FDA regulatory submission criteria.
After approval and during clinical studies
the FDA can put the drug on “clinical hold.” In such case, the IND sponsor and the FDA must resolve any outstanding
concerns before the use of the drug can proceed. The FDA may stop marketing, or clinical trials, or particular types of trials,
by imposing a clinical hold because of safety concerns and potential risk to patients.
Clinical trials involve the administration
of the investigational products to healthy volunteers or patients under the supervision of a qualified principal investigator consistent
with an informed consent. Each clinical protocol is submitted, reviewed and approved by an independent Institutional Review Board,
or IRB, or Ethical Committee (EC) at a participating hospital or clinical site, at which the study will be conducted. The IRB/EC
will consider, among other things; ethical factors, safety to human subjects and the possible liability of the institution.
Clinical trials required for FDA approval
typically are conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the drug
into human subjects, the drug is usually tested for safety or adverse effects, dosage tolerance, absorption, metabolism, distribution,
excretion and pharmacodynamics.
Phase II clinical trials usually involve
studies in a limited patient population to evaluate the efficacy of the drug for specific, targeted indications, determine dosage
tolerance and optimal dosage and identify possible adverse effects and safety risks.
Phase III clinical trials generally further
evaluate clinical efficacy and test further for safety within an expanded patient population and at multiple clinical sites.
After FDA approval, Phase IV clinical trials
may be conducted to gain additional experience from the treatment of patients in the intended therapeutic indication. If the FDA
approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use
the data from these clinical trials to meet all or part of any Phase IV clinical trial requirement. These clinical trials are often
referred to as Phase III/IV post-approval clinical trials.
The results of the pre-clinical studies
and clinical trials, together with detailed information on the manufacture and composition of the product, are submitted to the
FDA in the application requesting approval to market the product. The FDA may delay approval of any product submitted by the Company.
The FDA may limit the indicated uses for which an approval is given.
New Drug Approval for Veterinary Use
The use of new drugs for companion animals
requires the filing of a New Animal Drug Application, or NADA, with and approval by the FDA. The requirements for approval are
similar to those for new human drugs, exclusive of human trials. Obtaining NADA approval often requires safety and efficacy clinical
field trials in the applicable species and disease, after submission of an Investigational New Animal Drug Application, or INADA,
which for non-food animals becomes effective upon acceptance for filing.
Dietary Supplements
We currently offer SUGARDOWN® as
a dietary supplement. We are not required to obtain FDA approval in order to offer SUGARDOWN® in this manner. We are
required to either comply with certain FDA guidelines with respect to certain marketing claims for SUGARDOWN®, or to
file those claims with the FDA. We believe that we comply with those guidelines and have voluntarily filed structural and functional
claims with the FDA.
Pervasive and Continuing Regulation
Any FDA approvals that may be granted will
be subject to continual review, and newly discovered or developed safety or efficacy data may result in withdrawal of products
from marketing. Moreover, if and when such approval is obtained, the manufacture and marketing of our products remain subject to
extensive regulatory requirements administered by the regulatory bodies, including compliance with current Good Manufacturing Practices,
serious adverse event reporting requirements and the FDA’s general prohibitions against promoting products for unapproved
or “off-label” uses.
We are subject to inspection and market
surveillance by the FDA for compliance with these regulatory requirements. Failure to comply with the requirements can, among other
things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or withdrawals of regulatory approvals
and termination of marketing. Any such enforcement action could have a material adverse effect on us. Unanticipated changes in
existing regulatory requirements, state and local work and environmental laws or the adoption of new requirements could also have
a material adverse effect on us.
Foreign Regulation
We will be subject to a variety of regulations
governing clinical trials and sales of our products in the United States and outside the United States. Whether or not FDA approval
has been obtained, approval of a product by the comparable non-U.S. regulatory authorities must be obtained prior to the commencement
of marketing of the product in any country.
The approval process varies from country
to country and can be complicated and time consuming; the time needed to secure approval may be longer or shorter than that
required for FDA approval. For example, the European Union requires approval of a Marketing Authorization Application by the European
Medicines Evaluation Agency. These applications require the completion of extensive preclinical studies, clinical studies and manufacturing
and controls information.
Reimbursement
Our ability to successfully commercialize
our human products also may depend on the extent to which reimbursement of the cost of such products and related treatment will
be approved by the government health administration authorities, private health insurers and other health providers’ organizations.
Significant uncertainty exists as to the reimbursement status of newly approved health care products. As third-party payors are
increasingly challenging the price of medical products, there can be no assurance that adequate reimbursement of the cost will
be available to enable us to maintain price levels sufficient for realization of an appropriate return on its investment.
Recently the public and the federal government
have focused significant attention on reforming the health care system in the United States. A number of health care reform measures
have been suggested, including price controls on therapeutics. Public discussion of such measures is likely to continue, and concerns
about the potential effects of different possible proposals have been reflected in the volatility of the stock prices of companies
in the health care and related industries.
Item 1A. Risk Factors.
The following important factors, and the
important factors described elsewhere in this report or in our other filings with the SEC, could affect (and in some cases have
affected) our results and could cause our results to be materially different from estimates or expectations. The following and
these other risks could materially and adversely affect our business, operations, results or financial condition.
RISKS RELATED TO OUR BUSINESS
We have incurred significant losses
since our inception and expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
We have incurred recurring operating losses
since inception as we have worked to bring its SUGARDOWN® product to market and develop BTI-320 and IPOXYN. Management
expects such operating losses will continue until such time that substantial revenues are received from SUGARDOWN® or
the regulatory and clinical development of BTI-320 or IPOXYN is completed. The Company has approximately $6,700 cash on hand at
December 31, 2019. Management is currently seeking additional capital through private placements and public offerings of its common
stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financings as well
as collaboration activities in order to fund our operations. The Company was advanced $50,000 through the issuance of 10% notes
payable to a related party during the first quarter of 2019. The Company was advanced $339,144 during April 2019, from two related
parties. The Company was advanced $50,000 from a related party during May 2019. During July, the Company was advanced $402,027
from two related parties. During October and November 2019, the Company was advanced an additional $349,000 from a related party.
In addition, on January 3, 2020, the Company was advanced an additional $250,000 from a related party. Management anticipates that
cash resources will be sufficient to fund our planned operations into the second quarter of 2020. The future of the Company is dependent
upon its ability to obtain continued financing and upon future profitable operations from the partnering, development and clarity
of its new business opportunities. There can be no assurance that we will be successful in accomplishing our objectives. Without
such additional capital, we may be required to cease operations.
To stay in business, we will need to raise
substantial additional capital through public or private sales of our securities, debt financing or short-term bank loans, or a
combination of the foregoing. We anticipate that our expenses will increase substantially as we:
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conduct additional Phase II and Phase III clinical trials of, and further advance, our lead drug candidates BTI-320 and BTI-410, and potentially initiate pre-clinical and clinical trials for IPOXYN;
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continue the research and development of our other drug candidates, including potentially in-licensing other technologies and therapeutics;
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seek to discover and develop additional drug candidates;
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seek regulatory approvals for any drug candidates that successfully complete clinical trials;
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potentially establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any products for which we may obtain regulatory approval; and
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maintain, expand and protect our intellectual property portfolio.
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We believe we have developed a viable plan
to continue as a going concern. However, the plan relies upon our ability to obtain additional sources of capital and financing.
If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient
to satisfy our capital needs, we may be required to cease operations.
To become and remain profitable, we must
succeed in developing and commercializing products that generate significant income. This will require us to be successful in a
range of challenging activities, including completing preclinical testing and clinical trials of our drug candidates, discovering
additional drug candidates, obtaining regulatory approval for these drug candidates manufacturing, marketing and selling any products
for which we may obtain regulatory approval, and establishing and managing our collaborations at various stages of each candidate’s
development. We are only in the preliminary stages of many of these activities. We may never succeed in these activities and, even
if we do, may never generate income that is significant enough to achieve profitability.
Because of the numerous risks and uncertainties
associated with pharmaceutical and dietary supplement product development, we are unable to accurately predict the timing or amount
of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the U.S. Food and Drug Administration,
or FDA, or the European Medicines Agency, or EMA, to perform studies in addition to those currently expected, or if there are any
delays in completing our clinical trials or the development of any of our drug candidates, our expenses could increase and revenue
could be further delayed.
Even if we do achieve profitability, we
may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable
would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research
and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company
could also cause you to lose all or part of your investment.
We have a limited operating history,
which makes it difficult to evaluate our current business and future prospects.
We are a company with limited operating
history, and our operations are subject to all of the risks inherent in establishing a new business enterprise. The likelihood
of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered
in connection with the formation of a new business, the development of new technologies or those subject to clinical testing, and
the competitive and regulatory environment in which we will operate. Although we have made initial sales of our SUGARDOWN®
product as a dietary supplement and, while we expect to continue selling or licensing that product, we have no other products currently
available for sale, and none are expected to be commercially available before 2021, if at all. We may never obtain FDA or EMA approval
of our products in development and, even if we do so and are also able to commercialize our products, we may never generate revenue
sufficient to become profitable. Our failure to generate revenue and profit would likely cause our securities to decrease in value
or become worthless.
We will require additional financing
to implement our business plan, which may not be available on favorable terms or at all, and we may have to accept financing terms
that would place restrictions on us.
We presently have an immediate need for
capital, and if we do not raise capital, we may be forced to curtail operations and our business might fail. We anticipate that
our cash resources will be sufficient to fund our planned operations on a month to month basis until revenue from Asia sales in
2020. Even if we are able to raise near term capital, we will need to continue to conduct significant research, development, testing
and regulatory compliance activities for IPOXYN, BTI-410 and BTI-320 that, together with projected general and administrative expenses,
we expect will result in operating losses for the foreseeable future. We may not generate sales or other revenue from SUGARDOWN®
to fund operations and will remain dependent on outside sources of financing until that time and we will need to raise funds from
additional financing. We may not be able to obtain equity or debt financing on acceptable terms or at all to implement our growth
strategy. As a result, adequate capital may not be available to finance our current growth plans, take advantage of business opportunities
or respond to competitive pressures. If we are unable to raise additional funds, we may be forced to curtail or even abandon our
business plan.
Until such time, if ever, as we can generate
substantial product income, we expect to finance our cash needs through a combination of equity offerings, debt financings and
license and collaboration agreements. To the extent that we raise additional capital through the sale of equity or convertible
debt securities, the ownership interest of existing stockholders will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect the rights of common stockholders. In addition, the terms of any future
financings may impose restrictions on our right to declare dividends or on the manner in which we conduct our business. Debt financing
and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability
to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or making acquisitions
or significant asset sales.
If we raise additional funds through collaborations,
strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not
be favorable to us and/or that may reduce the value of our common stock.
Our products are based on novel,
unproven technologies.
Our drug candidates in development are
based on novel, unproven technologies, including the use of proprietary carbohydrate compounds and proprietary peptides alone and
in combination with FDA approved drugs currently used in the treatment of diabetes, ischemia, anemia and trauma and other diseases.
Peptides are straightforward to synthesize but are challenging to obtain good pharmacokinetic levels without administering relatively
high doses. Despite the strong safety profile of peptides, they are subject to injection site reactions and discomfort in administration
leading to poor compliance. Carbohydrates are difficult to synthesize, and we may not be able to synthesize carbohydrates that
would be usable as delivery vehicles for the anti-hypoxia drugs we are working with or other therapeutics we intend to develop.
Although we have completed certain animal and human studies that we believe were successful, pre-clinical results in animal studies
are not necessarily predictive of outcomes in subsequent human clinical trials. Clinical trials are expensive, time- consuming
and may not be successful. They involve the testing of potential therapeutic agents, or effective treatments, in humans, typically
in three phases, to determine the safety and efficacy of the products necessary for an approved drug. Many products in human clinical
trials fail to demonstrate the desired safety and efficacy characteristics. Even if our products progress successfully through
initial or subsequent human testing, they may fail in later stages of development. We may engage others to conduct our clinical
trials, including clinical research organizations and, possibly, government-sponsored agencies. These trials may not start or be
completed as we forecast, or may not achieve desired results.
Clinical drug development involves
a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or
ultimately be unable to complete, the development and commercialization of our drug candidates.
All our drug candidates are unproven and
their risk of failure is high. It is impossible to predict when or if our drug candidates will receive regulatory approval or,
in the case of IPOXYN, prove effective and safe in humans. Before obtaining marketing approval from regulatory authorities for
the sale of any drug candidate, we must conduct extensive clinical trials and, in the case of IPOXYN, first complete preclinical
development, to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult
to design and implement, can take many years to complete and is uncertain as to outcome. A failed clinical trial can occur at any
stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical
trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data
are often susceptible to varying interpretations and analyses, and many companies that have believed their drug candidates performed
satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
We may experience numerous unforeseen events
during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize
our drug candidates, including:
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
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clinical trials of our drug candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
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the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;
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our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
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we may have to suspend or terminate clinical trials of our drug candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;
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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
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the cost of clinical trials of our drug candidates may be greater than we anticipate;
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the supply or quality of our drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate;
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our drug candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate the trials; and
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regulators may revise the requirements for approving our drug candidates, or such requirements may not be as we anticipate.
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If we are required to conduct additional
clinical trials or other testing of our drug candidates beyond those that we currently contemplate, if we are unable to successfully
complete clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are
only modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval for our drug candidates;
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not obtain marketing approval at all, which would seriously impair our viability;
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obtain marketing approval in some countries and not in others;
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obtain approval for indications or patient populations that are not as broad as we intend or desire;
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obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
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be subject to additional post-marketing testing requirements; or
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have the product removed from the market after obtaining marketing approval.
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We are planning to initiate Phase II clinical
trials for BTI-410, to continue Phase II clinical trials and initiate Phase III clinical trials for BTI-320. In addition, subject
to securing adequate funding, we could potentially initiate pre- clinical studies of IPOXYN. However, we cannot provide any assurance
that we will successfully initiate or complete those planned trials and be able to initiate any other clinical trials for any of
our drug candidates. The results of our clinical trials could yield negative or ambiguous results. Since BTI-320 and BTI-410 are
our most advanced drug candidates, such results could adversely affect future development plans, collaborations and our stock price.
Our product development costs will increase
if we experience delays in clinical testing or marketing approvals. We do not know whether any of our preclinical studies or clinical
trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical
or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our drug
candidates or allow our competitors to bring products to market before we do, potentially impairing our ability to successfully
commercialize our drug candidates and harming our business and results of operations.
A fast track, breakthrough therapy
or other designation by the FDA may not actually lead to a faster development or regulatory review or approval process.
We may seek fast track, breakthrough therapy
or similar designation for some of our drug candidates. If a drug is intended for the treatment of a serious or life-threatening
condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply
for FDA fast track designation. The FDA has broad discretion whether or not to grant this designation, and even if we believe a
particular drug candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if
we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional
FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data
from our clinical development program.
Additionally, we may in the future seek
a breakthrough therapy designation for some of our product candidates that reach the regulatory review process. A breakthrough
therapy is a drug candidate that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening
disease or condition, and that, as indicated by preliminary clinical evidence, may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
Drugs designated as breakthrough therapies by the FDA are eligible for accelerated approval and increased interaction and communication
with the FDA designed to expedite the development and review process.
As with fast track designation, designation
as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets
the criteria for designation as a breakthrough therapy, the FDA may disagree and may determine not to grant such a designation.
Even if we receive a breakthrough therapy designation for any of our product candidates, the designation may not result in a materially
faster development process, review or approval compared to conventional FDA procedures. Further, obtaining a breakthrough therapy
designation does not assure or increase the likelihood of the FDA’s approval of the applicable product candidate. In addition,
even if one or more of our product candidates qualifies as a breakthrough therapy, the FDA could later determine that those products
no longer meet the conditions for the designation or determine not to shorten the time period for FDA review or approval.
In addition, we may seek to avail ourselves
of the FDA’s 505(b)(2) approval procedure where it is appropriate to do so. Section 505(b)(2) of the Federal Food, Drug,
and Cosmetic Act permits an applicant to file a new drug application (or NDA) with the FDA where at least some of the information
required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right
of reference. The applicant may rely upon published literature and the FDA’s findings of safety and effectiveness based on
certain preclinical testing or clinical studies conducted for an approved product. The FDA may also require companies to perform
additional studies or measurements to support the change from the approved product. If this approval pathway is not available to
us with respect to a particular formulation or product, or at all, the time and cost associated with developing and commercializing
such formulations or products may be prohibitive and our business strategy would be materially and adversely affected.
We rely on third parties to conduct
our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion
of such trials.
We currently use third-party clinical research
organizations, or CROs, to conduct our planned clinical trials and do not plan to independently conduct clinical trials of our
other drug candidates. We rely on third parties, such as CROs, clinical data management organizations, medical institutions and
clinical investigators, to conduct and manage our clinical trials. These agreements might terminate for a variety of reasons, including
a failure to perform by the third parties. If we need to enter into alternative arrangements, that would delay our product development
activities.
Our reliance on these third parties for
research and development activities reduces our control over these activities but does not relieve us of our responsibilities.
For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational
plan and protocols for the trial. Moreover, the FDA requires us to comply with regulatory standards, commonly referred to as good
clinical practices, or GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported
results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Other
countries’ regulatory agencies also have requirements for clinical trials with which we must comply. We also are required
to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov,
within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, these third parties may also
have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry
out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements
or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our drug candidates
and will not be able to, or may be delayed in our efforts to, successfully commercialize our drug candidates.
We also expect to rely on other third parties
to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay
clinical development or marketing approval of our drug candidates or commercialization of our products, producing additional losses
and depriving us of potential product revenue.
If we experience delays or difficulties
in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue
clinical trials for our drug candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate
in these trials as required by the FDA or similar regulatory authorities outside the United States, such as the EMA. In addition,
some of our competitors have ongoing clinical trials for drug candidates that treat the same indications as our drug candidates,
and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’
drug candidates.
Patient enrollment is affected by other factors including:
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the severity of the disease under investigation;
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the patient eligibility criteria for the study in question;
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the perceived risks and benefits of the drug candidate under study;
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the efforts to facilitate timely enrollment in clinical trials;
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our payments for conducting clinical trials;
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the patient referral practices of physicians;
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the ability to monitor patients adequately during and after treatment; and
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the proximity and availability of clinical trial sites for prospective patients.
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We are unable to forecast with precision
our ability to enroll patients. Our inability to enroll a sufficient number of patients for our clinical trials would result in
significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials
may result in increased development costs for our drug candidates, which would cause the value of our company to decline and limit
our ability to obtain additional financing.
If serious adverse or unacceptable
side effects are identified during the development of our drug candidates or we observe limited efficacy, we may need to abandon
or limit our development of some of our drug candidates.
If our drug candidates are associated with
undesirable side effects in clinical trials, have limited efficacy or have characteristics that are unexpected, we may need to
abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other
characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. We believe our results to date
suggest an acceptable safety profiles at their respective stages of development. However, many compounds that initially showed
promise in early stage testing for treating diabetes and inflammatory diseases have later been found to cause side effects that
prevented further development of the compound.
Even if any of our drug candidates
receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors
and others in the medical community necessary for commercial success.
Even if any of our drug candidates receives
marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and
others in the medical community. For example, current diabetes treatments are well established in the medical community, and physicians
may continue to rely on these treatments. In addition, many new drugs have been recently approved and many more are in the pipeline
for the same diseases for which we are developing our drug candidates. If our drug candidates do not achieve an adequate level
of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance
of our drug candidates, if approved for commercial sale, will depend on a number of factors, including:
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their efficacy, safety and other potential advantages compared to alternative treatments;
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our ability to offer them for sale at competitive prices;
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their convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the strength of marketing and distribution support;
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the availability of third-party coverage and adequate reimbursement for our drug candidates;
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the prevalence and severity of their side effects;
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any restrictions on the use of our products together with other medications;
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interactions of our products with other medicines patients are taking; and
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inability of certain types of patients to take our products.
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If we are unable to address and overcome
these and similar concerns, our business and results of operations could be substantially harmed.
If we are unable to establish effective
sales, marketing and distribution capabilities or enter into agreements with third parties with such capabilities, we may not be
successful in commercializing our drug candidates if and when they are approved.
We do not have a sales or marketing infrastructure
and have limited experience in the sale, marketing or distribution of our products. To achieve commercial success for any product
for which we obtain marketing approval, we will need to successfully establish and maintain relationships with third parties to
perform sales and marketing functions, such as Advance Pharmaceutical.
In the future, we may build a focused sales
and marketing infrastructure to market or co-promote some of our drug candidates in the United States and potentially elsewhere.
There are risks involved with establishing our own sales, marketing and distribution capabilities. For example, recruiting and
training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a drug candidate
or dietary supplement for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for
any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment
would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize
our products on our own include:
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our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or educate physicians on the benefits of our products;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
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unforeseen costs and expenses associated with creating an independent sales and marketing organization; and
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inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies.
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Currently, we rely on third parties to
sell, market and distribute our drug candidates. We may not be successful in entering into, or maintaining, arrangements with such
third parties or may be unable to do so on terms that are favorable to us. In addition, our product revenues and our profitability,
if any, may be lower if we rely on third parties for these functions than if we were to market, sell and distribute any products
that we develop ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary
resources and attention to sell and market our products effectively. If we do not establish sales, marketing and distribution capabilities
successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our drug candidates.
If we are unable to convince physicians
as to the benefits of our proposed products, we may incur delays or additional expense in our attempt to establish market acceptance.
Broad use of our proposed products may
require physicians to be informed regarding our proposed products and the intended benefits. Inability to carry out this physician
education process may adversely affect market acceptance of our proposed products. We may be unable to timely educate physicians
regarding our proposed products in sufficient numbers to achieve our marketing plans or to achieve product acceptance. Any delay
in physician education may materially delay or reduce demand for our products. In addition, we may expend significant funds toward
physician education before any acceptance or demand for our proposed products is created, if at all.
We face substantial competition,
which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
The development and commercialization of
new drug products, particularly in the diabetes sector, is highly competitive. We face competition with respect to our current
drug candidates, and will face competition with respect to any drug candidates that we may seek to develop or commercialize in
the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There
are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development
of products for the control of blood sugar and the treatment of diabetes generally. Potential competitors also include academic
institutions, government agencies and other public and private research organizations that conduct research, seek patent protection
and establish collaborative arrangements for research, development, manufacturing and commercialization.
A substantial number of the companies against
which we are competing or against which we may compete in the future have significantly greater financial resources, established
presence in the market and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology
industries may result in even more resources being concentrated among a smaller number of our competitors.
Smaller and other early stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
These third parties compete with us in recruiting and retaining qualified scientific, sales and marketing and management personnel,
establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary
to, or necessary for, our programs.
Our commercial opportunity could be reduced
or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less severe side effects,
are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory
approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing
a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases
by insurers or other third-party payors seeking to encourage the use of generic products.
We may be unable to compete in our target
marketplaces, which could impair our ability to generate revenues, thus causing a material adverse impact on our results of operations.
Our reliance on one product and a
limited number of customers for a significant portion of our revenues could materially and adversely affect our results of operations
and liquidity.
During the years ended December 31, 2019
and 2018, all of our revenue was generated by sales and royalties of our SUGARDOWN® product. If we are unable to expand our
customer base through our new marketing efforts, and we are not able to secure additional business from our existing customer or
our sales to this customer decline, our reliance on a limited number of customers may have a material adverse effect on our business,
result of operations, financial condition or liquidity. Furthermore, if we are unable to commercialize any of our pharmaceutical
drug candidates, our reliance on a single product may have a material adverse effect on our business, result of operations, financial
condition or liquidity.
Our success depends upon our ability to retain key executives
and to attract, retain, and motivate qualified personnel, and the loss of these persons could adversely affect our operations and
results.
We are highly dependent on the principal
members of our management, scientific and clinical team, including Carl Rausch, our former Chief Executive Officer and Director.
We have a consulting agreement with Mr. Rausch who is now an advisor to us. We currently have no employees in our Company, we are
otherwise entirely staffed by consultants, each of whom may terminate their employment with us at any time.
The loss of the services of our executive
officers or other key employees/consultants or key members of our scientific or medical advisory boards, could impede the achievement
of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business
strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time
because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully
develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we
may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical
and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel
from universities and research institutions. In addition, we rely and expect to continue to rely to a significant degree on consultants
and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization
strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or
advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain
high quality personnel, our ability to pursue our growth strategy will be limited.
Our lack of operating experience
may cause us difficulty in managing our growth which could lead to our inability to implement our business plan.
We have limited experience in marketing
and the selling of pharmaceutical products. Any growth will require us to expand our management and our operational and financial
systems and controls. If we are unable to do so, our business and financial condition would be materially harmed. If rapid growth
occurs, it may strain our operational, managerial and financial resources.
We will depend on third parties to
manufacture and market our products and to design trial protocols, arrange for and monitor the clinical trials, and collect and
analyze data.
We do not have, and do not now intend to
develop, facilities for the manufacture of any of our products for clinical or commercial production. In addition, we are not a
party to any long- term agreement with any of our suppliers, and accordingly, we have our products manufactured on a purchase-order
basis from one of two primary suppliers. We will need to develop relationships with manufacturers and enter into collaborative
arrangements with licensees or have others manufacture our products on a contract basis. We expect to depend on such collaborators
to supply us with products manufactured in compliance with standards imposed by the FDA and foreign regulators.
In addition, we have limited experience
in marketing, sales or distribution. We currently have an agreement with Advance Pharmaceutical Co. Ltd. to develop markets in
Hong Kong, China and Macau for SUGARDOWN®. In November 2014, we agreed to expand this marketing agreement to include 12 additional
countries: Korea, Taiwan, Singapore, Thailand, Malaysia, Vietnam, Philippines, Myanmar, Indonesia, Laos, Brunei and Cambodia. In
March 2015, we agreed to expand their marketing agreement to include Japan. In May 2014, we entered into a strategic marketing
agreement a leading branding and marketing agency, aimed at driving brand awareness and growing sales of SUGARDOWN® among the
large pre-diabetic population in North America. This agreement was terminated in July 2015. If we develop additional commercial
products, we will need to rely on licensees, collaborators, joint venture partners or independent distributors to market and sell
those products and we may need to rely on additional third parties to market our products.
Moreover, as we develop products eligible
for clinical trials, we contract with independent parties to design the trial protocols, arrange for and monitor the clinical trials,
collect data and analyze data. In addition, certain clinical trials for our products may be conducted by government-sponsored agencies
and will be dependent on governmental participation and funding. Our dependence on independent parties and clinical sites involves
risks including reduced control over the timing and other aspects of our clinical trials.
We are exposed to product liability,
pre-clinical and clinical liability risks which could place a substantial financial burden upon us, should we be sued.
Our business exposes us to potential product
liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations
and products. Such claims may be asserted against us. In addition, the use in our clinical trials of pharmaceutical formulations
and products that our potential collaborators may develop and the subsequent sale of these formulations or products by us or our
potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claim or series
of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.
We currently maintain product liability
insurance for SUGARDOWN®. There is no guarantee that such insurance will provide adequate coverage against our potential liabilities.
Since we do not currently have any FDA-approved products or other formulations, we do not currently have any other product liability
insurance covering commercialized products. We may not be able to obtain or maintain adequate product liability insurance, when
needed, on acceptable terms, if at all, or such insurance may not provide adequate coverage against our potential liabilities.
Furthermore, our current and potential partners with whom we have collaborative agreements or our future licensees may not be willing
to indemnify us against these types of liabilities and may not themselves be sufficiently insured or have sufficient liquidity
to satisfy any product liability claims. Claims or losses in excess of any product liability insurance coverage that may be obtained
by us could have a material adverse effect on our business, financial condition and results of operations.
In addition, we may be unable to obtain
or to maintain clinical trial liability insurance on acceptable terms, if at all. Any inability to obtain and/or maintain insurance
coverage on acceptable terms could prevent or limit the commercialization of any products we develop.
If users of our proposed products
are unable to obtain adequate reimbursement from third-party payers or if new restrictive legislation is adopted, market acceptance
of our proposed products may be limited and we may not achieve revenues.
The continuing efforts of government and
insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of health
care may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers
and collaborative partners and the availability of capital. For example, in certain international markets, pricing or profitability
of prescription pharmaceuticals is subject to government control. In the U.S., given recent federal and state government initiatives
directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely continue to focus on health
care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict
whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could materially
harm our business, financial condition and results of operations.
Our ability to commercialize our proposed
products will depend in part on the extent to which appropriate reimbursement levels for the cost of our proposed formulations
and products and related treatments are obtained by governmental authorities, private health insurers and other organizations,
such as HMOs. Third-party payers are increasingly challenging the prices charged for medical drugs and services. Also, the trend
toward managed health care in the U.S. and the concurrent growth of organizations such as HMOs, which could control or significantly
influence the purchase of health care services and drugs, as well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices for or rejection of our products.
There are risks associated with our
reliance on third parties for marketing, sales and distribution infrastructure and channels.
We have entered into agreements with commercial
partners to engage in sales, marketing and distribution efforts around our products in development. We may be unable to maintain
these third-party relationships, or establish new relationships, on a commercially reasonable basis, if at all. In addition, these
third parties may have similar or more established relationships with our competitors. If we do not enter into or maintain relationships
with third parties for the sales and marketing of our proposed products, we will need to develop our own sales and marketing capabilities.
Furthermore, even if engaged, these distributors may:
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fail to satisfy financial or contractual obligations to us;
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fail to adequately market our products;
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cease operations with little or no notice to us; or
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offer, design, manufacture or promote competing formulations or products.
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If we fail to develop sales, marketing
and distribution channels, we could experience delays in generating sales and incur increased costs, which would harm our financial
results.
We will be subject to risks if we
seek to develop our own sales force.
If we choose at some point to develop our
own sales and marketing capability, our experience in developing a fully integrated commercial organization is limited. If we choose
to establish a fully integrated commercial organization, we will likely incur substantial expenses in developing, training and
managing such an organization. We may be unable to build a fully integrated commercial organization on a cost effective basis,
or at all. Any such direct marketing and sales efforts may prove to be unsuccessful. In addition, we will compete with many other
companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be
unable to compete against these other companies. We may be unable to establish a sufficient sales and marketing organization on
a timely basis, if at all.
RISKS RELATED TO OUR INDUSTRY
We will need regulatory approvals
to commercialize our products as drugs.
If we choose to offer BTI-320, BTI-410,
IPOXYN, or any other product as a drug, we are required to obtain approval from the FDA to sell our products in the U.S. and from
foreign regulatory authorities to sell our products in other countries. The FDA’s review and approval process is lengthy,
expensive and uncertain. Extensive pre-clinical and clinical data and supporting information must be submitted to the FDA for each
indication for each product candidate to secure FDA approval. Before receiving FDA clearance to market our proposed products, we
will have to demonstrate that our products are safe and effective on the patient population and for the diseases that are to be
treated. Clinical trials, manufacturing and marketing of drugs are subject to the rigorous testing and approval process of the
FDA and equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign
statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs
and medical devices. As a result, regulatory approvals can take a number of years or longer to accomplish and require the expenditure
of substantial financial, managerial and other resources. The FDA could reject an application or require us to conduct additional
clinical or other studies as part of the regulatory review process. Delays in obtaining or failure to obtain FDA approvals would
prevent or delay the commercialization of our product candidates, which would prevent, defer or decrease our receipt of revenues.
In addition, if we receive initial regulatory approval, our product candidates will be subject to extensive and rigorous ongoing
domestic and foreign government regulation.
Data obtained from clinical trials
are susceptible to varying interpretations, which could delay, limit or prevent regulatory clearances.
Data already obtained, or in the future
obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that will be obtained from later
pre-clinical studies and clinical trials. Moreover, pre-clinical and clinical data is susceptible to varying interpretations, which
could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical industry have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the
safety and effectiveness of a proposed formulation or product under development could delay or prevent regulatory clearance of
the potential drug, resulting in delays to commercialization, and could materially harm our business. Our clinical trials may not
demonstrate sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our drugs, and
thus our proposed drugs may not be approved for marketing.
Our competitive position depends
on protection of our intellectual property.
Development and protection of our intellectual
property are critical to our business. All of our intellectual property has been invented and/or developed or co-developed by our
former CEO, Dr. David Platt. If we do not adequately protect our intellectual property, competitors may be able to practice our
technologies. Our success depends in part on our ability to obtain patent protection for our products or processes in the U.S.
and other countries, protect trade secrets, and prevent others from infringing on our proprietary rights.
Since patent applications in the U.S. are
maintained in secrecy for at least portions of their pendency periods (published on U.S. patent issuance or, if earlier, 18 months
from earliest filing date for most applications) and since other publication of discoveries in the scientific or patent literature
often lags behind actual discoveries, we cannot be certain that we are the first to make the inventions to be covered by our patent
applications. The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual
questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it
will allow in biotechnology patents.
Some or all of our patent applications
may not issue as patents or the claims of any issued patents may not afford meaningful protection for our technologies or products.
In addition, patents issued to us or our licensors may be challenged and subsequently narrowed, invalidated or circumvented. Patent
litigation is widespread in the biotechnology industry and could harm our business. Litigation might be necessary to protect our
patent position or to determine the scope and validity of third-party proprietary rights, and we may not have the required resources
to pursue such litigation or to protect our patent rights.
Although we will require our scientific
and technical employees and consultants to enter into broad assignment of inventions agreements, and all of our employees, consultants
and corporate partners with access to proprietary information to enter into confidentiality agreements, these agreements may not
be honored. Currently, we do not have any scientific or technical employees. We have consultants and a network of uniquely experienced
researchers, clinicians and drug developers, some of whom have signed or been asked to sign agreements.
Products we develop could be subject
to infringement claims asserted by others.
We cannot assure that products based on
our patents or intellectual property that we license from others will not be challenged by a third party claiming infringement
of its proprietary rights. If we were not able to successfully defend patents that may be issued to us, that we may acquire, or
that we may license in the future, we may have to pay substantial damages, possibly including treble damages, for past infringement.
We face intense competition in the
biotechnology and pharmaceutical industries.
The biotechnology and pharmaceutical industries
are intensely competitive. We face direct competition from U.S. and foreign companies focusing on pharmaceutical products, which
are rapidly evolving. Our competitors include major multinational pharmaceutical and chemical companies, specialized biotechnology
firms and universities and other research institutions. Many of these competitors have greater financial and other resources, larger
research and development staffs and more effective marketing and manufacturing organizations, than we do. In addition, academic
and government institutions are increasingly likely to enter into exclusive licensing agreements with commercial enterprises, including
our competitors, to market commercial products based on technology developed at such institutions. Our competitors may succeed
in developing or licensing technologies and products that are more effective or less costly than ours, or succeed in obtaining
FDA or other regulatory approvals for product candidates before we do. Acquisitions of, or investments in, competing pharmaceutical
or biotechnology companies by large corporations could increase such competitors’ financial, marketing, manufacturing and
other resources.
The market for our proposed products
is rapidly changing and competitive, and new drugs and new treatments which may be developed by others could impair our ability
to maintain and grow our business and remain competitive.
The pharmaceutical and biotechnology industries
are subject to rapid and substantial technological change. Developments by others may render our proposed products noncompetitive
or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition
from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is
intense and is expected to increase.
As a company with nominal revenues engaged
in the development of drug technologies, our resources are limited and we may experience technical challenges inherent in such
technologies. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the
basis for competition. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic
effects compared to our proposed products. Our competitors may develop drugs that are safer, more effective or less costly than
our proposed products and, therefore, present a serious competitive threat to us.
The potential widespread acceptance of
therapies that are alternatives to ours may limit market acceptance of our proposed products, even if commercialized. Many of our
targeted diseases and conditions can also be treated by other medication. These treatments may be widely accepted in medical communities
and have a longer history of use. The established use of these competitive drugs may limit the potential for our technologies,
formulations and products to receive widespread acceptance if commercialized.
Health care cost containment initiatives
and the growth of managed care may limit our returns.
Our ability to commercialize our products
successfully may be affected by the ongoing efforts of governmental and third-party payers to contain the cost of health care.
These entities are challenging prices of health care products and services, denying or limiting coverage and reimbursement amounts
for new therapeutic products, and for FDA-approved products considered experimental or investigational, or which are used for disease
indications without FDA marketing approval.
Even if we succeed in bringing any products
to the market, they may not be considered cost-effective and third-party reimbursement might not be available or sufficient. If
adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate
return on our investment in research and product development. In addition, legislation and regulations affecting the pricing of
pharmaceuticals may change in ways adverse to us before or after any of our proposed products are approved for marketing.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
If we are unable to obtain and maintain
patent protection for our products, or if the scope of the patent protection obtained is not sufficiently broad, competitors could
develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may
be impaired.
Our success depends in large part on our
ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with
respect to our proprietary products. We seek to protect our proprietary position by filing patent applications in the United States
and abroad related to our drug candidates.
The patent prosecution process is expensive
and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable
cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our
research and development output before it is too late to obtain patent protection.
The patent position of biotechnology and
pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been
the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the
laws of the United States and we may fail to seek or obtain patent protection in all major markets. For example, European patent
law restricts the patentability of methods of treatment of the human body more than United States law does. Publications of discoveries
in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions
are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty
whether we were the first to make the inventions claimed in our owned patents or pending patent applications, or that we were the
first to file for patent protection of such inventions, nor can we know whether those from whom we license patents were the first
to make the inventions claimed or were the first to file. As a result, the issuance, scope, validity, enforceability and commercial
value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued
which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive
technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other
countries may diminish the value of our patents or narrow the scope of our patent protection.
Recent patent reform legislation could
increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our
issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith
Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications
are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or U.S. PTO, recently developed new
regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated
with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly,
it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act
and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the
enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
Moreover, we may be subject to a third-party
preissuance submission of prior art to the U.S. PTO, or become involved in opposition, derivation, reexamination, inter partes
review, post- grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse
determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate our patent rights, allow
third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our
inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or
strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating
with us to license, develop or commercialize current or future drug candidates.
Even if our patent applications issue as
patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with
us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents
by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent is not conclusive
as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in
the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being
narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing
similar or identical products, or limit the duration of the patent protection of our products. Given the amount of time required
for the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire before
or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights
to exclude others from commercializing products similar or identical to ours.
We may become involved in lawsuits
to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and ultimately unsuccessful.
Competitors may infringe our issued patents
or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which
can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims
against us alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may
decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse
to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question.
An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted
narrowly, which could adversely affect us.
Third parties may initiate legal
proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could
have a material adverse effect on the success of our business.
Our commercial success depends upon our
ability to develop, manufacture, market and sell our drug candidates without infringing the proprietary rights of third parties.
There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. While no such litigation
has been brought against us and we have not been held by any court to have infringed a third party’s intellectual property
rights, we cannot guarantee that our products or use of our products do not infringe third-party patents. It is also possible that
we have failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000
and certain applications filed after that date that will not be filed outside the United States remain confidential until patents
issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing,
which is referred to as the priority date. Therefore, patent applications covering our products or technology could have been filed
by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations,
be later amended in a manner that could cover our technologies, our products or the use of our products.
We may become party to, or threatened with,
future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology,
including inter parties review, interference, or derivation proceedings before the U.S. PTO and similar bodies in other countries.
Third parties may assert infringement claims against us based on existing intellectual property rights and intellectual property
rights that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could
be required to obtain a license from such third party to continue developing and marketing our products. However, we may not be
able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could
be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including
by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our drug candidates or force us to cease some of our business operations, which
could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third
parties could have a similar negative impact on our business.
Obtaining and maintaining our patent
protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees on any issued
patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of the patent. The U.S.
PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment
of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result
in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant
jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are
not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly
legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material
adverse effect on our business.
We may be subject to claims by third
parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard
as our own intellectual property.
Many of our employees or contractors were
previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential
competitors. Although we try to ensure that our employees and contractors do not use the proprietary information or know-how of
others in their work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property,
including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary
to defend against these claims.
In addition, while it is our policy to
require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning
such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual
property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may
be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what
we regard as our intellectual property.
If we fail in prosecuting or defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if
we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction
to management.
Intellectual property litigation
could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation
or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract
our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of
the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive
these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings
could substantially increase our operating losses and reduce the resources available for development activities or any future sales,
marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings
adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we
can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation
or other proceedings could compromise our ability to compete in the marketplace.
If we are unable to protect the confidentiality
of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some
of our technology and drug candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary
information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure
and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific
collaborators, contract manufacturers, consultants, advisors and other third parties. We also seek to enter into confidentiality
and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may
breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate
remedies for such breaches. Our trade secrets may also be obtained by third parties by other means, such as breaches of our physical
or computer security systems. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult,
expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are
less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed
by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information
to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive
position would be harmed.
RISKS RELATING TO OUR COMMON STOCK
The market price of our common stock
may be highly volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be volatile.
This volatility may prevent you from being able to sell your shares at or above the price you paid for your shares. Our stock price
could be subject to wide fluctuations in response to a variety of factors, which include:
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any adverse results or delays in commencement or completion of our planned clinical trials for BTI-320, BTI-410 or IPOXYN;
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changes in laws or regulations applicable to SUGARDOWN®, BTI-320, BTI-410 or IPOXYN or any future product candidates, including but not limited to clinical trial requirements for approvals;
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unanticipated serious safety concerns related to the use of SUGARDOWN®, BTI-320, BTI-410 or IPOXYN or any future product candidates;
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a decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
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our inability to obtain adequate product supply for SUGARDOWN®, BTI-320, BTI-410 or IPOXYN or any future product candidate, or the inability to do so at acceptable prices;
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adverse regulatory decisions;
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the introduction of new products or technologies offered by us or our competitors;
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the effectiveness of our or our potential partners’ commercialization efforts;
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the inability to effectively manage our growth;
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actual or anticipated variations in quarterly operating results;
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our failure to meet or exceed the estimates and projections of the investment community;
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the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
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the overall performance of the U.S. equity markets and general political and economic conditions;
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developments concerning our sources of manufacturing supply and any commercialization partners;
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announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
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additions or departures of key scientific or other consultants or management personnel;
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adverse market reaction to any indebtedness we may incur or securities we may issue in the future;
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sales of our common stock by our stockholders in the future;
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significant lawsuits, including patent or stockholder litigation;
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changes in the market valuations of similar companies;
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the trading volume of our common stock;
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effects of natural or man-made catastrophic events or other business interruptions; and
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other events or factors, many of which are beyond our control.
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In addition, the stock market in general,
and the stock of biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively
affect the market price of our common stock, regardless of our actual operating performance.
We have a limited market for our
common stock, which makes our securities very speculative.
Trading activity in our common stock is
and has been limited. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price
of our common stock. There can be no assurance that a more active market for our common stock will develop, or if one should develop,
there is no assurance that it will be sustained. This could severely limit the liquidity of our common stock, and would likely
have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.
The financial and operational projections
that we may make from time to time are subject to inherent risks.
The projections that we provide herein
or our management may provide from time to time (including, but not limited to, those relating to potential peak sales amounts,
clinical and regulatory timelines, production and supply matters, commercial launch dates, and other financial or operational matters)
reflect numerous assumptions made by management, including assumptions with respect to our specific as well as general business,
regulatory, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which
are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections
themselves, will prove inaccurate. There may be differences between actual and projected results, and actual results may be materially
different from than those contained in the projections. The inclusion of the projections in this prospectus should not be regarded
as an indication that we, our management, or their representatives considered or consider the projections to be a guaranteed prediction
of future events, and the projections should not be relied upon as such.
Our ability to use our net operating
loss carry-forwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue
Code of 1986, as amended, referred to as the Internal Revenue Code, if a corporation undergoes an “ownership change”
(generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s
ability to use its pre-change net operating loss carry-forwards and other pre- change tax attributes (such as research tax credits)
to offset its post-change income may be limited. We believe that our private placements within a three-year period and other transactions
that have occurred over the past three years, we may have triggered an “ownership change” limitation. We may also experience
ownership changes in the future. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss
carry-forwards to offset U.S. federal taxable income may be subject to limitations, which potentially could result in increased
future tax liability to us.
Investors may face significant restrictions
on the resale of our common stock due to federal regulation of penny stocks.
Our common stock is currently quoted on
the OTCQB under the symbol BTHE. Our common stock is subject to the requirements of Rule 15(g)-9 promulgated under the Securities
Exchange Act, so long as the price of our common stock is below $5.00 per share and our common stock is not listed on a U.S. national
securities exchange. Under such rule, broker- dealers who recommend low-priced securities to persons other than established customers
and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser’s consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure
schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market
liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.
We have not paid any cash dividends
in the past and have no plans to issue cash dividends in the future, which could cause the value of our common stock to have a
lower value than other similar companies which do pay cash dividends.
We have not paid any cash dividends on
our common stock to date and do not anticipate any cash dividends being paid to holders of our common stock in the foreseeable
future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that
any earnings will be retained to finance our future expansion. As we have no plans to issue cash dividends in the future, our common
stock could be less desirable to other investors and as a result, the value of our common stock may decline, or fail to reach the
valuations of other similarly situated companies who have historically paid cash dividends in the past.
Future sales of our securities, or
the perception in the markets that these sales may occur, could depress our stock price.
As of May 7, 2019,
we had issued and outstanding (i) 111,131,373 shares of common stock, (ii) warrants issued to the investors in our 2013
private placement collectively exercisable for 3,333,320 shares of common stock (the “Investor Warrants”), (iii)
other warrants exercisable for 1,166,670 shares of common stock, (iv) warrants issued to the investors in our 2016 private
placement collectively exercisable for 16,000,000 shares of common stock, (v) shares issuable in exchange for our 2016
private placement debt of 3,113,440 (vi) outstanding stock options exercisable for 9,184,000 shares of common stock (vii)
shares issuable in exchange for our related party convertible debt of 35,822,920, (viii) shares issuable in exchange for our
Series A preferred stock of 8,250,000 and (ix) warrants issued to the investors in our 2016 private placement collectively
exercisable for 18,500,000 shares of common stock. These securities will be eligible for public sale only if registered under
the Securities Act or if the stockholder qualifies for an exemption from registration under Rule 144 or other applicable
exemption. We believe that our stockholders are currently entitled to sell our shares pursuant to Rule 144 to the extent they
satisfy the conditions thereunder. An aggregate of 17,659,007 shares of outstanding common stock and 3,333,320 shares of
common stock issuable upon exercise of outstanding Investor Warrants are registered for resale. The market price of our
capital stock could drop significantly if the holders of the shares being registered hereunder sell them or are perceived by
the market as intending to sell them. Moreover, to the extent that additional shares of our outstanding stock are registered,
or otherwise become eligible for resale, and are sold, or the holders of such shares are perceived as intended to sell them,
this could further depress the market price of our common stock. These factors could also make it more difficult for us to
raise capital or make acquisitions through the issuance of additional shares of our common stock or other equity
securities.
The right of the investors in our
recent convertible debt financings to potentially receive additional shares of our common stock could have a negative impact on
our common stock price and could impair our ability to raise capital.
Pursuant to the terms of our fixed price
convertible note financings with a related party and significant stockholder, we may potentially be required to issue additional
shares of common stock to such investor causing dilution to existing shareholders. Moreover, the existence of these rights could
materially impair our ability to obtain financing, which would have a material adverse effect on our business and viability.
The right of the investors in certain
of our recent convertible debt financings to participate in future financings of ours could impair our ability to raise capital.
Under the note purchase agreements with
certain of the investors in our recent convertible debt financings, in the event that we seek to raise money through the offer
and sale of debt or equity securities under specified circumstances, we must first offer such investors a right to participate
in at least a portion of the securities we propose to offer in such funding. The existence of such right of participation, or the
exercise of such rights, may in the deter potential investors from providing us needed financing, or may deter investment banks
from working with, which would have a material adverse effect on our ability to finance our company.
Our Certificate of Incorporation
permits “blank check” preferred stock, which can be designated by our Board of Directors without stockholder approval.
We have 5,000,000 authorized shares of
preferred stock. The shares of our preferred stock may be issued from time to time in one or more series, each of which shall have
a distinctive designation or title as is determined by our Board of Directors prior to the issuance of any shares thereof. The
preferred stock may have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating,
optional or other special rights and such qualifications, limitations or restrictions thereof as adopted by the Board of Directors.
Because the Board of Directors is able to designate the powers and preferences of the preferred stock without the vote of a majority
of our stockholders, stockholders will have no control over what designations and preferences our preferred stock will have. If
preferred stock is designated and issued, then depending upon the designation and preferences, the holders of the preferred stock
may exercise voting control over us. As a result, our stockholders will have no control over the designations and preferences of
the preferred stock and as a result the operations of our company.
Our management and five significant
stockholders collectively own a substantial majority of our common stock.
Collectively, our officers, our directors
and five significant stockholders own or exercise voting and investment control of approximately 68.7% of our outstanding common
stock on a fully diluted basis. As a result, investors may be prevented from affecting matters involving our company, including:
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the composition of our Board of Directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;
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any determinations with respect to mergers or other business combinations;
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our acquisition or disposition of assets; and
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our corporate financing activities.
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Furthermore, this concentration of voting
power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise
be beneficial to our stockholders. This significant concentration of share ownership may also adversely affect the trading price
for our common stock because investors may perceive disadvantages in owning stock in a company that is controlled by a small number
of stockholders.
Certain provisions of Delaware law
make it more difficult for a third party to acquire us and make a takeover more difficult to complete, even if such a transaction
were in the stockholders’ interest.
The Delaware General Corporation Law contain
provisions that may have the effect of making it more difficult or delaying attempts by others to obtain control of us, even when
these attempts may be in the best interests of our stockholders. We also are subject to the anti-takeover provisions of the Delaware
General Corporation Law, which prohibit us from engaging in a “business combination” with an “interested stockholder”
unless the business combination is approved in a prescribed manner and prohibit the voting of shares held by persons acquiring
certain numbers of shares without obtaining requisite approval. The statutes have the effect of making it more difficult to effect
a change in control of a Delaware company.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our common stock adversely, the price of our common stock and trading volume could decline.
The trading market for our common stock
may be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market
or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely, or
provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any
analyst who may cover us was to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility
in the financial markets, which in turn could cause the price of our common stock or trading volume to decline.
Item 1B. Unresolved Staff Comments.
The Company presently does not have unresolved
staff comments.
Item 2. Properties.
We do not own any real property. We do
not lease any office space at this time. We did lease office space at 354 Merrimack Street, Lawrence, MA 01843 on a month to month
basis. This concluded in August 2019 with no further obligation due. With the acquisition of CureDM, we leased office space on
a month-to-month basis at The BioScience Center 5901 Indian School Rd., Albuquerque, NM 87110. This lease was concluded during
2018 and no further obligation exists..
Item 3. Legal Proceedings.
In March 2019, we were served with notification
of complaint filed by CureDM Inc. as agent for the members of CureDM Group Holdings, LLC filed with the Supreme Court of the State
of New York County of New York regarding breach of contract and other matters relating to their desire to unwind the acquisition
of CureDM Group Holdings LLC according to the original Contribution Agreement. We have been working with the representatives from
CureDM Inc. to settle this claim and unwind the Contribution Agreement. The complaint was withdrawn by CureDM, Inc. in December
2019.
In addition to the above matter, we are
also in arbitration with Level Brands, Inc. regarding a License Agreement dated June 21, 2018 (JAMS Ref. No.: 1220061261). The
Company filed an Answer to Complaint and Counter-complaint on June 25, 2019. Both parties are claiming non-performance under the
License Agreement. The matter was scheduled for arbitration in October 2019. In October 2019, the arbitration was dismissed without
prejudice.
On October 16, 2019 the Company received
a Summons and Complaint filed by Microcap Headlines Inc. against the Company in the Supreme Court of the United States of New York
County of Suffolk claiming damages of $18,000 and the costs and disbursements of the action. The Company filed an Answer on November
15, 2019. The Company intends to vigorously defend against the claim.
We may from time to time become a party to various legal or
administrative proceedings arising in the ordinary course of our business.
Item 4. Mine Safety Disclosures.
Not applicable.
1.
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GENERAL ORGANIZATION AND BUSINESS
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Boston Therapeutics, Inc. (the “Company”)
was formed as a Delaware corporation on August 24, 2009 under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire
corporation (“BTI”) providing for the merger of BTI into the Company with the Company being the surviving entity (the
“Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of BTI in exchange for
100% of the outstanding common stock of BTI, and the change of the Company’s name to Boston Therapeutics, Inc. On February
12, 2018, the Company acquired CureDM Group Holdings LLC (“CureDM”), for 47,741,140 shares of common stock of which
25,000,000 were delivered at closing and 22,741,140 were to be delivered in four equal tranches of 5,685,285 each upon the achievement
of specific milestones. See Notes 3 and 14.
The Company’s primary business is
the development, manufacture and commercialization of therapeutic drugs with a focus on complex carbohydrate chemistry to address
unmet medical needs in diabetes and inflammatory diseases. We have brought one product, SUGARDOWN®, to market and have begun
to make initial sales. We are currently focused on the development of two additional drug products: BTI-320, a non-systemic, non-toxic,
tablet for reduction of post-meal blood glucose in people living with diabetes that is fully developed, and IPOXYN, an injectable
anti-necrosis, anti-hypoxia drug that we are currently developing. Due to the lack of adequate funding, the Company has not done
any work with respect to IPOXYN to date.
Going Concern
The accompanying financial statements have
been prepared assuming the Company will continue as a going concern. The Company has limited cash resources, recurring cash used
in operations and operating losses history. As shown in the accompanying consolidated financial statements,
the Company has an accumulated deficit of approximately $27.1 million as of December 31, 2019 and used cash in operations of $1,195,938
during the year ended December 31, 2019. These factors among others, raise substantial doubt about the Company’s ability
to continue as a going concern.
The Company has incurred recurring operating
losses since inception as it has worked to bring its SUGARDOWN® product to market and develop BTI-320 and IPOXYN. Management
expects such operating losses will continue until such time that substantial revenues are received from SUGARDOWN® or
the regulatory and clinical development of BTI-320 or IPOXYN is completed. The Company has approximately $6,700 cash on hand at
December 31, 2019. Management is currently seeking additional capital through private placements and public offerings of its common
stock. In addition, the Company may seek to raise additional capital through public or private debt or equity financings as well
as collaboration activities in order to fund our operations. The Company was advanced $50,000 through the issuance of 10% notes
payable to a related party during the first quarter of 2019. The Company was advanced $339,144 during April 2019, from two related
parties. The Company was advanced $50,000 from a related party during May 2019. During July, the Company was advanced $402,027
from two related parties. During October and November 2019, the Company was advanced an additional $349,000 from a related party.
In addition, on January 3, 2020, the Company was advanced an additional $250,000 from a related party. Management anticipates that
cash resources will be sufficient to fund our planned operations into the second quarter of 2020. The future of the Company is dependent
upon its ability to obtain continued financing and upon future profitable operations from the partnering, development and clarity
of its new business opportunities.
There can be no assurance that we will
be successful in accomplishing our objectives. Without such additional capital, we may be required to cease operations. The accompanying
financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
2.
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SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
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Basis of Presentation
The financial statements have been prepared
in conformity with accounting principles generally accepting in the United States of America (“US GAAP”).
Principles of Consolidation
The consolidated financial statements include
the Company and its wholly owned subsidiary, CureDM, from the date of acquisition. All significant intercompany transactions are
eliminated in consolidation.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with original maturities of 90 days or less at the time of acquisition to be cash equivalents. The Company maintains
its cash in institutions insured by the Federal Deposit Insurance Corporation. The Company had no cash equivalents at December
31, 2019 and December 31, 2018.
Revenue Recognition
For revenue from product sales, the Company
recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 606 (“ASC 606”). A five-step analysis must be met as outlined in ASC 606: (i) identify the contract
with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate
the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied.
Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in
the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or
is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or
no refund will be required.
The Company generates revenues from sales
of SUGARDOWN®. In practice, the Company has not experienced or granted significant returns of product. Shipping fees charged
to customers are included in revenue and shipping costs are included in costs of sales.
The Company generates revenue from royalties
pursuant to a licensing and manufacturing agreement with Advance Pharmaceutical Company Limited (“APC”), whereby the
licensee sells and distributes territory licensed products, excluding those manufactured and supplied by the Company in the territory.
APC is a related party as a director and significant stockholder of the Company is an owner and director of APC. The Company did
not recognize any revenue from royalties from APC during the years ended December 31, 2019 and 2018 respectively.
Accounts Receivable
Accounts receivable is stated at the amount
management expects to collect from outstanding balances. Management establishes a reserve for doubtful accounts based on its assessment
of the current status of individual accounts. Balances that remain outstanding after management has used reasonable collection
efforts are written off against the allowance. There were no allowances for doubtful accounts as of December 31, 2019 and December
31, 2018.
Inventory
Inventory consists of raw materials, work-in-process
and finished goods of SUGARDOWN®. Inventories are stated at the lower of cost (weighted average cost method) or market, not
in excess of net realizable value. The Company adjusts the carrying value of its inventory for excess and obsolete inventory. The
Company continues to monitor the valuation of its inventory.
Property and Equipment
Property and equipment is depreciated using
the straight-line method over the following estimated useful lives:
Asset Category
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Estimated Useful Life
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Office Furniture and Equipment
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5 years
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Computer Equipment and Software
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3 years
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The Company begins to depreciate assets
when they are placed in service. The costs of repairs and maintenance are expensed as incurred; major renewals and betterments
are capitalized. Upon sale or retirement, the cost and related accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in the statement of operations. For the years ended December 31, 2019 and 2018, the Company recorded depreciation
expense of $1,623 and $1,706, respectively.
Intangible Assets
Intangible assets consist of identifiable
finite-lived assets acquired in business acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition
and are amortized over their economic useful lives on a straight line basis.
Goodwill
The Company follows the guidance of Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, Goodwill and Other Intangible Assets. Under
ASC 350, goodwill and certain other intangible assets with indefinite lives are not amortized, but instead are reviewed for impairment
at least annually.
As the Company operates its business in
one operating segment and one reporting unit, the Company’s goodwill is assessed at the Company level for impairment in the
fourth quarter of each year or more frequently if events or changes in circumstances indicate that impairment may exist. The Company
has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step impairment test.
If the Company’s qualitative assessment reveals that goodwill impairment is more likely than not, the Company performs the
two-step impairment test. Alternatively, the Company may bypass the qualitative test and initiate goodwill impairment testing with
the first step of the two-step goodwill impairment test.
During the first step of the goodwill impairment
test, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of
a reporting unit exceeds its carrying value, then the Company concludes that no goodwill impairment has occurred. If the carrying
value of the reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure
possible goodwill impairment loss. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value,
then we would record an impairment loss equal to the difference.
The Company performed its impairment review
of goodwill for the year ended December 31, 2018 and concluded that goodwill was impaired at December 31, 2018. The company recorded
impairment of goodwill in the amount of $1,246,002 for the year ended December 31, 2018. No goodwill exists at December 31, 2019.
Impairment of Long-lived Assets
The Company reviews long-lived assets,
which include the Company’s intangible assets, for impairment whenever events or changes in business circumstances indicate
that the carrying amounts of the assets may not be fully recoverable. Future undiscounted cash flows of the underlying assets are
compared to the assets’ carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash
flows is less than book value. To date, no adjustments for impairment have been made.
The Company
performed its impairment review of intangible assets for the year ended December 31, 2019 and concluded that intangibles were
impaired at December 31, 2019. The Company recorded impairment of intangibles in the amount of $367,181 for the year ended
December 31, 2019.
Loss per Share
Basic net loss per share is computed based
on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per
share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent
shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents
represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The
weighted average number of common shares for the year ended December 31, 2019 did not include 9,184,000, 38,458,320, 39,131,347
and 8,250,000 for options, warrants and shares to be issued upon conversion of notes payable and Series A Preferred Stock, respectively,
because of their anti-dilutive effect. The weighted average number of common shares for the year ended December 31, 2018 did not
include 9,594,000, 38,999,990, 36,407,367 and 8,250,000 for options, warrants and shares to be issued upon conversion of notes
payable and Series A Preferred Stock, respectively, because of their anti-dilutive effect.
Income Taxes
The Company accounts for income taxes under
the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or be settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely
than not that some portion of the gross deferred tax asset will not be realized. The Company records interest and penalties related
to income taxes as a component of provision for income taxes. The Company did not recognize any interest and penalty expense for
the years ended December 31, 2019 and 2018.
Advertising Costs
Advertising costs are expensed as incurred
and are reported as a component of operating expenses in the sales and marketing expenses in the statements of operations. The
Company did not incur any advertising costs for either year ended December 31, 2019 and 2018, respectively.
Research and Development Costs
Research and development expenditures are
charged to the statement of operations as incurred. Such costs include proprietary research and development activities, purchased
research and development, and expenses associated with research and development contracts, whether performed by the Company or
contracted with independent third parties.
Fair Value of Financial Instruments
Fair values determined by Level 1 inputs
utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other
than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs
utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its
own assumptions. The Company’s financial instruments consist of cash, accounts receivable, prepaid expenses, accounts payable,
accrued expenses, and notes payable. The carrying value of cash, accounts receivable, prepaid expenses, accounts payable and accrued
expenses approximates fair value due to their short-term nature using level 3 inputs as defined above. The carrying value of the
notes payable as of December 31, 2019 and 2018, 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.
Concentration of Credit Risk
Financial instruments that potentially
subject the Company to concentrations of credit risk are principally cash. The Company places its cash and cash equivalents in
highly rated financial institutions. The Company maintains cash balances with financial institutions that occasionally exceed federally
insured limits. The Company has not experienced any losses related to these balances, and management believes its credit risk to
be minimal.
Convertible Instruments
U.S. GAAP requires companies to bifurcate
conversion options from their host instruments and account for them as free standing derivative financial instruments according
to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument
with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule
is when the host instrument is deemed to be conventional, as that term is described under applicable ASC 480-10.
When the Company has determined that the
embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts
to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between
the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date
of redemption.
Common Stock Purchase Warrants and Other
Derivative Financial Instruments
The Company classifies as equity any contracts
that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or
settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s
own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement
to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the
counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company
assesses classification of its common stock purchase warrants and other free standing derivatives at each reporting date to determine
whether a change in classification between assets and liabilities is required.
The Company’s free standing derivatives
consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and of embedded conversion
options with senior convertible debentures. The Company evaluated these derivatives to assess their proper classification in the
balance sheet as of December 31, 2019 and December 31, 2018 using the applicable classification criteria enumerated under ASC 815-Derivatives
and Hedging. The Company determined that certain embedded conversion and/or exercise features do not contain fixed settlement provisions.
The convertible debentures contain a conversion feature such that the Company could not ensure it would have adequate authorized
shares to meet all possible conversion demands.
As such, the Company was required to record
the debt and warrant derivatives which do not have fixed settlement provisions as liabilities and mark to market all such derivatives
to fair value at the end of each reporting period.
Stock-Based Compensation
Stock–based compensation, including
grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statement
based on the estimated fair value of the awards. The Company recognizes the compensation cost of share-based awards on a
straight-line basis over the requisite service period, which is generally the vesting period of the award.
The determination of the fair value of
share-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including
expected volatility, expected life, risk-free interest rate and expected dividends. The expected life of the awards is estimated
based on the simplified method. The risk-free interest rate assumption is based on observed interest rates appropriate for the
terms of our awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are
estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Stock-based compensation expense is recognized in the financial statements on a straight-line basis over the requisite service
period, based on awards that are ultimately expected to vest.
The Company grants stock options to non-employee
consultants from time to time in exchange for services performed for the Company. Equity instruments granted to non- employees
are subject to periodic revaluation over their vesting terms. In general, the options vest over the contractual period of the respective
consulting arrangement and, therefore, the Company revalues the options periodically and records additional compensation expense
related to these options over the remaining vesting period.
Recent Accounting Pronouncements
In February 2016, the FASB established
ASC Topic 842, Leases (Topic 842), by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and
disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical
Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted
Improvements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease
liability on the balance sheet. Leases will be classified as finance or operating, with classification affecting the pattern and
classification of expense recognition in the statement of operations. The Company adopted the new standard on January 1, 2019.
The new standard provides a number of optional
practical expedients in transition. The Company has elected the ‘package of practical expedients’, which permit it
not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct
costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not
applicable to the Company.
The new standard did not have a material
effect on the Company’s consolidated Financial statements as the Company does not have any leases that meet the requirements
for recognition.
There are various updates recently issued,
most of which represented technical corrections to the accounting literature or application to specific industries and are not
expected to have a material impact on the Company’s financial position, results of operations or cash flows.
On February 12, 2018, the Company entered
into a Contribution Agreement with the members of CureDM Group Holdings, LLC, a limited liability company (“CureDM Group”),
all of which except five are accredited investors (“CureDM Group Members”) pursuant to which the CureDM Group Members
agreed to contribute 100% of the outstanding securities of CureDM Group in exchange for an aggregate of 47,741,140 shares of common
stock of the Company (the “BTHE Contribution Shares”) of which 25,000,000 BTHE Contribution Shares were delivered at
closing and 22,741,140 BTHE Contribution Shares (the “Milestone BTHE Shares”) shall be delivered in four equal tranches
of 5,685,285 BTHE Contribution Shares each upon the achievement of specific milestones (the “CureDM Group Contribution”).
The closing of the CureDM Group Contribution occurred on February 12, 2018.
A summary of consideration is as follows:
25,000,000 shares of the Company’s common stock
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$
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1,250,000
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22,741,140 contingency shares of the Company’s common stock
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—
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Total consideration
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$
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1,250,000
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The following summarizes the current estimates
of fair value of assets acquired and liabilities assumed:
Assets acquired:
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Cash
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$
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3,592
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Property and equipment
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273
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Goodwill
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1,176,220
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Intangibles
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234,122
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Liabilities assumed:
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Accounts payable and accrued expenses
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(164,207
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)
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Net assets acquired
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$
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1,250,000
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|
The Company expects the probability of
the milestones for issuance of the contingent shares to be remote and therefore has placed no value on the shares as of December
31, 2019 or 2018. See Note 14.
The purchase price allocation for the above
acquisition is subject to further refinement as management completes its assessment of the valuation of certain assets and liabilities.
The Company accounts for acquisitions in
accordance with the provisions of ASC 805-10. The Company assigns to all identifiable assets acquired a portion of the cost of
the acquired net assets equal to the estimated fair value of such assets at the date of acquisition. The Company records the excess
of the cost of the acquired net assets over the sum of the amounts assigned to identifiable assets acquired as goodwill.
The Company accounts for and reports acquired
goodwill under Accounting Standards Codification subtopic 350-10, Intangibles-Goodwill and Other (“ASC 350-10”). In
accordance with ASC 350-10, at least annually, the Company tests its intangible assets for impairment or more often if events and
circumstances warrant. Any write-downs will be included in results from operations.
Pro forma results
The following table sets forth the unaudited
pro forma results of the Company as if the acquisition of CureDM had taken place on the first day of the period presented. These
combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of
the first day of the period presented. This pro forma financial information is based on historical results of operations, adjusted
for the allocation of the purchase price and other acquisition accounting adjustments, and is not indicative of the results that
may have been achieved had the companies been combined as of the first day of the period presented.
|
|
For the year ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Total revenues
|
|
$
|
16,329
|
|
|
$
|
31,273
|
|
Net loss
|
|
|
(2,371,177
|
)
|
|
|
(3,601,217
|
)
|
Basic and diluted net earnings per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
Inventory consist of material, labor and
manufacturing overhead and are recorded at the lower of cost, using the weighted average cost method, or net realizable value.
The components of inventory at December 31, 2019 and 2018 net of inventory reserves, were as follows:
|
|
2019
|
|
|
2018
|
|
Raw materials
|
|
$
|
—
|
|
|
$
|
—
|
|
Finished goods
|
|
|
3,909
|
|
|
|
1,013
|
|
Total
|
|
$
|
3,909
|
|
|
$
|
1,013
|
|
The Company periodically reviews quantities
of inventory on hand and compares these amounts to expected usage of each particular product or product line. The Company records,
as a charge to cost of sales, any amounts required to reduce the carrying value to net realizable value. The Company recorded a
charge to the provision for inventory obsolescence in the amount of $0 and $31,752 for the years ended December 31, 2019 and 2018,
respectively.
The SUGARDOWN® technology and patent
applications, which were obtained through the acquisition of BTI in 2010, are being amortized on a straight-line basis over their
estimated useful lives of 14 years.
Intangible assets consist of the following
as of December 31:
|
|
2019
|
|
|
2018
|
|
SUGARDOWN® technology and patent applications
|
|
$
|
1,134,122
|
|
|
$
|
1,134,122
|
|
Less accumulated amortization
|
|
|
(1,134,122
|
)
|
|
|
(618,910
|
)
|
Intangible assets, net
|
|
$
|
—
|
|
|
$
|
515,212
|
|
Amortization expense for each of the years
ended December 31, 2019 and 2018 was $148,031 and $158,196, respectively.
The Company
performed its impairment review of intangible assets for the year ended December 31, 2019 and concluded that intangibles were
impaired at December 31, 2019. The Company recorded impairment of intangibles in the amount of $367,181 for the year ended
December 31, 2019.
6.
|
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
The following table represents the major
components of accrued expenses and other current liabilities at December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Accrued payroll
|
|
$
|
188,716
|
|
|
$
|
188,716
|
|
Professional fees
|
|
|
137,545
|
|
|
|
95,018
|
|
Accrued consulting fees
|
|
|
739,447
|
|
|
|
263,600
|
|
Accrued executive compensation
|
|
|
340,000
|
|
|
|
120,000
|
|
Accrued accounting fees
|
|
|
150,000
|
|
|
|
30,000
|
|
Interest
|
|
|
768,797
|
|
|
|
456,613
|
|
Accrued expense reimbursement and other
|
|
|
134,663
|
|
|
|
6,696
|
|
Total
|
|
$
|
2,459,168
|
|
|
$
|
1,160,643
|
|
7.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The Company measures the fair value of
financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” which defines
fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines
fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
ASC 820 describes three levels of inputs
that may be used to measure fair value:
Level 1 - quoted prices in
active markets for identical assets or liabilities
Level 2 - quoted prices for
similar assets and liabilities in active markets or inputs that are observable
Level 3 - inputs that are unobservable based
on an entity’s own assumptions, as there is little, if any, related market activity (for example, cash flow modeling inputs
based on assumptions)
Financial liabilities as of December 31,
2019 and 2018 measured at fair value on a recurring basis are summarized below:
|
|
December 31,
2019
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Derivative liability
|
|
$
|
9,451
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,451
|
|
Warrant liability
|
|
|
461,744
|
|
|
|
—
|
|
|
|
—
|
|
|
|
461,744
|
|
Total
|
|
$
|
471,195
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
471,195
|
|
|
|
December 31,
2018
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Derivative liability
|
|
$
|
54,242
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
54,242
|
|
Warrant liability
|
|
|
925,806
|
|
|
|
—
|
|
|
|
—
|
|
|
|
925,806
|
|
Total
|
|
$
|
980,048
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
980,048
|
|
The Company determined that certain conversion/exercise
option related to a convertible note and issued warrants did not have fixed settlement provisions and are deemed to be derivative
financial instruments, since the conversion/exercise prices was subject to reset adjustment should the Company issue any option
to acquire the Company’s common stock lower than the conversion /exercise price. Accordingly, the Company was required to
record such conversion/exercise options as a liability and mark such derivative to fair value each reporting period. Such instrument
was classified within Level 3 of the valuation hierarchy.
The fair value of the conversion/exercise
options were calculated using a binomial lattice formula with the following weighted average assumptions during the years ended
December 31, 2018. No options were converted or exercised during the year ended December 31, 2019.
Conversion option:
|
|
December 31,
|
|
|
|
2018
|
|
Common Stock Closing Price
|
|
$
|
0.03
|
|
Conversion Price per Share
|
|
$
|
0.075 to 0.10
|
|
Conversion Shares
|
|
|
5,333,333
|
|
Call Option Value
|
|
|
0.013 to 0.055
|
|
Dividend Yield
|
|
|
0.00
|
%
|
Volatility
|
|
|
221.92
|
%
|
Risk-free Interest Rate
|
|
|
2.46% to 2.51
|
%
|
Term
|
|
|
0.32 to 0.625 years
|
|
Exercise option:
|
|
December
31,
|
|
|
|
2018
|
|
Common Stock Closing Price
|
|
$
|
0.03
|
|
Conversion Price per Share
|
|
$
|
0.10 to 0.15
|
|
Conversion Shares
|
|
|
34,000,000
|
|
Call Option Value
|
|
|
0.026 to 0.028
|
|
Dividend Yield
|
|
|
0.00
|
%
|
Volatility
|
|
|
221.92
|
%
|
Risk-free Interest Rate
|
|
|
2.46 to 2.51
|
%
|
Term
|
|
|
2.62 to 4 years
|
|
The risk-free interest rate is the United
States Treasury rate on the measurement date having a term equal to the remaining contractual life of the instrument. The volatility
is a measure of the amount by which the Company’s share price has fluctuated or is expected to fluctuate. The dividend yield
is 0% as the Company has not made any dividend payment and has no plans to pay dividends in the foreseeable future. Level 3 liabilities
are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of
the derivative liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s
Chief Financial Officer, who reports to the Chief Executive Officer, determine its valuation policies and procedures. The development
and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility
of the Company’s Chief Financial Officer and are approved by the Chief Executive Officer. Level 3 financial liabilities consist
of the derivative liabilities for which there is no current market for these securities such that the determination of fair value
requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy
are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. Significant observable and unobservable
inputs include stock price, exercise price, annual risk free rate, term, and expected volatility, and are classified within Level
3 of the valuation hierarchy. An increase or decrease in volatility or interest free rate, in isolation, can significantly increase
or decrease the fair value of the derivative liabilities. Changes in the values of the derivative liabilities are recorded as a
component of other income (expense) on the Company’s statements of operations.
The following table sets forth a summary
of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring
basis using significant unobservable input for the years ended December 31, 2019 and 2018:
|
|
Debt
|
|
|
Warrant
|
|
|
|
Derivative
|
|
|
Liability
|
|
Balance December 31, 2017
|
|
$
|
429,141
|
|
|
$
|
1,099,200
|
|
Aggregate amount of derivative instruments issued
|
|
|
—
|
|
|
|
226,831
|
|
Transferred in due to conversions
|
|
|
(291,612
|
)
|
|
|
—
|
|
Change in fair value of derivative liabilities
|
|
|
(83,287
|
)
|
|
|
(400,225
|
)
|
Balance, December 31, 2018
|
|
|
54,242
|
|
|
|
925,806
|
|
Aggregate amount of derivative instruments issued
|
|
|
—
|
|
|
|
—
|
|
Transferred in due to conversions
|
|
|
—
|
|
|
|
—
|
|
Change in fair value of derivative liabilities
|
|
|
(44,791
|
)
|
|
|
(464,062
|
)
|
Balance, December 31, 2019
|
|
$
|
9,451
|
|
|
$
|
461,744
|
|
8.
|
CONVERTIBLE NOTES PAYABLE
|
In August and September 2016, the Company
issued senior convertible debentures for an aggregate of $1,600,000 (the “Convertible Debentures”) in exchange for
an aggregate net cash proceeds of $1,327,300, net of financing costs. The Convertible Debentures have a stated interest rate of
6% per annum payable quarterly beginning June 30, 2017 and were due two years from the date of issuance, the latest due September
15, 2018 and are convertible into shares of the Company’s common stock at the option of the holder at a conversion price
of $0.075 with certain anti-dilutive (reset) provisions and are subject to forced conversion if either i) the volume weighted average
common stock price for each of any 10 consecutive trading days equals or exceeds $0.50, or (ii) the Company’s elects to lists
a class of securities on a national securities exchange.
As long as the convertible notes remain
outstanding, the Company is restricted from incurring any indebtedness or liens, except as permitted (as defined), amend its charter
in any matter that materially effects rights of noteholders, repay or repurchase more than de minimis number of shares of common
stock other than conversion or warrant shares, repay or repurchase all or any portion of any indebtedness or pay cash dividends.
In connection with the issuance of the
Convertible Debentures, the Company issued an aggregate of 16,000,000 warrants to purchase the Company’s common stock at
$0.10 per share, expiring five years from the date of issuance, the latest being September 15, 2021. These warrants contain a cashless
exercise and certain anti-dilutive (reset) provisions.
The Company determined that certain conversion/exercise
option related to a convertible note and issued warrants did not have fixed settlement provisions and are deemed to be derivative
financial instruments due to price protection features present in the conversion/ exercise price that are not consistent with a
fixed for fixed model.
The accounting treatment of derivative
financial instruments requires that the Company record the fair value of the derivative as of the issuance date of the debenture
and warrants and to re-measure the derivatives at fair value as of each subsequent reporting date.
The Company recognized the value attributable
to the conversion feature of the convertible debenture and issued warrants of $2,203,336 and together with financing costs of $272,700
(aggregate of $2,476,036) as a discount against the notes up to $1,600,000 with the excess of $876,036 charged to current period
interest. The Company valued the conversion option and the warrants using the Binomial Lattice pricing model as described in Note
7. The debt discount was amortized over the note’s maturity period as interest expense.
On April 11, 2017, one investor converted
his Convertible Debenture of $75,000 plus accrued interest of $2,873, into 1,038,301 shares of the Company’s common stock.
Upon conversion, a loss on extinguishment was recorded in the amount of $51,267.
On July 14, 2017, one investor converted
his Convertible Debenture of $50,000 plus accrued interest of $2,482, into 711,755 shares of the Company’s common stock.
Upon conversion, a loss on extinguishment was recorded in the amount of $30,274.
In August 2018, two investors entered in
agreements to extend the due date of convertible debentures held in the amount of $250,000 until August 31, 2019. One of the investors
was issued warrants to acquire 375,000 shares of common stock for $0.075 per share. The warrants expire in five years. The fair
value of the warrants on the date of issuance was $21,121 which is included in interest expense for the year ended December 31,
2018.
During 2018, 29 investors converted their
Convertible Debentures totaling $1,225,000 plus accrued interest of $52,066, into 17,027,544 shares of the Company’s common
stock. Upon conversion, a loss on extinguishment was recorded in the amount of $2,374. No conversions occurred during 2019.
For the year ended December 31, 2019 and
2018, the Company amortized $30,332 and $543,347, respectively, of debt discount to operations as interest expense.
Convertible notes payable consist of the
following at December 31, 2019 and December 31, 2018:
|
|
2019
|
|
|
2018
|
|
Principal balance
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Debt discount
|
|
|
—
|
|
|
|
—
|
|
Deferred finance costs
|
|
|
—
|
|
|
|
—
|
|
Outstanding, net of debt discount
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
On June 26, 2018, the Company entered into
a License Agreement with Level Brands, Inc. (NYSE: LEVB), an innovative licensing, marketing and brand management company with
a focus on lifestyle-based products which includes an exclusive license to the kathy ireland® Health & Wellness™
brand. Under the terms of the License Agreement, the Company received a non-exclusive, non-transferrable license to use the kathy
ireland Health & Wellness™ trademark in the marketing, development, manufacture, sale and distribution of the Sugardown®
product domestically and internationally. The initial term of the License Agreement is seven years, with an automatic two-year
extension unless either party notifies the other of non-renewal at least 90 days prior to the end of the then current term. Level
Brands has agreed to use its commercially reasonable efforts to perform certain promotional obligations, including: (i) producing
four branded videos to promote the licensed product and/or the Company; (ii) creation of an electronic press kit; (iii) making
their media and marketing teams available for use in creating the video content for which the Company will separately compensate;
and (iv) curate social media posts in multiple social media channels.
As compensation, the Company will provide
Level Brands with the following:
|
●
|
A marketing fee of $850,000, for development of video content and an electronic press kit which will be used ongoing to support product marketing. This fee is paid with a promissory note of $450,000 and a number of shares of stock of the Company valued at $400,000, based on the closing price on the day prior to the effective date;
|
|
●
|
Quarterly fees for the first two years of up to $100,000 and issuance of 100,000 shares each quarter, based on sales volumes. The Company has the right to make all the stock payments in cash; and
|
|
●
|
a royalty of 5% of the gross licensed marks sales up to $10,000,000, 7.5% royalty on sales from $10,000,000 to $50,000,0000 and 10% on sales over $50,000,000, payable monthly as well as a 1% of all revenue for all Company products as of the date hereof.
|
The Note Payable of $450,000 bears interest
at 8% and matures December 31, 2019, unless the Company raises $750,000 through Level Brands prior to that date in which case the
Note is to be repaid in full including accrued interest. Accrued interest at December 31, 2019 and December 31, 2018 totaled $54,493
and $18,493, respectively.
As of December 31,
2019, the Company has not issued the $400,000 of common stock which was due upon execution of the agreement or any of the
shares pursuant to the quarterly fee. The $400,000 is
included in accrued expenses at December 31, 2019. Due to the Company’s low sales volume, no accrual for royalties is
included in the financial statements as the amounts would not be material.
Level Brands sued the Company for non-performance
under the contract. The matter was taken to arbitration with both parties claiming non performance under the contract. In October
2019, the arbitration was dismissed without prejudice. See Note 14.
Series A Preferred Stock
The Company has designated 150,000 shares
of its preferred stock as Series A Preferred Stock. Each share of Series A Preferred Stock has a stated value of $10. The Series
A Preferred Stock is convertible into shares of the Company’s common stock by dividing the stated value by a conversion price
of $0.10 per share. The Series A Preferred Stock shall have voting rights on an as converted basis (subject to limitations) and
liquidation preference for each share of Series A Preferred Stock at an amount equal to the stated value per share. As of December
31, 2019 and 2018, the Company has 82,500 shares of Series A Preferred Stock outstanding.
On August 14, 2017, the Company entered
into Securities Purchase Agreements with two accredited investors. In connection with these agreements, the Company issued 45,000
shares of Series A Preferred Stock and warrants to acquire 9,000,000 shares of common stock. The shares of Series A Preferred Stock
are convertible, at any time at the option of the holder, into an aggregate of 4,500,000 shares of the Company’s common stock.
The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per share.
The Company recognized the value attributable
to the conversion feature of the issued warrants of $650,421 as a charge against additional paid in capital up to $450,000 with
the excess of $200,421 charged to change in fair value of warrant liability during the year ended December 31, 2017. The Company
valued the warrants using the Binomial Lattice pricing model as described in Note 7.
On October 24, 2017, the Company entered
into Securities Purchase Agreements with an accredited investor. In connection with the agreement, the Company issued 10,000 shares
of Series A Preferred Stock and warrants to acquire 2,000,000 shares of common stock. The shares of Series A Preferred Stock are
convertible, at any time at the option of the holder, into an aggregate of 1,000,000 shares of the Company’s common stock.
The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per share.
During 2017, the Company recognized the
value attributable to the conversion feature of the issued warrants of $93,312 as a charge against additional paid in capital.
The Company valued the warrants using the Binomial Lattice pricing model as described in Note 7.
On February 2, 2018, the Company entered
into Securities Purchase Agreements with four accredited investors. In connection with these agreements, the Company issued 27,500
shares of Series A Preferred Stock and warrants to acquire 5,500,000 shares of common stock in consideration of $275,000. The shares
of Series A Preferred Stock are convertible, at any time at the option of the holder, into an aggregate of 2,750,000 shares of
the Company’s common stock. The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per
share.
During 2018, the Company recognized the
value attributable to the conversion feature of the issued warrants of $226,833 as a charge against additional paid in capital.
The Company valued the warrants using the Binomial Lattice pricing model as described in Note 7.
Common Stock
On February 16, 2018,
the Company’s Board of Directors approved the issuance of 3,666,666 shares of the Company’s common stock to two consultants
for services rendered amounting to $330,000.
During 2018, 29 investors converted their
Convertible Debenture totaling $1,225,000 plus accrued interest of $52,066, into 17,027,544 shares of the Company’s common
stock.
On January 10, 2019, the Company issued
1,000,000 shares of its common stock in exchange for consulting services amounting to $22,900 pursuant to a consulting agreement
entered into and approved by the Board of Directors on November 23, 2018.
Common Stock Warrants
The Company accounts for warrants as either
equity instruments or liabilities depending on the specific terms of the warrant agreement. As of December 31, 2019, the Company
had 38,458,320 warrants outstanding which are all classified as equity instruments and are fully exercisable.
The following tables summarize the Company’s
common stock warrants activity for the years ended December 31, 2019 and 2018:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding as of December 31, 2018
|
|
|
38,999,990
|
|
|
$
|
0.17
|
|
|
$
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/Canceled
|
|
|
(541,670
|
)
|
|
|
0.94
|
|
|
|
—
|
|
Outstanding as of December 31, 2019
|
|
|
38,458,320
|
|
|
$
|
0.16
|
|
|
$
|
—
|
|
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding as of December 31, 2017
|
|
|
41,029,669
|
|
|
$
|
0.23
|
|
|
$
|
—
|
|
Granted
|
|
|
5,875,000
|
|
|
|
0.15
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/Canceled
|
|
|
(7,904,679
|
)
|
|
|
0.43
|
|
|
|
—
|
|
Outstanding as of December 31, 2018
|
|
|
38,999,990
|
|
|
$
|
0.17
|
|
|
$
|
—
|
|
The aggregate intrinsic value represents
the pretax intrinsic value, based on the warrants with an exercise price less than the Company’s stock price of $0.011 as
of December 31, 2019, which would have been received by the warrant holders had those warrant holders exercised their warrants
as of that date.
11.
|
STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
|
During the year ended December 31, 2010,
the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant
options to purchase up to 5,000,000 shares of common stock. On September 7, 2013, the 2010 plan was amended to increase the number
of shares of common stock issuable under the 2010 Plan to 7,500,000. As of December 31, 2019 and December 31, 2018, 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 December
31, 2019 and December 31, 2018, there were 8,934,000 and 9,344,000 options outstanding under the 2011 Plan.
Under the terms of the stock plans, the
Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options
is typically three to four years and the options typically expire in five to ten years.
On February 12, 2018, Loraine Upham was
appointed as Chief Operating Officer. Ms. Upham received a stock option to purchase 4,000,000 shares of common stock under the
Company’s Amended and Restated 2011 Stock Incentive Plan, vesting over three (3) years, one third on the first anniversary
of the effective date and the balance in equal quarterly installments. The exercise price of the initial tranche of options (1,333,334
shares) shall be $0.06 per share, the second tranche (1,333,333 shares) shall be $0.10 per share and the final tranche (1,333,333
shares) shall be $0.20 per share. The term of the options is five years. Ms. Upham resigned from the Company on November 30, 2018.
As a result of her resignation all of her stock options were terminated and returned to the option pool.
On August 22, 2016, the Company granted
6,000,000 options to purchase its common shares to its new CEO as a part of his employment agreement. The options consist of 3
separate tranches with different exercise prices and vest upon reaching certain milestones. All 6 million options have a five year
life. The first 2,000,000 shares have an exercise price of $0.20 per share and vest upon the Company raising at least $1 million
in financing. The second 2,000,000 shares carry an exercise price of $0.40 per share and vest upon the Company raising $5 million
in financing. The third 2,000,000 shares carry an exercise price of $0.60 per share and vest upon the Company entering into a significant
corporate alliance for substantial marketing and selling of the Company’s product portfolio. On March 1, 2018 the Board of
Directors approved a reduction in the exercise price of 6,000,000 stock options issued to the Company’s CEO on August 22,
2016. The First tranche of 2,000,000 will be exercisable at $0.10 per share and the second and third tranches of 2,000,000 will
be exercisable at $0.15 per share. The remainder of the terms remain unchanged.
In addition, the Company amended 1,500,000
stock options previously granted to the new CEO to extend the expiration date to August 22, 2026. These options were all previously
vested.
No stock options were issued under either
plan during the year ended December 31, 2019.
The fair value of stock options granted
and revaluation of non-employee consultant options for year ended December 31, 2018 was calculated with the following assumptions:
|
|
2018
|
|
Risk-free interest rate
|
|
|
2.22 - 2.3
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Volatility factor
|
|
|
217.6% - 219.04
|
%
|
Expected life of option
|
|
|
1.71 - 5 years
|
|
For the years ended December 31, 2019 and
2018, the Company recorded stock-based compensation expense of $144,826 and $175,076, respectively, in connection with share-based
payment awards. As of December 31, 2019 and 2018, there was $0 and $144,991, respectively of unrecognized compensation expense
related to non-vested stock option awards.
The following table summarizes the Company’s
stock option activity during the years ended December 31, 2019 and 2018:
|
|
Shares
|
|
|
Exercise
Price per
Share
|
|
|
Weighted
Average
Exercise Price
per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding as of December 31, 2017
|
|
|
9,594,000
|
|
|
$
|
0.10 – 1.21
|
|
|
$
|
0.36
|
|
|
$
|
—
|
|
Granted
|
|
|
4,000,000
|
|
|
|
0.06 – 0.20
|
|
|
|
0.12
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Options forfeited/cancelled
|
|
|
(4,000,000
|
)
|
|
|
0.06 – 0.20
|
|
|
|
0.12
|
|
|
|
|
|
Outstanding as of December 31, 2018
|
|
|
9,594,000
|
|
|
$
|
0.10 – 1.21
|
|
|
$
|
0.29
|
|
|
$
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Options forfeited/cancelled
|
|
|
(410,000
|
)
|
|
|
0.10 – 0.50
|
|
|
|
0.40
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
9,184,000
|
|
|
$
|
0.10 – 1.21
|
|
|
$
|
0.36
|
|
|
$
|
—
|
|
The following table summarizes information about stock options
that are vested or expected to vest at December 31, 2019:
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable Options
|
|
Exercise
Price
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise Price Per
Share
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
$
|
|
|
0.10
|
|
|
|
3,500,000
|
|
|
$
|
0.10
|
|
|
|
3.79
|
|
|
$
|
—
|
|
|
|
3,500,000
|
|
|
$
|
0.10
|
|
|
|
4.04
|
|
|
$
|
—
|
|
|
|
|
0.15
|
|
|
|
4,000,000
|
|
|
|
0.15
|
|
|
|
1.65
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.15
|
|
|
|
1.90
|
|
|
|
—
|
|
|
|
|
0.18
|
|
|
|
934,000
|
|
|
|
0.18
|
|
|
|
3.48
|
|
|
|
—
|
|
|
|
934,000
|
|
|
|
0.18
|
|
|
|
3.73
|
|
|
|
—
|
|
|
|
|
0.20
|
|
|
|
150,000
|
|
|
|
0.20
|
|
|
|
5.24
|
|
|
|
—
|
|
|
|
150,000
|
|
|
|
0.20
|
|
|
|
5.49
|
|
|
|
—
|
|
|
|
|
0.37
|
|
|
|
58,000
|
|
|
|
0.37
|
|
|
|
2.68
|
|
|
|
—
|
|
|
|
58,000
|
|
|
|
0.37
|
|
|
|
2.93
|
|
|
|
—
|
|
|
|
|
0.42
|
|
|
|
63,000
|
|
|
|
0.42
|
|
|
|
1.00
|
|
|
|
—
|
|
|
|
63,000
|
|
|
|
0.42
|
|
|
|
1.25
|
|
|
|
—
|
|
|
|
|
0.69
|
|
|
|
100,000
|
|
|
|
0.69
|
|
|
|
4.20
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
0.69
|
|
|
|
4.45
|
|
|
|
—
|
|
|
|
|
1.21
|
|
|
|
379,000
|
|
|
|
1.21
|
|
|
|
4.03
|
|
|
|
—
|
|
|
|
379,000
|
|
|
|
1.21
|
|
|
|
4.28
|
|
|
|
—
|
|
$
|
|
|
0.10-1.21
|
|
|
|
9,184,000
|
|
|
$
|
0.20
|
|
|
|
3.60
|
|
|
$
|
—
|
|
|
|
5,184,000
|
|
|
$
|
0.20
|
|
|
|
3.60
|
|
|
$
|
—
|
|
The following table sets forth the status of the Company’s
non-vested stock options as of December 31, 2019 and 2018:
|
|
Number of
Options
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Non-vested as of December 31, 2017
|
|
|
4,000,000
|
|
|
$
|
0.50
|
|
Granted
|
|
|
4,000,000
|
|
|
|
0.12
|
|
Forfeited
|
|
|
(4,000,000
|
)
|
|
|
0.12
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Non-vested as of December 31, 2018
|
|
|
4,000,000
|
|
|
$
|
0.50
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Non-vested as of December 31, 2019
|
|
|
4,000,000
|
|
|
$
|
0.50
|
|
The weighted-average remaining contractual life for options
exercisable at December 31, 2019 is 3.60 years. At December 31, 2019 the Company has 8,566,000 and 7,250,000 options available
for grant under the 2011 Plan and 2010 Plan, respectively.
The aggregate intrinsic value for fully vested,
exercisable options was $0 at both December 31, 2019 and 2018, respectively. The aggregate intrinsic value of options exercised
during the years ended December 31, 2019 and 2018 was $0 for both years as no options were exercised. The actual tax benefit realized
from stock option exercises during the years ended December 31, 2019 and 2018 were $0 for both years as no options were exercised
in either year.
12.
|
RELATED PARTY TRANSACTIONS
|
Through December 31, 2011, a founder of
the company and significant shareholder, Dr. David Platt advanced $257,820 to the Company to fund start-up costs and operations.
Advances by Dr. Platt carry an interest rate of 6.5% and were due on June 29, 2013. On May 7, 2012, Dr. Platt and the Company’s
former President and also a significant shareholder entered into promissory notes to advance to the Company an aggregate of $40,000.
The notes accrue interest at 6.5% per year and were due June 30, 2013. The outstanding notes of $297,820 were amended each year
to extend the maturity dates. Effective June 30, 2015, the outstanding notes for Dr. Platt were amended to extend the maturity
dates to June 30, 2017. During 2017, the Company made principal payments totaling $20,000 to the former President of the Company,
reducing the total balance of the outstanding notes to $277,820. As of December 31, 2019 and December 31, 2018, the remaining notes
and accrued interest to Dr. Platt are in default and are classified as current liabilities.
On June 24, 2011, the Company entered into
a definitive Licensing and Manufacturing Agreement (the “Agreement”) with Advance Pharmaceutical Company Ltd. (“APC”),
a Hong Kong-based privately-held company. Under terms of the Agreement, the Company manufactures and supplies product in bulk for
APC. APC is responsible for the packaging, marketing and distribution of SUGARDOWN® in certain territories within Asia. In
addition, APC is able to purchase the SUGARDOWN product directly from the US manufacturer and sell it within APC’s distribution
area. In these situations, the Company is entitled to royalty payments from APC of 10% of the total sales price paid upon shipment
of the product. APC, through a wholly owned subsidiary, has purchased an aggregate 1,799,800 shares of the Company’s common
stock in conjunction with the Company’s private placement offerings during the years ended December 31, 2012 and 2011. The
shares were purchased on the same terms as the other participants acquiring shares in the respective offerings. Conroy Chi-Heng
Cheng is a director of APC and joined the Company’s Board in December 2013. No revenue was generated pursuant to the Agreement
for the years ended December 31, 2019 or 2018.
In December 2013, the Board of Directors
agreed to indemnify Dr. Platt for legal costs incurred in connection with an arbitration (now concluded) initiated before the American
Arbitration Association by Galectin Therapeutics, Inc. (formerly named Pro-Pharmaceuticals, Inc.) for which Dr. Platt previously
served as CEO and Chairman. Galectin sought to rescind or reform the Separation Agreement entered into with Dr. Platt upon his
resignation from Galectin to remove a $1.0 million milestone payment which Dr. Platt asserted he was entitled to receive and to
be repaid all separation benefits paid to Dr. Platt. The Company initially capped the amount for which it would indemnify Dr. Platt
at $150,000 in December 2013 and Dr. Platt agreed to reimburse the indemnification amounts paid by the Company should he prevail
in the arbitration. The Board decided to indemnify Dr. Platt after considering a number of factors, including the scope of the
Company’s existing indemnification obligations to officers and directors and the potential impact of the arbitration on the
Company. In May 2014, the Board approved a $50,000 increase in indemnification support, solely for the payment of outside legal
expenses. The Company recorded a total of $182,697 in costs associated with Dr. Platt’s indemnification, of which $119,401
was expensed in the year ended December 31, 2013 and of which $63,296 was expensed in the year ended December 31, 2014. In July
2014, the arbitration was concluded in favor of Dr. Platt, confirming the effectiveness of the separation agreement and payment
was made to Dr. Platt in July 2014.
On March 2, 2015, the Board of Directors
voted to reduce the amount that Dr. Platt was required to reimburse the Company to $82,355 and to offset this amount against interest
accrued in respect of the outstanding note payable to Dr. Platt. In addition, the Board determined that Dr. Platt would be charged
interest related to the $182,697 indemnification payment since funds were received by Dr. Platt in July 2014. The Board of Directors
concluded the foregoing constituted complete satisfaction of Dr. Platt’s indemnification by the Company. Accordingly, the
Company recorded the reduction in accrued interest through equity during the year ended December 31, 2015. As of December 31, 2019
and December 31, 2018, $80,815 and $59,650, respectively, of accrued interest in connection with the related party promissory notes,
had been included in accrued expenses and other current liabilities on the accompanying balance sheet.
During September 2015, the Company entered
into a securities purchase agreement with CJY. Pursuant to this agreement, the Company issued to CJY a convertible promissory note
in the principal amount of $750,000. The Note was amended during the fourth quarter of 2015 to $1,200,000. During 2016, the Note
was amended to $1,752,000. This Note provided necessary bridge financing to the Company prior to a financing of $1,600,000 completed
in the third quarter of 2016. Interest accrues at the rate of 10% per annum and is due upon maturity of the note in August 2018.
The Company may prepay this Note and any accrued interest at any time. At any time amounts outstanding under the CJY Note are convertible
into the Company’s common stock, in whole or in part, at the option of the lender, at a conversion price of $0.05 per share.
A beneficial conversion feature of $1,642,000 was calculated and capped at the value of the note pursuant to ASC 470 - 20. The
Company recorded amortization of the beneficial conversion feature as interest expense in the amount of $0 and $261,656 during
the years ended December 31, 2019 and 2018, respectively.
On October 6, 2017, in accordance with
the terms of the Securities Purchase Agreement, CJY Holdings converted $500,000 of Notes in exchange for 10,000,000 shares of the
Company’s common stock. The cost basis for the shares issued was $0.05. Upon conversion, a loss on extinguishment of $15,354
was charged to additional paid in capital.
On October 16, 2017, CJY holdings converted
an additional $50,000 of the Notes along with $150,000 of accrued interest into 4,000,000 shares of the Company’s common
stock. The cost basis for the shares issued was $0.05. Upon conversion, a loss on extinguishment of $155,459 was charged to additional
paid in capital.
During August 2019, CJY Holdings agreed
to extend the maturity of the Notes payable for one year through August 2020.
On April 26, 2017, Boston Therapeutics,
Inc. (the “Company”) entered into Securities Purchase Agreement with CJY Holdings Limited (“CJY”) providing
for the sale by the Company to CJY of 6% Subordinated Convertible Debenture in an amount of up to $1,000,000 (the “Debentures”).
In addition to the Debentures, CJY will also receive stock purchase warrants (the “Warrants”) to acquire 500,000 shares
of common stock of the Company for every $50,000 in Debentures purchased. The Warrants are exercisable for five years at an exercise
price of $0.10 and may be exercised on a cashless basis. The Company may only use the proceeds for the payment of services or materials
associated with clinical trials. The Company closed on $200,000 in financing and issued the related Debentures and Warrants under
this agreement on April 26, 2017.
The Debentures bear interest at 6% per
annum and mature two years from issuance. CJY may elect to convert all or part of the Debentures, plus accrued interest, at any
time into shares of common stock of the Company at a conversion price of $0.10 per share. Interest on the Debentures is payable
in cash or shares of common stock at $0.10 per share quarterly commencing June 30, 2017. The conversion price is subject to adjustment
for stock dividends and stock splits. In addition, if after the original issue date of the Debentures, either (i) the volume weighted
average price equals or exceeds $0.50 for 10 consecutive trading days or (ii) the Company elects to list a class of securities
on a national securities exchange, the Company may cause CJY to convert all or part of the then outstanding principal amount of
the Debentures plus, accrued but unpaid interest, liquidated damages and other amounts owed.
CJY agreed to restrict its ability to convert
the Debentures and exercise the Warrants and receive shares of common stock such that the number of shares of common stock held
by CJY after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.
A beneficial conversion feature of $186,939
was calculated and capped at the value of the note pursuant to ASC 470 - 20. The Company recorded amortization of the beneficial
conversion feature as interest expense in the amount of $30,332 and $92,842 during the years ended December 31, 2019 and 2018,
respectively. In connection with this borrowing, the Company also issued warrants to purchase 2,000,000 shares of the Company’s
common stock at $0.10 per share.
Convertible notes payable – related party consist of the
following at December 31, 2019 and December 31, 2018:
|
|
2019
|
|
|
2018
|
|
Principal balance
|
|
$
|
1,402,000
|
|
|
$
|
1,402,000
|
|
Debt discount
|
|
|
-
|
|
|
|
(30,332
|
)
|
Outstanding, net of debt
|
|
$
|
1,402,000
|
|
|
$
|
1,371,668
|
|
On June 12, 2018, the Company issued a
note payable for $100,000 to World Technology East II Limited (“WTE2”). WTE2 is a Hong Kong company owned equally by
Carl W. Rausch, the Company’s CEO and a director, and Conroy Chi-Heng Cheng, a director of the Company. The WTE2 Note is
an unsecured obligation of the Company. Principal and interest under the WTE2 Note is due and payable June 12, 2019, however, in
the event that the Company raises in excess of $1,000,000 in equity financing, then the Company will use part of its proceeds to
pay off the WTE2 Note. During the fourth quarter of 2018, the Company increased the amount of the note payable to $174,500 with
borrowings of $44,500 on October 4, $15,000 on November 5 and $15,000 on December 7. During the first quarter of 2019, the Company
increased the amount of the note payable to $224,500 with borrowings of $30,000 on January 17 and $20,000 on February 11. During
the second quarter of 2019, the Company increased the amount of the note payable to $324,500 with borrowings of $50,000 on April
4 and $50,000 on May 31. On July 31, 2019, the Company borrowed $50,000 increasing the total amount of notes payable to $374,500.
On November 18, 2019, the Company borrowed $30,000 increasing the total amount of notes payable to $404,500 which remain outstanding
at December 31, 2019. The notes payable are due on various dates through November 18, 2020 including $174,500 which came due on
during 2019 and are currently in default. Interest accrues on the WTE2 Notes at the rate of 10.0% per annum. Accrued interest at
December 31, 2019 and December 31, 2018 totaled $37,516 and $6,843, respectively.
On September 26, 2018, the Company issued
a note payable for $305,937 to CJY Holdings, Ltd (“CJY”). CJY is a Hong Kong company owned by Conroy Chi- Heng Cheng,
a director of the Company. The CJY Note is an unsecured obligation of the Company. Principal and interest under the CJY Note is
due and payable September 26, 2019. During the second quarter of 2019, the Company increased the amount of the note payable to
$595,081 with a borrowing of $289,144 on April 12. During the third quarter of 2019, the Company increased the amount of the note
payable to $947,108 with a borrowing of $157,671 on July 2 and $194,356 on July 31. During the third quarter of 2019, the Company
increased the amount of the note payable to $1,266,108 with a borrowing of $319,000 on November 29. The notes are due on various
dates through October 29, 2020, including the $305,937 note which was due on September 26, 2019 and is currently in default. Interest
accrues on the CJY Note at the rate of 10% per annum. Accrued interest at December 31, 2019 and December 31, 2018 totaled $80,546
and $7,984, respectively.
Included in accounts payable at December
31, 2019 and December 31, 2018 are amounts due shareholders, officers and directors of the Company in the amounts of $152,302 and
$121,453, respectively.
Included in accrued expenses at December
31, 2019 and December 31, 2018 are amounts due shareholders, officers and directors of the Company in the amounts of $1,097,974
and $779,545, respectively.
13.
|
PROVISION FOR INCOME TAXES
|
During the years ended December 31, 2019
and 2018, no provision for income taxes was recorded as the Company generated net operating losses.
A reconciliation of the U.S. federal statutory
income tax rate to the Company’s effective income tax rate is as follows:
|
|
2019
|
|
|
2018
|
|
Net operating loss carryforwards
|
|
|
21.0
|
%
|
|
|
23.9
|
%
|
State taxes, net of federal benefit
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
Federal research and development tax credit
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
Other
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
Change in deferred tax asset valuation allowance
|
|
|
(30.8
|
)
|
|
|
(33.7
|
)%
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Net deferred tax assets as of December 31, 2019 and
2018 consisted of the following:
|
|
2019
|
|
|
2018
|
|
Net operating loss carryforwards
|
|
$
|
6,206,314
|
|
|
$
|
4,964,400
|
|
Tax credit carryforwards
|
|
|
197,747
|
|
|
|
112,200
|
|
Non-qualified stock options
|
|
|
862,413
|
|
|
|
832,000
|
|
Gross deferred tax assets
|
|
|
7,266,474
|
|
|
|
5,908,600
|
|
Valuation allowance
|
|
|
(7,266,474
|
)
|
|
|
(5,908,600
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
As of December 31, 2019, the Company had
net operating loss carryforwards for federal and state income tax purposes of $26.7 million, which begin to expire in years 2035
and 2020, respectively. The Company also has estimated available research and development tax credit carryforwards for federal
income tax purposes of $197,747, which begin to expire in year 2032.
Pursuant to the Internal Revenue Code Section
382 (“Section 382”), certain ownership changes may subject the net operating loss carryforwards (“carryforwards”)
and research and development tax credit carryforwards to annual limitations which could reduce or defer the carryforwards. Section
382 imposes limitations on a corporation’s ability to utilize carryforwards if it experiences an ownership change. An ownership
change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than
50 percentage points over a three-year period. In the event of an ownership change, utilization of the carryforwards would be subject
to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change
by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of
this limitation on its ability to use the carryforwards to offset future taxable income could cause the Company to pay U.S. federal
income taxes earlier than if such limitation were not in effect and could cause such carryforwards to expire unused, reducing or
eliminating the benefit of such carryforwards. The Company has not completed a Section 382 study to determine if there have been
one or more ownership changes due to the costs associated with such a study. Until a study is completed and the extent of the limitations,
if any, is able to be determined, no additional amounts have been written off or are being presented as an uncertain tax position.
The Company provided a full valuation allowance
for deferred tax assets generated since, based on the weight of available evidence; it is more likely than not that these
benefits will not be realized. During the year ended December 31, 2019, the Company increased its valuation allowance by $1,357,874
due to the continued likelihood that realization of any future benefit from deductible temporary differences and net operating
loss carryforwards cannot be sufficiently assured at December 31, 2019. Management reevaluates the positive and negative evidence
at each reporting period.
The Company applies the provisions of ASC
740-10, Income Taxes. The Company has not recognized any liability for unrecognized tax benefits and does not believe there
is any uncertainty with respect to its tax position. The Company’s policy with respect to unrecognized tax benefits is to
recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The Company files tax returns as prescribed
by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination
by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s
tax years are still open under statute from 2013 to the present. Earlier years may be examined to the extent that tax credit or
net operating loss carryforwards are used in future periods. The Company’s policy is to record interest and penalties related
to income taxes as part of its income tax provision.
14.
|
COMMITMENTS AND CONTINGENCIES
|
Pending litigation
In March 2019, we were served with notification
of complaint filed by CureDM Inc. as agent for the members of CureDM Group Holdings, LLC filed with the Supreme Court of the State
of New York County of New York regarding breach of contract and other matters relating to their desire to unwind the acquisition
of CureDM Group Holdings LLC according to the original Contribution Agreement. We have been working with the representatives from
CureDM Inc. to settle this claim and unwind the Contribution Agreement. The complaint was withdrawn by CureDM, Inc. in December
2019.
In addition to the above matter, we are
also in arbitration with Level Brands, Inc. regarding a License Agreement dated June 21, 2018 (JAMS Ref. No.: 1220061261). The
Company filed an Answer to Complaint and Counter-complaint on June 25, 2019. Both parties are claiming non-performance under the
License Agreement. The matter was scheduled for arbitration in October 2019. In October 2019, the arbitration was dismissed without
prejudice.
On October 16, 2019 the Company received
a Summons and Complaint filed by Microcap Headlines Inc. against the Company in the Supreme Court of the United States of New York
County of Suffolk claiming damages of $18,000 and the costs and disbursements of the action. The Company filed an Answer on November
15, 2019. The Company intends to vigorously defend against the claim.
Leases
The Company leased office space at 354
Merrimack Street, Lawrence, MA 01843 on a month to month basis. The Company ended the lease on August 31, 2019. No further obligation
exists. The Company recognized rent expense of $1,500 and $3,600 for the years ended December 31, 2019 and 2018, respectively.
Contingent share liability
On February 12, 2018, the Company entered
into a Contribution Agreement with the members of CureDM Group Holdings, LLC, a limited liability company, all of which except
five are accredited investors (“CureDM Group Members”) pursuant to which the CureDM Group Members agreed to contribute
100% of the outstanding securities of CureDM Group in exchange for an aggregate of 47,741,140 shares of common stock of the Company
(the “BTHE Contribution Shares”) of which 25,000,000 BTHE Contribution Shares were delivered at closing and 22,741,140
BTHE Contribution Shares (the “Milestone BTHE Shares”) shall be delivered in four equal tranches of 5,685,285 BTHE
Contribution Shares each upon the achievement of specific milestones (the “CureDM Group Contribution”). The closing
of the CureDM Group Contribution occurred on February 12, 2018.
Under the agreement, BTI was to use its
best efforts to secure a binding commitment to close an equity financing with net proceeds of at least $1,000,000 within 180 days
after the closing date. The use of the equity financing proceeds would be designated as working capital for at least, but not limited
to the synthesis of HIP2B clinical material. In the event the equity financing is not closed by the required date, then, if both
BTI and CureDM, Inc. mutually agree, (i) this Acquisition Agreement will then be null and void and have no further force and effect
and all other rights and liabilities of the parties will terminate without any liability of any party to any other party and (ii)
each party shall have released the other party. Further, if such event occurs, the CureDM Members will return all shares to BTI
for cancellation.
Subsequent to June 30, 2018, the 180 day
time period elapsed and the Company did not raise the required funding.
The Company believes the milestones noted
above will not be achieved and that the Milestone BTHE Shares will not be issued. Therefore, the Company has not established a
contingent liability to recognize the milestone shares obligations.
Employment Agreement
The Company entered into an Employment
Agreement with Carl W. Rausch pursuant to which Mr. Rausch was engaged as the Chief Executive Officer of the Company for a period
of three years. Mr. Rausch was initially required to relocate from Hong Kong to the United States. However, due to his continued
efforts in Hong Kong, the Company and Mr. Rausch, in March 2017, have amended the employment agreement to remove the provision
requiring Mr. Rausch to relocate to the United States. Mr. Rausch received a signing bonus of $60,000 and an annual salary of $224,000,
which will be increased to $264,000 upon Mr. Rausch relocating to the United States. Further, upon the Company being listed on
a national exchange, Mr. Rausch’s salary will be increased by $20,000. The Company granted Mr. Rausch a Stock Option (the
“Rausch Option”) to acquire an aggregate of 6,000,000 shares of common stock of the Company, exercisable for five (5)
years, subject to vesting. The Rausch Option shall be earned and vested in three equal tranches of 2,000,000 upon the Company raising
$1,000,000 in financing, the Company raising $5,000,000 in financing and the Company entering into a significant corporate alliance
for substantial marketing and selling of the Company’s product portfolio. The initial tranche shall be exercisable at $0.20
per share, the second tranche will be $0.40 per share and the third tranche shall be $0.60 per share, which such vesting is subject
to Mr. Rausch’s continued employment as an executive with the Company as of the vesting date. In addition, as additional
consideration for Mr. Rausch’s commitment to the Company, the stock options previously granted to Mr. Rausch shall be amended
to extend the expiration date to the ten year anniversary of signing date and such options shall be considered fully vested. Mr.
Rausch shall be entitled to certain raises and milestones subject to the achievement of certain milestones to be agreed upon. In
the event the Employment Agreement is terminated prior to the expiration of the term by the Company without cause or by Mr. Rausch
with good reason, the Company shall pay Mr. Rausch an amount equal to Mr. Rausch’s accrued but unpaid base salary and earned
but unpaid bonus prior to the termination date, reimbursement for any reimbursable business expenses and Mr. Rausch’s salary
for a period of one year. On December 12, 2019, Mr. Rausch resigned as the Chief Executive Officer and Board Chairman. In January
2020, Mr. Rausch agreed to remain a paid advisor to the Company. Under the agreement, Mr. Rausch’s options were not canceled
as a result of his voluntary termination
On March 1, 2018 the Board of Directors
approved a reduction in the exercise price of 6,000,000 stock options issued to the Company’s CEO on August 22, 2016. The
First tranche of 2,000,000 will be exercisable at $0.10 per share and the second and third tranches of 2,000,000 will be exercisable
at $0.15 per share. The remainder of the terms remain unchanged.
On February 12, 2018, Loraine Upham was
appointed as Chief Operating Officer. The Company and Ms. Upham entered into an Executive Retention Agreement pursuant to which
Ms. Upham was engaged as Chief Operating Officer with an annual salary of $200,000. However, Ms. Upham’s salary shall accrue
until the Company has raised a minimum of $1,250,000. Ms. Upham is eligible for bonuses as determined by the Board of Directors.
These include a bonus of $20,000 is to be paid upon the Company successfully raising $1,250,000 through the sale of equity; an
annual performance bonus based on milestones related to clinical progress, partnering and fund raising success to be established
by the Board of Directors or the Compensation Committee, if in existence on an annual basis. In addition, Ms. Upham received a
stock option to purchase 4,000,000 shares of common stock under the Company’s Amended and Restated 2011 Stock Incentive Plan,
vesting over three (3) years, one third on the first anniversary of the effective date and the balance in equal quarterly installments.
The exercise price of the initial tranche of options (1,333,334 shares) shall be $0.06 per share, the second tranche (1,333,333
shares) shall be $0.10 per share and the final tranche (1,333,333 shares) shall be $0.20 per share. The term of the options is
five years. Ms. Upham resigned from the Company on November 30, 2018. As a result of her resignation all of her stock options were
terminated and returned to the option pool. Her accrued salary and vacation of $188,716 will be paid once the funding is obtained.
Consulting Agreement
On April 1, 2018, the Company entered into
a Corporate Advisory Agreement with a consultant. Services commenced May 1, 2018 for a term of one year with an option to renew
for an additional six months. Compensation pursuant to the agreement is as follows: (1) a monthly fee of $6,500 paid in cash, and
(2) 3,000,000 shares of restricted common stock of which 1,400,000 shares were deliverable upon execution of the agreement and
the remaining 1,600,000 delivered in monthly installments of 400,000 shares as long as the agreement has not been terminated. Included
in accrued expenses is the monthly fee totaling $110,500 and the fair value of the shares of common stock totaling $211,600, as
the shares have not been issued as of December 31, 2019.
The Company has evaluated events and transactions
that occurred from December 31, 2019 through the date of the filing for possible disclosure and recognition in the financial statements.
Through May 29, 2020,
the Company borrowed $300,000 from a related party to cover operating expenses. The Note bears interest at 10% and is due in
twelve months.
F-29