Boston Therapeutics, Inc.

Condensed Consolidated Balance Sheets

SeeThe accompanying notes to unaudited condensedare an integral part of the consolidated financial statements

Boston Therapeutics, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

Boston Therapeutics, Inc

Condensed Consolidated Statement of Stockholders’ Deficit

For the six Months Ended June 30, 2020

Boston Therapeutics, Inc.

Condensed Consolidated Statement of Stockholders’ Deficit

For the six Months Ended June 30, 2019

See accompanying notes to unaudited condensed consolidated financial statements

Boston Therapeutics, Inc

Condensed Consolidated Statement of Stockholders’ Deficit

For the three Months Ended June 30, 2020

Boston Therapeutics, Inc.

Condensed Consolidated Statement of Stockholders’ Deficit

For the three Months Ended June 30, 2019

See accompanying notes to unaudited condensed consolidated financial statements

BOSTON THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Boston Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

SeeThe accompanying notes to unaudited condensedare an integral part of the consolidated financial statements

Boston Therapeutics, Inc.BOSTON THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial StatementsCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Three and Six Months EndedSix-Months ended June 30, 2021

(Unaudited)

NANOMIX, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Six-Months ended June 30, 2020

(Unaudited)

The accompanying notes are an integral part of the consolidated financial statements

BOSTON THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of the consolidated financial statements

BOSTON THERAPEUTICS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Information as of June 30, 2021 and 2019for the six months ended June 30, 2021 and 2020 is unaudited.

Information as of December 31, 2020 is derived from audited financial statements)

NOTE 1 – THE COMPANY AND NATURE OF BUSINESS

Nature of Operations

1.GENERAL ORGANIZATION AND BUSINESS

Boston Therapeutics, Inc. (the “Company”) was formed as a Delaware corporation on August 24, 2009 under the name Avanyx Therapeutics, Inc. On November 10, 2010, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Boston Therapeutics, Inc., a New Hampshire corporation (“BTI”) providing for the merger of BTI into the Company with the Company being the surviving entity (the “Merger”), the issuance by the Company of 4,000,000 shares of common stock to the stockholders of BTI in exchange for 100% of the outstanding common stock of BTI, and the change of the Company’s name to Boston Therapeutics, Inc. On February 12, 2018, the Company acquired CureDM Group Holdings LLC (“CureDM”), for 47,741,140 shares of common stock of which 25,000,000 were delivered at closing and 22,741,140 were to be delivered in four4 equal tranches of 5,685,285 each upon the achievement of specific milestones. SeeOn January 26, 2021, Boston Therapeutics, Inc., a Delaware corporation (the “Company”), BTHE Acquisition Inc., a California corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and Nanomix, Inc., a California corporation (“Nanomix”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, Merger Sub merged with and into Nanomix, with Nanomix continuing as a wholly-owned subsidiary of the Company and the surviving corporation of the merger (the “Merger”). As consideration for the Merger, Company issued to the shareholders of Nanomix 1,000,000 shares of a newly created Series C Convertible Preferred Stock of the Company (the “Preferred Stock”). Upon the effectiveness of the amendment to our Certificate of Incorporation to effectuate the reverse stock split of one-for-173, all such shares of Preferred Stock issued to Nanomix shareholders shall automatically convert into approximately 35,316,768 shares of common stock of the Company, the warrants to be assumed at closing may be exercisable into approximately 2,100,911 shares of common stock of the Company and the options and restricted stock units to be assumed at closing may be exercisable into approximately 6,070,842 shares of common stock of the Company. The shares of common stock issuable upon conversion of the Preferred Stock together with warrants, restricted stock units and options to be assumed on the closing date shall represent approximately 80% of the outstanding shares of Common Stock of the Company upon closing of the Merger. The merger closed on June 4, 2021.See Note 12.9

Nanomix has developed an advanced mobile Point-of-Care (POC) diagnostic system that can be used in performing a wide range of in vitro diagnostic tests in many environments. Our goal is to provide laboratory quality testing for time sensitive medical conditions, at the first point of contact that a patient has with the healthcare system, no matter where that occurs. The Company’s primary businessNanomix eLab® system is CE Marked, a 510(k) is currently in process, and Emergency Use Application (EUA) for COVID testing has been submitted to 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®,FDA. Nanomix intends to market and sell this system for the detection and diagnosis of a variety of time sensitive medical conditions.

NOTE 2 – BASIS OF PRESENTATION

The accompanying financial statements have begun to make initial sales. We arebeen prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

The Company currently focusedoperates in one business segment focusing 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 thatmobile diagnostic tests. The Company is fully developed,not organized by market and IPOXYN, an injectable anti-necrosis, anti-hypoxia drug that we are currently developing. Dueis managed and operated as one business. A single management team reports to the lackchief operating decision maker, the Chief Executive Officer, who comprehensively manages the entire business. The Company does not currently operate any separate lines of adequate funding, the Company has not done any work with respect to IPOXYN to date.business or separate business entities.

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern.concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company has limited cash resources, recurring cash used in operations and operatingnot yet realized any significant revenues from its planned operations. The Company had net losses history. As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of approximately $27.5$4.8 million as of June 30, 2020 and used cash in operations of $479,365 during$3.2 million for the six monthssix-months ended June 30, 2020.2021 and 2020, respectively. These factorsmatters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The Company has incurred recurring operating losses since

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 developmentoperations of BTI-320 or IPOXYN is completed. The Company has $57,337 cash on hand at June 30, 2020. Management is currently seeking additional capital through private placements and public offerings of its common stock. In addition, the Company may seekhave been funded through the sale of common stock, preferred stock subject to redemption, debt and convertible debt, and derived revenue from contract research and development services. Management believes that its existing working capital is insufficient to fund the Company’s operations for the next twelve months. As a result, the Company will need to raise additional capital throughto fund its operations and continue to conduct activities that support the development and commercialization of its products. Management intends to raise additional funds by way of public or private debt or equity financings as well as collaboration activities in order to fund our operations. The Company was advanced $250,000 through the issuance of 10% notes payable to a related party during the first quarter of 2020. The Company was advanced $330,000 through the issuance of 10% notes payable to a related party during the second quarter of 2020. The Company was advanced $230,000 through the issuance of 10% notes payable to a related party during the third quarter of 2020.offering and continued contract research and development services. Management anticipatescannot be certain that cash resourcesadditional funding will be sufficientavailable on acceptable terms, or at all to fund our planned operations into the fourth quarter of 2020. The future ofextent that the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. If the Company is dependent upon its abilitynot able 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 suchraise additional capital wewhen required or an acceptable terms, the Company may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be requireddesirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to cease operations. technologies, product candidates or products that the Company would otherwise seek to develop or commercialize.

The accompanyingconsolidated financial statements do not include any adjustments that might result should thebe necessary if Company beis unable to continue as a going concern.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

2.NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICESPOLICIES

Use of Estimates

Basis

The preparation 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 statementsrelated disclosures in conformity with U.S. GAAPgenerally accepted accounting principles (“U.S. GAAP”) requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and these differences may be material. The more significant estimates and assumptions that affectby management include among others: recoverability of long-lived assets, accrued liabilities, the reported amountsvaluation allowance of deferred tax assets resulting from net operating losses and liabilities and disclosure of contingent assets and liabilities at the datevaluation of the financial statementsCompany’s common stock, preferred stock, warrants and options on the reported amounts of revenue and expenses during the reporting period. Actual results could differCompany’s common stock.

Revenue Recognition

Revenues are derived from those estimates.three sources:

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 June 30, 2020 and December 31, 2019.

Revenue Recognition

For revenue from product sales, the Company recognizes revenue when the customer obtains control of promised goods or services, in accordance with Financialan amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under Accounting Standards BoardUpdate (“FASB”ASU”) Accounting Standards Codification (“ASC”) 606 (“ASC 606”). A five-step analysis must be met as outlined in ASC 606:2014-09: (i) identify the contractcontract(s) with the customer,a customer; (ii) identify the performance obligations in the contract,contract; (iii) determine the transaction price,price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation.

Product Revenue

Revenue from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon tendering the product to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial. Freight and distribution activities on products are performed when the customer obtains control of the goods. The Company has made an accounting policy election to account for shipping and handling activities that occur either when or after goods are tendered to the customer as a fulfillment activity, and therefore recognizes freight and distribution expenses in cost of product sales. The Company excludes certain taxes from the transaction price (e.g., sales, value added and some excise taxes).

The Company’s contracts with customers may include promises to transfer products or services to a customer. Determining whether products and services are considered distinct performance obligations are satisfied. Provisionsthat should be accounted for discountsseparately versus together may require judgment to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. SSP is directly observable, 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 can use a range of amounts to estimate SSP, as it sells products and services separately, and can determine whether there is a discount to be allocated based on the relative SSP of the various products and services, for the various geographies.

The Company’s payment terms vary by the type and location of the Company’s customer jointly determine thatand products or services offered. Payment terms differ by jurisdiction and customer, but payment is generally required in a term ranging from 30 to 60 days from date of shipment or satisfaction of the performance obligation. From time to time the Company may receive prepayment from customers for products to be manufactured or component materials to be procured and shipped in future dates. Customer payments in advance of the applicable performance obligation are deferred and recognized when the product has been deliveredtendered to the customer.

R&D Revenue

All contracts with customers are evaluated under the five-step model described above. The company recognizes income from R&D milestone-based contracts when those milestones are reached and non-milestone contracts and grants when earned. These projects are invoiced after expenses are incurred. Any projects or no refund will be required.grants funded in advance are deferred until earned.

License and Royalty Revenues

The Company generates revenuesreceives royalty revenue on sales by its licensee of products covered under patents that the Company owns. License Revenues are recorded based on the achievement of contract milestones. Royalty revenue is based on estimates of the sales that occurred during the relevant period as a component of license and royalty revenue. The relevant period estimates of sales are based on interim data provided by the licensee and analysis of historical royalties that have been paid to the Company, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenue are adjusted for in the period in which they become known, typically the following quarter. Historically, the Company has not recorded any royalty revenue and has not received any royalties from salesits licensee.

Cash and Cash Equivalents

For purposes of SUGARDOWN®. In practice,the Consolidated Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents. As of June 30, 2021, the Company places all of its cash and with one financial institution. Such funds are insured by The Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Cash balances could exceed insured amounts at any given time; however, the Company has not experienced or granted significantany such losses. At June 30, 2021 and December 31, 2020 there were no cash equivalents.

Allowances for Sales Returns and Doubtful Accounts

The allowance for sales returns is based on the Company’s estimates of product. Shipping fees chargedpotential future product returns and other allowances related to customers are included in revenue and shipping costs are included in costs of sales.

current period product revenue. The Company generates revenue from royalties pursuant to a licensinganalyzes historical returns, current economic trends and manufacturing agreement with Advance Pharmaceutical Company Limited (“APC”), whereby the licensee sellschanges in customer demand 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 stockholderacceptance of the Company is an owner and director of APC.Company’s products. The Company did not recognize any revenue from royalties from APC during the three or six months ended June 30, 2020 and 2019 respectively.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

Accounts Receivable

Accounts receivable is stated at the amount management expects to collect from outstanding balances. Management establishes a reserveallowance for doubtful accounts is based on itsthe Company’s assessment of the collectability of customer accounts and the aging of the related invoices, and represents the Company’s best estimate of probable credit losses in its existing trade accounts receivable. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current status of individual accounts. Balanceseconomic conditions that remain outstanding after management has used reasonable collection efforts are written off against the allowance. There weremay affect a customer’s ability to pay. We determined that no allowances for sales returns and doubtful accounts as ofwere required at June 30, 20202021 and December 31, 2019.2020.

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 isare carried at cost and depreciated or amortized using thea straight-line methodbasis over the following estimated useful lives:lives of assets, as follows:

Leasehold improvements are depreciated over the shorter of their estimated useful lives or the term of the respective lease on a straight line basis.

The Company begins to depreciate assets when they are placed in service. The costscost of repairs and maintenance areis expensed as incurred;incurred; major renewalsreplacements and bettermentsimprovements are capitalized. Upon saleWhen assets are retired or retirement,disposed of, the cost and related accumulated depreciation arewill be removed from the accounts and anythe resulting gain or loss, if any, will be reflected in operations. 

The Company will assess the recoverability of property and equipment by determining whether the depreciation and amortization of these assets over their remaining life can be recovered through projected undiscounted future cash flows. The amount of equipment impairment, if any, will be measured based on fair value and is includedcharged to operations in the statement of operations. For the three months ended June 30, 2020 and 2019, the Company recorded depreciation expense of $0 and $407, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded depreciation expense of $509 and $813, respectively.period in which such impairment is determined by management.

Intangible Assets

Intangible assets consist of identifiable finite-lived assets acquired in business acquisitions. Acquired intangible assets are recorded at fair value on the date of acquisition and are amortized over their economic useful lives on a straight line basis.

Impairment of Long-lived Assets

The Company reviews long-lived assets, which include the Company’s intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Future undiscounted cash flows of the underlying assets are compared to the assets’ carrying values. Adjustments to fair value are made if the sum of expected future undiscounted cash flows is less than book value. To date, no adjustments for impairment have been made.

The Company performed its impairment review of intangible assets for the year ended December 31, 2019 and concluded that intangibles were impaired at December 31, 2019. The Company recorded impairment of intangibles in the amount of $367,181 for the year ended December 31, 2019. The Company has no intangible assets at June 30, 2020.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

Loss per Share

Basic net loss per share is computed based on the net loss for the period divided by the weighted average actual shares outstanding during the period. Diluted net loss per share is computed based on the net loss for the period divided by the weighted average number of common shares and common equivalent shares outstanding during each period unless the effect of such common equivalent shares would be anti-dilutive. Common stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options using the treasury stock method. The weighted average number of common shares for the three and six months ended June 30, 2020 did not include 9,184,000, 38,458,320, 39,716,877 and 8,250,000 for options, warrants and shares to be issued upon conversion of notes payable and Series A Preferred Stock, respectively, because of their anti-dilutive effect. The weighted average number of common shares for the three and six months ended June 30, 2019 did not include 9,494,000, 38,583,320, 37,774,653 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 thean asset and liability method. Under this method,approach that recognizes deferred tax assets and liabilities are recognized forbased on the future tax consequences attributable to differencesdifference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect forin the yearyears in which those temporarythe differences are expected to reverse.

The Company follows a more-likely than -not threshold for financial statement recognition and measurement of a tax position taken, or expected to be recovered or be settled. taken, in a tax return.

The effect oncompany assesses the realizability of its net deferred tax assets on an annual basis. If, after considering all relevant positive 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 whennegative evidence, it is more likely than not that some portion or all of the grossnet deferred tax assetassets will not be realized. realized, the Company will reduce the net deferred tax assets by a valuation allowance. The realization of the net deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards.

The Company records interest and penalties related to income taxes as a componenthas no uncertain tax positions at any of provision for income taxes. the dates presented.

Foreign Currency Translation

The Company did not recognize any interest and penalty expense for the three or six months ended June 30, 2020 and 2019.

Advertising Costs

Advertising costsderives a portion of its revenue from foreign countries, but customers pay in U.S. Dollars. Therefore, no adjustments are expensed as incurred and are reported as a component of operating expensesrequired in the sales and marketing expenses in theaccompanying consolidated financial statements of operations. The Company did not incur any advertising costs for either three or six month period ended June 30, 2020 and 2019, respectively.foreign currency transactions.

Research and Development Costs

The Company expenses the cost of research and development as incurred. Research and development expenditures are charged to the statement of operations as incurred. Suchexpenses comprise costs include proprietaryincurred in performing research and development activities, purchasedincluding clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well as other contracted services, license fees, and other externa costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather when payment is made, in accordance with ASC 730, Research and expenses associated with research and development contracts, whether performed by the Company or contracted with independent third parties.Development.

Fair Value Measurements

Fair value is defined as the price that would be received for sale of Financial Instruments

Fair values determined by Level 1an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP established a three-tier fair value hierarchy, which prioritizes the inputs utilize observable data such as quoted pricesused in active markets. Fair values determined by Level 2 inputs utilize data points other thanmeasuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs ( Level 3 measurements). These tiers include:

The Company had no assets or liabilities which were measured at fair value on a nonrecurring basis during the reporting periods.

Fair Value of Financial Instruments

In accordance with current accounting standards, certain assets and liabilities must be measured at fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. ASC 820 requires that certain assets and liabilities must be measured at fair value, and the standard details the disclosures that are observable either directly or indirectly. Fair values determinedrequired for items measured at fair value. The Company had no assets and liabilities required to be measured on a recurring basis at June 30, 2021 and December 31, 2020.

The current assets and current liabilities reported on the Company’s balance sheets are estimated by Level 3 inputs utilize unobservable data points in which there is little or nomanagement to approximate fair 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 1nature.

Employee Stock-based Compensation

Stock-based compensation issued to employees and level 2 inputs as defined above. The carrying valuemembers of the notes payable asCompany’s Board of June 30, 2020 and December 31, 2019, evaluated using level 2 inputs defined above based on quoted market prices on rates available to the Company for debt with similar terms and maturities, approximates the fair value. The carrying value of, Derivative liability and warrant liability as of June 30, 2020 and December 31, 2019 were determined using Level 3 inputs as defined above.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash. The Company places its cash and cash equivalents in highly rated financial institutions. The Company maintains cash balances with financial institutions that occasionally exceed federally insured limits. The Company has not experienced any losses related to these balances, and management believes its credit risk to be minimal.

Convertible Instruments

U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contractDirectors 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 stockmeasured 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 June 30, 2020 and December 31, 2019 using the applicable classification criteria enumerated under ASC 815-Derivatives and Hedging. The Company determined that certain embedded conversion and/or exercise features do not contain fixed settlement provisions. The convertible debentures contain a conversion feature such that the Company could not ensure it would have adequate authorized shares to meet all possible conversion demands.

As such, the Company was required to record the debt and warrant derivatives which do not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at the end of each reporting period.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

Stock-Based Compensation

Stock–based compensation, including grants of employee and non-employee stock options and modifications to existing stock options, is recognized in the income statementgrant based on the estimated fair value of the awards. award, net of estimated forfeitures. The Company recognizes the compensation costgrant date fair value of share-based awards on a straight-line basisstock-based award is recognized as an expense 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 statementsaward on a straight-line basis overbasis.

For purposes of determining the requisite service period, based on awards that are ultimatelyvariables used in the calculation of stock-based compensation issued to employees, the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected to vest.

Theterm of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, the Company grantsuses these estimates as variables in the Black-choles option pricing model. Depending upon the number of stock options to non-employee consultants from time to timegranted, any fluctuations 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 notcalculations could have a material effect on the results presented in the Company’s consolidated Financial statements as the Company does not haveStatements of Operations. In addition, 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 industriesdifferences between estimated forfeitures and are not expected toactual forfeitures could also have a material impact on the Company’s financial position, resultsstatements.

Stock-Based Compensation Issued to Non-employees

Common stock issued to non-employees for acquiring goods or providing services is recognized at fair value when the goods are obtained or over the service period, which is generally the vesting period. If the award contains performance conditions, the measurement date of operationsthe award is the earlier of the date at which a commitment for performance by the non-employee is reached or cash flows.the date at which performance is reached. A performance commitment is reached when performance by the non-employee is probable because of sufficiently large disincentives for nonperformance.

Earnings per Share

Reclassification

The computation of basic earnings per common share is based on the weighted average number of shares outstanding during the period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the weighted average common stock equivalents which would arise from the exercise of stock options, warrants, convertible preferred stock and other rights during the period.

Certain prior period amounts have been reclassified to conform to current period presentation.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Endedperiod ended June 30, 20202021, the diluted weighted average number of shares is the same as the basic weighted average number of shares as the inclusion of any common stock equivalents would be anti-dilutive.

Recent Accounting Pronouncements Affecting the Company:

Recently Adopted

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The accounting guidance sets out a five-step approach to revenue recognition. The new guidance requires expanded disclosures to provide greater insight into both revenue that has been recognized and 2019revenue that is expected to be recognized in the future from existing contracts. The Company adopted the ASU 2014-09 (Topic 606) effective January 1, 2019.

3.INVENTORY

Inventory consist of material, laborIn February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842),” which amends existing accounting standards for leases. The ASU requires lessees to recognize most leases on their balance sheet as a lease liability with a corresponding right-of-use asset. Right-of-use assets and manufacturing overhead andlease liabilities are recorded at the lowerpresent value of cost, usingminimum lease payments. The Company adopted the weighted average cost method, or net realizable value. The componentsASU effective January 1, 2019. We recognized a $121,838 right-of-use asset and $163,223 related lease liability as of inventory at June 30, 2021 and $232,065 right-of-use asset and $313,146 related lease liability as of December 31, 2020 for our operating lease. For our operating lease, the asset is included in other long-term assets on the balance sheet and is amortized within operating income over the lease term. The long-term component of the lease liability is included in other long-term liabilities, net, and the current component is included in other current liabilities. See Note 8 for further details regarding Nanomix’s leases.

ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. This guidance had no effect on the Company’s consolidated financial statements upon adoption in 2021.

NOTE 4 – REVENUE

Deferred Revenue

The company recognizes income from R&D milestone-based contracts when those milestones are reached and non-milestone contracts and grants when earned. These projects are invoiced after expenses are incurred. Any projects or grants funded in advance are deferred until earned.

From time to time the Company may receive prepayment from customers for products to be manufactured or component materials to be procured and shipped in future dates. Customer payments in advance of the applicable performance obligation are deferred and recognized in accordance with ASC 606.

As of June 30, 2021 and December 31, 2019, net2020, there were $293,523 and $188,741 unearned advanced revenues, respectively.

Disaggregation of inventory reserves, were as follows:Revenue

The Company periodically reviews quantities of inventory on handfollowing table disaggregates total revenues for the periods ending June 30, 2021 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.2020:

NOTE 5 – PROPERTY AND EQUIPMENT

4.INTANGIBLE ASSETS

The SUGARDOWN® technologyProperty and patent applications, which were obtained through the acquisition of BTI in 2010, were being amortized on a straight-line basis over their estimated useful lives of 14 years. The BTI-420 technology and patent applications, which were obtained through the acquisition of CureDM in 2018, were being amortized on a straight-line basis over their estimated useful lives of 5 years.

Intangible assets consistequipment consisted of the following at June 30, 20202021 and December 31, 2019:2020:

Amortization

Depreciation expense was $0$17,476 and $37,876 for the three months ended June 30, 2020 and 2019, respectively. Amortization expense was $0 and $76,326$12,347 for the six months ended June 30, 20202021 and 2019, respectively.2020.

The Company performed its impairment review of intangible assets for the year ended December 31, 2019 and concluded that intangibles were impaired at December 31, 2019. The Company recorded impairment of intangibles in the amount of $367,181 for the year ended December 31, 2019.

5.ACCRUED EXPENSESNOTE 6 – NOTES PAYABLE AND OTHER CURRENT LIABILITIES

The following table represents the major components of accrued expenses and other current liabilities at June 30, 2020 and December 31, 2019:

7.CONVERTIBLE NOTES PAYABLE

Convertible Note payable, net of discount

In August and September 2016, the Company issued senior convertible debentures for an aggregate of $1,600,000 (the “Convertible Debentures”) in exchange for an aggregate net cash proceeds of $1,327,300, net of financing costs. The Convertible Debentures have a stated interest rate of 6% per annum payable quarterly beginning June 30, 2017 and were due two years from the date of issuance, the latest due September 15, 2018 and are convertible into shares of the Company’s common stock at the option of the holder at a conversion price of $0.075 with certain anti-dilutive (reset) provisions and are subject to forced conversion if either i) the volume weighted average common stock price for each of any 10 consecutive trading days equals or exceeds $0.50, or (ii) the Company’s elects to lists a class of securities on a national securities exchange.

As long as the convertible notes remain outstanding, the Company is restricted from incurring any indebtedness or liens, except as permitted (as defined), amend its charter in any matter that materially effects rights of noteholders, repay or repurchase more than de minimis number of shares of common stock other than conversion or warrant shares, repay or repurchase all or any portion of any indebtedness or pay cash dividends.

In connection with the issuance of the Convertible Debentures, the Company issued an aggregate of 16,000,000 warrants to purchase the Company’s common stock at $0.10 per share, expiring five years from the date of issuance, the latest being September 15, 2021. These warrants contain a cashless exercise and certain anti-dilutive (reset) provisions.

The Company determined that certain conversion/exercise option related to a convertible note and issued warrants did not have fixed settlement provisions and are deemed to be derivative financial instruments due to price protection features present in the conversion/ exercise price that are not consistent with a fixed for fixed model.

The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivative as of the issuance date of the debenture and warrants and to re-measure the derivatives at fair value as of each subsequent reporting date.

The Company recognized the value attributable to the conversion feature of the convertible debenture and issued warrants of $2,203,336 and together with financing costs of $272,700 (aggregate of $2,476,036) as a discount against the notes up to $1,600,000 with the excess of $876,036 charged to current period interest. The Company valued the conversion option and the warrants using the Black-Scholes pricing model as described in Note 6. The debt discount was fully amortized over the note’s maturity period as interest expense.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

During the first quarter of 2020, the Company paid the note of one of the two remaining investors of $50,000. The Company also paid accrued interest on that note totaling $7,627

Convertible notes payable consist of the following at June 30, 2020 and December 31, 2019:

8.MARKETING AGREEMENT

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:

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 June 30, 2020 and December 31, 2019 totaled $72,493 and $54,493, respectively.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

As of June 30, 2020, the Company has not issued the $400,000 of common stock.

Level Brands sued the Company for non-performance under the contract. The matterbalance was taken to arbitration with both parties claiming non performance under the contract. In October 2019, the arbitration was dismissed without prejudice. See Note 12.

9.STOCKHOLDERS’ EQUITY

The Company is authorized to issue up to 5,000,000 shares of its $0.001 par value preferred stock and up to 2,000,000,000 shares of its $0.001 par value common stock. During the year ended December 31, 2013, the Company amended its certificate of incorporation to increase the number of common shares from 100,000,000 to 200,000,000. The amendment went into effect September 7, 2013.

On January 9, 2018, the Company’s Board of Directors voted to approve an increase in authorized common stock shares outstanding from 200 million shares to 2 billion shares of the Company’s common stock. This increase was approved by the shareholders in the first quarter of 2018.

Series A Preferred Stock

The Company has designated 150,000 shares of its preferred stock as Series A Preferred Stock. Each share of Series A Preferred Stock has a stated value of $10. The Series A Preferred Stock is convertible into shares of the Company’s common stock by dividing the stated value by a conversion price of $0.10 per share. The Series A Preferred Stock shall have voting rights on an as converted basis (subject to limitations) and liquidation preference for each share of Series A Preferred Stock at an amount equal to the stated value per share. As of June 30, 2020 and December 31, 2019, the Company has 82,500 shares of Series A Preferred Stock outstanding.

On August 14, 2017, the Company entered into Securities Purchase Agreements with two accredited investors. In connection with these agreements, the Company issued 45,000 shares of Series A Preferred Stock and warrants to acquire 9,000,000 shares of common stock. The shares of Series A Preferred Stock are convertible, at any time at the option of the holder, into an aggregate of 4,500,000 shares of the Company’s common stock. The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per share.

The Company recognized the value attributable to the conversion feature of the issued warrants of $650,421 as a charge against additional paid in capital up to $450,000 with the excess of $200,421 charged to change in fair value of warrant liability during the year ended December 31, 2017. The Company valued the warrants using the Black-Scholes pricing model as described in Note 6.

On October 24, 2017, the Company entered into Securities Purchase Agreements with an accredited investor. In connection with the agreement, the Company issued 10,000 shares of Series A Preferred Stock and warrants to acquire 2,000,000 shares of common stock. The shares of Series A Preferred Stock are convertible, at any time at the option of the holder, into an aggregate of 1,000,000 shares of the Company’s common stock. The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per share.

The Company recognized the value attributable to the conversion feature of the issued warrants of $93,312 as a charge against additional paid in capital. The Company valued the warrants using the Black-Scholes pricing model as described in Note 6.

On February 2, 2018, the Company entered into Securities Purchase Agreements with four accredited investors. In connection with these agreements, the Company issued 27,500 shares of Series A Preferred Stock and warrants to acquire 5,500,000 shares of common stock in consideration of $275,000. The shares of Series A Preferred Stock are convertible, at any time at the option of the holder, into an aggregate of 2,750,000 shares of the Company’s common stock. The Warrants shall be exercisable for a period of five years at an exercise price of $0.15 per share.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

The Company recognized the value attributable to the conversion feature of the issued warrants of $226,833 as a charge against additional paid in capital. The Company valued the warrants using the Black-Scholes pricing model as described in Note 6.

Common Stock

On January 10, 2019, the Company issued 1,000,000 shares of its common stock in exchange for consulting services amounting to $22,900 pursuant to a consulting agreement entered into and approved by the Board of Directors on November 23, 2018.

Common Stock Warrants

The Company accounts for warrants as either equity instruments or liabilities depending on the specific terms of the warrant agreement. As of June 30, 2020, the Company had 38,458,320 warrants outstanding which are all classified as equity instruments and are fully exercisable.

The following tables summarize the Company’s common stock warrants activity for the six months ended June 30, 2020 and 2019:

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

The aggregate intrinsic value represents the pretax intrinsic value, based on the warrants with an exercise price less than the Company’s stock price of $0.01$200,000 as of June 30, 2020, which would have been received by the warrant holders had those warrant holders exercised their warrants as of that date.2021.

Notes Payable

10.STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

During the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. On September 7, 2013, the 2010 plan was amended to increase the number of shares of common stock issuable under the 2010 Plan to 7,500,000. As of June 30, 2020, and December 31, 2019, there were 250,000 and 250,000 options outstanding under the 2010 Plan, respectively.

During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock. In December 2012, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 12,000,000 shares. During the period ended March 31, 2013, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 17,500,000. As of June 30, 2020 and December 31, 2019, there were 8,934,000 and 8,934,000 options outstanding under the 2011 Plan.

Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically three to four years and the options typically expire in five to ten years.

On March 1, 2018 the Board of Directors approved a reduction in the exercise price of 6,000,000 stock options issued to the Company’s CEO on August 22, 2016. The First tranche of 2,000,000 will be exercisable at $0.10 per share and the second and third tranches of 2,000,000 will be exercisable at $0.15 per share. The remainder of the terms remain unchanged. On August 22, 2016, the Company granted 6,000,000 options to purchase its common shares to its new CEO as a part of his employment agreement. The options consist of 3 separate tranches with different exercise prices and vest upon reaching certain milestones. All 6 million options have a five year life. The first 2,000,000 shares have an exercise price of $0.20 per share and vest upon the Company raising at least $1 million in financing. The second 2,000,000 shares carry an exercise price of $0.40 per share and vest upon the Company raising $5 million in financing. The third 2,000,000 shares carry an exercise price of $0.60 per share and vest upon the Company entering into a significant corporate alliance for substantial marketing and selling of the Company’s product portfolio.

In addition, the Company amended 1,500,000 stock options previously granted to the new CEO to extend the expiration date to August 22, 2026. These options were all previously vested.

No stock options were issued under either plan during the three or six months ended June 30, 2020 or 2019.

The Company recorded $0 stock-based compensation expense for the three and six months ended June 30, 2020, in connection with share-based payment awards. For the three and six months ended June 30, 2019, the Company recorded stock-based compensation expense of $13,593 and $27,186, respectively, in connection with share-based payment awards. As of June 30, 2020 and 2019, there was $0 and $117,808, respectively of unrecognized compensation expense related to non-vested stock option awards.

Boston Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2020 and 2019

The following table summarizes the Company’s stock option activity during the six months ended June 30, 2020:

The following table summarizes the Company’s stock option activity during the six months ended June 30, 2019:

The following table summarizes information about stock options that are vested or expected to vest at June 30, 2020: