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v2.3.0.11
Stock-Based Compensation
6 Months Ended
Jun. 30, 2011
Stock-Based Compensation
Note 8 - Stock-Based Compensation

2010 Equity Participation Plan

On March 28, 2011, the Board of Directors of the Company increased the number of shares of common stock that may be issued pursuant to the Plan to 200,000,000. Stockholder approval of the increase was obtained effective as of April 4, 2011.

Common Stock

See Note 6, Commitments and Contingencies for details associated with the issuance of common stock as compensation to employees, directors and consultants.

Employee Awards

The Company recorded stock–based compensation expense of $0 and $123,900 during the three and six months ended June 30, 2011, respectively, and $123,900 during the period from December 30, 2008 (inception) to June 30, 2011, related to employee stock grants, which is reflected as payroll and benefits expense in the condensed consolidated statement of operations. The Company recorded no stock based compensation expense during the three and six months ended June 30, 2010, related to employee stock grants. As of June 30, 2011, there was no unrecognized employee stock-based compensation expense related to employee stock grants.
 
Director Awards

The Company recorded stock–based compensation expense of $51,625 during the three and six months ended June 30, 2011 and $214,040 during the period from December 30, 2008 (inception) to June 30, 2011, related to director stock grants, which is reflected as consulting expenses in the condensed consolidated statement of operations. As of June 30, 2011, there was $30,715 of unrecognized director stock-based compensation expense related to stock grants that will be amortized over a weighted average period of 0.8 years.

Consultant Awards
 
The Company recorded stock–based compensation expense of $50,990 and $136,648 during the three and six months ended June 30, 2011 and $1,325,910 during the period from December 30, 2008 (inception) to June 30, 2011, related to consultant stock grants, which is reflected as consulting expenses in the condensed consolidated statement of operations. During the three and six months ended June 30, 2010, the Company recorded stock–based compensation expense of $3,600 and $107,450, respectively, related to consultant stock grants. As of June 30, 2011, there was no unrecognized consultant stock-based compensation expense.

Stock Award Summary

A summary of common stock award activity for the six months ended June 30, 2011 is presented below:

         
Weighted
       
         
Average
   
Total
 
   
Number of
   
Grant Date
   
Grant Date
 
   
Shares
   
Fair Value
   
Fair Value
 
                   
Non-vested, December 31, 2010
    -     $ -     $ -  
Granted
    76,543,300       0.00826       632,248  
Vested
    (36,543,300 )     0.00826       (301,848 )
Forfeited
    -       -       -  
Non-vested, June 30, 2011
    40,000,000     $ 0.00826     $ 330,400  

Stock Options

The Company has computed the fair value of options granted using the Black-Scholes option pricing model.  Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate, when it is material. The expected term of options granted represents the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” option grants. Since the Company’s stock has not been publicly traded for a long period of time, the Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of these options, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the options.

In applying the Black-Scholes option pricing model, the Company used the following weighted average assumptions:

   
Three and Six Months Ended
 
   
June 30,
 
   
2011
 
Risk free interest rate
    1.63 %
Expected term (years)
    4.44  
Expected volatility
    207.00 %
Expected dividends
    0.00 %

No stock options were granted during the three and six months ended June 30, 2010. The weighted average estimated fair value of the stock options granted during the three and six months ended June 30, 2011 was approximately $0.008 per share.

Employee Awards

On April 21, 2011, the Company granted to an existing employee a ten-year option to purchase 300,000 shares of common stock at an exercise price of $0.02 per share, pursuant to the Plan, of which 100,000 shares are immediately exercisable, 100,000 are exercisable on the first anniversary of the grant and 100,000 are exercisable on the second anniversary of the grant. The $2,430 grant date fair value will be recognized one-third immediately with the balance amortized ratably over the vesting period.

See Note 6, Commitments and Contingencies – Employment Agreements for details associated with options granted to the VP of R&D.

The Company recorded stock–based compensation expense of $22,463 during the three and six months ended June 30, 2011 and $443,733 during the period from December 30, 2008 (inception) to June 30, 2011, related to employee stock option grants, which is reflected as payroll and benefits expense in the condensed consolidated statement of operations. The Company recorded no stock-based compensation expense during the three and six months ended June 30, 2010, related to employee stock option grants. As of June 30, 2011, there was $13,568 of unrecognized employee stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 0.9 years.

Director Awards

On April 2, 2011, a director of the Company resigned. Pursuant to the provisions of the Plan, the Board determined that the options granted on December 15, 2010 for the purchase of 4,000,000 shares of common stock of the Company shall remain exercisable until, and shall thereupon terminate if not exercised, two years from the date of resignation.

On April 7, 2011, a director of the Company resigned. Pursuant to the provisions of the Plan, the Board determined that the options granted on December 15, 2010 for the purchase of 4,000,000 shares of common stock of the Company shall remain exercisable until, and shall thereupon terminate if not exercised, five years from the date of resignation.

The Company recorded no stock–based compensation expense during the three and six months ended June 30, 2011 and 2010 and $162,415 during the period from December 30, 2008 (inception) to June 30, 2011, related to director stock option grants.
 
Consultant Awards

Effective June 10, 2011, the Company established a Scientific Advisory Board and reserved 5,000,000 shares of common stock to be issued to members (“Advisors”) pursuant to the Plan, as either options or restricted stock grants.

Pursuant to a June 10, 2011 agreement between the Company and its first appointed Advisor, the Advisor is entitled to: (1) an immediate grant of a vested five-year option to purchase 500,000 shares of common stock at an exercise price of $0.024 per share; and (2) a grant on each successive anniversary date, on which he remains an Advisor, of a vested five-year option to purchase 250,000 shares of common stock at an exercise price per share equal to the fair market value of the common stock on the date of grant. The Company immediately recognized the $3,450 grant date fair value of the initial award.

Pursuant to a June 24, 2011 agreement between the Company and its second appointed Advisor, the Advisor is entitled to: (1) an immediate grant of a five-year option to purchase 2,000,000 shares of common stock at an exercise price of $0.025 per share, of which 667,000 shares are immediately exercisable, 667,000 are exercisable on the first anniversary of the grant and 666,000 are exercisable on the second anniversary of the grant; and (2) a grant on the third anniversary of the award and each subsequent anniversary, on which he remains an Advisor, of a vested five-year option to purchase 250,000 shares of common stock at an exercise price per share equal to the fair market value of the common stock on the date of grant. The $14,600 grant date fair value of the initial award will be recognized one-third immediately with the balance amortized ratably over the vesting period.

See Note 6, Commitments and Contingencies – Consulting Agreements for details associated with an option granted to a consulting entity.

The Company recorded stock–based compensation expense of $9,532 during the three and six months ended June 30, 2011 and $9,532 during the period from December 30, 2008 (inception) to June 30, 2011, related to consultant and advisory board stock option grants, which is reflected as consulting expenses in the condensed consolidated statement of operations. The Company recorded no stock-based compensation expense during the three and six months ended June 30, 2010, related to consultant and advisory board stock option grants. As of June 30, 2011, there was $9,328 of unrecognized consultant and advisory board stock-based compensation expense related to stock option grants that will be amortized over a weighted average period of 2.0 years.

Option Award Summary

A summary of the status of the options issued under the Plan during the six months ended June 30, 2011 is presented below:
 
               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
       
   
Number of
   
Exercise
   
Life
   
Intrinsic
 
   
Options
   
Price
   
In Years
   
Value
 
                         
Outstanding, December 31, 2010
    72,000,000     $ 0.004              
Granted
    7,150,000       0.016              
Exercised
    -       -              
Voided
    (50,000,000 )     0.001              
Forfeited
    -       -              
Outstanding, June 30, 2011
    29,150,000       0.012       9.1     $ -  
                                 
Exercisable, June 30, 2011
    25,517,000     $ 0.011       9.3     $ -  
 
The following table presents information related to stock options at June 30, 2011:

Options Outstanding
   
Options Exercisable
 
           
Weighted
       
           
Average
   
Exercisable
 
Exercise
   
Number of
   
Remaining Life
   
Number of
 
Price
   
Options
   
In Years
   
Options
 
                     
$ 0.010       26,000,000       9.5       24,000,000  
  0.020       500,000       9.8       200,000  
  0.024       500,000       4.9       500,000  
  0.025       2,150,000       5.9       817,000  
          29,150,000       9.3       25,517,000  

Warrants

There were no warrants granted during the three and six months ended June 30, 2011 and 2010. The Company recorded no stock-based compensation expense during the three and six months ended June 30, 2011 and 2010 and recorded $52,379 during the period from December 30, 2008 (inception) to June 30, 2011, related to consultant warrant grants.

As of June 30, 2011, there were 2,000,000 warrants outstanding with a weighted average exercise price of $0.01, a weighted average remaining contractual term of 3.1 years and no intrinsic value.