Notes to Consolidated Financial Statements
Note 1 – Business Organization and Nature of Operations
On April 17, 2009, Stem Cell Assurance, LLC (“SCA, LLC”)
completed a transaction with Traxxec, Inc. (“Traxxec”), a company incorporated on June 13, 1997 under the laws of the
state of Nevada under the name “Columbia River Resources Inc.” Pursuant to the agreement, SCA, LLC was converted into
Traxxec, Inc. and the former members of SCA, LLC were issued approximately 302,000,000 shares, or approximately 75% of the outstanding
shares of common stock of Traxxec, Inc. In addition, on April 17, 2009, pursuant to the agreement, an additional 60,000,000 shares
were issued to a shareholder of Traxxec. Traxxec was a non-operating shell company and was authorized to issue 1,000,000 shares
of preferred stock and 500,000,000 shares of common stock. On the date of the transaction, Traxxec had 0 shares of preferred stock
and 40,403,621 shares of common stock issued and outstanding. The transaction was accounted for as a reverse recapitalization,
whereby SCA, LLC was deemed to be the acquirer for accounting purposes. The net assets received in the transaction were recorded
at historical costs. On August 17, 2009, Traxxec, Inc. changed its name to Stem Cell Assurance, Inc. (“SCA, Inc.”).
Effective August 15, 2011, SCA, Inc. changed its name to BioRestorative Therapies, Inc. BioRestorative Therapies, Inc.
has
wholly-owned subsidiaries including Stem Pearls, LLC (“Stem Pearls”), formerly Stem Cellutrition, LLC, and Stem Cell
Cayman Ltd. (“Cayman”), which the Company formed as a wholly-owned subsidiary in the Cayman Islands (collectively,
“BRT” or the “Company”).
The consolidated financial statements set forth in this report
for all periods prior to the reverse recapitalization are the historical financial statements of SCA, LLC and have been retroactively
restated to give effect to the transaction. The operations of SCA, LLC from December 30, 2008 (inception) to the date of the transaction
have been included in operations.
The Company has been presented as
a "development stage enterprise”. The Company’s primary activities since inception have
been the development
of its business plan, negotiating strategic alliances and other agreements, raising capital and the sponsorship of research and
development activities
. To date, the Company has not generated significant revenues from its operations.
BRT develops medical procedures using cell and tissue protocols,
primarily involving adult stem cells (non-embryonic) designed for patients to undergo minimally invasive cellular-based treatments.
BRT’s “brtxDISC™ Program” (Disc Implanted Stem Cells) is designed to offer a non-surgical cellular
therapy for the treatment and relief of bulging and herniated discs. BRT’s “ThermoStem™ Program” (Brown
Fat Stem Cells) focuses on treatments for metabolic disorders, specifically targeting Type 2 Diabetes and obesity by using brown
fat stem cells. BRT’s Stem Pearls brand offers plant stem cell-based cosmetic skincare products that are available for purchase
online at
www.stempearls.com
. Pursuant to BRT’s brtx-C
Cosmetic Program, BRT has developed an ingredient derived from human adult stem cells which can be used by third party companies
in the development of their own skin care products.
Note 2 – Going Concern and Management Plans
As of December 31, 2012, the Company had a working capital deficiency
and a stockholders’ deficiency of $2,784,676 and $5,141,693, respectively. The Company has not generated significant revenues
since inception and incurred net losses of $14,071,584 during the period from December 30, 2008 (inception) through December 31,
2012. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company's primary source of operating funds since inception
has been equity and debt financings. The Company intends to continue to raise additional capital through debt and equity financings.
The Company is currently a development stage company and there is no assurance that these funds will be sufficient to enable the
Company to fully complete its development activities or attain profitable operations.
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which
contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the
normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily
purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that
might result from the outcome of this uncertainty.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 2 – Going Concern and Management Plans –
Continued
Subsequent to December 31, 2012, the Company raised $820,000
and $450,000 through equity and debt financing, respectively, has extended the due date for the repayment of $3,653,500 of debt
(of which, $3,550,000 has been extended until July 2014) and has
converted certain notes payable with
an aggregate principal balance of
$112,500 into common stock. As a result, the Company expects that the cash it has available
will fund its operations only until May 2013. The Company currently has notes payable aggregating $50,000 which are past their
maturity dates. The Company is currently in the process of negotiating extensions or discussing conversions to equity with respect
to these notes. However, there can be no assurance that the Company will be successful in extending or converting these notes.
See Note 11 – Subsequent Events for additional details.
Note 3 – Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include
the accounts of Cayman, Stem Pearls and Lipo Rejuvenation Centers, Inc. All significant intercompany transactions have been eliminated
in the consolidation. On April 16, 2012, Lipo Rejuvenation Centers, Inc., an inactive entity, was dissolved.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent liabilities at dates of the financial statements and the reported amounts of revenue and expenses during the periods.
The Company’s significant estimates and assumptions include the recoverability and useful lives of long-lived assets, the
fair value of the Company’s stock, stock-based compensation, debt discount and the valuation allowance related to the Company’s
deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the intangible assets, could be
affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible
that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from
those estimates.
Concentrations and Credit Risk
As of December 31, 2012, 77% of the face value of the Company’s
outstanding notes payable were sourced from a single entity (the “Bermuda Lender”). See Note 7 – Notes Payable
for additional discussion of the Bermuda Lender. See Note 11 – Subsequent Events – Notes Payable for additional discussion
of the Bermuda Lender and concentrations of outstanding notes payable.
Cash
The Company maintains cash in bank accounts, which, at times,
may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the
credit worthiness of the financial institutions and has determined the credit exposure to be negligible. As of December 31, 2012,
the Company had $248 deposited with an offshore financial institution which is not insured by the Federal Deposit Insurance Corporation.
Property and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation which is recorded using the straight line method at rates sufficient to charge the cost of depreciable assets to operations
over their estimated useful lives, which range from 3 to 5 years. Maintenance and repairs are charged to operations as incurred.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 3 – Summary of Significant Accounting Policies
– Continued
Inventories
The Company maintains finished goods inventories, consisting
of Stem Pearls skincare products, which are available for sale. Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
The Company periodically reviews for slow-moving, excess or
obsolete inventories. Products that are determined to be obsolete, if any, are written down to net realizable value.
Intangible Assets
Intangible assets are comprised of trademarks and licenses with
original estimated useful lives of 10 and 17.7 years (20 year life of underlying patent, less 2.3 years elapsed since patent application),
respectively. Once placed into service, the Company amortizes the cost of the intangible assets over their estimated useful lives
on a straight line basis.
Impairment of Long-lived Assets
The Company reviews for the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment
loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition
are less than its carrying amount. The Company has not identified any such impairment losses.
Revenue Recognition
For the year ended December 31, 2012, the Company’s revenue
consisted of $10,000 of sublicense fees and $5,589 attributable to sales of Stem Pearls® skincare products. The Company’s
policy is to recognize product sales when the risk of loss and title to the product transfers to the customer, after taking into
account potential returns. The Company recognizes sublicensing and royalty revenue when all of the following have occurred: (i)
persuasive evidence of an arrangement exists, (ii) the service is completed without further obligation, (iii) the sales price to
the customer is fixed or determinable, and (iv) collectability is reasonably assured. See Note 5 – Intangible Assets for
additional details.
Income Taxes
The Company recognizes deferred tax assets and liabilities for
the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred
tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their
respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which
the temporary differences are expected to reverse.
The Company adopted the provisions of Accounting Standards Codification
(“ASC”) Topic 740-10, which prescribes a recognition threshold and measurement process for financial statements recognition
and measurement of a tax position taken or expected to be taken in a tax return.
Management has evaluated and concluded that there were no material
uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2012
and 2011. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting
date.
The Company’s policy is to classify assessments, if any,
for tax related interest as interest expense and penalties as general and administrative expenses in the consolidated statements
of operations.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 3 – Summary of Significant Accounting Policies
– Continued
Net Loss Per Common Share
Basic loss per common share is computed by dividing net loss
by the weighted average number of vested common shares outstanding during the period. Diluted loss per common share is computed
by dividing net loss by the weighted average number of vested common shares outstanding, plus the impact of common shares, if dilutive,
resulting from the vesting of restricted stock and the exercise of outstanding stock options and warrants.
The Company’s weighted average number of common shares
as of December 31, 2012 included issued and outstanding common shares and the underlying shares issuable upon the exercise of the
22,000,000 and 2,000,000 exercisable options and warrants, respectively, with an exercise price of $0.01 per share or less during
the period of time that the restricted stock value exceeded $0.01 per share. The Company’s weighted average number of common
shares as of December 31, 2011 included issued and outstanding common shares and the underlying shares issuable upon the exercise
of the 20,000,000 and 2,000,000 exercisable options and warrants, respectively, with an exercise price of $0.01 or less. See Note
10, Stockholders’ Deficiency. In accordance with ASC 260 – Earnings Per Share, the Company has given effect to the
issuance of these options and warrants in computing basic and diluted net loss per share.
Potentially dilutive securities realizable from the exercise
of options and warrants for the purchase of 178,900,000 and 164,740,000 shares, respectively, as of December 31, 2012, were excluded
from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive. As of December
31, 2011, potentially dilutive securities realizable from the vesting of 40,000,000 shares of restricted stock and the exercise
of options and warrants for the purchase of 6,150,000 and 2,000,000 shares, respectively, are excluded from the computation of
diluted net loss per share because the effect of their inclusion would have been anti-dilutive.
Stock-Based Compensation
The Company measures the cost of services received in exchange
for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award
is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and
interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period
during which services are required to be provided in exchange for the award, usually the vesting period. Since the shares underlying
the Company’s 2010 Equity Participation Plan (the “Plan”) are not currently registered, the fair value of the
Company’s restricted equity instruments was estimated by management based on observations of the cash sales prices of both
restricted shares and freely tradable shares.
Stock-based compensation for non-employees and directors is
reflected in consulting expenses in the consolidated statements of operations. Stock-based compensation for employees is reflected
in payroll and benefits in the consolidated statements of operations.
Advertising
Advertising costs are charged to operations as incurred. For
the years ended December 31, 2012 and December 31, 2011, the Company incurred advertising costs of $6,294 and $101,982, respectively.
For the period from December 30, 2008 (Inception) to December 31, 2012, the Company’s total advertising expense amounted
to $314,112.
Research and Development
Research and development expenses are charged to operations
as incurred. For the years ended December 31, 2012 and December 31, 2011, the Company incurred research and development expenses
of $416,180 and $12,000, respectively. For the period from December 30, 2008 (inception) to December 31, 2012, the Company’s
total research and development expenses amounted to $439,800.
Reclassifications
Certain prior period amounts have been reclassified for comparative
purposes to conform to the fiscal 2012 presentation. These reclassifications have no impact on the previously reported net loss.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 3 – Summary of Significant Accounting Policies
– Continued
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 (for example, cash
flow modeling inputs based on assumptions)
The carrying amounts of cash, accounts payable, and accrued
liabilities approximate fair value due to the short-term nature of these instruments. The carrying amounts of our short term credit
obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates
taken together with other features such as concurrent issuance of warrants, are comparable to rates of returns for instruments
of similar credit risk.
Subsequent Events
The Company evaluates events that have occurred after the balance
sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized
or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements,
except as disclosed in Note 11.
Note 4 – Property and Equipment
Property and equipment include the following:
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Office equipment
|
|
$
|
7,670
|
|
|
$
|
7,670
|
|
Medical equipment
|
|
|
118,301
|
|
|
|
118,301
|
|
Furniture and fixtures
|
|
|
19,322
|
|
|
|
19,322
|
|
Computer software and equipment
|
|
|
20,169
|
|
|
|
17,636
|
|
|
|
|
165,462
|
|
|
|
162,929
|
|
Less: accumulated depreciation
|
|
|
(106,055
|
)
|
|
|
(68,102
|
)
|
Property and equipment, net
|
|
$
|
59,407
|
|
|
$
|
94,827
|
|
Depreciation expense amounted to $37,953 and $90,044 for the
years ended December 31, 2012 and 2011, respectively. Depreciation expense for the period from December 30, 2008 (inception) to
December 31, 2012 was $182,767. See Note 7, Notes Payable, for details regarding the 2011 return of medical equipment.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 5 – Intangible Assets
Intangible assets consist of the following:
|
|
Patents and
Trademarks
|
|
|
Licenses
|
|
|
Accumulated
Amortization
|
|
|
Total
|
|
Balance as of January 1, 2012
|
|
$
|
3,676
|
|
|
$
|
-
|
|
|
$
|
(368
|
)
|
|
$
|
3,308
|
|
Purchase of licenses
|
|
|
-
|
|
|
|
1,226,500
|
|
|
|
-
|
|
|
|
1,226,500
|
|
Amortization expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(52,451
|
)
|
|
|
(52,451
|
)
|
Balance as of December 31, 2012
|
|
$
|
3,676
|
|
|
$
|
1,226,500
|
|
|
$
|
(52,819
|
)
|
|
$
|
1,177,357
|
|
Weighted average amortization period at December 31, 2012 in years
|
|
|
8.0
|
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets consists of the following:
|
|
Patents and
Trademarks
|
|
|
Licenses
|
|
|
Accumulated
Amortization
|
|
Balance as of January 1, 2012
|
|
$
|
368
|
|
|
$
|
-
|
|
|
$
|
368
|
|
Amortization expense
|
|
|
368
|
|
|
|
52,083
|
|
|
|
52,451
|
|
Balance as of December 31, 2012
|
|
$
|
736
|
|
|
$
|
52,083
|
|
|
$
|
52,819
|
|
On January 27, 2012, the Company entered into a license agreement
with a stem cell treatment company (“SCTC”) (as amended on March 21, 2012, the “SCTC Agreement”). On April
6, 2012, the Company and SCTC closed on the SCTC Agreement. Pursuant to the SCTC Agreement, the Company obtained, among other things,
a worldwide, exclusive, royalty-bearing license from SCTC to utilize or sublicense a certain medical device for the administration
of specific cells and/or cell products to the disc and/or spine (and other parts of the body) and a worldwide (excluding Asia and
Argentina), exclusive, royalty-bearing license to utilize or sublicense a certain method for culturing cells. The SCTC Agreement
provides that the Company must achieve certain milestones, the first of which must be achieved by April 6, 2014, or pay certain
minimum amounts in order to maintain the exclusive nature of the licenses. The SCTC Agreement also provides for an exclusive, royalty-bearing
sublicense of certain of the licensed technology to SCTC for use for orthopedic purposes and a non-exclusive, royalty-bearing sublicense
of certain of the licensed technology to SCTC for use (1) at a single facility in the Cayman Islands (or, under certain circumstances,
at a different non-U.S. facility), and (2) at U.S. facilities (in accordance with protocols established by the Company), if and
only if, upon resolution of a Food and Drug Administration (“FDA”) action, SCTC has the legal right to exploit the
technology in the U.S. and the Company does not yet have such legal right. Further, the SCTC Agreement provides that SCTC will
furnish certain training, assistance and consultation services with regard to the licensed technology. In addition, the Company
has agreed to reimburse SCTC for 25% of its legal fees associated with its pending court action with the FDA, subject to a maximum
of $4,500 per month and $100,000 in the aggregate.
Pursuant to the SCTC Agreement, on the closing date, the Company
made a payment to SCTC consisting of a license fee of $1,000,000, net of a sublicensing fee of $10,000, which SCTC owed to the
Company (which was recorded as revenue in the consolidated statements of operations), and issued to SCTC a warrant for the purchase
of 50,000,000 shares of common stock of the Company (the “SCTC Warrant”). The vesting of the SCTC Warrant was divided
into three tranches. The first tranche to purchase 15,000,000 shares of common stock was immediately exercisable. The exercise
of the second and third tranches to purchase 17,500,000 shares of common stock each is subject to specified performance criteria.
The exercise price for the initial tranche is $0.03 per share and the exercise price for the second and third tranches is the greater
of $0.03 per share or the then fair market value of the common stock, as defined in the SCTC Agreement. The initial tranche had
a grant date value of $226,500 using the Black-Scholes model, which was recognized immediately. The Company recorded the $1,000,000
cash payment and the $226,500 value of the first tranche of the warrant as an intangible asset with an original estimated useful
life of 17.7 years (20 year life of the underlying pending patent less 2.3 years since patent application).
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 5 – Intangible Assets – Continued
The Company has not made an accounting entry related to the
second and third tranches as it is not currently estimable when the specified performance criteria will be met. When, and if,
the second and third tranches of the SCTC Warrant vest (or when the timing of vesting becomes estimable), the grant date value
of these tranches will be added to the value of the intangible asset after calculating the grant date values using the Black-Scholes
option pricing model using the final exercise prices as inputs to the model.
Amortization expense of intangible assets for the years ended
December 31, 2012 and 2011 was $52,451 and $368, respectively. Aggregate amortization expense from December 30, 2008 (inception)
to December 31, 2012 was $52,819. Based upon the current intangible assets as of December 31, 2012, amortization expense is projected
to be approximately $70,000 per annum for each of the next five years and beyond.
Note 6 – Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised
of the following:
|
|
December
31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Accrued loan interest
|
|
$
|
94,650
|
|
|
$
|
39,283
|
|
Credit card payable
|
|
|
7,662
|
|
|
|
17,026
|
|
Accrued payroll and payroll taxes
|
|
|
770,154
|
|
|
|
204,417
|
|
Accrued severance
|
|
|
-
|
|
|
|
46,154
|
|
Other accrued expenses
|
|
|
180,531
|
|
|
|
89,200
|
|
Deferred rent
|
|
|
29,845
|
|
|
|
44,149
|
|
Total
|
|
$
|
1,082,842
|
|
|
$
|
440,229
|
|
During the year ended December 31, 2012, the Company received
an aggregate of $123,058 in non-interest bearing advances from a director and an officer of the Company and made aggregate repayments
of $123,058, such that the Company had no liability at December 31, 2012.
Note 7 – Notes Payable
During 2010, the Company purchased certain property and equipment
with a value of $304,055 (the “Equipment Note”). In February 2011, the Company renegotiated the terms of the then
$291,055 payable with the vendor and entered into a promissory note. The agreement provided for an immediate principal payment
of $25,000, plus monthly installments of $8,094, including an effective interest rate of 6% per annum. The Company made $48,019
of principal payments during the year ended December 31, 2011. The scheduled maturity of the note was February 1, 2014 and was
collateralized by the equipment purchased. On November 10, 2011, the Company and the equipment vendor agreed to settle the remaining
$243,036 due pursuant to the note for $48,564 and the return to the vendor of the equipment that had been purchased, which resulted
in a $31,571 loss on the restructuring of the note. The outstanding balance of this note as of December 31, 2012 and 2011 was
$0.
In January 2011, the Company issued 1,000,000 shares of common
stock with a relative fair value of $6,971 to a private lender in connection with a 2010 note payable agreement.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 7 – Notes Payable – Continued
During the year ended December 31, 2011, the Company and its
wholly-owned subsidiary, Cayman, obtained new debt financing in the aggregate amount of $2,962,500 ($2,050,000 obtained by Cayman
from the Bermuda Lender). Of the total debt issued in 2011, $1,962,500 was repayable three months from the date of issuance of
the respective notes; however, the Company and Cayman had the right to extend the maturity date for an additional three months.
During the initial three month period of the notes, the rate of interest was 10% per annum; during any extension period, the interest
rate increased to 15% per annum. The Company is using the effective interest rate method of recording interest expense, which
reflects the weighted average interest on a ratable basis over the expected term of the debt. Of the remaining total debt issued
in 2011, $1,000,000 was repayable one year from the date of issuance of the respective notes and the rate of interest was 15%
per annum. In connection with the 2011 debt financings, an aggregate of 59,250,000 shares of common stock of the Company were
issued to the lenders, with a relative fair value of $417,875. These shares were accounted for as a debt discount and amortized
over the estimated life of the related debt. In connection with extensions of notes payable during the year ended December 31,
2011, an aggregate of 8,250,000 shares of common stock, with a relative fair value of $57,061, were issued as compensation to
the lenders and were recorded as a debt discount. During the year ended December 31, 2011, the Company repaid notes payable with
an aggregate principal balance of $308,427, of which $96,583 related to the Equipment Note.
During the year ended December 31,
2012, the Company and Cayman issued an additional $2,265,500 of notes payable ($1,500,000 for Cayman from the Bermuda Lender and
$30,000 to a member of the Chief Executive Officer’s immediate family). In connection with the financings, 3,360,000 shares
of common stock, with a relative fair value of $30,409 (600,000 shares of common stock with a relative fair value of $7,200 were
issued to the member of the Chief Executive Officer’s immediate family), and five-year warrants to purchase 26,000,000 shares
of common stock at exercise prices ranging from $0.03 to $0.05 per share, with a relative fair value of $214,691 using the Black-Scholes
model, were issued to the lenders and were recorded as a debt discount. These notes were initially payable 3-12 months from the
date of issuance and have a weighted average interest rate of 14% per annum payable monthly (except as discussed below).
Included as part of the $2,265,500
of notes payable are two one-year notes with an aggregate principal amount of $600,000. The holders of these note are entitled
to, in addition to a warrant, (a) mandatory prepayment of the notes at the rate of 5% to 10.5% of Cosmetic Revenues (as defined
in the note; excludes revenues associated with Stem Pearls® products); and (b) five years of royalty payments associated with
Cosmetic Revenues, ranging from 0.5% to 2.8% of Cosmetic Revenues, depending on the holder, the year the Cosmetic Revenues are
earned and the status of the principal repayments. The final three years of royalty payments could be subject to annual dollar
maximums ranging up to $175,000 per holder, based on criteria specified in the note terms, but not in the event of default for
one of the notes. Given that the Company has not yet generated any Cosmetic Revenues, no royalty payments have been earned.
During
the year ended December 31, 2012, the maturity dates of
certain
notes payable with an aggregate
principal balance of $2,772,500, that were near or at maturity, were extended to various dates through August 2013.
In
connection with the extensions,
an aggregate of 1,375,000 shares of common stock, with a relative fair
value of $12,372,
were issued as compensation to the lenders and were recorded as a debt discount
.
All of the extended notes bear a 15% interest rate per annum payable monthly.
During the year ended December 31,
2012, the Company repaid two notes payable with an aggregate principal amount of $75,000.
During the year ended December 31,
2012, the Company and certain lenders agreed to exchange certain notes payable with an aggregate principal balance of $754,500
for an aggregate of 37,725,000 shares of common stock and five-year warrants to purchase an aggregate of 15,090,000 shares of
common stock at an exercise price of $0.03 per share. The common stock and warrants had an aggregate grant date value of $824,208
and, as a result, the Company recorded a loss on extinguishment of $69,708. The lenders received piggyback registration rights
related to the stock and the stock issuable pursuant to the warrants.
The Company
recorded amortization of debt discount of $329,796 and $345,369 during the years ended
December 31, 2012 and 2011
,
respectively. Aggregate amortization of debt discount from December 30, 2008 (inception) to December 31, 2012 was $885,892.
See Note 3 – Summary of Significant
Accounting Policies – Concentrations and Credit Risk. See Note 11 – Subsequent Events – Notes Payable.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 8 – Income Taxes
The tax effects of temporary differences that give rise to
deferred tax assets are presented below:
|
|
For The Years Ended
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net operation loss carryforward
|
|
$
|
3,817,200
|
|
|
$
|
2,544,500
|
|
Stock-based compensation
|
|
|
678,500
|
|
|
|
234,900
|
|
Accrued compensation
|
|
|
249,100
|
|
|
|
61,500
|
|
Intangible assets
|
|
|
2,100
|
|
|
|
-
|
|
Charitable contribution carryforward
|
|
|
200
|
|
|
|
100
|
|
Gross deferred tax assets
|
|
|
4,747,100
|
|
|
|
2,841,000
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(4,800
|
)
|
|
|
(21,000
|
)
|
Gross deferred tax liabilities
|
|
|
(4,800
|
)
|
|
|
(21,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
4,742,300
|
|
|
|
2,820,000
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(4,742,300
|
)
|
|
|
(2,820,000
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Changes in valuation allowance
|
|
$
|
1,922,300
|
|
|
$
|
1,543,400
|
|
The income tax provision (benefit) consists of the following:
|
|
For The Years Ended
|
|
|
|
December
31,
|
|
|
|
2012
|
|
|
2011
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
(1,719,953
|
)
|
|
|
(1,380,937
|
)
|
|
|
|
|
|
|
|
|
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
(202,347
|
)
|
|
|
(162,463
|
)
|
|
|
|
(1,922,300
|
)
|
|
|
(1,543,400
|
)
|
Change in valuation allowance
|
|
|
1,922,300
|
|
|
|
1,543,400
|
|
Income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of the statutory federal income tax rate to
the Company’s effective tax rate is as follows:
|
|
For The Years Ended
|
|
|
|
December
31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Tax benefit at federal statutory rate
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
State income taxes, net of federal benefit
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Permanent differences
|
|
|
3
|
|
|
|
0
|
|
Prior period adjustments and other
|
|
|
6
|
|
|
|
0
|
|
Change in valuation allowance
|
|
|
29
|
|
|
|
38
|
|
Effective income tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 8 – Income Taxes – Continued
The Company assesses the likelihood that deferred tax assets
will be realized. To the extent that realization is not likely, a valuation allowance is established. Based upon the Company’s
history of losses since inception, management believes that it is more likely than not that future benefits of deferred tax assets
will not be realized.
At December 31, 2012 and 2011, the Company had approximately
$10,000,000 and $5,600,000, respectively, of federal and state net operating losses that may be available to offset future taxable
income. The net operating loss carry forwards, if not utilized, will expire from 2029 to 2032 for federal purposes. In accordance
with Section 382 of the Internal Revenue Code, the usage of the Company’s net operating loss carry forwards are subject
to annual limitations due to greater than 50% ownership changes.
The Company files income tax returns in the U.S. federal jurisdiction
and the state of Florida, and is subject to examination by the various taxing authorities. The Company’s federal and state
income tax returns for the tax years 2009 and forward remain subject to examination.
Note 9 – Commitments and Contingencies
Operating Lease
On January 20, 2011, the Company
entered into a three year lease agreement with respect to premises located at the Alexandria Innovation Center in Jupiter, Florida.
The
lease, as amended on March 11, 2011, expires on January 31, 2014. No base rent was payable during the initial year
and the lease provides for a base monthly rent of $6,234 during the second year and $6,422 during the third year. The Company
has the right to lease the premises for an additional three years at the then fair market value rent. The aggregate base rent
payable over the lease term is being recognized on a straight-line basis. See Note 6, Accrued Expenses and Other Liabilities,
for the deferred rent balance.
The Company leased office space in Boca Raton, Florida under
a month to month operating lease. Effective May 1, 2011, the Company terminated this lease.
Rent expense amounted to approximately $102,000 and $85,000
for the years ended December 31, 2012 and 2011, respectively. Rent expense for the period from December 30, 2008 (inception) to
December 31, 2012 was approximately $234,000. Rent expense is reflected in general and administrative expenses in the consolidated
statements of operations.
Litigations, Claims and Assessments
In the normal course of business, the Company may be involved
in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance. In the opinion of management, the ultimate disposition of these matters will
not have a material adverse effect on the Company’s consolidated financial position or results of operations.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies – Continued
Patent Assignment and Research Agreement
Effective June 15, 2012, the Company entered into an assignment
agreement (the “Assignment Agreement”) with the research foundation of a state university (the “Foundation”),
whereby the Foundation assigned all of its right, title and interest in specified patents to the Company in exchange for a cash
payment of $15,000. The Company also agreed to pay the Foundation a 5% royalty on Patent Revenue (as defined in the Assignment
Agreement) over a 20 year period commencing on June 15, 2012. Through December 31, 2012, no royalties had been earned.
Effective June 15, 2012, the Company entered into a research
agreement (the “Research Agreement”) with the same state university (the “University”). The Research Agreement
has a term of three years. Pursuant to the Research Agreement, the University agreed to perform certain research services to be
used by the Company. Pursuant to the Research Agreement, the Company agreed to pay the University a fee of $500,000 for each twelve
month period of the agreement, payable monthly. In addition, the Company agreed to pay to the University a 5% royalty, over a
20 year period commencing on June 15, 2012, on the net sales of all products and/or methods directly arising from inventions and
improvements conceived or reduced to practice by the University in the course of performing research during the term of the Research
Agreement. The Research Agreement can be cancelled without penalty upon (a) the second anniversary of the Research Agreement if
eventual FDA approval does not appear likely or (b) other conditions specified in the Research Agreement.
During the year ended December 31, 2012, the Company recorded
research and development expense of approximately $286,000 in connection with the Assignment Agreement and Research Agreement.
As of December 31, 2012, the Company has approximately $83,000 accrued in connection with the Research Agreement, which is included
in accrued expenses and other current liabilities in the consolidated balance sheet.
Consulting Agreements
Marketing Consulting Services
Pursuant to a
February 17,
2011
agreement for marketing consulting services (the “Marketing Consulting Agreement”),
which had an initial term that expired on June 30, 2011, the retained firm agreed to provide consultation and assistance with
regard to the Company’s efforts to market itself with respect to medical tourism, establish business relationships with
governmental officials, and establish an offshore stem cell treatment facility. Pursuant to the agreement, the Company paid $20,000
in consideration of services rendered to date and a $10,000 retainer for services to be rendered during the term. The Company
also agreed to pay an additional $20,000 fee, and issue 5,000,000 shares of common stock, both of which were to be paid, expensed
and issued in equal monthly installments during the term of the agreement. On July 1, 2011 and again on September 1, 2011, the
agreement was extended for additional three month terms and the Company agreed to pay an additional $5,000 fee monthly in advance
on the first day of each month. During the year ended
December 31,
2011, the Company issued
5,000,000 shares of common stock valued at $41,300, which was expensed during the period.
On January 1, 2012, the
Marketing
Consulting Agreement
was further extended to December 31, 2012. Pursuant to the extended agreement, the Company agreed
to pay a cash fee of $10,000 per month and the Company granted an immediately vested, five-year warrant to purchase 2,000,000
shares of common stock at an exercise price of $0.02 per share. The grant date value of $12,800 was recognized immediately.
On April 18, 2012, the
Marketing
Consulting Agreement
was further amended. The Company agreed to pay a $20,000 bonus ($10,000 on August 31, 2012 and $10,000
on December 31, 2012), and issue a five-year warrant to purchase 15,000,000 shares of common stock at an exercise price of $0.03
per share. The warrant vested on January 1, 2013 and had a grant date value of $226,500, which was recognized proportionate to
the vesting period.
On December 7, 2012, the
Marketing
Consulting Agreement
was further extended to December 31, 2013. Pursuant to the agreement, the Company will continue to
pay a cash fee of $10,000 per month and the Company granted a five-year warrant to purchase 3,000,000 shares of common stock at
an exercise price of $0.03 per share. The warrant vests on December 31, 2013 and had a grant date value of $45,600 which will
be recognized proportionate to the vesting period.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies – Continued
Consulting Agreements
- Continued
Business Advisory Services
Pursuant to a
February 17,
2011
agreement for business advisory services (the “Business Advisory Agreement”), which
had an initial term that expired on March 31, 2012, the retained firm agreed to provide consultation and assistance with regard
to the Company’s efforts to have its securities listed on the OTC Bulletin Board or a securities exchange, establish an
offshore stem cell treatment facility, develop business, including with regard to acquisition and joint venture opportunities,
develop a physician distribution network for the sale of the Company’s stem cell skin care products, and comply with regulatory
requirements. Pursuant to the agreement, the Company paid $35,000 in consideration of services rendered to-date and a $25,000
retainer for services to be rendered during the term. The Company also agreed to pay an additional $130,000 fee, and issue 10,500,100
shares of common stock, both of which were to be paid, expensed and issued in equal monthly installments during the term of the
agreement. During the year ended
December 31,
2011, the Company issued 8,077,000 shares of common
stock valued at $66,716 which was recognized during the period. During the year ended
December 31,
2012,
the Company issued 2,423,100 shares of common stock valued at $20,015 which was recognized during the period.
On April 9, 2012, the Company issued a warrant to a shareholder
in lieu of reimbursing certain costs associated with a contemplated financing that did not occur. The immediately vested, five-year
warrant entitles the shareholder to purchase 4,000,000 shares of common stock at an exercise price of $0.03 per share. The warrant
had a grant date value of $60,400 which was recognized immediately.
On April 18, 2012, the
Business
Advisory Agreement
was extended for nine months until December 31, 2012. Pursuant to the extension, the Company agreed
to pay an additional $90,000 fee ($10,000 monthly), a $20,000 bonus ($10,000 on August 31, 2012 and $10,000 on December 31, 2012)
and issue a five-year warrant to purchase 12,000,000 shares of common stock at an exercise price of $0.03 per share. The warrant
vests on January 1, 2013 and had a grant date value of $181,200, which was recognized proportionate to the vesting period.
On May 22, 2012, the Company entered into a one year agreement
with a consultant to provide business advisory services whereby the consultant (a) was issued 87,500 shares of common stock and
the Company recognized the $1,400 fair value immediately and (b) on November 5, 2012 was issued 87,500 shares of common stock
in connection with the Company’s common stock becoming listed on the OTC Bulletin Board (“OTCBB”) and upon which
the Company recognized the $1,400 fair value of the shares.
On June 1, 2012, the Company entered into a three month agreement
with a consultant to provide business advisory services pursuant to which the consultant was entitled to receive an aggregate
of 7,500,000 shares of common stock (2,500,000 shares per month). On November 15, 2012, the agreement was extended until February
15, 2013. Pursuant to the extension, the consultant was entitled to receive an additional 2,000,000 shares of common stock on
the date of the extension and an additional 3,000,000 shares of common stock no later than February 7, 2013. During the year ended
December 31, 2012, the Company issued 9,500,000 shares of common stock valued at $152,000, which has been recorded as consulting
expense.
On December 7, 2012, the
Business
Advisory Agreement
was further extended to December 31, 2013. Pursuant to the agreement, the Company will continue to pay
a cash fee of $10,000 per month and the Company granted a five-year warrant to purchase 5,000,000 shares of common stock at an
exercise price of $0.03 per share. The warrant vests on December 31, 2013 and had a grant date value of $76,000 which will be
recognized proportionate to the vesting period.
Investor Relations Services
On April 3, 2012, the Company entered into a six month agreement
with a consultant to provide investor relations services pursuant to which the Company agreed to pay the consultant $15,000 per
month. Effective July 1, 2012, the parties agreed that the consultant will be paid $5,000 per month for the remainder of the term.
The parties informally agreed to extend the agreement on a month to month basis. During the year ended December 31, 2012, the
Company recorded consulting expense of $75,000 related to the agreement.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies – Continued
Consulting Agreements
– Continued
Financial Advisory Services
On November 14, 2012, the Company entered into a six month
agreement with a consultant to provide financial advisory and investment banking services whereby the consultant was entitled
to be paid $8,000 upon execution of the agreement, is entitled to be paid $8,000 upon delivery of specified presentation materials
and $8,000 monthly (commencing one month following delivery of the specified presentation materials) and is entitled to specified
expense reimbursements. The consultant is also entitled to receive a cash commission (7% of equity financings, 5% of debt financings
and 3% of bank debt financings) of the funds raised from investors that were directly attributable to the consultant’s services.
In addition, the consultant is entitled to a seven-year warrant to purchase shares of the Company’s common stock equal to
7% of the securities issued to investors. During the year ended December 31, 2012, the Company recorded consulting expense of
$8,000. As of December 31, 2012, the consultant had not been responsible for any completed financings.
On November 15, 2012, the Company entered into an agreement
with a consultant to provide financial advisory and investment banking services whereby the consultant is entitled to receive
a commission (10% of equity financings completed prior to December 31, 2012 (the “Initial Equity Financing Fee”),
6% of equity financings completed after December 31, 2012 and 4% of debt financings) of the funds raised from investors that were
directly attributable to the consultant’s services. The Initial Equity Financing Fee was payable in cash. All other commissions
are payable 25% in cash and 75% in Company common stock. The agreement expires on December 31, 2013 unless terminated by either
party upon written notice. As of December 31, 2012, the consultant was paid cash commissions of $25,000 on $250,000 of equity
financings.
Scientific Advisory Services
Effective June 10, 2011, the Company established a Scientific
Advisory Board.
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 became
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.
On June 11, 2012, the Company granted a five-year, immediately
vested option to the orginal advisor on its Scientific Advisory Board to purchase 250,000 shares of common stock at an exercise
price of $0.022 per share, pursuant to the Plan. The grant date value of $3,300 was recognized immediately.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies – Continued
Consulting Agreements
– Continued
Scientific Advisory Services
– Continued
On August 16, 2012, the Company entered into a two year agreement
with a consultant to serve as Chairman of the Company’s Scientific Advisory Board and provide scientific advisory services
whereby the consultant will earn $10,000 per month (monthly payments begin after the Company raises $3,000,000 in an equity and/or
debt financing) and will be entitled to specified expense reimbursements. In addition, the Company granted a five-year option
to purchase 10,000,000 shares of common stock at an exercise price of $0.028 per share, pursuant to the Plan. The option vests
as follows: (i) 2,000,000 shares immediately on the date of grant, 2,000,000 shares on the first anniversary of the date of grant
and 2,000,000 on the second anniversary of the date of grant; and (ii) up to 4,000,000 shares upon receipt of research grants
meeting specified criteria. The aggregate grant date value was $151,000, of which approximately $30,000 was recognized immediately,
and approximately $30,000 will be recognized ratably over each of the first and second years.
It is
not currently estimable when the specified performance criteria will be met and, as a result, the Company has not recognized any
of the approximately $30,000 expense associated with each of the fourth and fifth tranches.
On December 7, 2012, the Company granted ten-year options to
the three advisors to purchase an aggregate of 5,500,000 shares of common stock at an exercise price of $0.03 per share, pursuant
to the Plan. The shares vest as follows: (i) 2,750,000 shares immediately and (ii) 2,750,000 shares on the first anniversary date.
The aggregate grant date value of $84,150 will be recognized proportionate to the vesting period.
Other
On December 14, 2012, the Company granted an immediately vested,
five-year warrant to purchase 250,000 shares of common stock at an exercise price of $0.03 per share to a consultant. The grant
date value of $3,800 was recognized immediately.
Employment Agreements
Chief Executive Officer
Effective October 4, 2010, the Company
entered into an employment agreement with its Chief Executive Officer (the “CEO”). The employment agreement provided
for an initial term of three years. On February 10, 2012, the term of the agreement was extended for an additional two years.
The employment agreement shall be extended for successive one year periods unless either party provides ninety days written
notice to the other party.
The employment agreement provides for a minimum salary of $360,000 during
the initial year, $480,000 during the second year and $600,000 during the third through fifth years. In the event the term of
the employment agreement is extended beyond the initial five year term, the base salary payable shall be increased by 20% per
annum. The agreement also includes certain severance provisions.
Pursuant to the employment agreement, the CEO is entitled to
an annual bonus in an amount equal to 50% of his then current salary. The bonus shall be payable in quarterly installments, commencing
on the three month anniversary of the commencement of the employment agreement and continuing on each three month anniversary
and shall not be subject to any condition.
In January 2011, pursuant to an
amended employment agreement, the Company issued 15,000,000 shares of common stock to its CEO. In connection with this issuance,
the Company immediately recorded the $123,900 value of the common stock as stock-based compensation expense. The Company has agreed
to be responsible for the payment of all taxes incurred by the CEO as a result of the grant, as well as all taxes incurred as
a result of such tax payments on the CEO’s behalf.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies – Continued
Employment Agreements
– Continued
Chief Executive Officer
– Continued
Effective May 31, 2011 (the “Modification Date”),
the Company’s employment agreement with its CEO was amended to provide that an option granted to him on December 23, 2010
for the purchase of 50,000,000 shares of common stock (the “Original Grant”) was null and void. In addition, concurrently,
the Company granted to the CEO 35,000,000 shares of common stock (the “Modified Grant”) pursuant to the Plan. The
shares were to vest at such time as the Company received equity and/or debt financing in an aggregate amount equal to three times
the tax payable in connection with the grant. The Company has agreed to be responsible for the payment of all taxes incurred by
the CEO as a result of the grant, as well as all taxes incurred as a result of such tax payments on the CEO’s behalf. The
Company did not recognize any incremental compensation expense for the modification of the grant because (1) the grant date fair
value of the immediately vested Original Grant was fully recognized on the grant date; and (2) the fair value of the Modified
Grant was less than the fair value of the Original Grant, both as of the Modification Date. On November 4, 2011, the Company and
the CEO further modified the CEO’s 35,000,000 share restricted stock grant such that vesting became subject to the receipt
of at least $2,000,000 in additional equity and/or debt financing after such date. On April 2, 2012, the CEO’s 35,000,000
share stock grant vested as a result of the Company raising in excess of $2,000,000 of financing since November 4, 2011. The Company
has agreed to fund the CEO’s tax liability in connection with such vesting.
On February 10, 2012, in connection with the extension of the
CEO’s employment agreement for an additional two years (through October 2015) as discussed above, the Board approved (1)
an option grant to the CEO (see Note 10 – Stockholders’ Deficiency – Stock Options for additional details);
and (2) the payment of a $70,000 discretionary bonus to the CEO in connection with the signing of the SCTC Agreement. The discretionary
bonus was paid on April 13, 2012.
As of December 31, 2012 and 2011, the accrued and unpaid compensation
(salary, bonus, tax liability, car allowance and vacation pay) for the CEO was $720,154 and $161,800, respectively.
Other
In addition to the Company’s employment agreement with
the CEO, two employees have “at-will” employment agreements with the Company that provide for aggregate cash severance
payments of $125,000, payable over twelve months, upon involuntary termination.
Termination Agreements
Former President
In January 2011, pursuant to a Termination Agreement dated
December 15, 2010, the Company reissued 12,576,811 shares of common stock to its former President. In addition, the Company agreed
to pay $120,000 of severance ratably over a 24 month period and took responsibility for approximately $20,152 of business related
credit card indebtedness. On November 8, 2011, the Company agreed to settle the remaining $87,500 of severance due pursuant to
the former President’s termination agreement for $22,500 and the Company recognized a $65,000 gain on restructuring the
payable balance. In addition, the Company agreed to pay-off the remaining business-related credit card indebtedness.
Founder/Stem Cell Research Company, LLC
Effective January 29, 2011, the
Company terminated its relationship with a founder of the Company. Pursuant and subject to the terms and conditions of the Termination
Agreement between the parties, the founder waived any rights he may have had pursuant to a certain employment agreement entered
into with the Company in August 2010 and the Company agreed to pay to Stem Cell Research Company, LLC (“Stem Cell Research”),
a principal shareholder of the Company, $180,000 over a 12 month period. In addition, pursuant to the Termination Agreement, the
founder and Stem Cell Research have agreed to certain restrictive covenants, including with regard to the sale of shares of common
stock of the Company.
On November 8, 2011, the Company agreed to settle the remaining $100,000 due pursuant to the founder’s
termination agreement for $50,000 and the Company recognized a $50,000 gain on restructuring the payable balance.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies – Continued
Termination Agreements
– Continued
Other Employee
On April 4, 2011, the Board was
informed of an employee’s resignation and it authorized the payment of $25,000 ratably over the eight months following the
termination date,
of which none was outstanding at December 31, 2011.
Pursuant to the
provisions of the Plan, the Board determined that the immediately vested options granted on December 15, 2010 to this employee
for the purchase of 2,000,000 shares of common stock of the Company, for which the Company immediately recorded a charge equal
to the $15,840 grant date value, shall remain exercisable until, and shall thereupon terminate if not exercised, two years from
the date of termination of employment.
Former Chief Financial Officer
In June 2011, the Company and its former Chief Financial Officer
(the “Former CFO”) entered into an agreement whereby, effective June 25, 2011, the Former CFO (1) resigned his director
and officer positions with the Company and its subsidiaries; (2) became subject to a two year non-compete and non-solicitation
restriction; plus certain restrictions on the sale of the Company’s common stock; and (3) was entitled to receive an aggregate
amount of $50,000 of severance from the Company in full satisfaction of all obligations ratably over the remainder of the calendar
year, of which $46,154 was outstanding and included in accrued expenses and other current liabilities in the consolidated balance
sheet at December 31, 2011. Pursuant to the Former CFO’s December 15, 2010 option grant, his options to purchase 4,000,000
shares of Company common stock were forfeited three months after his termination date, but no stock-based compensation expense
was reversed because the options were fully vested. On January 4, 2012, the Company agreed to settle the remaining $46,154 due
pursuant to the Former CFO’s termination agreement for $23,077 and the Company recorded a $23,077 gain on settlement of
the payable.
Director Compensation
On April 4, 2011, two non-employees were elected to serve as
directors of the Company. On April 21, 2011, the two new non-employee directors
were each granted 5,000,000
shares of
common
stock. One-half of the shares vested and were expensed upon grant and the other
half vested
on the first anniversary of the grant. The aggregate $82,600 grant date fair value was recognized one-half
immediately with the balance amortized ratably over the vesting period.
In addition, each of the directors
is entitled to receive $20,000 in cash, payable in four quarterly installments of $5,000 (subject to deferral if the remaining
directors determine that the Company needs to conserve its cash), of which $50,000 was outstanding and included in accrued expenses
and other current liabilities in the consolidated balance sheet at December 31, 2012. On December 7, 2012, the Board of Directors
approved an increase in director compensation such that, effective January 1, 2013, each of the directors is entitled to receive
$40,000 in cash, payable in four quarterly installments of $10,000 (subject to deferral if the remaining directors determine that
the Company needs to conserve its cash).
Settlement Agreements
Quick Capital of L.I. Corp.
Effective February 23, 2011, the Company
entered into a Settlement Agreement with Quick Capital and Olde Estate, LLC (“Olde Estate”). Pursuant to the Settlement
Agreement, the Company paid to Quick Capital approximately $36,000 and issued to Olde Estate 8,312,500 shares of its common stock
valued at $68,662, which was immediately expensed,
in satisfaction of the Company’s monetary
and stock issuance obligations to Quick Capital and Olde Estate under a Credit Support, Security and Registration Rights Agreement,
dated as of August 17, 2010.
Sound Surgical Technologies, LLC
On March 8, 2011, the Company and Sound Surgical Technologies,
LLC (“Sound Surgical”) entered into a Settlement Agreement and Release of Claim (the “Settlement Agreement”)
pursuant to which the parties agreed that the Company’s purchase from Sound Surgical of one piece of equipment was cancelled,
the Company’s obligations under a certain purchase agreement were terminated and the Company retained one piece of purchased
equipment. On March 8, 2011, the Company paid to Sound Surgical $65,000 in connection with the purchase of the retained equipment
and to complete the Settlement Agreement.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 9 – Commitments and Contingencies – Continued
Settlement Agreements
–
Continued
Other
On September 12, 2012, the Company issued an immediately vested,
five-year warrant to purchase 250,000 shares of common stock at an exercise price of $0.03 per share in order to settle a dispute
with an investor. The grant date value of $3,775 was recognized immediately.
On October 18, 2012, the Company
and
former counsel entered into a Settlement Agreement and Release of Claim (the “Settlement Agreement”) pursuant to which
the parties agreed that the Company would pay such former counsel $15,000 in settlement of a payable in the amount of $18,970.
The Company recorded a gain on settlement of $3,970.
Sale of Equipment
On August 22, 2011, the Company sold equipment for $32,000
to a third party. The Company purchased the equipment in September 2010 for $65,000 and recognized a loss on sale of equipment
of $21,614 which was recorded in general and administrative expenses in the consolidated statement of operations.
Note 10 – Stockholders’ Deficiency
Authorized Capital
The Company is authorized to issue 1,500,000,000 shares (increased
from 800,000,000 shares on February 10, 2012) of common stock, $0.001 par value, and 1,000,000 shares of preferred stock, $0.01
par value. The holders of the Company’s common stock are entitled to one vote per share. Subject to the rights of holders
of preferred stock, if any, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of legally available funds. Subject to the rights of holders of preferred stock, if any, upon liquidation,
dissolution or winding up of the Company, holders of common stock are entitled to share ratably in all assets of the Company that
are legally available for distribution.
2010 Equity Participation Plan
On July 17, 2012, the Board of Directors of the Company approved
an increase in the number of shares of common stock that may be issued pursuant to the Plan to 300,000,000 from 200,000,000. On
December 7, 2012, the shareholders of the Company approved the increase.
On March 28, 2011, the Board of Directors of the Company approved
an increase in the number of shares of common stock that may be issued pursuant to the Plan to 200,000,000 from 100,000,000. On
April 4, 2011, the shareholders of the Company approved the increase.
Shareholder Actions
On February 10, 2012, the shareholders of the Company approved
(a) an increase in the authorized common stock to 1,500,000,000 shares from 800,000,000 shares; and (b) giving the Board the discretion
to effect a reverse stock split of the Company’s common stock by a ratio of not less than 1-for-10 and not more than 1-for-150,
anytime until February 10, 2013. In December 2012, the shareholders of the Company approved a one year extension of such Board
authority to February 10, 2014. The Board has not yet approved a reverse stock split.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 10 – Stockholders’ Deficiency – Continued
Common Stock Issuances
During the year ended December 31, 2011, the Company issued
an aggregate of 8,000,000 shares of common stock at a price of $0.025 per
unit
to investors
for aggregate gross proceeds of $200,000. In connection with the purchases, the Company issued warrants for the purchase of an
aggregate of 2,000,000 shares of common stock, which are exercisable over a period of five years at an exercise price of $0.03
per share of common stock.
The warrants had an aggregate grant date value of
$31,233.
During the year ended December 31,
2012, the Company issued an aggregate of 80,000,000 shares of common stock at prices ranging from $0.020 to $0.025 per unit to
investors for aggregate gross proceeds of $1,925,000. In connection with the purchases, the Company issued warrants for the purchase
of an aggregate of 30,150,000 shares of common stock, which are exercisable over a period of five years at exercise prices ranging
from $0.030 to $0.080 per share of common stock. The warrants had an aggregate grant date value of $430,431.
See Note 7 – Notes Payable for details associated with
common stock issued in conjunction with the issuance, extension and exchange of notes payable.
See Note 9 –
Commitments
and Contingencies
– Termination Agreements for details associated with a 2011 common stock reissuance
to the Company’s Former President.
Warrant and Option Valuation
The Company has computed the fair value of warrants and options
granted using the Black-Scholes option pricing model. Option 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 option
forfeitures differ, or are expected to differ, from the previous estimate, when it is material. The Company estimated forfeitures
related to option grants at an annual rate of 0% for options granted during the years ended December 31, 2012 and 2011. The expected
term used for warrants and options issued to non-employees is the contractual life and the expected term used for options issued
to employees is 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” employee option grants. Since the Company’s
stock has not been publicly traded for a sufficiently 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 the instrument being
valued, 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 instrument being valued.
Stock Warrants
See Note 7
–
Notes
Payable for details associated with the issuance of warrants in connection with note issuances and the extension of debt maturities.
See Note 9
–
Commitments and Contingencies for details associated with the issuance of
warrants as compensation. See Note 10
–
Stockholders’ Deficiency – Common
Stock Issuances for details associated with the issuance of warrants in connection with common stock issuances.
In applying the Black-Scholes option pricing model to warrants
granted, the Company used the following weighted average assumptions (excludes the impact of the second and third tranches of
the
SCTC Warrant
; see Note 5
–
Intangible Assets for
additional details):
|
|
For The Years Ended
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Risk free interest rate
|
|
|
0.66
|
%
|
|
|
0.44
|
%
|
Expected term (years)
|
|
|
5.00
|
|
|
|
5.00
|
|
Expected volatility
|
|
|
184
|
%
|
|
|
185
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 10 – Stockholders’ Deficiency – Continued
Stock Warrants
– Continued
The weighted average estimated fair value of the warrants granted
during the years ended December 31, 2012 and 2011 was approximately $0.014 and $0.016 per share, respectively.
The Company recorded stock–based compensation expense
of $494,875 and $0 during the years ended December 31, 2012 and 2011, respectively, and $547,253 during the period from December
30, 2008 (inception) to December 31, 2012, related to stock warrants issued as compensation, which is reflected as consulting
expense in the consolidated statements of operations
.
As of December 31, 2012, there was $115,200
of unrecognized stock-based compensation expense related to stock warrants that will be amortized over a weighted average period
of 1.0 year.
A summary of the warrant activity during the years ended December
31, 2012 and 2011 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
In Years
|
|
|
Value
|
|
Outstanding, December 31, 2010
|
|
|
2,000,000
|
|
|
$
|
0.010
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,000,000
|
|
|
|
0.030
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2011
|
|
|
4,000,000
|
|
|
$
|
0.020
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
162,740,000
|
|
|
|
0.034
|
[1]
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2012
|
|
|
166,740,000
|
|
|
$
|
0.034
|
|
|
|
4.4
|
|
|
$
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2012
|
|
|
96,740,000
|
|
|
$
|
0.037
|
|
|
|
4.3
|
|
|
$
|
12,000
|
|
The following table presents information related to stock warrants
at December 31, 2012:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Number of
|
|
Price
|
|
|
Warrants
|
|
|
In Years
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.010
|
|
|
|
2,000,000
|
|
|
|
1.6
|
|
|
|
2,000,000
|
|
|
0.020
|
|
|
|
2,000,000
|
|
|
|
4.0
|
|
|
|
2,000,000
|
|
|
0.030
|
|
|
|
108,240,000
|
|
|
|
4.4
|
|
|
|
73,240,000
|
|
|
0.035
|
|
|
|
2,000,000
|
|
|
|
4.3
|
|
|
|
2,000,000
|
|
|
0.050
|
|
|
|
6,000,000
|
|
|
|
4.5
|
|
|
|
6,000,000
|
|
|
0.080
|
|
|
|
11,500,000
|
|
|
|
4.8
|
|
|
|
11,500,000
|
|
|
Variable
|
[1]
|
|
|
35,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
166,740,000
|
|
|
|
4.3
|
|
|
|
96,740,000
|
|
[1] – Warrants to purchase 35,000,000 shares of common
stock, which have an
exercise price which is the greater of $0.03 per share or the fair market value
of the common stock on the date certain performance criteria is met, have not been included in the calculation of the weighted
average price of options granted. See Note 5 – Intangible Assets.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 10 – Stockholders’ Deficiency – Continued
Stock Options
In applying the Black-Scholes option pricing model to stock
options granted, the Company used the following weighted average assumptions:
|
|
For The Years Ended
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Risk free interest rate
|
|
|
0.85
|
%
|
|
|
1.54
|
%
|
Expected term (years)
|
|
|
5.34
|
|
|
|
4.51
|
|
Expected volatility
|
|
|
183
|
%
|
|
|
205
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The weighted average estimated fair value of the stock options
granted during the years ended December 31, 2012 and 2011 was approximately $0.010 and $0.008 per share, respectively.
See Note 9
–
Commitments
and Contingencies for details associated with certain grants of options as compensation to employees, directors and consultants.
Employee Awards
On April 5, 2011, the Company granted a ten-year option to
an employee to purchase 4,000,000 shares of common stock at an exercise price of $0.01 per share, pursuant to the Plan. Options
for the purchase of 2,000,000 of such shares became exercisable immediately and options for the purchase of the remaining 2,000,000
shares become exercisable on the first anniversary of the date of grant. The $32,400 grant date fair value was recognized one-half
immediately with the balance amortized ratably over the vesting period. On June 24, 2011, the employee qualified to receive a
cash bonus of $10,000 and vested ten-year options for the purchase of 150,000 shares of common stock at an exercise price of $0.025
per share, pursuant to his employment agreement. The $1,200 grant date value of these options was recognized immediately. On November
4, 2011, the employee qualified to receive a $20,000 cash bonus and vested ten-year options for the purchase of 1,000,000 shares
of common stock at an exercise price of $0.02 per share. The $8,000 grant date value of these options was recognized immediately.
On April 21, 2011, the Company granted a ten-year option to
an employee 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 were immediately exercisable, 100,000 became 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.
On February 10, 2012, the Company granted ten-year options
to employees to purchase an aggregate of 54,000,000 shares of common stock at an exercise price of $0.021 per share, pursuant
to the Plan. The options vest as follows: (i) an option granted to the CEO to purchase 50,000,000 shares of common stock vests
to the extent of one-third of the shares immediately, one-third on the first anniversary of the date of grant and one-third on
the second anniversary of the date of grant; and (ii) options to purchase an aggregate of 4,000,000 shares of common stock vest
to the extent of one-half of the shares immediately and one-half on the first anniversary of the date of grant. The aggregate
grant date value of $421,200 will be recognized proportionate to the vesting periods.
On May 3, 2012, the Company granted ten-year options to two
employees to purchase an aggregate of 7,550,000 shares of common stock at an exercise price of $0.028 per share, pursuant to the
Plan. Options to purchase 1,550,000 shares vest as follows: (i) 25,000 shares immediately, (ii) 525,000 shares on the first anniversary
date, (iii) 500,000 shares on the second anniversary date and (iv) 500,000 shares on the third anniversary date. On June 15, 2012,
options to purchase 1,000,000 shares vested as a result of the execution of the Research Agreement. The aggregate grant date value
of $117,010 was recognized proportionate to the vesting period. Options to purchase the remaining 5,000,000 shares vest subject
to the satisfaction of certain performance conditions.
It is not currently probable that the performance
conditions will be met and, as a result, the Company has not recognized any expense associated with the shares.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 10 – Stockholders’ Deficiency – Continued
Stock Options
– Continued
Employee Awards
– Continued
On December 7, 2012, the Company granted ten-year options to
three employees to purchase an aggregate of 27,500,000 shares of common stock at an exercise price of $0.03 per share, pursuant
to the Plan. The shares vest as follows: (i) 13,750,000 shares immediately and (ii) 13,750,000 shares on the first anniversary
date. The aggregate grant date value of $420,750 will be recognized proportionate to the vesting period.
The Company recorded employee stock–based compensation
expense of $522,691 and $38,968 during the years ended December 31, 2012 and 2011, respectively. During the period from December
30, 2008 (inception) to December 31, 2012, the Company recorded $1,018,621 related to employee stock option grants, which is reflected
as payroll and benefits expense in the consolidated statements of operations
.
As of December
31, 2012, there was $363,151 of unrecognized employee stock-based compensation expense related to stock option grants that will
be amortized over a weighted average period of 1.1 years.
Non-Employee 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.
On February 10, 2012, the Company granted ten-year options
to non-employee directors to purchase an aggregate of 60,000,000 shares of common stock at an exercise price of $0.021 per share,
pursuant to the Plan. The options vest to the extent of one-half of the shares immediately and one-half on the first anniversary
of the date of grant. The aggregate grant date value of $468,000 will be recognized proportionate to the vesting period.
On December 7, 2012, the Company granted ten-year options to
non-employee directors to purchase an aggregate of 10,000,000 shares of common stock at an exercise price of $0.03 per share,
pursuant to the Plan. The shares vest as follows: (i) 5,000,000 shares immediately and (ii) 5,000,000 shares on the first anniversary
date. The aggregate grant date value of $153,000 will be recognized proportionate to the vesting period.
The Company recorded non-employee director stock–based
compensation expense of $522,750 and $0 during the years ended December 31, 2012 and 2011, respectively. During the period from
December 30, 2008 (inception) to December 31, 2012, the Company recorded $649,472 related to non-employee director stock option
grants, which is reflected as consulting expense in the consolidated statements of operations
.
As
of December 31, 2012, there was $98,250 of unrecognized non-employee director stock-based compensation expense related to stock
option grants that will be amortized over a weighted average period of 0.7 years.
Consultant Awards
On April 27, 2011, the Company granted to an entity a ten-year
option to purchase 200,000 shares of common stock at an exercise price of $0.02 per share, pursuant to the Plan. Options for the
purchase of 100,000 of such shares became exercisable immediately and options for the purchase of the remaining 100,000 shares
became exercisable when the key employee of the consultant became a full-time employee of the Company on November 1, 2011. Aggregate
stock-based compensation expense of $1,620 was recognized during 2011.
The Company recorded consultant and advisory board stock–based
compensation expense of $90,789 and $11,966 during the years ended December 31, 2012 and 2011, respectively. During the period
from December 30, 2008 (inception) to December 31, 2012, the Company recorded $102,755 related to consultant and advisory board
stock option grants, which is reflected as consulting expense in the consolidated statements of operations
.
As of December 31, 2012, there was $85,965 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 1.3 years.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 10 – Stockholders’ Deficiency – Continued
Stock Options
– Continued
Option Award Summary
A summary of the option activity during the years ended December
31, 2012 and 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
|
|
|
8,150,000
|
|
|
|
0.017
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Voided
|
|
|
(50,000,000
|
)
|
|
|
0.001
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(4,000,000
|
)
|
|
|
0.010
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2011
|
|
|
26,150,000
|
|
|
$
|
0.012
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
174,800,000
|
|
|
|
0.024
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(50,000
|
)
|
|
|
0.028
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2012
|
|
|
200,900,000
|
|
|
$
|
0.022
|
|
|
|
8.5
|
|
|
$
|
132,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2012
|
|
|
98,800,667
|
|
|
$
|
0.021
|
|
|
|
8.2
|
|
|
$
|
132,000
|
|
The following table presents information related to stock options
at December 31, 2012:
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Number of
|
|
Price
|
|
|
Options
|
|
|
In Years
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.010
|
|
|
|
22,000,000
|
|
|
|
5.1
|
|
|
|
22,000,000
|
|
|
0.020
|
|
|
|
1,500,000
|
|
|
|
8.7
|
|
|
|
1,400,000
|
|
|
0.021
|
|
|
|
114,000,000
|
|
|
|
9.1
|
|
|
|
48,666,667
|
|
|
0.022
|
|
|
|
250,000
|
|
|
|
4.4
|
|
|
|
250,000
|
|
|
0.024
|
|
|
|
500,000
|
|
|
|
3.4
|
|
|
|
500,000
|
|
|
0.025
|
|
|
|
2,150,000
|
|
|
|
4.0
|
|
|
|
1,484,000
|
|
|
0.028
|
|
|
|
17,500,000
|
|
|
|
6.2
|
|
|
|
3,000,000
|
|
|
0.030
|
|
|
|
43,000,000
|
|
|
|
9.9
|
|
|
|
21,500,000
|
|
|
|
|
|
|
200,900,000
|
|
|
|
8.2
|
|
|
|
98,800,667
|
|
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 10 – Stockholders’ Deficiency – Continued
Common Stock Awards
See Note 9
–
Commitments
and Contingencies for details associated with certain grants of common stock as compensation to employees, directors and consultants.
Employee Awards
The Company recorded employee stock–based compensation
expense of $0 and $123,900 during the years ended December 31, 2012 and 2011, respectively. During the period from December 30,
2008 (inception) to December 31, 2012, the Company recorded $123,900 related to employee stock grants, which is reflected as payroll
and benefits expense in the consolidated statement of operations
.
As of December 31, 2012, there
was no unrecognized employee stock-based compensation expense related to stock grants.
Non-Employee Director Awards
The Company recorded non-employee director stock–based
compensation expense of $10,325 and $72,275 during the years ended December 31, 2012 and 2011, respectively. During the period
from December 30, 2008 (inception) to December 31, 2012, the Company recorded $97,200 related to non-employee director stock grants,
which is reflected as consulting expense in the consolidated statements of operations
.
As of
December 31, 2012, there was no unrecognized non-employee director stock-based compensation expense related to stock grants.
Consultant Awards
On September 1, 2011, the Company granted 4,000,000 shares
of immediately vested common stock to its legal counsel. The $33,040 grant date fair value was recognized immediately.
On December 7, 2012, the Company granted 2,000,000 shares of
immediately vested common stock to its legal counsel. The $32,000 grant date fair value was recognized immediately.
During the years ended December 31, 2012 and 2011, the Company
issued 14,098,100 and 25,389,500 shares of common stock, respectively, valued at $206,815 and $209,717, respectively, in connection
with consulting agreements.
The Company recorded consultant and advisory board stock–based
compensation expense of $206,815 and $209,717 during the years ended December 31, 2012 and 2011, respectively. During the period
from December 30, 2008 (inception) to December 31, 2012, the Company recorded $1,591,195 related to consultant and advisory board
stock grants, which is reflected as consulting expense in the consolidated statements of operations
.
As of December 31, 2012, there was no unrecognized consultant and advisory board stock-based compensation expense related
to stock grants.
Stock Award Summary
A summary of common stock award activity during the years ended
December 31, 2012 and 2011 is presented below:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Total
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, December 31, 2010
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
85,389,500
|
|
|
|
0.00826
|
|
|
|
705,317
|
|
Vested
|
|
|
(45,389,500
|
)
|
|
|
0.00826
|
|
|
|
(374,917
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-vested, December 31, 2011
|
|
|
40,000,000
|
|
|
$
|
0.00826
|
|
|
$
|
330,400
|
|
Granted
|
|
|
14,098,100
|
|
|
|
0.01467
|
|
|
|
206,815
|
|
Vested
|
|
|
(54,098,100
|
)
|
|
|
0.00993
|
|
|
|
(537,215
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-vested, December 31, 2012
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 11 – Subsequent Events
Issuance of Common Stock
Subsequent to December 31, 2012, the Company issued an aggregate
of 37,500,000 shares of common stock at prices ranging from $0.02 to $0.03 per unit to investors for aggregate gross proceeds
of $820,000. In consideration of the purchases, the Company issued five-year warrants for the purchase of an aggregate of 16,400,000
shares of common stock, which are exercisable at exercise prices ranging from $0.03 to $0.08 per share of common stock. The warrants
had an aggregate grant date fair value of $196,230.
Notes Payable
On March 26, 2013 Cayman borrowed an additional $450,000 from
the Bermuda Lender, which was combined with the already outstanding $3,550,000 of previous borrowings from the Bermuda Lender
into a new $4,000,000 zero coupon note which matures on July 31, 2014. In consideration of the additional $450,000 loan, the settlement
of accrued and unpaid interest of $213,000, and for extending the maturity date of the loan, the Company issued to the Bermuda
Lender 30,000,000 shares of common stock and a five year warrant to purchase 20,000,000 shares of common stock at an exercise
price of $0.05 per share. The common stock and warrant had an aggregate relative fair value of $617,336.
In addition to the debt financing
described above, subsequent to December 31, 2012, the maturity dates of certain notes payable with an aggregate principal
balance of $103,500 were extended to new maturity dates ranging from November 2013 through April 2014. All of the extended
notes bear a 15% interest rate per annum payable monthly. Subsequent to December 31, 2012,
the Company
and certain
lenders
agreed to exchange certain notes payable with an aggregate principal balance
of
$112,500
for an aggregate of
5,625,000
shares of common
stock and five-year warrants to purchase an aggregate of
2,250,000
shares of common stock at
an exercise price of $0.03 per share. The warrants had an aggregate issuance date value of
$29,700.
The
lenders
received piggyback registration rights related to the stock and the stock issuable pursuant
to the warrants.
Subsequent to December 31, 2012,
the
Company issued 250,000 shares to a
lender
in connection with the 2012 extension of the maturity
date of a note payable. The shares had a relative fair value of $3,700.
The Company currently has notes payable aggregating $50,000
which are past their maturity dates. The Company is currently in the process of negotiating extensions or discussing conversions
to equity with respect to these notes. However, there can be no assurance that the Company will be successful in extending or
converting these notes.
Notes payable, non-current portion represents notes payable
whose maturity was extended after the balance sheet date but before the financial statements were issued.
As of the filing date of this report, 80% of the face value
of the Company’s outstanding notes payable were sourced from the Bermuda Lender and the maturity date associated with these
notes is July 31, 2014.
Stock-Based Compensation
Subsequent to December 31, 2012, pursuant to a November 15,
2012 consulting agreement extension, a consultant was issued 3,000,000 shares of common stock valued at $48,000.
Subsequent to December 31, 2012, a consultant was issued 24,100
shares of common stock for consulting services valued at $723.
Subsequent to December 31, 2012, the Company granted an immediately
vested, five-year warrant to purchase 5,000,000 shares of common stock at an exercise price of $0.08 per share as consideration
for legal services. The grant date value of $59,000 was recognized immediately.
Subsequent to December 31, 2012, the Company granted an immediately
vested, three-year warrant to purchase 500,000 shares of common stock at an exercise price of $0.03 per share to a consultant.
The grant date value of $6,600 was recognized immediately.
BIORESTORATIVE THERAPIES, INC. &
SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Consolidated Financial Statements
Note 11 – Subsequent Events – Continued
Stock-Based Compensation
– Continued
Subsequent to December 31, 2012, the Company granted a ten-year
option to an advisor to purchase 3,000,000 shares of common stock at an exercise price of $0.03 per share, pursuant to the Plan.
The shares vest as follows: (i) 1,500,000 shares immediately and (ii) 1,500,000 shares on the first anniversary of the grant date.
The grant date value of $45,900 will be recognized proportionate to the vesting period.
Agreement in Principle
On February 8, 2013, the Company entered into an agreement
in principle with an investment banker to act as the Company’s financial advisor and as placement agent in the event the
Company conducts a specified proposed offering of equity securities. The agreement in principle expires on July 15, 2013, but
continues on a month-to-month basis, subject to the parties’ right to terminate earlier. The investment banker was paid
$25,000 as a placement fee advance, which is to be applied against the final placement fee, when and if earned, which will be
7.5% of the gross proceeds of the proposed offering. In addition, the investment banker would be entitled to five-year warrants
for the purchase of a number of shares equal to 5% of the shares issued in the proposed offering and the exercise price would
be equal to 125% of the offering price. The Company has agreed to reimburse up to $100,000 of the investment banker’s legal
out-of-pocket costs, plus other sundry expenditures. As of the filing date of this report, the proposed offering was still under
review and had not commenced. This disclosure does not constitute an offer of any securities for sale and there can be no assurance
that the Company will be able to sell securities under this offering.
Advance from Director
Subsequent to December 31, 2012, the Company received a non-interest
bearing advance from a director in the amount of $50,000 and made repayments of $50,000, such that the Company had no liability
remaining on the advance.