| STOCKHOLDERS' EQUITY | 3. STOCKHOLDERS’ EQUITY Preferred Stock In June 2019, the Company amended and restated its certificate of incorporation. The amended and restated certificate of incorporation authorizes the issuance of up to 5,000,000 shares of “blank check” preferred stock, with such designation rights and preferences as may be determined from time to time by the Board of Directors. Common Stock In June 2019, the Company amended and restated its certificate of incorporation. The amended and restated certificate of incorporation increased the number of shares of common stock authorized for issuance from 50,000,000 shares to 100,000,000 shares. Shelf Registration On July 14, 2021, the Company filed a registration statement on Form S-3 with the SEC, which was amended on July 20, 2021 and declared effective by the SEC on July 27, 2021 (as amended, the “2021 Shelf”). The 2021 Shelf enables the Company to offer and sell, in one or more offerings, any combination of common stock, preferred stock, senior or subordinated debt securities, warrants and units, up to a total dollar amount of $150 million. Open Market Sale Agreement with Jefferies LLC On December 30, 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (the “Agent”), pursuant to which the Company may sell, from time to time, at its option, shares of the Company’s common stock having an aggregate offering price of up to $25 million through the Agent, as the Company’s sales agent. All shares of the Company’s common stock offered and sold, or to be offered and sold under the Sale Agreement will be issued and sold pursuant to the Company’s 2021 Shelf by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, in block transactions or if specified by the Company, in privately negotiated transactions. Subject to the terms of the Sales Agreement, the Agent is required to use its commercially reasonable efforts consistent with their normal sales and trading practices to sell the shares of the Company’s common stock from time to time, based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company is required to pay the Agent a commission of up to 3.0% of the gross proceeds from the sale of the shares of the Company’s common stock sold thereunder, if any. There were no sales under the Sale Agreement during the year ended December 31, 2022. During the nine months ended September 30, 2023, the Company sold 590,348 shares pursuant to the Sale Agreement, at an average selling price of $3.68 per share, generating net proceeds of approximately $2,107,000. In addition, during the year ended December 31, 2022 and during the nine months ended September 30, 2023, the Company paid approximately $90,000 and $57,000, respectively, in expenses related to the Sale Agreement. Stock-Based Compensation Total share-based employee, director, and consultant compensation amounted to approximately $1,086,000 and $2,487,000 for the three and nine months ended September 30, 2023, respectively, and approximately $1,005,000 and $2,554,000 for the three and nine months ended September 30, 2022, respectively. These amounts are included in the consolidated statements of operations and comprehensive loss under selling, general, and administrative expenses. The summary of the stock option activity for the nine months ended September 30, 2023 is as follows: Weighted Weighted Average Average Remaining Exercise Price Contractual Shares per Share Life (Years) Outstanding, December 31, 2022 9,474,824 $ 4.66 7.36 Granted 2,583,880 $ 3.45 — Forfeited (748,381) $ 2.96 — Expired (435,781) $ 5.10 — Exercised (84,093) $ 2.61 — Outstanding, September 30, 2023 10,790,449 $ 4.48 7.26 The fair value of each stock option was estimated using the Black Scholes pricing model, which takes into account as of the grant date the exercise price (ranging from $1.55 to $3.71 per share) and expected life of the stock option (10 years), the current price of the underlying stock and its expected volatility (70.9%), expected dividends (0)% on the stock and the risk free interest rate (ranging from 3.50% to 4.61%) for the expected term of the stock option. The intrinsic value is calculated as the difference between the market value of the shares as of September 30, 2023 of $1.88 and the exercise price of the shares. Options Outstanding Number Weighted Weighted Range of Outstanding at Average Average Aggregate Exercise September 30, Exercise Remaining Intrinsic Price 2023 Price Life (Years) Value $1.11 - $13.20 10,790,449 $ 4.48 7.26 $ 11,960 Options Exercisable Number Weighted Exercisable at Average Aggregate September 30, Exercise Intrinsic 2023 Price Value 5,653,877 $ 5.88 $ 2,750 The summary of the status of the Company’s non-vested options for the nine months ended September 30, 2023 is as follows: Weighted Average Grant Date Shares Fair Value Non-vested, December 31, 2022 4,851,739 $ 1.84 Granted 2,583,880 $ 2.36 Forfeited (748,381) $ 1.96 Vested (1,550,666) $ 2.53 Non-vested, September 30, 2023 5,136,572 $ 1.88 As of September 30, 2023, the Company had approximately $7,990,000 of total unrecognized compensation cost related to stock options which will be amortized over approximately 41 months. Awards of Stock Options On July 7, 2023, the Board of Directors granted options to purchase 1,138,750 shares of common stock to the Company’s employees which will be awarded based upon each employee’s 2023 individual performance evaluation. Once awarded, these options will vest one quarter on the first anniversary of the grant date, one quarter on the second anniversary of the grant date, one quarter on the third anniversary of the grant date and one quarter on fourth anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $2,665,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $196,000 of stock option expense related to these options. On July 7, 2023, the Board of Directors granted options to purchase 56,130 shares of common stock to certain of the Company’s employees. These options will vest in full on the first anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $156,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $34,000 of stock option expense related to these options. On July 7, 2023, the Board of Directors granted options to purchase 100,000 shares of common stock to members of the Company’s Board of Directors. These options will vest in full on the first anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $278,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $65,000 of stock option expense related to these options. On July 7, 2023, the Board of Directors granted options to purchase 20,000 shares of common stock to a named executive officer of the Company. These options will vest in full on the first anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $56,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $13,000 of stock option expense related to these options. On July 7, 2023, the Board of Directors granted options to purchase 424,000 shares of common stock to certain senior managers of the Company. These options will vest one half on the first anniversary of the grant date, one quarter on second anniversary of the grant date, one quarter on third anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $992,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $144,000 of stock option expense related to these options. On July 7, 2023, the Board of Directors granted options to purchase 182,000 shares of common stock to the named executive officers and certain senior managers of the Company. These options were awarded as a one-time award to each executive officer or senior manager in order to account for lost wages resulting from the salary freezes implemented by the Company over the preceding two years and to account for recent inflation. These options will vest one half on the first anniversary of the grant date, and one half on the second anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $426,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $36,000 of stock option expense related to these options. On July 7, 2023, the Board of Directors granted options to purchase 115,000 shares of common stock to a senior manager of the Company. These options will vest only upon the achievement of certain milestones pursuant to the terms of the Company’s existing 2022-2025 performance pool in place for the Company’s management team. The grant date fair value of these unvested options amounted to approximately $320,000. As of September 30, 2023, none of these milestones have been met. Accordingly, no charge for these options has been recorded in the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023. On July, 10, 2023, in connection with his appointment as Chief Financial Officer, Mr. Alexander D’Amico was awarded options to purchase 70,000 shares of common stock which will vest as follows: 25,000 options upon the six-month anniversary of the date of grant and 15,000 options upon each of the first, second and third anniversaries of the date of grant. Mr. D’Amico was also granted options to purchase 215,000 shares of common stock that will vest only upon the achievement of certain milestones pursuant to the terms of the Company’s existing 2022-2025 performance pool in place for the Company’s management team. All of these options were forfeited upon the termination of Mr. D’Amico’s employment agreement. See Note 6. During the nine months ended September 30, 2023, 263,000 options were awarded to newly hired employees in connection with their employment agreements. Change in Control-Based Awards of Restricted Stock Units: The Board of Directors has granted restricted stock units to members of the Board of Directors, to the Company’s executive officers, and to employees of the Company. These restricted stock units will only vest upon a Change in Control of the Company, as defined in the Amended and Restated CytoSorbents Corporation 2014 Long-Term Incentive Plan. The following table is a summary of these restricted stock units: Restricted Stock Units Board of Executive Other Directors Management Employees Total Intrinsic Value December 31, 2022 346,500 779,500 1,764,500 2,890,500 $ 4,480,275 Granted — 150,000 230,000 380,000 Forfeited — (150,000) (222,750) (372,750) September 30, 2023 346,500 779,500 1,771,750 2,897,750 $ 5,447,770 Due to the uncertainty over whether these restricted stock units will vest, which only happens upon a Change in Control, no charge for these restricted stock units has been recorded in the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022. Other Awards of Restricted Stock Units: On April 12, 2021, certain named executive officers and senior managers were granted 235,765 restricted stock units. These awards were valued at approximately $2,220,000 at the date of issuance, based upon the market price of the Company’s common stock at the date of the grant, and vested (or will vest) one-third on the date of the grant, one-third on the first anniversary of the date of the grant, and one-third on the second anniversary of the date of the grant. For the three and nine months ended September 30, 2023 and 2022, the Company recorded (income) expense of approximately $0 and $177,000, and $(245,000) and $50,000, respectively, related to these restricted stock unit awards. On August 10, 2022, certain named executive officers and senior managers were granted 288,500 restricted stock units. These awards were valued at approximately $563,000 at the date of issuance, based upon the market price of the Company’s common stock at the date of the grant, and vested (or will vest) one-third on the date of the grant, one-third on the first anniversary of the date of the grant, and one-third on the second anniversary of the date of the grant. For the three and nine months ended September 30, 2023 and 2022, the Company recorded a charge of approximately $106,000 and $214,000, and $200,000 and $214,000, respectively, related to these restricted stock unit awards. On July 7, 2023, certain named executive officers and senior managers were granted 250,000 restricted stock units. These awards were valued at approximately $883,000 at the date of issuance, based upon the market price of the Company's common stock at the date of the grant, and will vest two-thirds on the first anniversary of date of the grant, and one-third on the second anniversary of the date of the grant. For the three and nine months ended September 30, 2023 and 2022, the Company recorded a charge of approximately $102,000 and $0, and $102,000 and $0, respectively, related to these restricted stock unit awards. On September 18, 2023, a named executive officer was granted 45,000 restricted stock units. This award was valued at approximately $89,000 at the date of issuance, based upon the market price of the Company's common stock at the date of the grant, and vested (will vest) one-third on the date of the grant, one-third on the first anniversary of the date of the grant, and one-third on the second anniversary of the date of the grant. For the three and nine months ended September 30, 2023 and 2022, the Company recorded a charge of approximately $50,000 and $0, and $50,000 and $0, respectively, related to these restricted stock unit awards. On January 23, 2023, an employee was awarded 30,000 restricted stock units, as a condition of her employment. These awards were valued at $64,200 at the date of issuance. Also in 2023, 2,500 restricted stock units were forfeited. The remaining unvested restricted stock awards will vest based upon a change of control or over the next two to four years, whichever occurs first. For the three and nine months ended September 30, 2023 and 2022, the Company recorded a charge (income) of approximately $8,000 and $0, and $54,000 and $(34,000), respectively, related to all restricted stock units. On July 10, 2023, in connection with his appointment as Chief Financial Officer, Mr. D'Amico was awarded 45,000 restricted stock units which were scheduled to vest one half on the first anniversary of the grant date and one half on the second anniversary of the grant date. These restricted stock units were valued at approximately $157,000 at the date of issuance, based upon the market price of the Company's common stock at the date of the grant. Additionally, on July 10, 2023, Mr. D'Amico was awarded 15,000 restricted stock units which were scheduled to vest either upon a Change of Control or will cliff vest on the second anniversary of the date of the grant, subject to Mr. D'Amico's continued service with the Company as of the applicable vesting date. Upon Mr. D'Amico's and the Company's mutual agreement to terminate his employment, effective August 28, 2023, all 60,000 of his restricted stock units were forfeited. The following table outlines the restricted stock unit activity for the nine months ended September 30, 2023: Weighted Average Grant Date Shares Fair Value Non-vested, December 31, 2022 312,092 $ 4.42 Granted 385,000 $ 3.23 Vested (204,087) $ 4.79 Forfeited (62,500) $ 3.57 Non-vested, September 30, 2023 430,505 $ 3.31 |
