Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15 and 15d-15, under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021, to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management’s report on internal control over financial reporting procedures (as defined in Rule 13a-15(f) under the Exchange Act) is included with the financial statements reflected in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
Attestation Report of the Registered Public Accounting Firm
WithumSmith+Brown, PC, the independent registered public accounting firm that audited the financial statements of included in Item 8 of this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2021. This report is included with the financial statements included in Item 8 of this Annual Report on Form 10-K and incorporated herein by reference.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the fiscal quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection.
None.
PART III
Item 10. Directors, Executive Officers and Control Persons.
Information required to be disclosed by this Item with respect to our executive officers is incorporated in this Annual Report on Form 10-K by reference from the section entitled “Officers and Key Employees” contained in our definitive proxy statement for our 2022 annual meeting of stockholders scheduled to be held on June 7, 2022, which we intend to file within 120 days of the end of our fiscal year.
68
Table of Contents
Information required to be disclosed by this Item about our board of directors is incorporated in this Annual Report on Form 10-K by reference from the section entitled “Nomination and Election of Directors” contained in our definitive proxy statement for our 2022 annual meeting of stockholders scheduled to be held on June 7, 2022, which we intend to file within 120 days of the end of our fiscal year.
Information required to be disclosed by this Item about the Section 16(a) compliance of our directors and executive officers is incorporated in this Annual Report on Form 10-K by reference from the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” contained in our definitive proxy statement for our 2022 annual meeting of stockholders scheduled to be held on June 7, 2022, which we intend to file within 120 days of the end of our fiscal year.
Information required to be disclosed by this Item about our board of directors, the audit committee of our board of directors, our audit committee financial expert, our Code of Business Conduct and Ethics, and other corporate governance matters is incorporated in this Annual Report on Form 10-K by reference from the section entitled “Board of Directors and Corporate Governance Matters” contained in our definitive proxy statement for our 2022 annual meeting of stockholders scheduled to be held on June 7, 2022, which we intend to file within 120 days of the end of our fiscal year.
The text of our Code of Business Conduct and Ethics, which applies to our directors and employees (including our principal executive officer, principal financial officer, and principal accounting officer or controller, and persons performing similar functions), is posted in the “Corporate Governance” section of our website, www.cytosorbents.com. A copy of the Code of Business Conduct and Ethics can be obtained free of charge on our website. We intend to disclose on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics that are required to be disclosed pursuant to the rules of the Securities and Exchange Commission and The Nasdaq Stock Market.
The information presented on our website is not a part of this Annual Report on Form 10-K and the reference to our website is intended to be an inactive textual reference only.
Item 11. Executive Compensation.
Information required to be disclosed by this Item is incorporated in this Annual Report on Form 10-K by reference from the sections entitled “Executive Compensation,” “Director Compensation” and “Board of Directors and Corporate Governance Matters” contained in our definitive proxy statement for our 2022 annual meeting of stockholders scheduled to be held on June 7, 2022, which we intend to file within 120 days of the end of our fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information required to be disclosed by this Item is incorporated in this Annual Report on Form 10-K by reference from the sections entitled “Principal Stockholders,” “Stock Ownership of Directors, Nominees for Director, and Executive Officers” and “Equity Compensation Plan Information” contained in our definitive proxy statement for our 2022 annual meeting of stockholders scheduled to be held on June 7, 2022, which we intend to file within 120 days of the end of our fiscal year.
Item 13. Certain Relationships and Related Transactions and Director Independence.
Information required to be disclosed by this Item is incorporated in this Annual Report on Form 10-K by reference from the section(s) entitled “Certain Relationships and Related Party Transactions” and “Board of Directors and Corporate Governance Matters,” “Compensation for Executive Officers and Directors, “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” contained in our definitive proxy statement for our 2022 annual meeting of stockholders scheduled to be held on June 7, 2022, which we intend to file within 120 days of the end of our fiscal year.
Item 14. Principal Accounting Fees and Services.
This information required to be disclosed by this Item is incorporated in this Annual Report on Form 10-K by reference from the section entitled “Audit and Other Fees” contained in our definitive proxy statement for our 2022 annual meeting of stockholders scheduled to be held on June 7, 2022, which we intend to file within 120 days of the end of our fiscal year.
69
Table of Contents
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Financial Statements and Schedules:
1. Financial Statements
The following consolidated financial statements and reports of independent registered public accounting firm are included herein:
Reports of Independent Registered Public Accounting Firm
F-3
Consolidated Balance Sheets
F-5
Consolidated Statements of Operations and Comprehensive Loss
F-6
Consolidated Statements of Changes in Stockholders’ Equity
F-7
Consolidated Statements of Cash Flows
F-8
Notes to Consolidated Financial Statements
F-9
2. Financial Statement Schedules
Not applicable.
3. List of Exhibits
Exhibit
No.
Description
3.1
Second Amended and Restated Certificate of Incorporation, dated June 12, 2019 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 13, 2019).
3.2
Amended and Restated Bylaws of CytoSorbents Corporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on April 8, 2021).
4.1*
Description of Capital Stock of CytoSorbents Corporation.
10.1.+
Amended and Restated Employment Agreement, dated as of July 30, 2019, by and between CytoSorbents Medical, Inc. and Phillip P. Chan (incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K filed on August 5, 2019).
10.2.+
Amended and Restated Employment Agreement, dated as of July 30 2019, by and between CytoSorbents Medical, Inc. and Vincent Capponi (incorporated by reference to Exhibit 10.2 of the Registrant’s current report on Form 8-K filed on August 5, 2019).
10.3+
Amended and Restated Employment Agreement, dated as of July 30, 2019, by and between CytoSorbents Medical, Inc. and Kathleen P. Bloch (incorporated by reference to Exhibit 10.3 of the Registrant’s current report on Form 8-K filed on August 5, 2019).
10.4+
Consulting Agreement with Dr. Robert Bartlett Effective as of January 1, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 9, 2016).
10.5+
Separation Agreement and Release, dated December 9, 2019, by and between CytoSorbents Corporation and Dr. Eric Mortensen incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 12, 2019).
10.6+
Lease Agreement between Princeton Corporate Plaza LLC and the Registrant dated as of March 9, 2000 (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015).
70
Table of Contents
10.7
Third Amendment to Lease Agreement between Princeton Corporate Plaza LLC and the Registrant dated as of December 12, 2014 (incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015).
10.8
Fourteenth Amendment to Lease Agreement by and between the Registrant and Princeton Corporate Plaza, LLC, dated April 1, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 9, 2016).
10.9
Amended and Restated Fourteenth Amendment to Lease Agreement by and between the Registrant and Princeton Corporate Plaza LLC, dated August 5, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 9, 2016).
10.10
Eighteenth Amendment to Lease Agreement by and between the Registrant and Princeton Corporate Plaza, LLC, dated January 4, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 6, 2019).
10.11
Royalty Agreement between Guillermina Vega Montiel and the Registrant dated as of August 11, 2003 (incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015).
10.12
Stipulated Order and Settlement Agreement between Bro-Tech Corporation, Purolite International Ltd. And the Registrant, dated August 7, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed on September 8, 2006).
10.13†
Distribution Agreement between Biocon Biologics Limited and the Registrant dated as of September 20, 2013 (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015).
10.14†
First Amendment to the Distribution Agreement between Biocon Biologics Limited and the Registrant, dated October 30, 2014 (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015).
10.15+
CytoSorbents Corporation 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on July 6, 2006).
10.16+
Amendment No. 1 to the CytoSorbents Corporation 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s registration statement on Form S-8, filed on November 4, 2014).
10.17+
Amendment No. 1 to the CytoSorbents Corporation 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s registration statement on Form S-8, filed on November 4, 2014).
10.18
Amended and Restated CytoSorbents Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-8, filed with the SEC on August 26, 2019).
10.19
Amended and Restated Loan and Security Agreement, dated as of March 29, 2018, by and among CytoSorbents Corporation, CytoSorbents Medical, Inc. and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on April 4, 2018).
10.20
First Amendment to Amended and Restated Loan and Security Agreement, dated as of July 30, 2019, by and among CytoSorbents Corporation, CytoSorbents Medical, Inc. and Western Alliance Bank (incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K filed on August 5, 2019).
10.21
Third Amendment to Amended and Restated Loan and Security Agreement, dated as of December 4, 2020, by and among CytoSorbents Corporation, CytoSorbents Medical, Inc. and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on December 10, 2020).
10.22
Fourth Amendment to the Amended and Restated Loan and Security Agreement, dated as of January 19, 2022, by and among CytoSorbents Corporation, CytoSorbents Medical, Inc. and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 20, 2022).
71
Table of Contents
10.23
Success Fee Letter, dated as of March 29, 2018, by and among CytoSorbents Corporation, CytoSorbents Medical, Inc. and Western Alliance Bank (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on April 2, 2018).
10.24
Success Fee Letter, dated as of January 19, 2022, by and among CytoSorbents Corporation, CytoSorbents Medical, Inc. and Western Alliance Bank (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 20, 2022).
10.25†
Exclusive Distribution Agreement, dated as of September 26, 2014, by and between CytoSorbents Europe GmbH and Aferetica s.r.l. (incorporated by reference to Exhibit 10.23 of Registrant’s Annual Report on Form 10-K filed on March 7, 2019).
10.26†
Amendment to Exclusive Distribution Agreement, dated December 15, 2014, by and between CytoSorbents Europe GmbH and Aferetica s.r.l (incorporated by reference to Exhibit 10.24 of Registrant’s Annual Report on Form 10-K filed on March 7, 2019).
10.27
Open Market Sale AgreementSM, dated as of December 30, 2021, by and between CytoSorbents Corporation and Jefferies LLC (incorporated by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 30, 2021).
10.28
Lease, dated as of March 26, 2021, by and between 300 CR LLC and CytoSorbents Medical, Inc. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 31, 2021).
21.1*
List of Subsidiaries.
23.1*
Consent of WithumSmith+Brown, PC.
31.1*
Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following materials from CytoSorbents Form 10-K for the fiscal year ended December 31, 2021, formatted in Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets at December 31, 2021 and December 31, 2020, (iii) Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021, 2020 and 2019, (iii) Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity/(Deficit) for the years ended December 31, 2021, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019, and (v) Notes to the Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed or furnished herewith.
+
Management contract or compensatory plan or arrangement of the Registrant required to be filed as an exhibit to this Annual Report.
†
Confidential treatment has been requested for certain portions of this exhibit. The confidential portions of this exhibit have been omitted and filed separately with Securities and Exchange Commission.
72
Table of Contents
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
Item 16. Form 10-K Summary.
None.
73
Table of Contents
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, CytoSorbents Corporation has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 10 th day of March, 2022.
CYTOSORBENTS CORPORATION
By:
/s/ Dr. Phillip P. Chan
Dr. Phillip P. Chan
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Dr. Phillip P. Chan
Chief Executive Officer (Principal
March 10, 2022
Dr. Phillip P. Chan
Executive Officer) and Director
/s/ Kathleen P. Bloch
Chief Financial Officer
March 10, 2022
Kathleen P. Bloch
(Principal Financial and Accounting Officer)
/s/ Al Kraus
Chairman of the Board
March 10, 2022
Al Kraus
/s/ Alan D. Sobel
Director
March 10, 2022
Alan D. Sobel
/s/ Edward R. Jones
Director
March 10, 2022
Edward R. Jones
/s/Michael G. Bator
Director
March 10, 2022
Michael G. Bator
74
Table of Contents
FINANCIAL STATEMENTS
Page
Management’s Report on Internal Control Over Financial Reporting
F-2
Report of Independent Registered Public Accounting Firm
F-3
Consolidated Balance Sheets at December 31, 2021 and 2020
F-5
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021, 2020 and 2019
F-6
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019
F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
F-8
Notes to Consolidated Financial Statements
F-9
F-1
Table of Contents
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time. Management, with the participation of the Chief Executive Officer and the Chief Financial Officer, working with an external consultant, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal-Control –Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that internal control over financial reporting was effective as of December 31, 2021.
WithumSmith+Brown, PC, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K, was engaged to audit our internal controls over financial reporting. Their report appears on page F-3.
/s/ Dr. Phillip P. Chan
/s/ Kathleen P. Bloch
Dr. Phillip P. Chan
Kathleen P. Bloch
Chief Executive Officer
Chief Financial Officer
(Principal Executive Officer)
(Principal Financial Officer)
March 10, 2022
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cytosorbents Corporation:
Opinion on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Cytosorbents Corporation (the "Company") as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F-3
Table of Contents
Critical Audit Matter
The critical audit matters communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Stock Based Compensation
Description of the Matter
As discussed in Notes 2 and 11 of the consolidated financial statements, the Company grants stock-based awards including stock options, restricted stock units and performance-based stock awards to their employees as compensation for their service. The Company recorded approximately $4,020,000 in stock-based compensation expense during the year ended December 31, 2021. Certain awards include performance conditions that only vest if those conditions are met, and the quantity of awards received can range based on the level performance achieved. In 2021, the Company had 1,323,4000 of such awards outstanding, and recorded stock-based compensation expense related to these performance awards of approximately $273,000.
Auditing the Company's accounting for stock-based compensation required complex auditor judgment due to the number and the variety of the types of equity awards, the subjectivity of assumptions used to value stock-based awards and the frequent use of performance-based vesting conditions. In particular, judgment was required to evaluate the nature of the annual performance conditions, as well as to assess the satisfaction of the performance targets.
How we Addressed the Matter in our Audit
Addressing the matter involved obtaining an understanding, evaluating the design and testing the operating effectiveness of controls over the Company’s process for determining stock-based compensation expense, including testing management’s review controls over the underlying calculations, the significant assumptions used in valuing certain awards, identification of the terms of the performance conditions and the key inputs used in determining the outcome of each performance condition. We assessed the appropriateness of judgments made by management in determining key assumptions related to the awards, such as service inception date based on the annual performance conditions. We tested the accuracy of the data used in measuring the awards by agreeing the underlying inputs, such as grant date, grant price, performance targets and vesting terms, among others, back to source documents, such as compensation meeting minutes or award letters. Additionally, we tested the related valuation report on volatility prepared by its specialists by involving our internal valuation specialists to assess the valuation methodologies and assumptions used. We determined whether performance targets were satisfied in accordance with the contractual conditions, and recalculated grant date fair value by multiplying the awarded quantity of awards by the grant price. We also evaluated the adequacy of the Company’s stock-based compensation disclosures included in Notes 2 and 11 in relation to these matters.
/s/ WithumSmith+Brown, PC
We have served as the Company’s auditor since 2004.
East Brunswick, New Jersey
March 10, 2022
PCAOB ID Number 100
F-4
Table of Contents
CYTOSORBENTS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
2021
2020
ASSETS
Current Assets:
Cash and cash equivalents
$
52,137,707
$
71,421,601
Grants and accounts receivable, net of allowance for doubtful accounts of $ 60,539 and $ 46,851 at December 31, 2021 and 2020, respectively
4,523,430
5,159,275
Inventories
4,766,098
2,673,799
Prepaid expenses and other current assets
2,871,655
3,198,460
Total current assets
64,298,890
82,453,135
Property and equipment – net
5,150,886
2,119,927
Restricted cash
1,687,459
—
Right of use asset
13,423,472
1,029,123
Other assets
4,958,575
4,348,286
Total Assets
$
89,519,282
$
89,950,471
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
2,805,235
$
1,835,082
Accrued expenses and other current liabilities
10,314,341
7,870,687
Lease liability – current portion
570,566
447,485
Total current liabilities
13,690,142
10,153,254
Lease liability, net of current portion
13,250,943
581,638
Total liabilities
26,941,085
10,734,892
Commitments and contingencies (Note 10)
—
—
Stockholders’ Equity:
Preferred Stock, Par Value $ 0.001 , 5,000,000 shares authorized; No shares issued and outstanding at December 31, 2021 and 2020
—
—
Common Stock, Par Value $ 0.001 , 100,000,000 shares authorized; 43,478,487 and 43,221,999 shares issued and outstanding at December 31, 2021 and 2020 , respectively
43,478
43,222
Additional paid-in capital
283,194,429
277,533,082
Accumulated other comprehensive income (loss)
525,585
( 1,734,078 )
Accumulated deficit
( 221,185,295 )
( 196,626,647 )
Total stockholders' equity
62,578,197
79,215,579
Total Liabilities and Stockholders’ Equity
$
89,519,282
$
89,950,471
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-5
Table of Contents
CYTOSORBENTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Year ended
Year ended
Year ended
December 31,
December 31,
December 31,
2021
2020
2019
Revenue:
CytoSorb sales
$
39,996,700
$
39,342,102
$
22,545,754
Other sales
111,867
110,400
220,100
Total product sales
40,108,567
39,452,502
22,765,854
Grant income
3,056,960
1,552,099
2,183,619
Total revenue
43,165,527
41,004,601
24,949,473
Cost of revenue
11,047,350
11,052,409
7,363,919
Gross profit
32,118,177
29,952,192
17,585,554
Operating expenses:
Research and development
16,380,930
8,810,561
12,091,797
Legal, financial and other consulting
2,731,515
3,048,242
2,462,151
Selling, general and administrative
35,750,477
28,463,723
22,005,670
Total operating expenses
54,862,922
40,322,526
36,559,618
Loss from operations
( 22,744,745 )
( 10,370,334 )
( 18,974,064 )
Other income (expense):
Interest (expense), net
28,007
( 1,201,067 )
( 1,033,661 )
Gain/(loss) on foreign currency transactions
( 2,577,913 )
2,607,139
( 350,365 )
Total other income (expense), net
( 2,549,906 )
1,406,072
( 1,384,026 )
Loss before benefit from income taxes
( 25,294,651 )
( 8,964,262 )
( 20,358,090 )
Benefit from income taxes
736,003
1,127,074
1,092,446
Net loss attributable to common shareholders
$
( 24,558,648 )
$
( 7,837,188 )
$
( 19,265,644 )
Basic and diluted net loss per common share
$
( 0.57 )
$
( 0.20 )
$
( 0.60 )
Weighted average number of shares of common stock outstanding
43,359,186
38,818,990
32,255,253
Comprehensive loss:
Net loss
$
( 24,558,648 )
$
( 7,837,188 )
$
( 19,265,644 )
Other comprehensive income (loss):
Currency translation adjustment
2,259,663
( 2,260,056 )
237,803
Comprehensive loss
$
( 22,298,985 )
$
( 10,097,244 )
$
( 19,027,841 )
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-6
Table of Contents
CYTOSORBENTS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 and 2019
Accumulated
Other
Common Stock
Paid-In
Comprehensive
Accumulated
Stockholders’
Shares
Par value
Capital
Income (Loss)
Deficit
Equity
Balance at December 31, 2018
31,774,139
$
31,774
$
186,138,466
$
288,175
$
( 169,523,815 )
$
16,934,600
Stock based compensation - employees, consultants and directors
—
—
1,666,024
—
—
1,666,024
Issuance of common stock - offerings, net of fees incurred
191,244
192
673,461
—
—
673,653
Issuance of restricted stock options
84,249
84
663,284
—
—
663,368
Proceeds from exercise of warrants
360,358
361
1,768,130
—
—
1,768,491
Cashless exercise of warrants
9,029
9
( 9 )
—
—
—
Proceeds from exercise of stock options
173,734
174
739,573
—
—
739,747
Cashless exercise of stock options
23,354
22
( 22 )
—
—
—
Other comprehensive income, foreign translation adjustment
—
—
—
237,803
—
237,803
Net loss
—
—
—
—
( 19,265,644 )
( 19,265,644 )
Balance at December 31, 2019
32,616,107
32,616
191,648,907
525,978
( 188,789,459 )
3,418,042
Stock based compensation - employees, consultants and directors
—
—
3,513,671
—
—
3,513,671
Issuance of common stock - offerings, net of fees incurred
10,163,256
10,162
80,203,846
—
—
80,214,008
Issuance of restricted stock options
87,728
88
657,692
—
—
657,780
Proceeds from exercise of stock options
341,507
342
1,508,980
—
—
1,509,322
Cashless exercise of stock options
13,401
14
( 14 )
—
—
—
Other comprehensive income, foreign translation adjustment
—
—
—
( 2,260,056 )
—
( 2,260,056 )
Net loss
—
—
—
—
( 7,837,188 )
( 7,837,188 )
Balance at December 31, 2020
43,221,999
43,222
277,533,082
( 1,734,078 )
( 196,626,647 )
79,215,579
Stock based compensation - employees, consultants and directors
—
—
4,020,819
—
—
4,020,819
Issuance of common stock - offerings, net of fees incurred
—
—
( 90,000 )
—
—
( 90,000 )
Issuance of restricted stock options
106,662
107
928,310
—
—
928,417
Proceeds from exercise of stock options
139,102
139
805,060
—
—
805,199
Cashless exercise of stock options
10,724
10
( 2,842 )
—
—
( 2,832 )
Other comprehensive loss, foreign translation adjustment
—
—
—
2,259,663
—
2,259,663
Net loss
—
—
—
—
( 24,558,648 )
( 24,558,648 )
Balance at December 31, 2021
43,478,487
$
43,478
$
283,194,429
$
525,585
$
( 221,185,295 )
$
62,578,197
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-7
Table of Contents
CYTOSORBENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
Year ended
Year ended
December 31,
December 31,
December 31,
2021
2020
2019
Cash flows from operating activities:
Net loss
$
( 24,558,648 )
$
( 7,837,188 )
$
( 19,265,644 )
Adjustments to reconcile net loss to net cash used by operating activities:
Non-cash compensation
2,183,317
1,193,949
1,173,743
Depreciation and amortization
731,578
660,788
581,532
Amortization of right of use asset
398,035
Bad debt expense (recovery)
( 512 )
( 102,310 )
72,429
Foreign currency transaction (gains) losses
2,577,913
( 2,607,139 )
350,365
Stock-based compensation
4,020,819
3,513,671
1,666,024
Amortization of loan acquisition costs
—
322,812
115,206
Changes in operating assets and liabilities:
Grants and accounts receivable
420,578
( 326,860 )
( 642,171 )
Inventories
( 2,350,547 )
( 461,512 )
( 1,284,848 )
Prepaid expenses and other current assets
280,915
( 1,076,849 )
( 953,888 )
Other assets
( 135,857 )
—
4,030
Accounts payable and accrued expenses
2,426,810
1,107,352
1,424,440
Net cash used by operating activities
( 14,005,599 )
( 5,613,286 )
( 16,758,782 )
Cash flows from investing activities:
Purchases of property and equipment
( 3,641,248 )
( 708,395 )
( 698,165 )
Patent costs
( 640,013 )
( 967,823 )
( 821,952 )
Net cash used by investing activities
( 4,281,261 )
( 1,676,218 )
( 1,520,117 )
Cash flows from financing activities:
Proceeds from long-term debt
—
1,410,900
5,000,000
Repayment of long-term debt
—
( 16,410,900 )
—
Final fee on long-term debt
—
( 375,000 )
—
Payment of loan acquisition costs
—
—
( 4,212 )
Equity contributions - net of fees incurred
( 90,000 )
80,214,008
673,653
Proceeds from exercise of stock options
805,199
1,509,322
739,747
Proceeds from exercise of warrants
—
—
1,768,491
Net cash provided by financing activities
715,199
66,348,330
8,177,679
Effect of exchange rates on cash
( 24,774 )
130,357
( 35,199 )
Net change in cash and cash equivalents
( 17,596,435 )
59,189,183
( 10,136,419 )
Cash and cash equivalents at beginning of year
71,421,601
12,232,418
22,368,837
Cash and cash equivalents at end of year
$
53,825,166
$
71,421,601
$
12,232,418
Supplemental disclosure of cash flow information:
Cash paid during the year for interest
$
—
$
1,127,647
$
1,059,541
Supplemental disclosure of non-cash financing activities:
Settlement of accrued bonuses with restricted stock units
$
928,417
$
657,780
$
425,639
The Notes to Consolidated Financial Statements are an integral part of these statements.
F-8
Table of Contents
CYTOSORBENTS CORPORATION
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION:
The accompanying consolidated financial statements include the results of CytoSorbents Corporation (the “Parent”), CytoSorbents Medical Inc., its wholly-owned operating subsidiary (the “Subsidiary”), and CytoSorbents Europe GmbH, its wholly-owned European subsidiary (the “European Subsidiary”). In addition, the consolidated financial statements include CytoSorbents Switzerland GmbH and CytoSorbents Poland Sp. z.o.o., wholly owned subsidiaries of CytoSorbents Europe GmbH, and CytoSorbents UK Limited, a wholly-owned subsidiary of CytoSorbents Medical, Inc. These entities are collectively referred to as “the Company”.
In years prior to December 31, 2020, the Company’s consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. On July 24, 2020, the Company closed an underwritten public offering of 6,052,631 shares of its common stock at a public offering price of $ 9.50 per share (the “Offering”). Gross proceeds from the Offering amounted to approximately $ 57.5 million and, after deducting the underwriting discounts and commissions and expenses related to the Offering, the Company received total net proceeds of approximately $ 53.8 million. See Note 11. As of December 31, 2021, the Company’s cash, cash equivalents and restricted cash balances were approximately $ 53.8 million, which the Company expects will fund the Company’s operations well beyond twelve months from the issuance of these financial statements. As a result, the Company has determined that the going concern risk has been substantially mitigated.
2. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
The Company is a leader in the treatment of life-threatening conditions in intensive care and cardiac surgery using blood purification. The Company, through its subsidiary CytoSorbents Medical, Inc. (formerly known as CytoSorbents, Inc.), is engaged in the research, development and commercialization of medical devices with its blood purification technology platform which incorporates a proprietary adsorbent, porous polymer technology. The Company, through its wholly owned European subsidiary, CytoSorbents Europe GmbH, conducts sales and marketing related operations for the CytoSorb device. In March 2016, the Company formed CytoSorbents Switzerland GmbH, a wholly-owned subsidiary of CytoSorbents Europe GmbH. This subsidiary, which began operations during the second quarter of 2016, provides marketing and direct sales services in Switzerland. In November 2018, the Company formed CytoSorbents Poland Sp. z.o.o., a wholly-owned subsidiary of CytoSorbents Europe GmbH. This subsidiary, which began operations during the first quarter of 2019, provides marketing and direct sales services in Poland. In the third quarter of 2019, the Company formed CytoSorbents UK Limited, a wholly-owned subsidiary of CytoSorbents Medical, Inc. which is responsible for the management of the Company’s clinical trial activities in the United Kingdom. CytoSorb, the Company's flagship product, was approved in the European Union (“EU”) in March 2011, and is currently being marketed and distributed in more than 70 countries around the world, as a safe and effective extracorporeal cytokine absorber, designed to reduce the “cytokine storm” or “cytokine release syndrome” seen in critical illnesses that may result in massive inflammation, organ failure and patient death. In May 2018, the Company received a label extension for CytoSorb covering use of the device for the removal of bilirubin and myoglobin which allows for the use of the device in the treatment of liver failure and trauma, respectively. CytoSorb is also being used during and after cardiac surgery to remove inflammatory mediators that can lead to post-operative complications, including multiple organ failure. In January 2020, CytoSorb received EU CE Mark label expansion to include the removal of ticagrelor during cardiopulmonary bypass in patients undergoing cardiothoracic surgery. In May 2020, CytoSorb also received EU CE Mark label expansion to include rivaroxaban removal for the same indication.
In April 2020, CytoSorb received United States Food and Drug Administration (“FDA”) Emergency Use Authorization (“EUA”) of CytoSorb for use in adult critically-ill COVID-19 patients with imminent or confirmed respiratory failure. The CytoSorb device has neither been cleared nor approved for the indication to treat patients with COVID-19 infection. The EUA will be effective until a declaration is made that the circumstances justifying the EUA have terminated or until revoked by the FDA.
F-9
Table of Contents
In April 2020, the Company also announced that the FDA had granted Breakthrough Designation for its DrugSorb-ATR Antithrombotic Removal System for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery. The Breakthrough Devices Program provides for more effective treatment of life-threatening or irreversibly debilitating disease or conditions, in this case the need to reverse the effects of ticagrelor in emergent or urgent cardiac surgery that can otherwise cause a high risk of serious or life-threatening bleeding. Through Breakthrough Designation, the FDA intends to work with CytoSorbents to expedite the development, assessment, and regulatory review of CytoSorbents’ technology for the removal of ticagrelor, while maintaining statutory standards of regulatory approval (e.g., 510(k), de novo 510(k) or premarket approval) consistent with the FDA’s mission to protect and promote public health. In July 2021, the Company received full approval of its Investigative Device Exemption (“IDE”) to conduct the pivotal STAR-T (Safe and Timely Antithrombotic Removal – Ticagrelor) double-blind randomized control trial (“RCT”) for up to 120 patients in the United States to support FDA marketing approval.
In August 2021, the Company announced that it was granted a second Breakthrough Device designation for its DrugSorb-ATR Antithrombotic Removal System by the U.S. Food and Drug Administration (FDA). This Breakthrough Device designation covers the removal of the Direct Oral Anticoagulants (DOACs) apixaban and rivaroxaban in a cardiopulmonary bypass circuit to reduce the likelihood of serious perioperative bleeding during urgent cardiothoracic surgery. In October 2021, the Company also received full FDA approval of an IDE application to conduct a double-blind, randomized, controlled clinical study for up to 120 patients entitled, “Safe and Timely Antithrombotic Removal – Direct Oral Anticoagulants (STAR-D),” in the United States to support FDA marketing approval.
If FDA marketing approval is obtained for either the removal of ticagrelor or direct oral anticoagulants indications, the device would be marketed as DrugSorb-ATR in the United States. The DrugSorb-ATR Antithrombotic Removal System is based on the same polymer technology as CytoSorb.
The technology is based upon biocompatible, highly porous polymer sorbent beads that can actively remove toxic substances from blood and other bodily fluids by pore capture and surface adsorption. The Company has numerous products under development based upon this unique blood purification technology, which is protected by 21 issued U.S. patents and multiple international patents, with applications pending both in the U.S. and internationally, including HemoDefend, ContrastSorb, DrugSorb, DrugSorb-ATR and others. These patents and patent applications are directed to various compositions and methods of use related to the Company’s blood purification technologies and are expected to expire between 2022 and 2038, absent any patent term extensions. Management believes that any near-term expiring patents will not have a significant impact on the Company’s ongoing business.
Stock Market Listing
On December 17, 2014 the Company’s common stock was approved for listing on The Nasdaq Capital Market (“Nasdaq”), and it began trading on Nasdaq on December 23, 2014 under the symbol “CTSO”. Previously, the Company’s common stock traded in the over-the-counter-market on the OTC Bulletin Board.
Basis of Consolidation and Foreign Currency Translation
The consolidated financial statements include the accounts of CytoSorbents Corporation and its wholly-owned subsidiaries, CytoSorbents Medical, Inc. and CytoSorbents Europe GmbH. In addition, the consolidated financial statements include CytoSorbents Switzerland GmbH and CytoSorbents Poland Sp. z.o.o., wholly owned subsidiaries of CytoSorbents Europe GmbH, and CytoSorbents UK Limited, a wholly-owned subsidiary of CytoSorbents Medical, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.
Translation gains and losses resulting from the process of remeasuring into the United States of America dollar, the foreign currency financial statements of the European subsidiary, for which the United States of America dollar is the functional currency, are included in operations. Foreign currency transaction gain (loss) included in net loss amounted to approximately $( 2,578,000 ), $ 2,607,000 and $( 350,000 ) for the years ended December 31, 2021, 2020 and 2019, respectively. The Company translates assets and liabilities of the European subsidiary, whose functional currency is their local currency, at the exchange rate in effect at the balance sheet date. The Company translates revenue and expenses at the daily average exchange rates. The Company includes accumulated net translation adjustments in accumulated other comprehensive income (loss) as a component of stockholders’ equity.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
F-10
Table of Contents
The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents to amounts shown in the consolidated balance sheets and consolidated statements of cash flows:
December 31,
2021
2020
Cash and cash equivalents
$
52,137,707
$
71,421,601
Restricted cash
1,687,459
—
Total cash, cash equivalents and restricted cash
$
53,825,166
$
71,421,601
Restricted Cash
The Company’s total restricted cash in the amount of $ 1,687,459 consists of cash of $ 1,467,459 that the Company is obligated to maintain as collateral for the outstanding letter of credit with Bridge Bank that was provided to the landlord of the College Road facility as security and cash of $ 220,000 that the Company is obligated to maintain as collateral for the credit limit on the Company’s credit card account.
Grants and Accounts Receivable
Grants receivable represent amounts due from U.S. government agencies and are included in Grants and Accounts Receivable.
Accounts receivable are unsecured, non-interest bearing customer obligations due under normal trade terms. The Company sells its devices to various hospitals and distributors. The Company performs ongoing credit evaluations of customers’ financial condition. Management reviews accounts receivable periodically to determine collectability. Balances that are determined to be uncollectible are reserved in the allowance for doubtful accounts.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined using a first-in first-out (“FIFO”) basis. At December 31, 2021 and 2020, the Company’s inventory was comprised of finished goods, which amounted to $ 3,084,606 and $ 1,164,635 , respectively, work in process which amounted to $ 1,322,736 and $ 1,222,062 , respectively and raw materials which amounted to $ 358,756 and $ 287,102 , respectively. Devices used in clinical trials or for research and development purposes are removed from inventory and charged to research and development expenses at the time of their use.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation of property and equipment is provided for by the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of their economic useful lives or the term of the related leases. Gains and losses on depreciable assets retired or sold are recognized in the statements of operations in the year of disposal. Repairs and maintenance expenditures are expensed as incurred.
Patents
Legal costs incurred to establish patents are capitalized. When patents are issued, capitalized costs are amortized on the straight-line method over the related patent term. In the event a patent is abandoned, the net book value of the patent is written off.
Impairment or Disposal of Long-Lived Assets
The Company assesses the impairment of patents and other long-lived assets under accounting standards for the impairment or disposal of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value.
Revenue Recognition
Product Sales: Revenues from sales of products to both direct and distributor/strategic partner customers are recognized at the time when control passes to the customer, in accordance with the terms of their respective contracts. Recognition of revenue occurs as each performance obligation is completed.
F-11
Table of Contents
Grant Revenue : Revenue from grant income is based on contractual agreements. Certain agreements provide for reimbursement of costs, other agreements provide for reimbursement of costs and an overhead margin and certain agreements are performance based, where revenue is earned based upon the achievement of milestones outlined in the contract. Revenues are recognized when the associated performance obligation is fulfilled. Costs are recorded as incurred. Amounts invoiced in excess of costs actually incurred on fixed price contracts are classified as deferred revenue and are included in accrued expenses and other current liabilities in the consolidated balance sheet. Costs subject to reimbursement by these grants have been reflected as costs of revenue.
Research and Development
All research and development costs, payments to laboratories, research consultants and costs related to clinical trials and studies are expensed when incurred.
Advertising Expenses
Advertising costs are charged to activities when incurred. Advertising expense amounted to approximately $ 615,000 , $ 285,000 and $ 314,000 in 2021, 2020 and 2019, respectively, and is included in selling, general, and administrative expenses on the consolidated statements of operations and comprehensive loss.
Income Taxes
Income taxes are accounted for under the asset and liability method prescribed by accounting standards for accounting for income taxes. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax asset will not be realized. Under Section 382 of the Internal Revenue Code the net operating losses generated prior to the previously completed reverse merger may be limited due to the change in ownership. Additionally, net operating losses generated subsequent to the reverse merger may be limited in the event of changes in ownership. The Tax Cuts and Jobs Act reduced the U.S. federal corporate tax rate from 35 % to 21 %. See Note 9 for the impact of the tax rate change on deferred tax assets and liabilities.
The Company follows the accounting standards associated with uncertain tax provisions. The Company had no unrecognized tax benefits at December 31, 2021 or 2020. The Company files tax returns in the U.S. federal and state jurisdictions.
The Company utilizes the Technology Business Tax Certificate Transfer Program to sell a portion of its New Jersey Net Operating Loss tax carryforwards and Research and Development credits to an industrial company.
CytoSorbents Europe GmbH, CytoSorbents Switzerland GmbH, CytoSorbents Poland Sp. z.o.o. and CytoSorbents UK Limited files an annual corporate tax return, a VAT return and a trade tax return in Germany, Switzerland, Poland and the United Kingdom, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. The valuation of options granted is a significant estimate in these consolidated financial statements.
Concentration of Credit Risk
The Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions in an effort to minimize its collection risk of these balances.
A significant portion of the Company’s revenues are from product sales in Germany. Substantially all of the Company’s grant and other income are from grant agencies in the United States. (See Note 3 for further information relating to the Company’s revenue.)
As of December 31, 2021, one distributor accounted for approximately 12 % of outstanding grants and accounts receivables. As of December 31, 2020, no agency, distributor/strategic partners or direct customer represented more than 10 % of outstanding grants
F-12
Table of Contents
and accounts receivable. For the years ended December 31, 2021, 2020 and 2019 no agency, distributor/strategic partners or direct customer represented more than 10 % of the Company’s total revenue.
Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and other current liabilities approximate their fair values due to their short-term nature.
Net Loss per Common Share
Basic net loss per share is computed by dividing loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the treasury stock method on the basis of the weighted-average number of shares of common stock plus the dilutive effect of potential common shares outstanding during the period. Dilutive potential common shares include outstanding warrants, stock options and restricted shares. The computation of diluted net loss per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings (See Note 12).
Stock-Based Compensation
The Company accounts for its stock-based compensation under the recognition requirements of accounting standards for accounting for stock-based compensation for employees and directors whereby each option granted is valued at fair market value on the date of grant. Under these accounting standards, the fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.
The Company also follows the guidance of accounting standards for accounting for equity instruments that are issued to non-employees for acquiring, or in conjunction with selling, goods or services for equity instruments issued to consultants.
Shipping and Handling Costs
The cost of shipping product to customers and distributors is typically borne by the customer or distributor. The Company records shipping and handling costs in cost of revenue. Total freight costs amounted to approximately $ 276,000 , $ 560,000 and $ 476,000 for the years ended December 31, 2021, 2020 and 2019, respectively.
Effect of Recent Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board (the “FASB”), issued Accounting Standards Update No. 2021-10 entitled “Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance” (the “ASU”). This ASU will require enhanced disclosures related to the Company’s contracts with the U.S. Government. The ASU is effective for annual periods beginning after December 15, 2021. The Company intends to implement the provisions of this ASU during the first quarter of 2022.
F-13
Table of Contents
3. REVENUE:
The following table disaggregates the Company’s revenue by customer type and geographic area for the year ended December 31, 2021:
United States
Distributors/
Government
Direct
Strategic Partners
Agencies
Total
Product sales:
United States
$
189,167
$
1,500,700
$
—
$
1,689,867
Germany
21,006,432
—
—
21,006,432
All other countries
5,846,256
11,566,012
—
17,412,268
Total product revenue
27,041,855
13,066,712
—
40,108,567
Grant and other income:
United States
—
—
3,056,960
3,056,960
Total revenue
$
27,041,855
$
13,066,712
$
3,056,960
$
43,165,527
The following table disaggregates the Company’s revenue by customer type and geographic area for the year ended December 31, 2020:
United States
Distributors/
Government
Direct
Strategic Partners
Agencies
Total
Product sales:
United States
$
1,148,300
$
192,900
$
—
$
1,341,200
Germany
20,257,410
—
—
20,257,410
All other countries
5,275,619
12,578,273
—
17,853,892
Total product revenue
26,681,329
12,771,173
—
39,452,502
Grant and other income:
United States
—
—
1,552,099
1,552,099
Total revenue
$
26,681,329
$
12,771,173
$
1,552,099
$
41,004,601
The following table disaggregates the Company’s revenue by customer type and geographic area for the year ended December 31, 2019:
United States
Distributors/
Government
Direct
Strategic Partners
Agencies
Total
Product sales:
United States
$
220,100
$
—
$
—
$
220,100
Germany
14,396,418
—
—
14,396,418
All other countries
3,147,529
5,001,807
—
8,149,336
Total product revenue
17,764,047
5,001,807
—
22,765,854
Grant and other income:
United States
—
—
2,183,619
2,183,619
Total revenue
$
17,764,047
$
5,001,807
$
2,183,619
$
24,949,473
The Company has two primary revenue streams: (1) sales of the CytoSorb device and related device accessories and (2) grant income from contracts with various agencies of the United States government. Both of these revenue streams are within the scope of this accounting pronouncement. The following is a brief description of each revenue stream.
CytoSorb Sales
The Company sells its CytoSorb device using both its own sales force (direct sales) and through the use of distributors and/or strategic partners. The majority of sales of the device are outside the United States, as CytoSorb is not yet approved for commercial
F-14
Table of Contents
sale in the United States. However, in April 2020, the Company was granted Emergency Use Authorization (“EUA”) of CytoSorb for use in critically-ill patients infected with COVID-19 by the United States Food and Drug Administration (the “FDA”). Direct sales outside the United States relate to sales to hospitals located in Germany, Switzerland, Austria, Belgium, Luxembourg, Poland, the Netherlands, Sweden, Denmark and Norway. Direct sales are fulfilled from the Company’s office in Berlin, Germany. There are no formal sales contracts with any direct customers relating to product price or minimum purchase requirements. However, there are agreements in place with certain direct customers that provide for either free of charge product or rebate credits based upon achieving minimum purchase levels. The Company records the value of these items earned as a reduction of revenue. These customers submit purchase orders and the order is fulfilled and shipped directly to the customer. Prices to all direct customers are based on a standard price list based on the packaged quantity (6 packs vs 12 packs).
Distributor and strategic partner sales make up the remaining product sales. These distributors are located in various countries throughout the world. The Company has a formal written contract with each distributor/strategic partner. These contracts have terms ranging from 1 - 5 years in length, with three years being the typical term. In addition, certain distributors are eligible for volume discount pricing if their unit sales are in excess of the base amount in the contract.
Most distributor’s/strategic partner’s contracts have minimum annual purchase requirements in order to maintain exclusivity in their respective territories.
There is no additional consideration or monetary penalty that would be required to be paid to CytoSorbents if a distributor does not meet the minimum purchase commitments included in the contract, however, at the discretion of the Company, the distributor may lose its exclusive rights in the territory if such commitments are not met.
Government Grants
The Company has been the recipient of various grant contracts from various agencies of the United States government, primarily the Department of Defense, to perform various research and development activities. These contracts fall into one of the following categories:
1. Fixed price – the Company invoices the contract amount in equal installments over the term of the contract without regard to the timing of the costs incurred related to this contract. If billings on fixed price contracts exceed the costs incurred, revenue will be deferred to the extent of the excess billings.
2. Cost reimbursement – the Company submits monthly invoices during the term of the contract for the amount of direct costs incurred during that month plus an agreed percentage that relates to allowable overhead and general and administrative expenses. Cumulative amounts invoiced may not exceed the maximum amount of funding stipulated in the contract.
3. Cost plus – this type of contract is similar to a cost reimbursement contract but this type also allows for the Company to additionally invoice for a fee amount that is included in the contract.
4. Performance based - the Company submits invoices only upon the achievement of the milestones listed in the contract. The amount to be invoiced for each milestone is documented in the contract.
In summary, the contracts the Company has with customers are the distributor/strategic partner contracts related to CytoSorb product sales, agreements with direct customers related to free-of-charge product and credit rebates based upon achieving minimum purchase levels, and contracts with various government agencies related to the Company’s grants. The Company does not currently incur any outside/third party incremental costs to obtain any of these contracts. The Company does incur internal costs, primarily salary related costs, to obtain the contracts related to the grants. Company employees spend time reviewing the program requirements and developing the budget and related proposal to submit to the grantor agency. There may additionally be travel expenditures involved with meeting with government agency officials during the negotiation of the contract. These internal costs are expensed as incurred.
The following table provides information about receivables and contract liabilities from contracts with customers:
December 31, 2021
December 31, 2020
Contract receivables, which are included in accounts receivable
$
3,000,708
$
2,996,679
Contract liabilities, which are included in Accrued expenses and other current liabilities
$
2,251,177
$
1,014,652
F-15
Table of Contents
Contract receivables represent balances due from sales to distributors and amounts invoiced on grant contracts.
Contract liabilities represent the value of free of charge goods and credit rebates earned in accordance with the terms of certain direct customer agreements, which amounted to $ 303,824 and $ 286,301 at December 31, 2021 and 2020, respectively, and deferred grant revenue related to the billing on fixed price contracts in excess of costs incurred, which amounted to $ 1,947,353 and $ 728,351 at December 31, 2021 and 2020, respectively.
4. PROPERTY AND EQUIPMENT, NET:
Property and equipment - net, consist of the following:
Depreciation/
Amortization
December 31,
2021
2020
Period
Furniture and fixtures
$
1,424,476
$
1,081,366
7 years
Equipment and computers
5,863,673
4,318,323
3 to 7 years
Leasehold improvements
2,623,356
971,247
Lesser of term of lease or estimated useful life
9,911,505
6,370,936
Less accumulated depreciation and amortization
4,760,619
4,251,009
Property and Equipment, Net
$
5,150,886
$
2,119,927
Depreciation expense for the years ended December 31, 2021, 2020 and 2019 amounted to $ 542,689 , $ 553,946 and $ 495,728 respectively.
5. OTHER ASSETS:
Other assets consist of the following:
December 31,
2021
2020
Patent applications pending
$
2,717,701
$
2,970,354
Patents issued
2,641,603
1,748,938
Less accumulated amortization of patents issued
( 657,320 )
( 496,898 )
Patents, net
4,701,984
4,222,394
Security deposits
256,591
125,892
Total
$
4,958,575
$
4,348,286
Amortization expense amounted to $ 160,422 , $ 106,842 and $ 85,804 for the years ended December 31, 2021, 2020 and 2019, respectively.
Amortization expense for the next five years will be approximately $ 192,000 for the year ended December 31, 2022; approximately $ 189,000 for the year ended December 31, 2023; approximately $ 189,000 for the year ended December 31, 2024; approximately $ 189,000 for the year ended December 31, 2025 and approximately $ 188,000 for the year ended December 31, 2026.
F-16
Table of Contents
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following:
December 31,
2021
2020
Accrued salaries and commissions
$
3,270,715
$
2,908,320
Deferred revenue
1,947,353
728,351
Clinical studies
1,767,826
781,041
Accrued accounts payable
1,044,088
631,642
Accrued royalties
769,262
916,695
Professional fees
314,068
317,575
Customer rebates
214,119
305,852
Sales, payroll and income taxes payable
785,818
1,159,215
Travel and entertainment
88,850
24,267
Board of Director fees
71,381
62,140
Congresses
40,861
35,589
$
10,314,341
$
7,870,687
7. LONG-TERM DEBT:
On June 30, 2016, the Company and its wholly-owned subsidiary, CytoSorbents Medical, Inc. (together, the “Borrower”), entered into a Loan and Security Agreement with Bridge Bank, a division of Western Alliance Bank, (the “Bank”), pursuant to which the Company borrowed $ 10 million in two equal tranches of $ 5 million (the “Original Term Loans”). On March 29, 2018, the Original Term Loans were refinanced with the Bank pursuant to an Amended and Restated Loan and Security Agreement by and between the Bank and the Borrower (the “Amended and Restated Loan and Security Agreement”), under which the Bank agreed to loan the Borrower up to an aggregate of $ 15 million to be disbursed in two tranches (1) one tranche of $ 10 million (the “Term A Loan”), which was funded on the Closing Date and used to refinance the Original Term Loans, and (2) a second tranche of $ 5 million which may be disbursed at the Borrower’s sole request prior to March 31, 2019 provided certain conditions are met (the “Term B Loan” and together with the Term A Loan, the “Term Loans”). On July 31, 2019, the Borrower entered into the First Amendment to the Amended and Restated Loan and Security Agreement (the "First Amendment") with the Bank, which amended certain provisions of the Amended and Restated Loan and Security Agreement and the 2018 Success Fee Letter (the "2018 Letter"). In connection with the execution of the First Amendment, the draw period for the Term B Loan was extended to August 15, 2019 and the Company drew down the full $ 5.0 million Term B Loan on the Settlement Date, bringing the total outstanding debt to $ 15 million at July 31, 2019. The proceeds of Term Loans were used for general business requirements in accordance with the Amended and Restated Loan and Security Agreement. On December 4, 2020 (the “Third Amendment Closing Date”), the Company closed on the Third Amendment (the “Third Amendment”) of its Amended Loan and Security Agreement with Bridge Bank. Under the terms of the Amendment, the Company repaid the outstanding principal balance of its existing $ 15 million term loans and simultaneously received a commitment from Bridge Bank to provide a new term loan of $ 15 million, if needed. On January 19, 2022 (the “Fourth Amendment Closing Date”), the Company closed on the Fourth Amendment (the “Fourth Amendment”) of its Amended Loan and Security Agreement with Bridge Bank. Under the terms of the Amendment, the Company received a commitment from Bridge Bank to provide a new term loan of up to $ 15 million, if needed.
The Fourth Amendment provides a tranche of term loans (the “Term C Loans") in the aggregate amount of $ 15 million, which are available for the Company to draw down at its sole discretion in three tranches of $ 5 million each at any time during the period commencing on the Fourth Amendment Date and ending on the earlier of (i) December 31, 2022 and (ii) the occurrence of an Event of Default (as defined in the Amended Loan and Security Agreement). The Term C Loans, if taken, shall bear interest at the Index Rate (defined in the Amendment as the greater of 3.25% or the Prime Rate as published by the Wall Street Journal on the last business date of the month immediately preceding the month in which the interest will accrue) plus 1.25 %. Pursuant to the Fourth Amendment, interest on the Term C Loans is subject to an interest rate cap of 8.00 %. The Fourth Amendment, together with the Amended Loan and Security Agreement, provides for a period of interest only payments on the Term C Loan until the amortization date, which is January 1, 2024. The interest-only period may be further extended through July 2024 if the Company maintains compliance with certain conditions as outlined in the Fourth Amendment. Following the interest-only period, the Company will be required to make equal monthly payments of principal and interest until maturity of the Term C Loans. The maturity date of the Term C Loan is December 1, 2025.
On the Fourth Amendment Closing Date, the Company was required to pay a non-refundable closing fee of approximately $ 18,750 , which will amortized as a monthly charge to interest expense. On the Third Amendment Closing Date, the Company paid a non-refundable closing fee of $ 75,000 and the total unamortized loan costs related to the Term Loans amounted to approximately
F-17
Table of Contents
$ 45,000 . These costs were amortized and written off as a charge to interest expense. For the years ended December 31, 2021, 2020, and 2019, the Company recorded interest expense amounting to $ 75,000 , $ 76,718 and $ 33,175 , respectively related to these costs. In addition, the Amended and Restated Loan and Security Agreement required the Company to pay a non-refundable final fee equal to 2.5 % of the principal amount of each Term Loan funded upon the earlier of the (i) April 1, 2022 maturity date or (ii) termination of the Term Loan via acceleration or prepayment. On the Third Amendment Closing Date, the Company paid a final fee of $ 375,000 . For the years ended December 31, 2021, 2020 and 2019 the Company recorded interest expense of $ 0 , $ 246,095 , and $ 82,031 , respectively, related to accrual and payment of the final fee.
The Company’s and CytoSorbents Medical, Inc.’s obligations under the Amended and Restated Loan and Security Agreement are joint and severable and are secured by a first priority security interest in favor of the Bank with respect to the Company’s Shares (as defined in the Amended and Restated Loan and Security Agreement) and the Borrower’s Collateral (as defined in the Amended and Restated Loan and Security Agreement, which definition excludes the Borrower’s intellectual property and other customary exceptions).
2018 Success Fee Letter:
Pursuant to the amended 2018 Letter, the Borrower shall pay to the Bank a success fee in the amount equal to 6.37 % of the funded amount of the Term B Loan (as defined in the Restated Loan and Security Agreement) (the "Success Fee”) upon the first occurrence of any of the following events: (a) a sale or other disposition by the Borrower of all or substantially all of its assets; (b) a merger or consolidation of the Borrower into or with another person or entity, where the holders of the Borrower’s outstanding voting equity securities as of immediately prior to such merger or consolidation hold less than a majority of the issued and outstanding voting equity securities of the successor or surviving person or entity as of immediately following the consummation of such merger or consolidation; (c) a transaction or a series of related transactions in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of the Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of the Borrower, who did not have such power before such transaction; or (d) the closing price per share for the Company’s common stock on the Nasdaq Capital Market being the greater of (i) 70 % or more over $ 7.05 , the closing price of the Company’s common stock on March 29, 2018 (after giving effect to any stock splits or consolidations effected after the date thereof) for five successive business days, or (ii) at least 26.13 % more than the average price of Company’s common stock for the 365 day period ending on the date of the funding of the Term B Loan. This obligation shall terminate on the fifth anniversary of the funding of the Term B Loan and shall survive the termination of the loan agreement and the prepayment of the Term B Loan.
2022 Success Fee Letter:
Pursuant to the 2022 Success Fee Letter, the Borrower will pay to the Bank a success fee equal to (i) 1 % of $ 5 million if the Company draws down the first tranche of the Term C Loan and is payable only if the Company’s stock price equals or exceeds $ 8 for five consecutive trading days; (ii) 1.5 % of $ 5 million if the Company draws down the second tranche of the Term C Loan and is payable only if the Company’s stock price equals or exceeds $ 10 for five consecutive trading days; and (iii) 2 % of $ 5,000,000 if the Company draws down the third tranche of the Term C Loan and is payable only if the Company’s stock price equals or exceeds $ 12 for five consecutive trading days (together, the “Success Fee”). Borrower may pay the Success Fee in cash or in shares of common stock, at Borrower's sole discretion. The right of Bank to receive the Success Fees and the obligation of the Borrower to pay the Success Fees hereunder shall terminate on the date that is fifth anniversary of the funding date of the last Term C Loans made but shall survive the termination of the Loan Agreement and any prepayment of the Term C Loans.
Paycheck Protection Program:
On April 13, 2020, the Company received approximately $ 1,411,000 in loan proceeds from the Paycheck Protection Program (the “PPP”) administered by the Small Business Administration (the “SBA”) of the United States government. This program was established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). On April 29, 2020, following a reassessment of the Company’s financial and operating position, including cash on hand and access to public capital markets, the Company repaid the PPP loan.
8. LEASES:
The Company leases its operating facilities in both the United States and Germany under operating lease agreements. In March 2021, CytoSorbents Medical Inc. entered into a lease agreement for a new operating facility at 305 College Road East, Princeton, New Jersey, which contains office, laboratory, manufacturing and warehouse space. The lease commenced on June 1, 2021. The Early Term
F-18
Table of Contents
commenced on June 1, 2021 and lasted until September 30, 2021. The lease also contains two five-year renewal options; however, the Company has determined that it is not likely that they will exercise these options. Commencing on September 30, 2021, the remaining lease term will last for 15.5 years. The lease requires monthly rental payments of $ 25,208 for the Initial Early Term, $ 88,254 for the Early Term and initial monthly payments of approximately $ 111,171 in the first year of the remaining term. Following the first year of the remaining term, the annual base rent will increase by approximately 2.75 % annually over the remaining term. The lease also contains six months of rent abatement (months 1, 2, 3, 25, 26 and 27 of the remaining lease term). In addition to the base rent, payments of operating expenses and real estate taxes will be required. These payments are to be based on actual amounts incurred during 2021 multiplied by the Company’s share of the total building space ( 92.3 %). The landlord will also provide an allowance of approximately $ 1,455,000 related to certain building improvements as outlined in the lease. In April 2021, the Company provided the landlord with a letter of credit in the amount of approximately $ 1,334,000 as security. The Company has determined that this lease should be treated as an operating lease in accordance with the provisions of ASC 842. On April 1, 2021, the Company recorded a Right of Use asset and related lease liability of approximately $ 11.6 million, which represents the estimated present value of the lease payments at the commencement date discounted at the Company’s incremental borrowing rate of 9.8 %. In addition, due to the six months of rent abatement and annual base rent escalations during the remaining lease term that commenced on September 30, 2021, the Company will recognize rent expense on this lease on straight line basis over the remaining term of the lease for the difference between the rent expense recognized and the required payments under the lease.
In April 2021, the Company entered into a Twentieth Amendment to Lease with the landlord at the existing Monmouth Junction facility which became effective May 31, 2021. This amendment extends the term of the lease for the Company’s existing facility to May 31, 2022. The Company’s base rent is approximately $ 35,000 per month. In addition, the Company is obligated to pay monthly operating expenses of approximately $ 30,000 per month. Under the terms of this amendment, the Company will vacate a portion of the space as of May 31, 2022. The Company will continue to lease the remaining space until December 31, 2022, at which time the Company will vacate the remaining space and the lease will terminate. The Company’s base rent for the remaining space will be approximately $ 20,000 per month. Monthly operating expenses will be approximately $ 11,000 per month. In addition, the Company agreed to increase its security deposit by approximately $ 54,000 to a total of $ 150,000 . At the end of the lease term, the entire security deposit will be paid to the landlord for the purpose of making any needed repairs to the vacated premises, and the Company will have no further obligation to pay for repairs to the vacated premises. Effective April 1, 2021, the Company adjusted its incremental borrowing rate to the incremental borrowing rate used in the College Road lease and recalculated the right of use asset and lease liability under the amended terms of this lease. In addition, the Company also adjusted the incremental borrowing rate and related right of use asset and lease liability on the existing Germany office lease effective April 1, 2021.
In September 2021, the Company extended its two operating leases for its office facility in Germany. These leases require combined base rent payments amounting to approximately $ 12,100 per month. The initial lease term of both leases ends August 31, 2026. In addition, the Company is obligated to monthly operating expenses of approximately $ 3,000 per month. Both leases have a five-year option to renew that would extend the lease term to August 31, 2031. There are no provisions in the leases to increase the base rent during the renewal period. There were no lease incentives and no initial direct costs were incurred related to these leases.
In January 2021, CytoSorbents Europe GmbH entered into a lease for 1,068 square meters of additional warehouse space. The lease commenced on April 1, 2021 and requires monthly payments of base rent of $ 7,784 and other costs of approximately $ 239 and has a term of five years. The lease also has an option to extend the lease term for an additional five-year period through March 31, 2031. The Company has determined that this lease should be treated as an operating lease in accordance with the provisions of ASC 842. On April 1, 2020, the Company recorded a Right of Use asset and related lease liability at the estimated present value of the lease payments at the commencement date of approximately $ 594,000 .
F-19
Table of Contents
Right-Of-Use Asset and Lease Liability:
The Company's consolidated balance sheets reflect the value of the right-of-use asset and related lease liability. This value was calculated based on the present value of the remaining base rent lease payments. The remaining lease payments include all expected renewals for all periods as the Company has determined that it is probable that the renewal options will be exercised under each of the lease agreements. The discount rate used was the Company's incremental borrowing rate, which is 9.8 %, as the Company could not determine the rate implicit in the lease. As a result, the value of the right-of-use asset and related lease liability is as follows:
December 31,
2021
2020
Right-of-use asset
$
13,423,472
$
1,029,123
Total lease liability
$
13,821,509
$
1,029,123
Less current portion
( 570,566 )
( 447,485 )
Lease liability, net of current portion
$
13,250,943
$
581,638
The maturities of the lease liabilities are as follows as of December 31, 2021:
2022
$
1,896,652
2023
1,266,346
2024
1,656,678
2025
1,695,677
2026
1,735,747
Thereafter
19,009,219
Total lease payments
27,260,319
Present value discount
13,438,810
Total
$
13,821,509
For the years ended December 31, 2021, 2020 and 2019, operating cash flows paid in connection with operating leases amounted to approximately $ 1,968,000 , $ 937,000 and $ 906,000 , respectively.
As of December 31, 2021 and 2020 the weighted average remaining lease term was 14.3 years and 4.0 years, respectively.
9. INCOME TAXES:
The Company accounts for income taxes under FASB ASC 740 ("ASC 740"). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company’s consolidated loss before income taxes for the years ended December 31, 2021, 2020 and 2019 is as follows:
Year Ended December 31,
2021
2020
2019
Domestic
$
( 18,829,797 )
$
( 5,682,628 )
$
( 11,921,799 )
Foreign
( 6,464,854 )
( 3,281,634 )
( 8,436,291 )
Total
$
( 25,294,651 )
$
( 8,964,262 )
$
( 20,358,090 )
The benefit from income taxes consists of the following:
Year Ended December 31,
2021
2020
2019
State Tax, including sale of New Jersey losses & credits
$
736,003
$
1,127,074
$
1,092,446
Foreign tax provision
—
—
—
$
736,003
$
1,127,074
$
1,092,446
F-20
Table of Contents
As of December 31, 2021, the Company had federal net operating loss ("NOL") carryforwards of approximately $ 83.5 million, state NOL carry forwards of approximately $ 9.3 million, and foreign NOL carry forwards of approximately $ 29.9 million, which may be available to offset future taxable income, if any. The federal NOL carryforwards of $ 83.5 million, if not utilized, will expire between 2022 and 2037. The federal NOL carryforwards of $ 35.7 million generated since 2018 are subject to an 80% limitation on taxable income , do not expire and will carry forward indefinitely. The state NOL carryforwards of $ 9.3 million, if not utilized, will begin to expire in 2041. As of December 31, 2021, the Company had Federal and state research and development tax credit carryforwards of approximately $ 2.7 million and $ 70,000 , respectively, available to reduce future tax liabilities, which will begin to expire at various dates starting in 2022.
The NOL carry forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. The NOLs may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. In addition to the new provisions enacted under the Tax Cuts and Jobs Act, this could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will generally be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
U.S. Tax Reform
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act ("Tax Reform Legislation"), which made significant changes to U.S. federal income tax law. The Company expected that certain aspects of the Tax Reform Legislation will positively impact the Company’s future after-tax earnings in the U.S., primarily due to the lower federal statutory tax rate. Set forth below is a discussion of certain provisions of the Tax Reform Legislation and a preliminary assessment of the effect of such provisions on the Company’s results of operations, cash flows and consolidated financial statements.
Beginning January 1, 2018, the Company’s U.S. income, if any, is taxed at a 21 percent federal corporate rate. Further, the Company is required to recognize the effect of this rate change on its deferred tax assets and liabilities, and deferred tax asset valuation allowances in the period the tax rate change is enacted. The Company does not expect any material non-cash impact from this rate change, with adjustments to deferred tax balances offset by adjustments to deferred tax valuation allowances.
Further, the Tax Reform Legislation provides for a one-time “deemed repatriation” of accumulated foreign earnings for the year ended December 31, 2017. The Company did not pay U.S. federal cash taxes on the deemed repatriation due to an accumulated deficit in foreign earnings for tax purposes. The Company does not expect that its future foreign earnings will be subject to U.S. federal income tax.
The Global Intangible Low-Taxed Income ("GILTI") provisions of the Tax Reform Act, enacted on December 22, 2017, require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. The Company has elected to account for the tax effects of this provision in the period that is subject to such tax. The Company concluded it was not subject to GILTI in 2019 and as such there was no impact from GILTI included in its 2019 provision. The Company does not expect to be subject to GILTI. However, in accordance with FASB guidance, the Company’s policy will be to recognize GILTI in the period it arises and it will not recognize a deferred charge with regard to GILTI.
In addition, the Tax Reform Legislation provides for 100 percent bonus depreciation on tangible property expenditures through 2022. The bonus depreciation percentage is phased down from 100 percent beginning in 2023 through 2026. We do not expect this to have a material impact to the Company.
Sale of Net Operating Losses (NOLs)
The Company may be eligible, from time to time, to receive cash from the sale of its New Jersey Net Operating Losses and R&D tax credits under the State of New Jersey Technology Business Tax Certificate Transfer Program.
The Company will receive a net cash amount of approximately $ 736,000 from the approved sale of the 2020 state NOL and research and development credits in the first half of 2022.
F-21
Table of Contents
The principal components of the Company’s deferred tax assets and liabilities are as follows:
Year Ended December 31,
2021
2020
2019
Deferred tax assets:
Net operating loss carry forward
$
27,190,654
$
22,301,154
$
20,843,902
Stock options
1,203,272
305,982
329,726
Research and development credit carryforward
2,687,591
2,194,211
1,720,558
Accruals and others
232,665
135,330
56,461
Lease liability
3,997,114
289,287
300,991
Gross deferred tax assets
35,311,296
25,225,964
23,251,638
Less valuation allowance
( 31,242,130 )
( 24,794,474 )
( 22,857,741 )
4,069,166
431,490
393,897
Deferred tax liability:
Fixed assets
( 4,069,166 )
( 431,490 )
( 393,897 )
Net deferred tax assets
$
—
$
—
$
—
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on this assessment, management has established a full valuation allowance against all of the deferred tax assets for each period because it is more likely than not that all of the deferred tax assets will not be realized.
The increases in valuation allowance for the years ended December 31, 2021, 2020 and 2019 were $ 6,447,656 , $ 1,936,732 , and $ 4,623,931 , respectively.
A reconciliation of income tax (expense) benefit at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows:
Year Ended December 31,
2021
2020
2019
Federal statutory rate
21.0
%
21.0
%
21.0
%
State taxes, net of federal benefit
( 2.0 )
( 9.5 )
( 4.4 )
Foreign rate differential
2.3
3.3
3.7
Permanent items
( 6.5 )
( 2.0 )
( 2.0 )
Rate change and true-up
11.8
17.0
8.0
Change in valuation allowance
( 25.5 )
( 21.6 )
( 22.7 )
R&D credit
1.7
4.4
1.8
Effective income tax rate
2.8
%
12.6
%
5.4
%
F-22
Table of Contents
10. COMMITMENTS AND CONTINGENCIES:
Customs Examination
In October 2020, the Company received a notice from the German Customs Authorities that they would be conducting an audit of the Company’s import transactions for the years 2018 through 2020 in order to determine if any import taxes would be due. The audit commenced in early December 2020. The primary import activity of the Company is the importation of CytoSorb devices from the United States. The German Customs Authorities are challenging the Harmonized Code that the Company utilizes to import the CytoSorb devices into Germany. The code that has been utilized by the Company has zero import taxes associated with it. The German Customs Authorities have indicated that the Company’s device would be better classified under a different code which has a 1.7 % tax associated with it. As part of the audit process, the Company has provided the German Customs Authorities with extensive information about the CytoSorb device, including data regarding the uses of the device, as well as the instructions for use. In addition, employees of the Company gave the auditors a technical presentation of the scientific properties of the device, focusing on it as an adsorber, as opposed to a filter. The German Customs Authority informed us that the Company must use the code that carries the 1.7 % tax. The audit process has been completed and the authorities have issued an assessment of approximately $ 641,000 for the periods through December 31, 2020. This assessment was paid by the Company in October 2021.
Payroll Tax Examination
In December 2021, the Company was notified that its European subsidiary, CytoSorbents Europe GmbH, would be subject to an audit of their payroll tax and social cost filings for the four-year period from 2018 through 2021. The Company has determined that payroll taxes and social costs were not paid on certain employee expense reimbursements as is required by German tax rules. Accordingly, the Company has accrued approximately $ 598,000 as an estimate of this liability. This liability is included in accrued expenses and other current liabilities in the consolidated balance sheet as of December 31, 2021. Approximately $ 154,000 of this liability relates to 2021, approximately $ 131,000 relates to 2020, approximately $ 175,000 relates to 2019 and approximately $ 138,000 relates to 2018. The audit is on-going and is expected to be completed during the second quarter of 2022.
Employment Agreements
On July 30, 2019, CytoSorbents Corporation entered into amended and restated executive employment agreements with its principal executives, Dr. Phillip P. Chan, Chief Executive Officer, Vincent Capponi, President and Chief Operating Officer, and Kathleen P. Bloch, Chief Financial Officer. Each of the agreements has an initial term of three years and was retroactively effective as of January 1, 2019. On April 12, 2020, CytoSorbents Corporation entered into an executive employment agreement with Dr. Efthymios Deliargyris, who began employment as Chief Medical Officer on May 1, 2020, with an initial term that expires on December 31, 2021. After the expiration of the initial terms, the employment agreements will automatically renew for additional terms of one year unless either party provides written notice of non-renewal at least 60 days prior to a renewal. These employment agreements have automatically renewed for an additional 1 year .
The foregoing employment agreements each provide for base salary and other customary benefits which include participation in group insurance plans, paid time off and reimbursement of certain business-related expenses, including travel and continuing educational expenses, as well as bonus and/or equity awards at the discretion of the Board of Directors. In addition, the agreements provide for certain termination benefits in the event of termination without “Cause” or voluntary termination of employment for “Good Reason”, as defined in each agreement. The agreements also provide for certain benefits in the event of a “Change of Control” of the Company, as defined in each agreement.
Litigation
The Company is, from time to time, subject to claims and litigation arising in the ordinary course of business. The Company intends to defend vigorously against any future claims and litigation. The Company is not currently a party to any legal proceedings.
Royalty Agreement
Pursuant to an agreement dated August 11, 2003, an existing investor agreed to make a $ 4 million equity investment in the Company. These amounts were received by the Company in 2003. In connection with this agreement the Company granted the investor a future royalty of 3 % on all gross revenues received by the Company from the sale of its CytoSorb device. For the years ended December 31, 2021, 2020 and 2019, the Company recorded royalty expenses of approximately $ 1,193,000 , $ 1,172,000 , and $ 675,000 ,
F-23
Table of Contents
respectively. These expenses are included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.
License Agreement
In an agreement dated September 1, 2006, the Company entered into a license agreement which provides the Company the exclusive right to use its patented technology and proprietary know how relating to adsorbent polymers for a period of 18 years . Under the terms of the agreement, the Company has agreed to pay license fees of 2.5 % to 5 % on the sale of certain of its products if and when those products are sold commercially for a term not greater than 18 years commencing with the date of the agreement. For the years ended December 31, 2021, 2020 and 2019 per the terms of the license agreement, the Company recorded licensing expenses of approximately $ 1,988,000 $ 1,954,000 and $ 1,125,000 , respectively. These expenses are included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.
11. 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.
July 24, 2020 Offering
On July 24, 2020, the Company closed an underwritten public offering of 6,052,631 shares of its common stock at a public offering price of $ 9.50 per share (the “Offering”). The Company completed the Offering pursuant to the terms of an Underwriting Agreement, dated as of July 21, 2020, by and among the Company and Cowen and Company, LLC and SVB Leerink LLC, as representatives of the several underwriters named therein. The Company received gross proceeds of approximately $ 57.5 million from the Offering and after deducting the underwriting discounts and commissions and fees and expenses payable by the Company in connection with the Offering, the Company received net proceeds of approximately $ 53.8 million.
Shelf Registration
On July 26, 2018, the Company filed a registration statement on Form S-3 with the SEC (as amended, the “2018 Shelf”). The 2018 Shelf, which was declared effective on August 7, 2018, enabled 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. The 2018 Shelf terminated automatically upon the 2021 Shelf (as defined below) being declared effective on July 27, 2021.
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 and B. Riley FBR, Inc.
On July 9, 2019, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC and B. Riley FBR, Inc. (each an “Agent” and, together, the “Agents”), pursuant to which the Company could 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 Agents, as the Company’s sales agents. All shares of the Company’s common stock offered and sold, or to be offered and sold under the Sale Agreement would have been issued and sold pursuant to the Company’s 2018 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.
F-24
Table of Contents
On April 20, 2020, the Company and the Agents entered into an amendment to the Sale Agreement (the “Amendment”) to provide for an increase in the aggregate offering amount under the Sales Agreement, such that as of April 20, 2020, the Company could offer and sell Shares having an additional aggregate offering price of up to $ 50 million under the Sale Agreement, as amended by the Amendment (the “Amended Sale Agreement”).
Subject to the terms of the Amended Sales Agreement, the Agents were required to use their 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 was required to pay the Agents 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. The Company has also agreed to provide the Agents with customary indemnification rights. During the year ended December 31, 2019, the Company sold 191,244 shares pursuant to the Amended Sale Agreement, at an average selling price of $ 4.11 per share, generating net proceeds of approximately $ 762,000 . During the year ended December 31, 2020, the Company sold 4,110,625 shares pursuant to the Amended Sale Agreement, at an average selling price of $ 6.64 per share, generating net proceeds of approximately $ 26.5 million. There were no sales pursuant to the Amended Sale Agreement during the year ended December 31, 2021. In the aggregate, the Company has sold 4,301,869 shares pursuant to the Amended Sale Agreement, at an average selling price of $ 6.53 per share, generating net proceeds of approximately $ 27.2 million. In addition, during the year ended December 31, 2020, the Company paid approximately $ 49,000 related to the Amended Sale Agreement.
The Company may no longer offer and sell additional shares of the Company’s common stock under the Amended Sale Agreement following the declaration of effectiveness of the 2021 Shelf on July 27, 2021.
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 could 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 would have been 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 their 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 pursuant to the Amended Sale Agreement during the year ended December 31, 2021. In addition, during the year ended December 31, 2021, the Company paid approximately $ 90,000 related to the Amended Sale Agreement.
Stock Option Plans
As of December 31, 2021, the Company had two Long Term Incentive Plans (the “2014 Plan” and the “2006 Plan”) to attract, retain, and provide incentives to employees, officers, directors, and consultants. The Plans generally provide for the granting of stock, stock options, stock appreciation rights, restricted shares, or any combination of the foregoing to eligible participants.
A total of 13,400,000 and 2,400,000 shares of common stock are reserved for issuance under the 2014 Plan and the 2006 Plan, respectively. As of December 31, 2021, there were shares remaining to purchase approximately 6,322,000 and 237,000 units of common stock reserved under the 2014 Plan and the 2006 Plan, respectively.
The 2014 and 2006 Plans as well as grants issued outside of the Plan are administered by the Compensation Committee of the Board of Directors (the “Compensation Committee”).
The Compensation Committee is authorized to select from among eligible employees, directors, advisors and consultants those individuals to whom incentives are to be granted and to determine the number of shares to be subject to, and the terms and conditions of the options. The Compensation Committee is also authorized to prescribe, amend and rescind terms relating to options granted under the Plans. Generally, the interpretation and construction of any provision of the Plans or any options granted hereunder is within the discretion of the Compensation Committee.
F-25
Table of Contents
The 2014 Plan provides that options may or may not be Incentive Stock Options (ISOs) within the meaning of Section 422 of the Internal Revenue Code. Only employees of the Company are eligible to receive ISOs, while employees and non-employee directors, advisors and consultants are eligible to receive options, which are not ISOs, i.e. “Non-Qualified Options.” Because the Company has not obtained shareholder approval of the 2006 Plan, all options granted thereunder to date are “Non-Qualified Options” and until such shareholder approval is obtained, all future options issued under the 2006 Plan will also be “Non-Qualified Options.”
In December 2014, the Company’s received shareholder approval authorizing the Board of Directors to implement the form, terms and provisions of the 2014 Plan. Accordingly, any options issued to employees under the 2014 Plan will be ISOs within the meaning of Section 422 of the Internal Revenue Code.
Stock-based Compensation
Total share-based employee, director, and consultant compensation for the years ended December 31, 2021, 2020 and 2019 amounted to approximately $ 4,021,000 , $ 3,514,000 , and $ 1,666,000 , respectively. These amounts are included in selling, general, and administrative expenses on the consolidated statements of operations and comprehensive loss.
The summary of the stock option activity for the years ended December 31, 2021, 2020 and 2019 is as follows:
Weighted
Weighted
Average
Average
Remaining
Exercise
Contractual
Shares
per Share
Life (Years)
Outstanding January 1, 2019
3,658,462
$
5.82
7.0
Granted
1,557,300
$
7.19
9.5
Forfeited
( 747,671 )
$
7.39
—
Expired
( 16,320 )
$
4.16
—
Exercised
( 233,582 )
$
4.09
—
Outstanding, December 31, 2019
4,218,189
$
6.16
7.0
Granted
1,579,106
$
6.37
9.0
Forfeited
( 34,644 )
$
7.50
—
Expired
( 226,440 )
$
5.60
—
Exercised
( 371,007 )
$
4.46
—
Outstanding, December 31, 2020
5,165,204
$
6.36
7.26
Granted
2,051,980
$
8.78
9.30
Forfeited
( 138,037 )
$
6.73
—
Expired
( 21,756 )
$
7.46
—
Exercised
( 171,413 )
$
5.73
—
Outstanding, December 31, 2021
6,885,978
$
7.09
7.15
The fair value of each stock option was estimated using the Black Scholes pricing model which takes the following factors into account.
Current Price
of the
Underlying
Stock and its
Grant Date
Expected Life
Expected
Risk Free
Exercise Price
of the Stock
Volatility
Expected
Interest Rate
Year - Ended
Range
Option
Range
Dividends
Range
December 31, 2019
$
3.84 to $ 8.25 per share
10 years
61.9 % to 74.3
%
0
%
1.40 % to 2.61
%
December 31, 2020
$
5.00 - $ 10.58 per share
10 years
61.7 % to 69.8
%
0
%
0.28 % to 0.96
%
December 31, 2021
$
4.26 - $ 11.39 per share
10 years
58.2 % to 60.7
%
0
%
0.47 % to 1.39
%
In addition, the Company recognizes forfeitures as they occur.
F-26
Table of Contents
The intrinsic value is calculated at the difference between the market value as of December 31, 2021 of $ 4.19 and the exercise price of the shares.
Options Outstanding
Number
Weighted
Weighted
Range of
Outstanding at
Average
Average
Aggregate
Exercise
December 31,
Exercise
Remaining
Intrinsic
Price
2021
Price
Life (Years)
Value
$ 2.65 - $ 14.50
6,885,978
$
7.09
7.15
$
166,383
Options Exercisable
Number
Weighted
Exercisable at
Average
Aggregate
December 31,
Exercise
Intrinsic
2021
Price
Value
3,891,132
$
6.45
$
166,383
The summary of the status of the Company’s non-vested options for the year ended December 31, 2021 is as follows:
Weighted
Average
Grant Date
Shares
Fair Value
Non-vested, January 1, 2021
1,998,117
$
4.12
Granted
2,051,980
5.26
Forfeited
( 138,037 )
4.05
Vested
( 917,214 )
4.34
Non-vested, December 31, 2021
2,994,846
$
4.68
As of December 31, 2021, the Company had approximately $ 5,932,000 of total unrecognized compensation cost related to stock options which will, on average, be amortized over 41 months .
Awards of Stock Options:
On April 12, 2021, the Board of Directors granted options to purchase 1,323,400 shares of common stock to the Company’s employees which will vest upon the achievement of certain specific, predetermined milestones related to the Company’s 2021 operations. Once awarded, these options will vest in four equal tranches, the first tranche vesting on the date of the award. The grant date fair value of these unvested options amounted to approximately $ 7,042,000 . We have recorded approximately $ 273,000 in stock option expense related to these options for the year ended December 31, 2021 in accordance with the determination made by the Board of Directors on March 1, 2022
On February 28, 2020, the Board of Directors granted options to purchase 1,114,325 shares of common stock to the Company’s employees which will vest upon the achievement of certain specific, predetermined milestones related to the Company’s 2020 operations. The grant date fair value of these unvested options amounted to approximately $ 3,883,000 . On April 12, 2021, Board of Directors determined that the Company met approximately 88 % of these milestones, and accordingly we have recorded $ 1,070,000 and $ 914,000 in stock option expense related to these options for the year ended December 31, 2021, and 2020, respectively.
On July 22, 2019, the Board of Directors granted options to purchase 926,800 shares of common stock to the Company's employees which will vest upon the achievement of certain specific, predetermined milestones related to the Company's 2019 operations. The grant date fair value of these unvested options amounted to approximately $ 4,294,000 . On February 18, 2020, Board of Directors determined that the Company has met 35 % of these milestones, and accordingly the Company has recorded approximately $ 667,000 and $ 735,000 of stock option expense related to these options for the years ended December 31, 2021, and 2020, respectively.
F-27
Table of Contents
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 Company’s 2014 Long-Term Incentive Plan.
The following table is a summary of these restricted stock units:
Board of
Executive
Other
Directors
Management
Employees
Total
Intrinsic Value
December 31, 2018
277,200
724,500
1,002,300
2,004,000
Granted 2019
—
—
264,500
264,500
Forfeited 2019
—
( 120,000 )
( 61,750 )
( 181,750 )
December 31, 2019
277,200
604,500
1,205,050
2,086,750
$
8,033,988
Granted 2020
—
120,000
265,700
385,700
Forfeited 2020
—
—
( 25,250 )
( 25,250 )
December 31, 2020
277,200
724,500
1,445,500
2,447,200
$
19,504,184
Granted 2021
—
—
396,000
396,000
Forfeited 2021
—
—
( 132,000 )
( 132,000 )
December 31, 2021
277,200
724,500
1,709,500
2,711,200
$
11,359,928
Due to the uncertainty over whether these restricted stock units will vest, which will only happen 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 year ended December 31, 2021.
Performance-Based Awards of Restricted Stock Units:
Pursuant to a review of the compensation of the senior management of the Company and managements’ performance in 2018, on March 4, 2019, the Board of Directors granted 22,220 restricted stock units to certain senior managers of the Company. These awards were valued at approximately $ 179,000 at the date of issuance, based upon the market price of the Company’s common stock at the date of the grant, and 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 years ended December 31, 2021, and 2020, the Company recorded a charge of approximately $ 11,000 and $ 33,000 , respectively related to these restricted stock unit awards.
Pursuant to a review of the compensation of the senior management of the Company and managements' performance in 2019, on July 22, 2019, the Board of Directors granted 180,300 restricted stock units to certain senior managers of the Company. These awards were valued at approximately $ 1,300,000 at the date of issuance, based upon the market price of the Company's common stock at the date of the grant, and 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 years ended December 31, 2021, and 2020, the Company recorded a charge of approximately $ 259,000 and $ 564,000 , respectively related to these restricted stock unit awards.
Pursuant to a review of the compensation of the senior management of the Company and managements' performance in 2020, on February 28, 2020, the Board of Directors granted 168,100 restricted stock units to certain senior managers of the Company. These awards were valued at approximately $ 1,014,000 at the date of issuance, based upon the market price of the Company's common stock at the date of the grant, and 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 years ended December 31, 2021 and 2020, the Company recorded a charge of approximately $ 528,000 and $ 619,000 related to these restricted stock unit awards.
Pursuant to a review of the compensation of the senior management of the Company and management’s performance in 2021, on April 12, 2021, the Board of Directors granted 235,765 restricted stock units to certain senior managers of the Company. These awards were valued at approximately $ 2,120,000 at the date of issuance, based upon the market price of the Company’s common stock at the date of the grant, and 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 years ended December 31, 2021, the Company recorded a charge of approximately $ 1,207,000 related to these restricted stock unit awards.
Additionally, in 2021 certain employees were offered 91,750 restricted stock units as a condition of their employment. These awards were valued at approximately $ 713,868 at the date of issuance. 46,750 of these restricted stock units vest upon the earlier of a
F-28
Table of Contents
Change in Control or one third after the second anniversary of the award, one third on the third anniversary of the award, and one third on the fourth anniversary of the award. The other 45,000 of these restricted stock units vest upon the earlier of a Change in Control or four years from the date of the award. For the years ended December 31, 2021, the Company recorded a charge of approximately $ 178,000 related to these restricted stock unit awards.
The following table outlines the restricted stock unit activity for the year ended December 31, 2021:
Weighted
Average
Grant Date
Shares
Fair Value
Non-vested, January 1, 2021
173,972
$
6.52
Granted
327,515
$
8.65
Vested
( 196,525 )
$
7.64
Non-vested, December 31, 2021
304,962
$
8.08
Warrants:
As of December 31, 2021, the Company had no warrants outstanding.
12. NET LOSS PER SHARE:
Basic net loss per share and diluted net loss per share for the years ended December 31, 2021, 2020 and 2019 have been computed by dividing the net loss attributable to common shareholders for each respective period by the weighted average number of shares outstanding during that period. All outstanding warrants and options and restricted stock awards representing approximately 9,902,000 , 7,786,000 , and 6,503,000 incremental shares at December 31, 2021, 2020 and 2019, respectively, have been excluded from the computation of diluted net loss per share as they are anti-dilutive.
13. RETIREMENT PLAN:
In June 2014, the Company formed the CytoSorbents 401(k) Plan. The plan is a defined contribution plan as described in section 401(k) of the Internal Revenue Code (“IRC”) covering substantially all full-time employees. Employees are eligible to participate in the plan on the first day of the calendar quarter following three full months of employment. Participants may defer up to 100 % of their eligible compensation subject to certain IRC limitations.Prior to 2021, the Company provided for a matching contribution of twenty percent of the participants’ contribution on a maximum of five percent of compensation. Effective January 1, 2021, the Company changed its matching contribution to 100 % of the participants contribution up to three percent of compensation plus 50 % of the participants contribution over three percent of compensation up to a maximum of five percent of compensation. Matching contributions amounted to approximately $ 355,000 , $ 59,200 and $ 43,800 for the years ended December 31, 2021, 2020 and 2019, respectively.
14. SUBSEQUENT EVENT:
On January 19, 2022, the Company closed on the Fourth Amendment of its Amended Loan and Security Agreement with Bridge Bank. Under the terms of the Amendment, the Company received a commitment from Bridge Bank to provide a new term loan of up to $ 15 million, if needed. See Note 7.
F-29
Table of Contents
15. QUARTERLY FINANCIAL RESULTS (UNAUDITED):
Summarized quarterly data for 2021, 2020 and 2019 are as follows:
For the Quarters Ended
March 31
June 30
September 30
December 31
2021:
Total revenue
$
10,598,847
$
12,024,069
$
9,760,416
$
10,782,195
Gross margin
7,847,403
9,313,852
7,297,470
7,659,452
Loss from operations
( 2,852,191 )
( 4,924,733 )
( 5,406,000 )
( 9,561,821 )
Net loss attributable to common stockholders
( 4,167,821 )
( 4,677,530 )
( 6,406,285 )
( 9,307,012 )
Net loss per share, basic and diluted
( 0.10 )
( 0.11 )
( 0.15 )
( 0.25 )
2020
Total revenue
$
8,707,310
$
9,794,903
$
10,546,612
$
11,955,776
Gross margin
6,322,468
6,545,136
7,656,230
9,428,358
Loss from operations
( 2,478,754 )
( 3,297,667 )
( 1,959,652 )
( 2,634,264 )
Net loss attributable to common stockholders
( 3,452,779 )
( 2,866,956 )
( 839,729 )
( 677,724 )
Net loss per share, basic and diluted
( 0.10 )
( 0.08 )
( 0.02 )
0.00
2019:
Total revenue
$
5,191,629
$
6,232,526
$
6,095,007
$
7,430,311
Gross margin
3,453,040
4,398,160
4,398,733
5,335,621
Loss from operations
( 4,285,193 )
( 3,629,997 )
( 5,627,546 )
( 5,431,328 )
Net loss attributable to common stockholders
( 4,883,827 )
( 3,547,405 )
( 6,885,061 )
( 3,949,351 )
Net loss per share, basic and diluted
( 0.15 )
( 0.11 )
( 0.21 )
( 0.13 )
F-30
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.