STOCKHOLDERS' EQUITY (DEFICIT)

6 Months Ended

Jun. 30, 2013

STOCKHOLDERS' EQUITY [Abstract]

STOCKHOLDERS' EQUITY

4. STOCKHOLDERS' EQUITY (DEFICIT)

During the six months ended June 30, 2013, the Company recorded non-cash stock dividends totaling approximately $1,203,000 in connection with the issuance of 3,648.70 shares of Series B Preferred Stock and 80,702 shares of Series A Preferred Stock.

During the six months ended June 30, 2013, the Company incurred stock-based compensation expense due to the issuance of stock options, and amortization of unvested stock options. The aggregate expense for the six months ended June 30, 2013 is approximately $266,990.

The summary of the stock option activity for the six months ended June 30, 2013 is as follows:

				Weighted
				Average		Weighted
				Exercise Price		Average Remaining
	Shares			per Share		Life (Years)
Outstanding, January 1, 2013		36,667,616		$	0.23		6.1
Granted		13,985,000		$	0.11		6.0
Cancelled		(2,235,000	)	$	0.12		-
Exercised		(496,737	)	$	0.04		-
Expired		(9,402	)	$	2.01		-
Outstanding June 30, 2013		47,911,477		$	0.20		5.6

The fair value of each stock option was estimated using the Black Scholes pricing model which takes into account as of the grant date the exercise price (ranging from $0.106 to $0.168 per share) and expected life of the stock option (ranging from 5-10 years), the current price of the underlying stock and its expected volatility (approximately 28 percent), expected dividends (-0- percent) on the stock and the risk free interest rate (0.8 to 1.9 percent) for the term of the stock option. At June 30, 2013, the aggregate intrinsic value of options outstanding and currently exercisable amounted to approximately $1,169,000.

The summary of the status of the Company's non-vested options for the six months ended June 30, 2013 is as follows:

				Weighted
				Average
				Grant
				Date
	Shares			Fair Value
Non-vested, January 1, 2013		7,394,000		$	0.05
Granted		13,985,000		$	0.03
Cancelled		(2,035,000	)	$	0.06
Vested		(5,776,000	)	$	0.05
Non-vested, June 30, 2013		13,568,000		$	0.03

As of June 30, 2013, approximately $131,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of 1.82 years. On April 3, 2013, the BOD approved a 2013 Stock Option Grant totaling 10,305,000 options, available in part to all eligible employees of the Company, that vests only with the achievement of certain pre-determined milestones relating to commercialization of CytoSorb®, financing, business development, and product development. Due to the uncertainty over whether approximately 9,455,000 of the 10,305,000 options granted will vest, no charge for these options has been recorded in the consolidated statements of operations for the six months ended June 30, 2013. The grant date fair value of these unvested options amounts to approximately $284,000. The Company will evaluate on an ongoing basis the probability and likelihood of any of these performance milestones being achieved and will accrue charges as it becomes likely that they will be achieved.

In addition, a pool of 22,750,000 shares of restricted stock was allocated, but not awarded, to only be awarded with the achievement of certain long-term milestones. Should these long-term milestones not be met in 2013, these restricted shares would be cancelled.

As of June 30, 2013, the Company has the following warrants to purchase common stock outstanding:

Number of Shares To be Purchased		Warrant Exercise Price per Share		Warrant Expiration Date
	3,986,429	$	0.04	July 25, 2013
	397,825	$	0.04	September 30, 2014
	1,750,000	$	0.10	August 16, 2015
	1,600,000	$	0.13	August 16, 2015
	1,333,333	$	0.15	August 16, 2015
	490,000	$	0.10	October 22, 2015
	196,000	$	0.13	October 22, 2015
	163,333	$	0.15	October 22, 2015
	625,000	$	0.10	November 2, 2015
	250,000	$	0.13	November 2, 2015
	208,334	$	0.15	November 2, 2015
	500,000	$	0.10	November 19, 2015
	200,000	$	0.13	November 19, 2015
	166,667	$	0.15	November 19, 2015
	5,000,000	$	0.10	February 15, 2016
	2,200,000	$	0.13	February 15, 2016
	1,833,333	$	0.15	February 15, 2016
	240,125	$	1.25	October 24, 2016
	1,166,667	$	0.18	February 10, 2017
	4,392,000	$	0.15	June 21, 2018
	26,699,046

During the first quarter of 2013, Convertible Notes in the principal and accrued interest amount of $1,226,042 were converted into 9,739,912 Common shares.

In December 2011, the Company terminated the original Purchase Agreement with Lincoln Park Capital Fund, LLC ("LPC") and executed a new purchase agreement, or the New Purchase Agreement, and a registration rights agreement, or the New Registration Rights Agreement, with LPC. Under the New Purchase Agreement, LPC is obligated, under certain conditions, to purchase from the Company up to $8.5 million of our Common Stock, from time to time over a thirty-two (32) month period.

The Company has the right, but not the obligation, to direct LPC to purchase up to $8,500,000 of its Common Stock in amounts up to $50,000 as often as every two business days under certain conditions. The Company can also accelerate the amount of its common stock to be purchased under certain circumstances. No sales of shares may occur at a purchase price below $0.10 per share or without a registration statement having been declared effective. The purchase price of the shares will be based on the market prices of our shares at the time of sale as computed under the New Purchase Agreement without any fixed discount. The Company may at any time at its sole discretion terminate the New Purchase Agreement without fee, penalty or cost upon one business days' notice.

There was no up-front commitment fee paid to LPC for entering into the new agreement. In the event the Company directs LPC to purchase up to $8,500,000 of its Common Stock, the Company is obligated to issue up to an additional 1,634,615 commitment fee shares of Common Stock on a pro rata basis. LPC may not assign any of its rights or obligations under the Purchase Agreement.

During the six months ended June 30, 2013 the Company received approximately $900,000 as proceeds from the sale of approximately 8,144,000 shares of Common Stock per the terms of the Purchase Agreement with LPC at an average price of approximately $0.113 per share of Common. Per the terms of the Purchase Agreement the Company also issued an additional approximately 173,000 shares of Common Stock as additional Commitment Fee shares. The fair value of the Commitment shares of approximately $20,000 has been recorded as a cost of raising capital.

As of June 30, 2013, $4,050,000 remained available under the Purchase Agreement with LPC. The Purchase Agreement terminates in August 2014.