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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

Or

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-36792

CYTOSORBENTS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

    

98-0373793

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

305 College Road East

Princeton, New Jersey

08540

(Address of principal executive offices)

(Zip Code)

(732) 329-8885

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

CTSO

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes þ  No

As of November 8, 2023, there were 44,438,509 shares of the issuer’s common stock outstanding.

CytoSorbents Corporation

FORM 10-Q

TABLE OF CONTENTS

 

    

Page

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

3

 

 

Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022

3

Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

4

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

5

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)

6

 

 

Notes to Consolidated Financial Statements (unaudited)

7

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

36

 

 

Item 4. Controls and Procedures

36

 

 

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

37

 

 

Item 1A. Risk Factors

37

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

39

 

 

Item 3. Defaults Upon Senior Securities

39

 

 

Item 4. Mine Safety Disclosures

39

 

 

Item 5. Other Information

39

 

 

Item 6. Exhibits

40

Signatures

41

This Quarterly Report on Form 10-Q includes our trademarks and trade names, such as “CytoSorb,” “CytoSorb XL,” “ECOS-300CY,” “BetaSorb,” “ContrastSorb,” “DrugSorb,” “HemoDefend-RBC,” “HemoDefend-BGA,” “K+ontrol” and “VetResQ,” which are protected under applicable intellectual property laws and are the property of CytoSorbents Corporation and our subsidiaries. This Quarterly Report on Form 10-Q also contains the trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this Quarterly Report on Form 10-Q may appear without the ™, ®, or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CYTOSORBENTS CORPORATION

CONSOLIDATED BALANCE SHEETS

September 30, 

2023

December 31, 

    

(Unaudited)

    

2022

    

ASSETS

  

 

  

Current Assets:

  

 

  

Cash and cash equivalents

$

8,359,047

$

22,144,567

Grants and accounts receivable, net of allowance for doubtful accounts of $56,893 as of September 30, 2023 and $76,041 at December 31, 2022

 

6,178,637

 

5,664,941

Inventories

 

2,977,146

 

3,461,586

Prepaid expenses and other current assets

 

1,745,813

 

2,488,597

Total current assets

 

19,260,643

 

33,759,691

 

 

Property and equipment, net

 

10,282,153

 

10,743,032

Restricted cash

1,687,459

1,687,459

Right-of-use assets

12,196,049

12,603,901

Other assets

 

4,148,733

 

4,437,447

Total Assets

$

47,575,037

$

63,231,530

 

  

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current Liabilities:

 

  

 

  

Accounts payable

$

3,441,572

$

1,655,173

Current maturities of long-term debt

833,333

Lease liability – current portion

117,204

108,939

Accrued expenses and other current liabilities

 

7,580,287

 

7,950,440

Total current liabilities

 

11,972,396

 

9,714,552

Lease liability, net of current portion

12,892,209

13,142,005

Long-term debt, net of current maturities

4,198,810

5,000,000

Total Liabilities

 

29,063,415

 

27,856,557

 

  

 

  

Commitments and Contingencies (Note 6)

 

 

Stockholders’ Equity:

 

  

 

  

Preferred Stock, par value $0.001, 5,000,000 shares authorized; -0- shares issued and outstanding at September 30, 2023 and December 31, 2022

Common Stock, par value $0.001, 100,000,000 shares authorized; 44,438,509 and 43,635,715 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

44,439

 

43,635

Additional paid-in capital

 

292,153,561

 

287,000,021

Accumulated other comprehensive income

 

2,983,987

 

2,329,195

Accumulated deficit

 

(276,670,365)

 

(253,997,878)

Total Stockholders’ Equity

 

18,511,622

 

35,374,973

Total Liabilities and Stockholders’ Equity

$

47,575,037

$

63,231,530

See accompanying notes to the condensed consolidated financial statements.

3

CYTOSORBENTS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Three months ended September 30, 

Nine months ended September 30,

2023

2022

2023

2022

    

(Unaudited)

    

(Unaudited)

    

(Unaudited)

    

(Unaudited)

Revenue:

 

  

 

  

 

  

 

  

CytoSorb sales

$

7,709,085

$

6,271,228

$

23,681,183

$

21,176,194

Other sales

 

44,931

 

191,468

55,285

541,694

Total product sales

 

7,754,016

 

6,462,696

23,736,468

21,717,888

Grant income

 

1,056,831

 

1,648,657

3,944,696

3,580,447

Total revenue

 

8,810,847

 

8,111,353

27,681,164

25,298,335

Cost of revenue

 

3,203,981

 

4,493,976

10,600,421

10,322,315

Gross margin

 

5,606,866

 

3,617,377

17,080,743

14,976,020

Other expenses:

 

 

 

 

Research and development

 

3,749,197

 

3,290,149

11,632,416

11,716,976

Legal, financial and other consulting

 

1,103,475

 

609,518

2,957,738

2,089,330

Selling, general and administrative

 

8,104,392

 

8,735,048

24,358,417

26,335,238

Total other expenses

 

12,957,064

 

12,634,715

38,948,571

40,141,544

Loss from operations

 

(7,350,198)

 

(9,017,338)

(21,867,828)

(25,165,524)

Other income (expense):

 

 

 

 

Interest income (expense), net

 

(33,670)

 

46,845

(105,662)

78,849

Loss on foreign currency transactions

(1,809,652)

(3,230,315)

(733,997)

(6,966,613)

Miscellaneous income (expense)

(29)

35,000

6,831

Total other expense, net

 

(1,843,322)

 

(3,183,499)

(804,659)

(6,880,933)

 

 

 

 

Loss before benefit from income taxes

 

(9,193,520)

 

(12,200,837)

(22,672,487)

(32,046,457)

Benefit from income taxes

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

$

(9,193,520)

$

(12,200,837)

$

(22,672,487)

$

(32,046,457)

 

Basic and diluted net loss per common share

$

(0.21)

$

(0.28)

$

(0.52)

$

(0.74)

 

Weighted average number of shares of common stock outstanding

 

44,373,969

43,606,980

44,024,483

43,552,238

Net loss

$

(9,193,520)

$

(12,200,837)

$

(22,672,487)

$

(32,046,457)

Other comprehensive income:

 

Currency translation adjustment

 

1,655,674

2,658,809

654,792

5,674,935

Total comprehensive loss

$

(7,537,846)

$

(9,542,028)

$

(22,017,695)

$

(26,371,522)

See accompanying notes to the condensed consolidated financial statements.

4

CYTOSORBENTS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three and nine months ended September 30, 2023 and 2022 (Unaudited)

Accumulated

Additional

Other

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Par value

    

Capital

    

Income

    

Deficit

    

Equity

Balance at June 30, 2023

44,193,696

$

44,193

$

290,199,035

$

1,328,313

$

(267,476,845)

$

24,094,696

Stock-based compensation - employees, consultants and directors

1,086,163

1,086,163

Other comprehensive income: foreign translation adjustment

1,655,674

1,655,674

Issuance of common stock offerings, net of fees

162,078

162

632,232

632,394

Proceeds from exercise of stock options for cash

7,962

9

15,920

15,929

Issuance of restricted stock units

74,773

75

220,211

220,286

Net loss

(9,193,520)

(9,193,520)

Balance at September 30, 2023

44,438,509

$

44,439

$

292,153,561

$

2,983,987

$

(276,670,365)

$

18,511,622

Balance at December 31, 2022

43,635,715

$

43,635

$

287,000,021

$

2,329,195

$

(253,997,878)

$

35,374,973

Stock-based compensation - employees, consultants and directors

 

2,486,679

2,486,679

Other comprehensive income: foreign translation adjustment

 

654,792

654,792

Issuance of common stock offerings, net of fees

590,348

591

2,106,528

2,107,119

Proceeds from exercise of stock options for cash

 

82,355

83

213,224

213,307

Issuance of restricted stock units

130,091

130

403,811

403,941

Legal/audit fees related to ATM offering

(56,702)

(56,702)

Net loss

 

(22,672,487)

(22,672,487)

Balance at September 30, 2023

 

44,438,509

$

44,439

$

292,153,561

$

2,983,987

$

(276,670,365)

$

18,511,622

Accumulated

Additional

Other

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Par value

    

Capital

    

Income

    

Deficit

    

Equity

Balance at June 30, 2022

43,574,619

$

43,575

$

285,005,396

$

3,541,711

$

(241,030,915)

$

47,559,767

Stock-based compensation - employees, consultants and directors

1,005,403

1,005,403

Other comprehensive income: foreign translation adjustment

2,658,809

2,658,809

Stock issued to vendor in lieu of cash payment

Issuance of restricted stock units

60,226

59

118,299

118,358

Net loss

(12,200,837)

(12,200,837)

Balance at September 30, 2022

43,634,845

$

43,634

$

286,129,098

$

6,200,520

$

(253,231,752)

$

39,141,500

Balance at December 31, 2021

43,478,487

$

43,478

$

283,194,429

$

525,585

$

(221,185,295)

$

62,578,197

Stock-based compensation - employees, consultants and directors

 

2,554,092

2,554,092

Other comprehensive income: foreign translation adjustment

 

5,674,935

5,674,935

Stock issued to vendor in lieu of cash payment

12,500

12

42,487

42,499

Issuance of restricted stock units

 

143,858

144

378,449

378,593

Legal/audit fees related to ATM offering

(40,359)

(40,359)

Net loss

 

(32,046,457)

(32,046,457)

Balance at September 30, 2022

 

43,634,845

$

43,634

$

286,129,098

$

6,200,520

$

(253,231,752)

$

39,141,500

See accompanying notes to the condensed consolidated financial statements.

5

CYTOSORBENTS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months

Nine months

ended

ended

September 30, 

September 30, 

2023

2022

    

(Unaudited)

    

(Unaudited)

Cash flows from operating activities:

 

  

Net loss

$

(22,672,487)

$

(32,046,457)

Adjustments to reconcile net loss to net cash used in operating activities:

 

Accrued final fee

32,143

Non-cash compensation

160,999

 

149,368

Depreciation and amortization

1,067,797

 

659,407

Amortization of right-of-use asset

166,321

193,567

Write-off of patent cost

475,621

 

431,426

Bad debt expense

14,459

 

10,369

Stock-based compensation

2,486,679

 

2,554,092

Foreign currency translation loss

733,997

 

6,966,613

Changes in operating assets and liabilities:

 

Grants and accounts receivable

(603,286)

 

(860,022)

Inventories

471,822

 

459,434

Prepaid expenses and other current assets

1,370,510

 

1,577,559

Other assets

 

53,226

Accounts payable and accrued expenses

1,047,700

 

(3,042,537)

Net cash used in operating activities

(15,247,725)

 

(22,893,955)

Cash flows from investing activities:

 

  

Purchases of property and equipment

(442,618)

 

(5,873,928)

Payments for patent costs

(357,696)

 

(375,568)

Net cash used in investing activities

(800,314)

 

(6,249,496)

Cash flows from financing activities:

 

  

Equity contributions - net of fees incurred

2,050,417

 

(40,359)

Proceeds from exercise of stock options

213,307

 

Net cash provided by (used in) financing activities

2,263,724

(40,359)

Effect of exchange rates on cash

(1,205)

 

(401,658)

Net change in cash, cash equivalents and restricted cash

(13,785,520)

 

(29,585,468)

Cash, cash equivalents and restricted cash - beginning of period

23,832,026

 

53,825,166

Cash, cash equivalents and restricted cash - end of period

$

10,046,506

$

24,239,698

Supplemental disclosure of cash flow information:

 

Cash paid during the period for interest

$

275,575

$

Supplemental disclosure of non-cash financing activities:

 

Issuance of common stock to vendor in lieu of cash payment

$

$

42,499

Capital expenditures included in accounts payable

$

$

280,729

Issuance of restricted stock units

$

403,941

$

378,593

See accompanying notes to the condensed consolidated financial statements.

6

CytoSorbents Corporation

Notes to Consolidated Financial Statements

(UNAUDITED)

September 30, 2023

1.    BASIS OF PRESENTATION

The interim consolidated financial statements of CytoSorbents Corporation (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, for a fair statement of the Company’s consolidated financial position and results of operations for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2023. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.

As of September 30, 2023, the Company’s cash and cash equivalents were approximately $10.0 million, including $8.4 million in cash and cash equivalents and approximately $1.7 million in restricted cash, which is not expected to fund the Company’s operations beyond the next twelve months from the issuance of these consolidated financial statements. This matter raises substantial doubt about the Company’s ability to continue as a going concern. As a result, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company will need to raise additional capital to support our ongoing operations in the future.

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. In March 2022, the Company formed CytoSorbents Medical UK Limited to provide marketing and direct sales services in the United Kingdom and the Republic of Ireland. In October 2022, the Company formed CytoSorbents France SAS to provide marketing and direct sales services in France. In May 2023, the Company formed CytoSorbents India Private Limited to provide marketing and direct sales services in India. 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 75 countries around the world, as an 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.

7

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.

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 July 2023, the Company announced that enrollment in the STAR-T trial completed, and in August 2023, the Company announced completion of the STAR-T trial, following the last scheduled patient follow-up.

In August 2021, the Company announced that it was granted a second Breakthrough Device designation for its DrugSorb-ATR Antithrombotic Removal System by the 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 will be marketed as DrugSorb-ATR in the United States. The DrugSorb-ATR Antithrombotic Removal System is based on the same polymer technology as CytoSorb.

In May 2022, the Company announced that the Company entered into a three-year preferred supplier agreement with Asklepios, making CytoSorb available without restrictions to all of the approximately 170 healthcare facilities across 14 states throughout Germany at which Asklepios operates. This includes Asklepios Klinik St. Georg in Hamburg, Germany, which pioneered the use of CytoSorb to remove antithrombotic drugs during cardiothoracic surgery, and is well-known for their seminal publication on CytoSorb use for this application during emergency cardiac surgery in patients at high risk of bleeding.

In June 2022, the Company announced that, following a successful pilot program in three countries, the Company signed an expanded non-exclusive agreement with Nikkiso Europe GmbH (“Nikkiso”) to distribute Nikkiso’s PureADJUST stand-alone hemoperfusion pump and accessories in a total of 14 countries. In addition to securing the rights to sell Nikkiso’s stand-alone pump and accessories in Germany, Austria, and Luxembourg, the Company entered into an expanded multi-country reseller agreement with Nikkiso covering the following countries: Belgium, Bosnia and Herzegovina, Croatia, Finland, France, Iceland, Lichtenstein, Poland, Serbia, Slovenia and Switzerland. The Company will also be able to provide field support services in these countries. In September 2023, the distribution agreement with Nikkiso expired, and the Company indicated that it would not seek renewal of the agreement. The Company is actively working with a new supplier to provide a stand-alone hemoperfusion pump.

In August 2022, the Company entered into a Marketing Agreement (the “Marketing Agreement”) with Fresenius Medical Care Deutschland GmbH (“Fresenius”), which expands the Company’s strategic partnership with Fresenius by establishing a multi-stage global collaboration to combat life-threatening diseases in critical care. The Marketing Agreement provides for the combined marketing and promotion of CytoSorb with Fresenius’ critical care products by Fresenius’ marketing organization worldwide, excluding the United States. The Marketing Agreement has an initial term of three years, with an automatic renewal for an additional two years at the end of such initial term, subject to earlier termination by either of the parties (the “Term”). Compared to the prior co-marketing agreement between the parties, the Marketing Agreement intends to increase the commitments from both parties and to ensure an ongoing and consistent level of marketing and promotional activity specifically focused around CytoSorb, where Fresenius will actively market and promote CytoSorb as the featured blood purification therapy for removal of cytokines, bilirubin, and myoglobin on its critical care platforms. Specifically, the Marketing Agreement provides that various Fresenius-led in-person, virtual, social media, and web-based

8

marketing programs and events will feature the CytoSorb therapy and highlight the cooperation between the two companies in the field of critical care during the Term. To help support the increased marketing and promotional efforts of the expanded collaboration, CytoSorbents has agreed to subsidize a portion of the marketing costs through a royalty payment to Fresenius Medical Care based on CytoSorb sales in the intensive care unit on Fresenius Medical Care platforms, excluding the United States. In addition to strengthening and expanding the global marketing of CytoSorb, the Company and Fresenius also plan to work together to bring new innovative solutions to the market. The Marketing Agreement also includes the certification of compatibility of CytoSorb for usage on Fresenius’ current critical care platforms. The launch of this program is expected to occur in 2024.

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, as of September 30, 2023, is protected by 19 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 2023 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, par value $0.001 per share, 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, CytoSorbents Poland Sp. z.o.o. and CytoSorbents Medical UK Limited, wholly owned subsidiaries of CytoSorbents Europe GmbH, and CytoSorbents UK Limited and CytoSorbents India Private Limited, wholly-owned subsidiaries 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 Dollar, the foreign currency financial statements of the European subsidiary are included in operations. The Euro is the functional currency of CytoSorbents Europe GmbH. Foreign currency transaction gain/(loss) included in net loss amounted to approximately ($1,810,000) and ($3,230,000) for the three months ended September 30, 2023 and 2022, respectively. Foreign currency transaction gain/(loss) included in net loss amounted to approximately ($734,000) and ($6,967,000) for the nine months ended September 30, 2023 and 2022, respectively. The Company translates assets and liabilities of its foreign subsidiaries at the exchange rate in effect at the consolidated balance sheet date. The Company translates revenue and expenses at the daily average exchange rates during the period. The Company includes accumulated net translation adjustments in accumulated other comprehensive income as a component of stockholders’ equity.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

The following table provides a reconciliation of cash and cash equivalents and restricted cash to amounts shown in the consolidated balance sheets:

    

September 30, 2023

    

December 31, 2022

Cash and cash equivalents

$

8,359,047

$

22,144,567

Restricted cash

 

1,687,459

 

1,687,459

Total cash, cash equivalents and restricted cash

$

10,046,506

$

23,832,026

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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 accounts.

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 its customers’ financial conditions. Management reviews accounts receivable periodically to determine collectability. Balances that are determined to be uncollectible are written off to the allowance for doubtful accounts. The allowance for doubtful accounts amounted to approximately $57,000 and $76,000 as of September 30, 2023 and December 31, 2022, respectively.

Inventories

Inventories are valued at the lower of cost or net realizable value under the first in, first out (FIFO) method. At September 30, 2023 and December 31, 2022, the Company’s inventory was comprised of finished goods, which amounted to $1,389,151 and $1,567,871, respectively; work in process which amounted to $1,140,784 and $1,280,368, respectively; and raw materials, which amounted to $447,211 and $613,347, 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. Donated devices are removed from inventory and charged to selling, general and administrative expenses.

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 consolidated statements of operations and comprehensive loss in the year of disposal. Repairs and maintenance expenditures are expensed as incurred.

Patents

Legal costs incurred to establish and successfully defend 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. During the three and nine months ended September 30, 2023, the Company recorded impairment charges of approximately $183,000 and $476,000, respectively, related to certain patent costs. There were no charges for impairments during the three months ended September 30, 2022. During the nine months ended September 30, 2022, the Company recorded an impairment charge of approximately $431,000 related to certain patent costs. This charge is included in legal, financial and other consulting in the consolidated statements of operations and comprehensive loss.

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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.

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 sheets. Costs subject to reimbursement by these grants have been reflected as costs of revenue.

Research and Development and Clinical Trial Expenses

All research and development costs, payments to laboratories and research consultants are expensed when incurred.

Advertising Expenses

Advertising expenses are included in selling, general, and administrative expenses on the consolidated statements of operations and comprehensive loss when incurred. Advertising expenses amounted to approximately $49,000 and $143,000 for the three months ended September 30, 2023 and 2022, respectively, and approximately $143,000 and $358,000 for the nine months ended September 30, 2023 and 2022, respectively.

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. The Company has provided a valuation allowance against all deferred tax assets. 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 Company follows accounting standards associated with uncertain tax positions. The Company had no unrecognized tax benefits at September 30, 2023 or December 31, 2022. 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 carryforwards to an industrial company.

Each of CytoSorbents Europe GmbH, CytoSorbents Switzerland GmbH, CytoSorbents Poland Sp. Z.o.o., CytoSorbents Medical Limited, CytoSorbents UK Limited and CytoSorbents India Private Limited files an annual corporate tax return, VAT return and a trade tax return in Germany, Switzerland, Poland, the United Kingdom and India, 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, liabilities at the date of the balance sheet, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The valuation of options granted, allowance for doubtful accounts and recoverability of patents are significant estimates in these consolidated financial statements.

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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 (“FDIC”). Beginning in April of 2023, the Company joined the IntraFi network, and established an Insured Cash Sweep (“ICS”) account whereby all cash that was previously held in the Company’s money market account at Bridge Bank is swept daily in increments of less than $250,000 and deposited in a number of IntraFi’s 4,000 member banks. This arrangement provides FDIC insurance coverage for all of the cash balances previously held in the money market account, which represents all of the cash and cash equivalents held at Bridge Bank. This arrangement excludes the restricted cash balances. 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 government agencies in the United States. (See Note 4 for further information relating to the Company’s revenue.)

As of September 30, 2023, one distributor accounted for approximately 26% of outstanding grants and accounts receivable. As of December 31, 2022, two distributors accounted for approximately 27% of outstanding grants and accounts receivables. For the three months ended September 30, 2023, no distributor or direct customers accounted for more than 10% of the Company's total revenue and for the nine months ended September 30, 2023, one distributor accounted for approximately 10% of the total revenue. For the three months ended September 30, 2022, one distributor accounted for approximately 16% of the Company's total revenue and for the nine months ended September 30, 2022, no distributor or direct customer accounted for more than 10% of 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 loss per share is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed using the treasury stock method utilizing 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 stock options and restricted shares. The computation of diluted loss per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings (see Note 8).

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 other than 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 other shipping and handling costs in cost of revenue. Total freight costs amounted to approximately $140,000 and $79,000, respectively, for the three months ended September 30, 2023 and 2022, and $341,000 and $166,000, respectively, for the nine months ended September 30, 2023 and 2022.

Effect of Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board, issued Accounting Standards Update (“ASU”) No. 2016-13 entitled, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU provides guidance on the

12

calculation of credit losses, which includes the allowance for doubtful accounts on trade accounts receivable. The updated guidance is effective for public entities for fiscal years beginning after December 15, 2022. The Company implemented the updated guidance during the nine months ended September 30, 2023, and this did not have significant impact on its consolidated financial statements.

3.    STOCKHOLDERS’ EQUITY

Preferred Stock

In June 2019, the Company amended and restated its certificate of incorporation. The amended and restated certificate of incorporation authorizes the issuance of up to 5,000,000 shares of “blank check” preferred stock, with such designation rights and preferences as may be determined from time to time by the Board of Directors.

Common Stock

In June 2019, the Company amended and restated its certificate of incorporation. The amended and restated certificate of incorporation increased the number of shares of common stock authorized for issuance from 50,000,000 shares to 100,000,000 shares.

Shelf Registration

On July 14, 2021, the Company filed a registration statement on Form S-3 with the SEC, which was amended on July 20, 2021 and declared effective by the SEC on July 27, 2021 (as amended, the “2021 Shelf”). The 2021 Shelf enables the Company to offer and sell, in one or more offerings, any combination of common stock, preferred stock, senior or subordinated debt securities, warrants and units, up to a total dollar amount of $150 million.

Open Market Sale Agreement with Jefferies LLC

On December 30, 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (the “Agent”), pursuant to which the Company may sell, from time to time, at its option, shares of the Company’s common stock having an aggregate offering price of up to $25 million through the Agent, as the Company’s sales agent. All shares of the Company’s common stock offered and sold, or to be offered and sold under the Sale Agreement will be issued and sold pursuant to the Company’s 2021 Shelf by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, in block transactions or if specified by the Company, in privately negotiated transactions.

Subject to the terms of the Sales Agreement, the Agent is required to use its commercially reasonable efforts consistent with their normal sales and trading practices to sell the shares of the Company’s common stock from time to time, based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company is required to pay the Agent a commission of up to 3.0% of the gross proceeds from the sale of the shares of the Company’s common stock sold thereunder, if any. There were no sales under the Sale Agreement during the year ended December 31, 2022. During the nine months ended September 30, 2023, the Company sold 590,348 shares pursuant to the Sale Agreement, at an average selling price of $3.68 per share, generating net proceeds of approximately $2,107,000. In addition, during the year ended December 31, 2022 and during the nine months ended September 30, 2023, the Company paid approximately $90,000 and $57,000, respectively, in expenses related to the Sale Agreement.

Stock-Based Compensation

Total share-based employee, director, and consultant compensation amounted to approximately $1,086,000 and $2,487,000 for the three and nine months ended September 30, 2023, respectively, and approximately $1,005,000 and $2,554,000 for the three and nine months ended September 30, 2022, respectively. These amounts are included in the consolidated statements of operations and comprehensive loss under selling, general, and administrative expenses.

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The summary of the stock option activity for the nine months ended September 30, 2023 is as follows:

Weighted

Weighted

Average

Average

Remaining

Exercise Price

Contractual

    

Shares

    

per Share

    

Life (Years)

Outstanding, December 31, 2022

 

9,474,824

$

4.66

7.36

Granted

 

2,583,880

$

3.45

 

Forfeited

 

(748,381)

$

2.96

 

Expired

 

(435,781)

$

5.10

 

Exercised

 

(84,093)

$

2.61

 

Outstanding, September 30, 2023

 

10,790,449

$

4.48

 

7.26

The fair value of each stock option was estimated using the Black Scholes pricing model, which takes into account as of the grant date the exercise price (ranging from $1.55 to $3.71 per share) and expected life of the stock option (10 years), the current price of the underlying stock and its expected volatility (70.9%), expected dividends (0)% on the stock and the risk free interest rate (ranging from 3.50% to 4.61%) for the expected term of the stock option.

The intrinsic value is calculated as the difference between the market value of the shares as of September 30, 2023 of $1.88 and the exercise price of the shares.

Options Outstanding

Number

Weighted

Weighted

Range of

Outstanding at

Average

Average

Aggregate

Exercise

September 30, 

Exercise

Remaining

Intrinsic

Price

    

2023

    

Price

    

Life (Years)

    

Value

$1.11 - $13.20

 

10,790,449

$

4.48

7.26

$

11,960

Options Exercisable

Number

Weighted

  

Exercisable at

Average

Aggregate

September 30, 

Exercise

Intrinsic

2023

    

Price

    

Value

5,653,877

$

5.88

$

2,750

The summary of the status of the Company’s non-vested options for the nine months ended September 30, 2023 is as follows:

Weighted

Average

Grant Date

    

Shares

    

Fair Value

Non-vested, December 31, 2022

 

4,851,739

$

1.84

Granted

 

2,583,880

$

2.36

Forfeited

 

(748,381)

$

1.96

Vested

 

(1,550,666)

$

2.53

Non-vested, September 30, 2023

 

5,136,572

$

1.88

As of September 30, 2023, the Company had approximately $7,990,000 of total unrecognized compensation cost related to stock options which will be amortized over approximately 41 months.

Awards of Stock Options

On July 7, 2023, the Board of Directors granted options to purchase 1,138,750 shares of common stock to the Company’s employees which will be awarded based upon each employee’s 2023 individual performance evaluation. Once awarded, these options will vest one quarter on the first anniversary of the grant date, one quarter on the second anniversary of the grant date, one quarter on the third anniversary of the grant date and one quarter on fourth anniversary of the grant date. The grant date fair value of these unvested options

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amounted to approximately $2,665,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $196,000 of stock option expense related to these options.

On July 7, 2023, the Board of Directors granted options to purchase 56,130 shares of common stock to certain of the Company’s employees. These options will vest in full on the first anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $156,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $34,000 of stock option expense related to these options.

On July 7, 2023, the Board of Directors granted options to purchase 100,000 shares of common stock to members of the Company’s Board of Directors. These options will vest in full on the first anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $278,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $65,000 of stock option expense related to these options.

On July 7, 2023, the Board of Directors granted options to purchase 20,000 shares of common stock to a named executive officer of the Company. These options will vest in full on the first anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $56,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $13,000 of stock option expense related to these options.

On July 7, 2023, the Board of Directors granted options to purchase 424,000 shares of common stock to certain senior managers of the Company. These options will vest one half on the first anniversary of the grant date, one quarter on second anniversary of the grant date, one quarter on third anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $992,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $144,000 of stock option expense related to these options.

On July 7, 2023, the Board of Directors granted options to purchase 182,000 shares of common stock to the named executive officers and certain senior managers of the Company. These options were awarded as a one-time award to each executive officer or senior manager in order to account for lost wages resulting from the salary freezes implemented by the Company over the preceding two years and to account for recent inflation. These options will vest one half on the first anniversary of the grant date, and one half on the second anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $426,000. During the three and nine months ended September 30, 2023, the Company recorded approximately $36,000 of stock option expense related to these options.

On July 7, 2023, the Board of Directors granted options to purchase 115,000 shares of common stock to a senior manager of the Company. These options will vest only upon the achievement of certain milestones pursuant to the terms of the Company’s existing 2022-2025 performance pool in place for the Company’s management team. The grant date fair value of these unvested options amounted to approximately $320,000. As of September 30, 2023, none of these milestones have been met. Accordingly, no charge for these options has been recorded in the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023.

On July, 10, 2023, in connection with his appointment as Chief Financial Officer, Mr. Alexander D’Amico was awarded options to purchase 70,000 shares of common stock which will vest as follows: 25,000 options upon the six-month anniversary of the date of grant and 15,000 options upon each of the first, second and third anniversaries of the date of grant. Mr. D’Amico was also granted options to purchase 215,000 shares of common stock that will vest only upon the achievement of certain milestones pursuant to the terms of the Company’s existing 2022-2025 performance pool in place for the Company’s management team. All of these options were forfeited upon the termination of Mr. D’Amico’s employment agreement. See Note 6.

During the nine months ended September 30, 2023, 263,000 options were awarded to newly hired employees in connection with their employment agreements.

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Change in Control-Based Awards of Restricted Stock Units:

The Board of Directors has granted restricted stock units to members of the Board of Directors, to the Company’s executive officers, and to employees of the Company. These restricted stock units will only vest upon a Change in Control of the Company, as defined in the Amended and Restated CytoSorbents Corporation 2014 Long-Term Incentive Plan. The following table is a summary of these restricted stock units:

Restricted Stock Units