SEC Form 10-Q filed by Cytosorbents Corporation

11/7/24 4:33:00 PM ET

$CTSO

Medical/Dental Instruments

Health Care

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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, 2024

☐ 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, $0.001 par value per share	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 5, 2024, there were 54,679,569 shares of the issuer’s common stock, $0.001 par value per share (the “Common Stock”), outstanding.

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CytoSorbents Corporation

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements		3

Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023		3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)		4
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)		5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited)		6

Notes to Condensed Consolidated Financial Statements (unaudited)		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3. Quantitative and Qualitative Disclosures About Market Risk		31

Item 4. Controls and Procedures		31

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		32

Item 1A. Risk Factors		32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32

Item 3. Defaults Upon Senior Securities		32

Item 4. Mine Safety Disclosures		32

Item 5. Other Information		32

Item 6. Exhibits		33

Signatures		34

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.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CYTOSORBENTS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,
	2024		December 31,
	(Unaudited)		2023

ASSETS
Current Assets:
Cash and cash equivalents	$	5,685,328	$	14,131,137
Grants and accounts receivable, net of allowance of $160,246 as of September 30, 2024 and $49,663 at December 31, 2023		6,632,590		6,057,072
Inventories		3,247,756		3,680,129
Prepaid expenses and other current assets		1,031,694		1,834,485
Total current assets		16,597,368		25,702,823

Property and equipment, net		9,269,899		10,056,354
Restricted cash		6,483,958		1,483,958
Right-of-use assets		11,651,563		12,058,896
Other assets		3,801,223		3,958,603
Total Assets	$	47,804,011	$	53,260,634

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,338,143	$	3,802,170
Current maturities of long-term debt		—		2,500,000
Lease liability – current portion		431,997		373,636
Accrued expenses and other current liabilities		5,660,051		7,870,149
Total current liabilities		8,430,191		14,545,955
Lease liability, net of current portion		12,568,745		12,896,659
Long-term debt		13,805,985		2,542,857
Total Liabilities		34,804,921		29,985,471

Commitments and Contingencies (Note 6)
Stockholders’ Equity:
Preferred Stock, Par Value $0.001, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2024 and December 31, 2023		—		—
Common Stock, Par Value $0.001, 100,000,000 shares authorized; 54,500,613 and 54,240,265 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively		54,498		54,240
Additional paid-in capital		308,441,887		305,196,874
Accumulated other comprehensive income (loss)		(156,925)		529,321
Accumulated deficit		(295,340,370)		(282,505,272)
Total Stockholders’ Equity		12,999,090		23,275,163
Total Liabilities and Stockholders’ Equity	$	47,804,011	$	53,260,634

See accompanying notes to condensed consolidated financial statements.

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CYTOSORBENTS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Revenue:
CytoSorb sales	$	8,586,274	$	7,709,085	$	26,381,455	$	23,681,183
Other product sales		26,521		44,931		62,649		55,285
Total product sales		8,612,795		7,754,016		26,444,104		23,736,468
Grant income		777,593		1,056,831		2,627,212		3,944,696
Total revenue		9,390,388		8,810,847		29,071,316		27,681,164
Cost of revenue		4,108,773		3,203,981		10,716,394		10,600,421
Gross profit		5,281,615		5,606,866		18,354,922		17,080,743

Other expenses:
Research and development		1,851,230		3,749,197		5,619,040		11,632,416
Legal, financial and other consulting		823,914		1,103,475		2,325,351		2,957,738
Selling, general and administrative		7,002,718		8,104,392		23,151,118		24,358,417
Total expenses		9,677,862		12,957,064		31,095,509		38,948,571
Loss from operations		(4,396,247)		(7,350,198)		(12,740,587)		(21,867,828)

Other income (expense):
Interest expense, net		(588,153)		(33,670)		(774,903)		(105,662)
Gain (loss) on foreign currency transactions		2,650,309		(1,809,652)		680,392		(733,997)
Miscellaneous income		—		—		—		35,000
Total other income (expense), net		2,062,156		(1,843,322)		(94,511)		(804,659)

Loss before benefit from income taxes		(2,334,091)		(9,193,520)		(12,835,098)		(22,672,487)

Benefit from income taxes		—		—		—		—

Net loss attributable to common stockholders	$	(2,334,091)	$	(9,193,520)	$	(12,835,098)	$	(22,672,487)

Basic and diluted net loss per common share	$	(0.04)	$	(0.21)	$	(0.24)	$	(0.52)

Weighted average number of shares of common stock outstanding		54,453,006		44,373,969		54,340,583		44,024,483

Net loss	$	(2,334,091)	$	(9,193,520)	$	(12,835,098)	$	(22,672,487)
Other comprehensive income (loss):
Foreign currency translation adjustment		(2,330,743)		1,655,674		(686,246)		654,792
Comprehensive loss	$	(4,664,834)	$	(7,537,846)	$	(13,521,344)	$	(22,017,695)

See accompanying notes to condensed consolidated financial statements.

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CYTOSORBENTS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three and nine months ended September 30, 2024 and 2023 (Unaudited)


						Accumulated
				Additional		Other
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Par value		Capital		Income (Loss)		Deficit		Equity
Balance at June 30, 2024	54,306,415	$	54,306	$	307,514,758	$	2,173,818	$	(293,006,279)	$	16,736,603
Stock-based compensation - employees, consultants and directors	—		—		781,881		—		—		781,881
Other comprehensive loss: foreign translation adjustment	—		—		—		(2,330,743)		—		(2,330,743)
ATM activation fees	—		—		(41,444)		—		—		(41,444)
Issuance of restricted stock units	194,198		192		186,692		—		—		186,884
Net loss	—		—		—		—		(2,334,091)		(2,334,091)
Balance at September 30, 2024	54,500,613	$	54,498	$	308,441,887	$	(156,925)	$	(295,340,370)	$	12,999,090

Balance at December 31, 2023	54,240,265	$	54,240	$	305,196,874	$	529,321	$	(282,505,272)	$	23,275,163
Stock-based compensation - employees, consultants and directors	—		—		2,344,671		—		—		2,344,671
Other comprehensive loss: foreign translation adjustment	—		—		—		(686,246)		—		(686,246)
Issuance of common stock offerings, net of fees	53,290		53		11,741		—		—		11,794
Warrants issued in connection with long-term debt	—		—		690,709		—		—		690,709
Issuance of restricted stock units	207,058		205		197,892		—		—		198,097
Net loss	—		—		—		—		(12,835,098)		(12,835,098)
Balance at September 30, 2024	54,500,613	$	54,498	$	308,441,887	$	(156,925)	$	(295,340,370)	$	12,999,090


						Accumulated
				Additional		Other
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Par value		Capital		Income (Loss)		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 loss: 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

See accompanying notes to condensed consolidated financial statements.

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CYTOSORBENTS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine months		Nine months
	ended		ended
	September 30,		September 30,
	2024		2023
	(Unaudited)		(Unaudited)
Cash flows from operating activities:
Net loss	$	(12,835,098)	$	(22,672,487)
Adjustments to reconcile net loss to net cash used in operating activities:
Accrued final fee		111,422		32,143
Amortization of debt discount		132,351		—
Amortization of loan costs		58,014		—
Non-cash compensation		(96,268)		160,999
Depreciation and amortization		1,180,717		1,067,797
Amortization of right-of-use asset		137,780		166,321
Write off of patent cost		313,414		475,621
Bad debt expense		107,272		14,459
Stock-based compensation		2,344,671		2,486,679
Foreign currency translation (gain) loss		(680,392)		733,997
Changes in operating assets and liabilities:
Grants and accounts receivable		(628,510)		(603,286)
Inventories		429,004		471,822
Prepaid expenses and other current assets		504,530		1,370,510
Other assets		1,135		—
Accounts payable and accrued expenses		(3,165,684)		1,047,700
Net cash used in operating activities		(12,085,642)		(15,247,725)

Cash flows from investing activities:
Purchases of property and equipment		(215,158)		(442,618)
Payments for patent costs		(330,079)		(357,696)
Net cash used in investing activities		(545,237)		(800,314)
Cash flows from financing activities:
Proceeds from long-term debt		15,000,000		—
Repayment of long-term debt		(5,000,000)		—
Payment of final fee		(150,000)		—
Payment of loan costs		(697,950)		—
Equity contributions - net of fees incurred		11,794		2,050,417
Proceeds from exercise of stock options		—		213,307
Net cash provided by financing activities		9,163,844		2,263,724
Effect of exchange rates on cash		21,226		(1,205)
Net change in cash, cash equivalents and restricted cash		(3,445,809)		(13,785,520)

Cash, cash equivalents and restricted cash - beginning of period		15,615,095		23,832,026
Cash, cash equivalents and restricted cash - end of period	$	12,169,286	$	10,046,506

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	771,875	$	275,575

Supplemental disclosure of non-cash financing activities:
Warrants issued in connection with long-term debt	$	690,709	$	—
Issuance of restricted stock units	$	198,097	$	403,941

See accompanying notes to condensed consolidated financial statements.

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CytoSorbents Corporation

Notes to Condensed Consolidated Financial Statements

(UNAUDITED)

September 30, 2024

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company as of September 30, 2024 and December 31, 2023, and for the three and nine months ended September 30, 2024 and 2023. The Company’s condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and; therefore, do not include all information and footnotes necessary for a fair presentation of consolidated financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, for a fair presentation 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. The results for the three and nine months ended September 30, 2024 and 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, 2024, the Company’s cash, cash equivalents and restricted cash balances were approximately $12.2 million, including approximately $5.7 million in cash and cash equivalents and approximately $6.5 million in restricted cash, of which the unrestricted portion 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 continues to pursue additional milestones related to its recently announced Avenue Capital Group debt facility that would increase its unrestricted cash position by up to $10 million. If these milestones are not achieved, the Company will need to raise additional capital to support our ongoing operations in the future. Meanwhile the Company continues to evaluate other traditional and alternative sources of capital, including additional less or non-dilutive debt financing, royalty financing, strategic or direct investments, equity financing, and/or combinations thereof. There can be no assurance that management will be successful in these endeavors.

2. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Please see Note 2 to the Company's consolidated financial statements included in the Company's Annual Report on Form 10 - K for the year ended December 31, 2023, filed with the Securities and Exchange Commission ("SEC") on March 14, 2024, for a description of all 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.

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. All significant intercompany transactions and balances have been eliminated in consolidation.

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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. The Euro is the functional currency of the European Subsidiary. Foreign currency transaction gain (loss) included in net loss amounted to approximately $2,650,000 and $(1,810,000) for the three months ended September 30, 2024 and 2023, respectively. Foreign currency transaction gain (loss) included in net loss amounted to approximately $680,000 and $(734,000) for the nine months ended September 30, 2024 and 2023, respectively. The Company translates assets and liabilities of all of its foreign subsidiaries at the exchange rate in effect at the condensed consolidated 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, 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, 2024		December 31, 2023
Cash and cash equivalents	$	5,685,328	$	14,131,137
Restricted cash		6,483,958		1,483,958
Total cash, cash equivalents and restricted cash	$	12,169,286	$	15,615,095

Restricted Cash

The Company’s total restricted cash in the amount of $6,483,958 consists of cash of $5,000,000 which is restricted in accordance with the terms of the debt agreement with Avenue Capital Group (see Note 5), cash of $1,467,458 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 $16,500 that the Company is obligated to maintain as collateral for the credit limit on the Company’s credit card accounts.

Grants and Accounts Receivable

Trade accounts receivable consist of amounts due from direct customers, distributors and agencies of the U.S. government and are presented at net realizable value. At each balance sheet date, the Company estimates an expected allowance for credit losses inherent in the Company’s accounts receivable portfolio based on historical experience, specific allowances for known troubled accounts, and other available evidence. In addition, also at each reporting date, this estimate is updated to reflect any changes in credit risk since the receivable was initially recorded. This estimate is calculated on a pooled basis where similar risk characteristics exist. The Company has identified the following portfolio segments: direct customers, distributors/strategic partners and the U.S. government.

A fixed reserve percentage for each pool is derived from a review of the Company’s historical losses in relation to the total pool. This estimate is adjusted quarterly for management’s assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the Company. The Company believes historical loss information is a reasonable starting point in which to calculate the expected allowance for credit losses as the Company’s portfolio segments have remained constant over the Company’s historical evaluation period.

The Company writes off receivables when there is information that indicates the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they are recognized as an offset to credit loss expense in the year of recovery. The total amount of write-offs was immaterial to the consolidated financial statements as a whole for the three and nine months ended September 30, 2024 and 2023.

The allowance for credit losses reflects accounts receivable balances that are written off when management determines they are uncollectible.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist, and measures the allowance for credit losses using the following methods:

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Direct Customers—The Company measures expected credit losses on direct customer receivables using an aging methodology. The risk of loss for direct customer receivables is low based on the Company’s historical experience. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and supportable forecasts.

Distributors/Strategic Partners—The Company measures expected credit losses on distributor receivables using an individual reserve methodology. The risk of loss in this portfolio is low based on the Company’s historical experience. The estimate of expected credit losses considers the past payment history of each distributor.

U.S. Government— These receivables are related to the Company’s government grants. The Company measures expected credit losses on these receivables using an individual reserve methodology. The risk of loss in this portfolio is very low based on the Company’s historical experience, as these receivables are supported by approved grant award contracts.

Inventories

Inventories are valued at the lower of cost or net realizable value under the first in, first out (FIFO) method. At September 30, 2024 and December 31, 2023, the Company’s inventory was comprised of finished goods, which amounted to $1,430,325 and $2,155,457, respectively; work in process, which amounted to $1,049,319 and $838,871, respectively; and raw materials, which amounted to $768,112 and $685,801, 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.

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 months ended September 30, 2024 and 2023, the Company recorded impairment charges of approximately $64,000 and $183,000, respectively, and during the nine months ended September 30, 2024 and 2023, the Company recorded impairment charges of approximately $313,000 and $476,000, respectively, related to the impairment of certain issued patents and pending patent applications in certain specific jurisdictions and the abandonment of certain pending patent application costs in the ordinary course of business. This charge is included in legal, financial and other consulting in the consolidated statements of operations and comprehensive loss.

Income Taxes

The Company has not recorded income tax expense or income tax benefit for the three and nine months ended September 30, 2024, and 2023 due to the generation of net operating losses, the benefits of which have been fully reserved.

Deferred income taxes are accounted for using the balance sheet approach, which requires recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. A full valuation allowance has been established on the deferred tax asset as it is more likely than not that a future tax benefit will not be realized. In addition, future utilization of the available net operating loss carryforward may be limited under Internal Revenue Code Section 382 as a result of changes in ownership.

The Company follows accounting standards associated with uncertain tax positions. The Company had no unrecognized tax benefits at September 30, 2024. The Company is accounting for an uncertain tax position of approximately $2.1 million for the year ended December 31, 2023. 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.

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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, 2024, two distributors accounted for approximately 31% of outstanding grants and accounts receivable. As of December 31, 2023, one distributor accounted for approximately 19% of outstanding grants and accounts receivable. For the three months ended September 30, 2024 and 2023, no distributor or direct customers accounted for more than 10% of the Company’s total revenue. For the nine months ended September 30, 2024 and 2023, one distributor accounted for approximately 10% for each period, of the Company’s total revenue.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 “Distinguishing Liabilities From Equity” (“ASC 480”) and ASC 815 “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance, and will remain as a component of equity thereafter. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.

The warrants issued upon the closing of the Company’s December 13, 2023 offering and the closing of the Company’s June 2024 debt financing both met the criteria for equity classification under ASC 815. Accordingly, these warrants have been classified as equity as of September 30, 2024 and December 31, 2023.

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 $89,000 and $140,000, respectively, for the three months ended September 30, 2024 and 2023, and $267,000 and $341,000, respectively, for the nine months ended September 30, 2024 and 2023.

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Effect of Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”). ASU2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. The Company adopted the provisions of ASU 2020-06 on January 1, 2024. This did not have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09 entitled “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This ASU provides guidance related to additional disclosures that will be required related to income taxes. The updated guidance is effective for public entities for fiscal years beginning after December 15, 2024. This ASU will result in additional disclosures in the Company’s consolidated financial statements related to income taxes in 2025.

In November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”), “Improvements to Reportable Segment Disclosures”. The guidance primarily will require enhanced disclosures about significant segment expenses. All disclosure requirements under ASU 2023-07 and existing segment disclosures in ASC 280, “Segment Reporting” are also required for public entities with a single reportable segment. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A retrospective approach is required to be applied to all prior periods presented in the financial statements. The Company plans to adopt the provisions of ASU 2023-07 in the first quarter of fiscal 2025 and continues to evaluate the disclosure requirements related to the new standard.

On April 3, 2024, the Financial Accounting Standards Board (the "FASB") began a project related to the accounting and reporting of government grants. The FASB has decided to pursue an International Accounting Standards ("IAS") 20 accounting model. Under IAS 20, a grant relating to income may be reported separately as 'other income' or deducted from the related expense. The FASB expects to issue and exposure draft of a proposed ASU in the fourth quarter of 2024. The company is evaluating its accounting and reporting policy for government grants relative to this project and the requirements of IAS 20.

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 and expires after three years. On July 26, 2024, the Company filed a registration statement on Form S-3 with the SEC (the “2024 Shelf”), which 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. On September 26, 2024, the Company filed Amendment No. 1 to the Form S-3 with the SEC. The 2024 Shelf was declared effective by the SEC on September 30, 2024. Because the Company’s market capitalization is less than $75 million, it will be subject to baby shelf rules which limit the amount of securities sales the Company can make to one-third of its public market float over a 12-month period.

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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. However, as a result of limitations related to our market capitalization discussed above, the Company may offer and sell shares of the Company's common stock having an aggregate offering price of up to approximately $19,700,000 from time to time through the Agent. If the Company's public float increases above $75,000,000, the Company may sell additional amounts under the Sales Agreement. 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 2024 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 year ended December 31, 2023, the Company sold 2,656,464 shares pursuant to the Sale Agreement, at an average selling price of $1.76 per share, generating net proceeds of approximately $4,532,000. In addition, during the year ended December 31, 2023, the Company paid approximately $61,000 in expenses related to the Sale Agreement. During the nine months ended September 30, 2024, the Company sold 53,290 shares pursuant to the Sales Agreement at an average selling price of $1.03 per share, generating net proceeds of approximately $53,000. In addition, the Company incurred ATM activation fees of approximately $41,000 during the three and nine months ended September 30, 2024.

Stock-Based Compensation

Total share-based employee, director, and consultant compensation amounted to approximately $782,000 and $2,345,000 for the three and nine months ended September 30, 2024, respectively, and approximately $1,086,000 and $2,487,000 for the three and nine months ended September 30, 2023, respectively. These amounts are included in the consolidated statements of operations and comprehensive loss under cost of revenue and selling, general, and administrative expenses.

The summary of the stock option activity for the nine months ended September 30, 2024 is as follows:


				Weighted
		Weighted		Average
		Average		Remaining
		Exercise Price		Contractual
	Shares	per Share		Life (Years)
Outstanding, December 31, 2023	10,548,174	$	4.49	7.01
Granted	3,687,366	$	0.96	—
Forfeited	(1,018,794)	$	2.69	—
Expired	(706,609)	$	5.40	—
Exercised	—	$	—	—
Outstanding, September 30, 2024	12,510,137	$	3.54	7.06

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 $0.84 to $1.08 per share) and expected life of the stock option (6 years), the current price of the underlying stock and its expected volatility (77.8%), expected dividends (0)% on the stock and the risk free interest rate (ranging from 3.60% to 4.65%) for the expected term of the stock option.

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The intrinsic value is calculated as the difference between the market value of the shares as of September 30, 2024 of $1.50 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	2024	Price		Life (Years)	Value
$0.84 - $13.20	12,510,137	$	3.54	7.06	$	1,892,822


Options Exercisable
Number	Weighted
Exercisable at	Average		Aggregate
September 30,	Exercise		Intrinsic
2024	Price		Value
6,164,466	$	5.48	$	33,555

The summary of the status of the Company’s non-vested options for the nine months ended September 30, 2024 is as follows:


		Weighted
		Average
		Grant Date
	Shares	Fair Value

Non-vested, December 31, 2023	5,205,736	$	1.89
Granted	3,687,366	$	0.67
Forfeited	(1,018,794)	$	1.81
Vested	(1,528,637)	$	2.30
Non-vested, September 30, 2024	6,345,671	$	1.08

As of September 30, 2024, the Company had approximately $3,540,000 of total unrecognized compensation cost related to stock options which will be amortized over approximately 35 months.

On March 29, 2024, the Company granted options to purchase 380,480 shares of common stock to certain executive officers and certain other non-executive officer employees related to the Company’s salary reduction for stock options program. These options will vest in full on January 31, 2025. The grant date fair value of these unvested options amounted to approximately $249,000.

On April 2, 2024, the Company granted options to purchase 1,214,400 shares of common stock to the Company’s employees which will be awarded based upon each employee’s 2024 individual performance evaluation. Once awarded, these options will vest one half on the first anniversary of the grant date, one quarter on the second anniversary of the grant date, and one quarter on the third anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $830,000.

On April 2, 2024, the Company granted options to purchase 922,147 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 $594,000.

On April 2, 2024, the Company granted options to purchase 110,000 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 $71,000.

On April 2, 2024, the Company granted options to purchase 556,000 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, and one quarter on third anniversary of the grant date. The grant date fair value of these unvested options amounted to approximately $380,000.

On April 8, 2024, the Company granted options to purchase 131,339 shares of common stock employees related to the Company’s salary reduction for stock options program. The grant date fair value of these unvested options amounted to approximately $85,000. These options will vest in full on January 31, 2025.

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On August 14, 2024, the Company granted, in connection with the appointment of its new Chief Financial Officer, options to purchase 80,000 shares of common stock which will vest as follows: 41,000 options upon the six - month anniversary of the date of grant and 13,000 options upon each of the first, second and third anniversaries of the date of grant. The Company 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.

During the nine months ended September 30, 2024, 78,000 options were awarded to newly hired employees or to consultants in connection with their employment or consulting agreements.

Change in Control-Based Awards of Restricted Stock Units:

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

The following table is a summary of these restricted stock units:


	Restricted Stock Units
	Board of	Executive	Other
	Directors	Management	Employees	Total	Intrinsic Value
December 31, 2023	346,500	779,500	1,697,500	2,823,500	$	3,134,085
Granted	—	175,000	156,250	331,250
Forfeited	—	—	(330,750)	(330,750)
September 30, 2024	346,500	954,500	1,523,000	2,824,000	$	4,236,000

Due to the uncertainty over whether these restricted stock units will vest, which only happens upon a Change in Control, no charge for these restricted stock units has been recorded in the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023.

Other Awards of Restricted Stock Units:

On August 10, 2022, certain named executive officers and senior managers were granted 288,500 restricted stock units. These awards were valued at approximately $563,000 at the date of issuance, based upon the market price of the Company’s common stock at the date of the grant, and vested (or will vest) one-third on the date of the grant, one-third on the first anniversary of the date of the grant, and one-third on the second anniversary of the date of the grant. For the three and nine months ended September 30, 2024 and 2023, the Company recorded a charge (income) of approximately $(67,000) and $27,000, and $106,000 and $214,000, respectively, related to these restricted stock unit awards.

On July 7, 2023, certain named executive officers and senior managers were granted 250,000 restricted stock units. These awards were valued at approximately $883,000 at the date of issuance, based upon the market price of the Company’s common stock at the date of the grant, and will vest two-thirds on the first anniversary of date of the grant, and one-third on the second anniversary of the date of the grant. For the three and nine months ended September 30, 2024 and 2023, the Company recorded a charge (income) of approximately $(234,000) and $(13,000) and $102,000 and $0, respectively, related to these restricted stock unit awards.

On September 18, 2023, a former named executive officer was granted 45,000 restricted stock units. This award was valued at approximately $89,000 at the date of issuance, based upon the market price of the Company’s common stock at the date of the grant. These restricted stock units vested (will vest) as follows: 25,000 on the date of the grant, 10,000 on the first anniversary of the date of the grant and 10,000 on the second anniversary of the date of the grant. For the three and nine months ended September 30, 2024 and 2023, the Company recorded a charge (income) of approximately $(1,000) and $9,000 and $50,000 and $0, respectively, related to these restricted stock unit awards.

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On April 2, 2024, the Board of Directors granted 343,000 restricted stock units to certain senior managers of the Company. These awards were valued at approximately $328,000 at the date of issuance, based upon the market price of the Company’s common stock at the date of the grant, and will vest one half on the first anniversary of the grant date and one half on the second anniversary of the grant date. For the three and nine months ended September 30, 2024 and 2023, the Company recorded a charge of approximately $41,000 and $81,000 and $0 and $0, respectively, related to these restricted stock unit awards.

On August 14, 2024, the Company granted, in connection with the appointment of its new Chief Financial Officer, 65,000 restricted stock units. This award was valued at approximately $63,000 at the date of issuance, based upon the market price of the Company's common stock at the date of the grant. These restricted stock units will vest equally on the first anniversary of the date of the grant and the second anniversary of the date of the grant. For the three and nine months ended September 30, 2024 and 2023, the Company recorded a charge of approximately $4,000 and $4,000 and $0 and $0, respectively, related to these restricted stock unit awards.

Additionally, certain employees were offered a total of 213,000 restricted stock units as a condition of their employment. These awards were valued at approximately $517,000 at the date of issuance. 40,000 of these restricted stock units valued at $149,000 were forfeited as of September 30, 2024. 33,000 of these restricted stock units valued at approximately $231,000 were vested as of September 30, 2024. The remaining 140,000 of these restricted stock units will vest upon the earlier of a Change in Control or in three or four years from the date of the award, whichever occurs first. For the three and nine months ended September 30, 2024 and 2023, the Company recorded a charge (income) of approximately $(23,000) and $(186,000), and $8,000 and $0, respectively, related to these restricted stock unit awards.

The following table outlines the restricted stock unit activity for the nine months ended September 30, 2024:


		Weighted
		Average
		Grant Date
	Shares	Fair Value
Non-vested, December 31, 2023	430,505	$	3.31
Granted	548,000	$	0.96
Vested	(297,169)	$	3.23
Forfeited	(40,000)	$	3.73
Non-vested, September 30, 2024	641,336	$	1.31

Warrants:

As of September 30, 2024, the Company had 4,352,130 warrants outstanding. 2,706,561 warrants outstanding are related to the Company’s December 13, 2023 offering and these warrants are immediately cash exercisable at an exercise price of $2.00 per share and expire on December 13, 2028. Another 1,645,569 warrants were issued on June 28, 2024 in connection with the closing of the Company’s Loan and Security Agreement with Avenue Capital Group (see Note 5). These warrants have an exercise price of $0.79 and expire on June 28, 2029. The number of warrants is fixed, however, the exercise price may be adjusted down if the Company raises equity (excluding sales of equity utilizing the Company’s at-the-market equity facility) at a share price that is lower than $0.79. These warrants can be exercised into common stock.

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4. REVENUE

The following table disaggregates the Company’s revenue by customer type and geographic area for the three months ended September 30, 2024:


					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	20,705	$	—	$	—	$	20,705
Germany		3,180,863		—		—		3,180,863
All other countries		1,937,580		3,473,647		—		5,411,227
Total product revenue		5,139,148		3,473,647		—		8,612,795
Grant and other income:
United States		—		—		777,593		777,593

Total revenue	$	5,139,148	$	3,473,647	$	777,593	$	9,390,388

The following table disaggregates the Company’s revenue by customer type and geographic area for the three months ended September 30, 2023:


					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	44,933	$	—	$	—	$	44,933
Germany		2,937,431		—		—		2,937,431
All other countries		1,267,051		3,504,601		—		4,771,652
Total product revenue		4,249,415		3,504,601		—		7,754,016
Grant and other income:
United States		—		—		1,056,831		1,056,831

Total revenue	$	4,249,415	$	3,504,601	$	1,056,831	$	8,810,847

The following table disaggregates the Company’s revenue by customer type and geographic area for the nine months ended September 30, 2024:


					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	62,719	$	36,000	$	—	$	98,719
Germany		9,497,184		—		—		9,497,184
All other countries		5,361,933		11,486,268		—		16,848,201
Total product revenue		14,921,836		11,522,268		—		26,444,104
Grant and other income:
United States		—		—		2,627,212		2,627,212

Total revenue	$	14,921,836	$	11,522,268	$	2,627,212	$	29,071,316

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The following table disaggregates the Company’s revenue by customer type and geographic area for the nine months ended September 30, 2023:


					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	55,284	$	—	$	—	$	55,284
Germany		9,443,787		—		—		9,443,787
All other countries		4,263,375		9,974,022		—		14,237,397
Total product revenue		13,762,446		9,974,022		—		23,736,468
Grant and other income:
United States		—		—		3,944,696		3,944,696

Total revenue	$	13,762,446	$	9,974,022	$	3,944,696	$	27,681,164

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. 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 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 with imminent or confirmed respiratory failure 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, Norway and the United Kingdom. Direct sales are fulfilled from the Company’s warehouse facility 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 versus 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:

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.

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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 upon 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.

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.

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.

These government contracts have terms ranging from three months to four years. The Company may apply for an extension of the term of the contract in order to complete its research and development activities but would not receive additional funding during the extension period in excess of the original contract. See Note 2 regarding the accounting policies related to these contracts. The Company is evaluating the potential reclassification of grant income and related costs of goods sold to net with research and development expenses.

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:


	September 30, 2024		December 31, 2023
Receivables, which are included in grants and accounts receivable	$	4,845,233	$	3,846,271
Contract liabilities, which are included in accrued expenses and other current liabilities	$	837,592	$	1,573,141

Contract receivables represent balances due from product sales to distributors amounting to $4,528,972 and $3,270,724 at September 30, 2024 and December 31, 2023, respectively, and billed and unbilled amounts due on government contracts amounting to $316,261 and $575,547 at September 30, 2024 and December 31, 2023, respectively.

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 $51,192 and $196,322 as of September 30, 2024 and December 31, 2023, respectively, and deferred grant revenue related to the billing on fixed price contracts in excess of costs incurred, which amounted to $786,400 and $1,376,819 at June 30, 2024 and December 31, 2023, respectively.

5. LONG-TERM DEBT, NET

Avenue Capital Group:

On June 28, 2024 (the “Closing Date”), the Company entered into a Loan and Security Agreement (as amended, supplemented, restated or otherwise modified as of the date hereof and from time to time, the “Loan and Security Agreement”) with Avenue Venture Opportunities Fund, L.P., a Delaware limited partnership (“Avenue”), Avenue Venture Opportunities Fund II, L.P., a Delaware limited partnership (“Avenue 2” and, together with Avenue, the “Lenders”), and Avenue Capital Management II, L.P., a Delaware limited partnership (the “Administrative and Collateral Agent”).

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Under the Loan and Security Agreement, the Lenders have agreed to loan to the Company up to an aggregate of $20 million, to be disbursed in two tranches: (1) one tranche of $15 million (“Growth Capital Loan Tranche 1”) on the Closing Date, with $4.5 million funded by Avenue and $10.5 million funded by Avenue 2, of which $10 million is available to the Company on the Closing Date and $5 million constitutes restricted cash subject to release to the Company prior to March 31, 2025, provided (i) the FDA has accepted Company’s application for review with respect to DrugSorb-ATR De Novo 510(k) and (ii) the Company has received a minimum of $3 million in net proceeds from the sale of its equity securities after the Closing Date. The restriction will be released on a dollar for dollar basis for equity raised between $3 million and $5 million and (2) a second tranche of up to $5 million, which may be disbursed at the Company’s request between July 1, 2025 and December 31, 2025, provided that the Company receives FDA marketing approval of its DrugSorb-ATR application (“Growth Capital Loan Tranche 2” and together with Growth Capital Loan Tranche 1, the “Growth Capital Loans” or the “Commitment”). The proceeds from the Commitment were used to pay off the existing outstanding debt with Bridge Bank, and will additionally be used for working capital purposes and to fund general business requirements in accordance with the terms of the Loan and Security Agreement. Each Growth Capital Loan shall bear interest at a variable rate per annum equal to the greater of (A) the Prime Rate (as defined in the Loan and Security Agreement) plus five percent (5.00%) or (B) thirteen and one-half percent (13.50%).

Commencing on August 1, 2024, the Company shall make monthly payments during the term of each Growth Capital Loan of interest only during the initial 25-month period following the Closing Date (as may be extended to the 30 months anniversary of the Closing Date upon satisfaction of certain conditions) and thereafter to maturity in equal monthly installments of principal plus accrued and unpaid interest. All unpaid principal and accrued and unpaid interest shall be due and payable in full on July 1, 2027; provided, however that if the Company draws the full amount of Growth Capital Loan Tranche 2 by December 2025, all unpaid principal and accrued and unpaid interest shall be due and payable in full by January 1, 2028. In addition, the Loan and Security Agreement required the Company to pay a non-refundable commitment fee equal to 1.00% of the Commitment due and payable on the Closing Date. In addition to the non-refundable commitment fee, the Company also paid financial advisor fees and legal fees of approximately $640,000 related to the Commitment. These costs are being amortized over the loan period as a charge to interest expense. During the three and nine months ended September 30, 2024, the Company recorded interest expense of approximately $58,000 related to these costs. In addition, the Loan and Security Agreement requires the Company to pay a non-refundable final payment equal to 4.5% of the original commitment amount. This final payment has been accrued and included as part of the debt discount. This discount will be charged to interest expense over the term of the loan. For the three and nine months ended September 30, 2024, the Company recorded interest expense of approximately $132,000 related to the debt discount.

The Capital Growth Loans are evidenced by secured promissory notes issued to the Lenders by the Company. If the Company elects to prepay the Growth Capital Loan(s) pursuant to the terms of the Loan and Security Agreement, it will owe a prepayment fee to the Lenders, as follows: (1) for a prepayment made on or after the funding date of a Growth Capital Loan through and including the first anniversary of such funding date, an amount equal to 3.00% of the principal amount of such Growth Capital Loan prepaid; (2) for a prepayment made after the first anniversary of the funding date of a Growth Capital Loan through and including the second anniversary of such funding date, an amount equal to 2.00% of the principal amount of such Growth Capital Loan prepaid; and (3) for a prepayment made any time after the second anniversary of the funding date of a Growth Capital Loan, an amount equal to 1.00% of the principal amount of such Growth Capital Loan prepaid.

Events of default which may cause repayment of the Commitment to be accelerated include, among other customary events of default, (1) non-payment of any obligation when due, (2) the failure to perform any obligation required under the Loan and Security Agreement and to cure such default within a reasonable time frame, (3) the occurrence of any circumstance that has a Material Adverse Effect (as defined in the Loan and Security Agreement), (4) default beyond any applicable grace period or cure under any other agreement involving the borrowing of money in excess of the Threshold Amount (as defined in the Loan and Security Agreement), (5) any judgment(s) singly or in the aggregate in excess of the Threshold Amount entered against the Company that remain unsatisfied, unvacated or unstayed for 15 days or more after entry thereof (to the extent not otherwise covered by independent third-party insurance), and (6) if the Company becomes insolvent or starts an insolvency proceeding or if an insolvency proceeding is brought by a third party against the Company and such proceeding is not dismissed or stayed within 45 days. The Loan and Security Agreement includes customary loan conditions, company representations and warranties, company affirmative covenants and company negative covenants for secured transactions of this type. As of September 30, 2024, the Company was in compliance with these covenants.

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As additional consideration for the Commitment, on June 28, 2024, the Company also issued each Lender a warrant instrument (each, a “Warrant”) entitling the Lenders to purchase an aggregate of 1,645,569 shares of the Company’s common stock for cash at the exercise price of $0.79 and expire on June 28, 2029. The number of warrants is fixed, however, the exercise price may be adjusted down if the Company raises equity (excluding sales of equity utilizing the Company’s at-the-market equity facility) at a share price that is lower than $0.79. These warrants meet the criteria for equity classification under ASC 815. Accordingly, the Company has recorded a debt discount and additional paid-in capital of approximately $690,000 related to these warrants as of June 30, 2024. This discount will be charged to interest expense over the term of the loan.

The Lenders were also granted the right while the Commitment is outstanding to convert up to an aggregate amount of $2,000,000 of the principal amount of the outstanding Growth Capital Loans into the Company’s common stock at a fixed conversion price of 120% of the Closing Price (as defined in the warrant) or $0.95 per share (the “Conversion Option”).

The Company’s and CytoSorbents Medical’s obligations under the Loan and Security Agreement are joint and several. The obligations under the Loan and Security Agreement are secured by a first priority security interest in favor of the Lenders with respect to the Company’s Shares (as defined in the Loan and Security Agreement) and the Company’s Collateral (as defined in the Loan and Security Agreement), which includes the Company’s intellectual property, pursuant to that certain Intellectual Property Security Agreement, dated as of June 28, 2024, by and between the Company and the Administrative and Collateral Agent.

Long-term debt consists of the following as of September 30, 2024:


Principal amount	$	15,000,000
Accrued final fee		900,000
Less unamortized debt discount		(1,455,858)
Less unamortized debt acquisition costs		(638,157)
Subtotal		13,805,985
Less Current maturities		—
Long-term debt net of current maturities	$	13,805,985

Principal payments of long-term debt are due as follows during the periods ending September 30:


2025	$	—
2026		2,500,000
2027		12,500,000
2028		—
Total	$	15,000,000

Bridge Bank:

On June 28, 2024, concurrent with the closing of the Avenue Capital Group financing discussed above, the Company paid off its existing outstanding debt with Bridge Bank. The following items survive the termination of the Bridge Bank Amended and Restated Loan and Security Agreement and related amendments:

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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 terminated on the fifth anniversary of the funding of the Term B Loan which was July 31, 2024.

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”). As of June 28, 2024, the Company had drawn down only the first tranche of the Term C Loan. 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 the 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. The termination date of this Letter is December 27, 2027.

6. COMMITMENTS AND CONTINGENCIES

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.

On March 5, 2024, Danielle Greene, a former employee, filed a complaint against us in the Superior Court of New Jersey, Law Division, Mercer County, alleging breach of the New Jersey Conscientious Employee Protection Act (“CEPA”). The complaint specifically alleges that we violated the provisions of the CEPA by allegedly terminating Ms. Greene in retaliation for complaining about certain business practices. We dispute these allegations and intend to vigorously defend against them, but there can be no assurance as to the outcome of the litigation.

Royalty/License Agreements

The Company is party to various royalty and license agreements that require the payment of royalty fees. Royalty expense amounted to approximately $354,000 and $537,000, respectively, for the three months ended September 30, 2024 and 2023. For the nine months ended September 30, 2024 and 2023, royalty expense amounted to approximately $1,594,000 and $1,643,000, respectively. In addition, the Company’s license agreement with Purolite expired on August 6, 2024. Royalty expense are included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.

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7. 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 commenced on June 1, 2021 and ended September 30, 2021. The lease also contains two five-year renewal options; however, the Company had determined that it is not likely that they will exercise these options. Commencing on September 30, 2021, the remaining lease term will end in 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 $1,467,000 as security. The Company has determined that this lease should be treated as an operating lease in accordance with the provisions of Accounting Standards Codification (“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 a 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 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.

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 the renewal periods for both of the facilities in Germany and do not include the renewal periods for the United States facility. 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:


	September 30,		December 31,
	2024		2023
Right-of-use asset	$	11,651,563	$	12,058,896

Total lease liability	$	13,000,742	$	13,270,295
Less current portion		(431,997)		(373,636)
Lease liability, net of current portion	$	12,568,745	$	12,896,659

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The maturities of the lease liabilities are as follows for the periods ending September 30:


2025	$	1,685,727
2026		1,725,524
2027		1,766,416
2028		1,808,432
2029		1,851,603
Thereafter		14,024,373
Total lease payments		22,862,075
Present value discount		(9,861,333)
Total	$	13,000,742

For the three months ended September 30, 2024 and 2023, operating cash flows paid in connection with operating leases amounted to approximately $547,000 and $633,000, respectively, and $1,684,000 and $1,801,000, respectively, for the nine months ended September 30, 2024 and 2023.

As of September 30, 2024 and December 31, 2023, the weighted average remaining lease term was years 11.9 and 12.7 years, respectively.

8. NET LOSS PER SHARE

Basic loss per share and diluted loss per share for the three and nine months ended September 30, 2024 and 2023 have been computed by dividing the net loss for each respective period by the weighted average number of shares outstanding during that period.

All outstanding warrants, options and restricted stock awards representing approximately 20,328,000 and 14,119,000 incremental shares at September 30, 2024 and 2023, respectively, have been excluded from the computation of diluted loss per share as they are anti-dilutive.

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

Cautionary Notes Regarding Forward Looking Statements

This Quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions and our expectations of the effects of the COVID-19 pandemic and are not historical facts and typically are identified by use of terms such as “may,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management’s current judgment and expectations, but our actual results, events and performance could differ materially from those in the forward-looking statements.

Factors which could cause or contribute to such differences include, but are not limited to, the risks discussed in our Annual Report on Form 10-K, as updated by any risks reported in our Quarterly Reports on Form 10-Q and in the press releases and other communications to stockholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, other than as required under the Federal securities laws.

Overview

We are a leader in the treatment of life-threatening conditions in the intensive care unit and cardiac surgery through blood purification. CytoSorbents’ proprietary blood purification technologies are based on biocompatible, highly porous polymer beads that can actively remove toxic substances from blood and other bodily fluids by pore capture and surface adsorption. Cartridges filled with these beads can be used with standard blood pumps already in the hospital (e.g. dialysis, ECMO, heart-lung machines). CytoSorbents’ technologies are used in a number of broad applications. Specifically, two important applicatons are 1) the removal of blood thinners during and after cardiothoracic surgery to reduce the risk of severe bleeding and 2) the removal of inflammatory agents in common critical illnesses such as sepsis, burn injury, trauma, lung injury, liver failure, cytokine release syndrome, and pancreatitis that can lead to massive inflammation, organ failure and patient death. In these diseases, the risk of death can be extremely high, and there are few, if any, effective treatments.

CytoSorbents’ lead product, CytoSorb®, is approved in the European Union and distributed in 76 countries worldwide, with more than 250,000 devices used cumulatively to date. CytoSorb was originally launched in the European Union under CE mark as the first cytokine adsorber. Additional CE mark extensions were granted for bilirubin and myoglobin removal in clinical conditions such as liver disease and trauma, respectively, and for ticagrelor and rivaroxaban removal in cardiothoracic surgery procedures. CytoSorb has also received FDA EUA in the United States for use in adult critically ill COVID-19 patients with impending or confirmed respiratory failure, to reduce pro-inflammatory cytokine levels. CytoSorb is not yet approved in the United States.

In the U.S. and Canada, CytoSorbents is developing the DrugSorb™-ATR antithrombotic removal system, an investigational device based on an equivalent polymer technology to CytoSorb, to reduce the severity of perioperative bleeding in high-risk surgery due to blood thinning drugs. It has received two FDA Breakthrough Device Designations: one for the removal of ticagrelor and another for the removal of the direct oral anticoagulants (DOAC) apixaban and rivaroxaban in a cardiopulmonary bypass circuit during urgent cardiothoracic procedures. In September 2024, the Company submitted a De Novo medical device application to the FDA requesting marketing approval to reduce the severity of perioperative bleeding in CABG patients on the antithrombotic drug ticagrelor, which was accepted for substantive review in October 2024. In November 2024, the Company received its Medical Device Single Audit Program (MDSAP) certification and submitted its Medical Device License (MDL) application to Health Canada. DrugSorb-ATR is not yet granted or approved in the United States and Canada, respectively.

The Company has numerous marketed products and products under development based upon this unique blood purification technology protected by many issued U.S. and international patents and registered trademarks, and multiple patent applications pending, including ECOS-300CY®, CytoSorb-XL™, HemoDefend-RBC™, HemoDefend-BGA™, VetResQ®, K+ontrol™, DrugSorb™, ContrastSorb, and others.

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Clinical Studies Update

For a complete discussion regarding our clinical study history, please refer to the section entitled Clinical Studies included in Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 14, 2024. The following includes certain updates regarding these clinical studies subsequent to the filing of the Company’s Annual Report on Form 10-K.

In July 2021, we received full FDA approval of an Investigational Device Exemption (IDE) application to conduct a double-blind, randomized, controlled clinical study in 120 patients entitled, “Safe and Timely Antithrombotic Removal – Ticagrelor (“STAR-T”),” in the United States to support FDA marketing approval. This was done under the previously announced FDA Breakthrough Device Designation granted for the removal of ticagrelor in a cardiopulmonary bypass circuit to reduce the likelihood of serious perioperative bleeding during urgent cardiac surgery. In October 2021, the first patient was enrolled, with the STAR-T study actively recruiting at multiple U.S. sites. In November 2022, the first milestone was completed with the first one-third of patients enrolled, triggering the first Data and Safety Monitoring Board (“DSMB”) meeting. The DSMB recommended to continue the study as planned without any modifications. In 2022, we also received FDA approval to expand the study to Canada and subsequently received Health Canada approval allowing inclusion of Canadian sites into the STAR-T trial in January 2023. In early 2023, the study exceeded 50% enrollment and reached the 2nd milestone of 67% enrollment in the spring of 2023, triggering another DSMB safety review, which found no safety concerns and recommended completion of the trial. The study completed enrollment in July of 2023 triggering the final DSMB safety review following database lock in December 2023, which also reported no safety concerns thereby meeting the primary safety endpoint of the study. Based on the initial analysis of the STAR-T data, the study did not meet the primary effectiveness endpoint in the overall patient population that underwent different types of cardiac surgeries. However, the study did demonstrate evidence that DrugSorb-ATR reduced the severity of perioperative bleeding in patients undergoing isolated coronary artery bypass graft (“CABG”) surgery who represented more than 90% of the overall study population. The topline results of the U.S. and Canadian 140-patient, pivotal STAR-T randomized controlled trial were presented at the 104th Annual Meeting of the American Association for Thoracic Surgery (“AATS”) held in Toronto, Canada on April 28, 2024. The Company submitted the DrugSorb-ATR medical device De Novo marketing application to the FDA on September 27, 2024 and announced the acceptance of the application by FDA on October 22, 2024. On November 1, 2024, the Company received its Medical Device Single Audit Program (MDSAP) certification and submitted its Medical Device License (MDL) application to Health Canada.

Government Research Grants:

We have historically been successful in obtaining technology development contracts from governmental agencies such as the National Institutes of Health and the U.S. Department of Defense, including the Defense Advanced Research Projects Agency (“DARPA”), the U.S. Army, U.S. Special Operations Command (“USSOCOM”), the U.S. Air Force, Air Force Material Command (“USAF/AFMC”) and others. Currently, we have ongoing projects funded, in part, by the U.S. Army Medical Research Acquisition Activity (“USAMRAA”), National Heart, Lung, and Blood Institute (“NHLBI”), and the USAF/AFMC. For a complete discussion of the various research grants we have obtained, please refer to the section entitled Government Research Grants included in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 14, 2024.

Research and Development Update

Our research and development work levels have returned back to pre-pandemic levels. As of September 30, 2024, the revenue remaining to be earned on open grant contracts is $3.2 million. Overall, grant funded programs, HemoDefend-BGA™ (Universal Plasma), HemoDefend-RBC™ and K⁺ontrol™, continue to progress and we have been the beneficiary of approximately $15.8 million, $4.7 million and $7.7 million in total funding, respectively, awarded to date.

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Impact of Inflation and Other Issues:

The current high inflationary environment has impacted us in various ways. Due to the current competitive labor market and high inflation, our labor costs have risen significantly in order to attract and retain qualified employees throughout our organization. In addition, we have experienced raw material price increases primarily related to the oil-based chemicals used in the polymer manufacturing process as well additional requests for higher fuel surcharges from most suppliers. Rising energy costs, including electricity and fossil fuels, have also made it more expensive to support our operations, manufacturing, and commercial activities. We have also experienced increases in our transportation costs; however, we have been able to substantially mitigate these cost increases by implementing bulk shipping methods. In addition, we have been able to mitigate most supply chain issues that existed during the COVID-19 pandemic by ordering larger quantities of inventory as they were available. Inflationary pressures may continue to impact our product gross margins in the future.

Results of Operations:

Comparison for the three months ended September 30, 2024 and 2023:


	Three Months Ended September 30,
	2024					2023
			% of				% of
	Amount		Revenue		Amount		Revenue

	(dollars in thousands)
Revenues:
CytoSorb sales	$	8,586,274	91.4	%	$	7,709,085	87.5	%
Other sales		26,521	0.3			44,931	0.5
Total product sales		8,612,795	91.7			7,754,016	88.0
Grant income		777,593	8.3			1,056,831	12.0
Total revenue		9,390,388	100.0			8,810,847	100.0
Cost of goods sold		4,108,773	43.8			3,203,981	36.4
Gross profit		5,281,615	56.2			5,606,866	63.6
Operating expenses:
Research and development		1,851,230	19.7			3,749,197	42.6
Legal, financial and other consulting		823,914	8.8			1,103,475	12.5
Selling, general and administrative		7,002,718	74.6			8,104,392	92.0
Total operating expenses		9,677,862	103.1			12,957,064	147.1
Loss from operations		(4,396,247)	(46.9)			(7,350,198)	(83.4)
Other income (expense):
Interest expense, net		(588,153)	(6.3)			(33,670)	(0.4)
Gain (loss) on foreign currency transactions		2,650,309	28.2			(1,809,652)	(20.5)
Total other income (expense), net		2,062,156	21.9			(1,843,322)	(20.9)
Net loss	$	(2,334,091)	(25.0)	%	$	(9,193,520)	(104.3)	%

Revenues:

Total revenues were approximately $9,390,000 for the three months ended September 30, 2024, as compared to total revenues of approximately $8,811,000 for the three months ended September 30, 2023, an increase of approximately $579,000 or 7%. Changes in foreign currency impacted total revenue by 1% and 6%, for respective periods of 2024 and 2023, respectively. Revenue from product sales was approximately $8,613,000 in the three months ended September 30, 2024, as compared to approximately $7,754,000 in the three months ended September 30, 2023, an increase of approximately $859,000, or 11%. This increase was driven by an increase in direct sales of approximately 21% in the three months ended September 30, 2024 as compared to 2023. In addition, distributor sales decreased by approximately 1% during the same period.

Grant income was approximately $777,000 for the three months ended September 30, 2024 as compared to approximately $1,057,000 for the three months ended September 30, 2023, a decrease of approximately $280,000, or 26%. This decrease was due to the completion of several grants during 2023.

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Gross Profit:

For the three months ended September 30, 2024, gross profit decreased approximately $327,000 to $5,281,000 from $5,607,000 for the three months ended September 30, 2023. This decrease was due to a planned temporary slowdown in production to rebalance inventory levels coupled with a short-term manufacturing issue, which we believe is resolved, which resulted in a significantly lower number of CytoSorb devices produced in the quarter. As a result, product gross margins, which exclude the impact of grant income and related costs, were approximately 61% for the three months ended September 30, 2024 as compared to approximately 72% for the three months ended September 30, 2023.

Research and Development Expenses:

For the three months ended September 30, 2024, research and development expenses were approximately $1,851,000 as compared to research and development expenses of approximately $3,749,000 for the three months ended September 30, 2023, a decrease of approximately $1,898,000, or 51%. This decrease was driven by a decrease in our clinical trial costs due to the completion of the STAR-T clinical trial in December 2023. Clinical expenses were approximately $962,000 in the three months ended September 30, 2024 and approximately $2,837,000 for the three months ended September 30, 2023, a decrease of approximately $1,875,000, or 66%.

Legal, Financial and Other Consulting Expenses:

Legal, financial, and other consulting expenses were approximately $824,000 for the three months ended September 30, 2024, as compared to approximately $1,104,000 for the three months ended September 30, 2023, a decrease of approximately $280,000, or 25%. This decrease is related to costs associated with the write-off of certain patent applications that were incurred in 2023 that did not recur in 2024 and a decrease in regulatory consulting costs related to DrugSorb-ATR.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were approximately $7,003,000 for the three months ended September 30, 2024, as compared to approximately $8,104,000 for the three months ending September 30, 2023, a decrease of approximately $1,101,000, or 14%. This decrease was primarily due to reduction in non-cash stock compensation expense, a reduction in salaries and related expenses related to headcount reductions and a reduction in royalty expense due to the expiration of the Purolite license agreement on August 6, 2024.

Interest Expense, Net:

Interest expense, net, was approximately $588,000 for the three months ended September 30, 2024, compared to approximately $34,000 for the three months ended September 30, 2023. The increase was due to interest incurred on the Avenue Capital Group debt that was closed during the second quarter of 2024, net of interest income received of approximately $121,000 on the total balance of cash and cash equivalents. This financing increased the principal amount of our debt to $15,000,000 from $5,000,000 and the interest rate increased to 13.5% from 8%.

Gain (Loss) on Foreign Currency Transactions:

For the three months ended September 30, 2024, the gain on foreign currency transactions was approximately $2,650,000 as compared to a loss of approximately $1,810,000 for the three months ended September 30, 2023. The 2024 gain was directly related to the increase in the spot exchange rate of the Euro to the U.S. dollar at September 30, 2024 as compared to June 30, 2024. The spot exchange rate of the Euro to the U.S. dollar was $1.11 per Euro at September 30, 2024, as compared to $1.07 per Euro at June 30, 2024. The 2023 loss was directly related to the decrease in the spot exchange rate of the Euro to the U.S. dollar at September 30, 2023 as compared to June 30, 2023. The spot exchange rate of the Euro to the U.S. dollar was $1.06 per Euro at September 30, 2023, as compared to $1.09 per Euro at June 30, 2023.

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Comparison for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
	2024				2023
			% of				% of
	Amount		Revenue		Amount		Revenue

	(dollars in thousands)
Revenues:
CytoSorb sales	$	26,381,455	90.8	%	$	23,681,183	85.5	%
Other sales		62,649	0.2			55,284	0.2
Total product sales		26,444,104	91.0			23,736,468	85.7
Grant income		2,627,212	9.0			3,944,696	14.3
Total revenue		29,071,316	100.0			27,681,164	100.0
Cost of goods sold		10,716,394	36.9			10,600,421	38.3
Gross profit		18,354,922	63.1			17,080,743	61.7
Operating expenses:
Research and development		5,619,040	19.3			11,632,416	42.0
Legal, financial and other consulting		2,325,351	8.0			2,957,739	10.7
Selling, general and administrative		23,151,118	79.6			24,358,418	88.0
Total operating expenses		31,095,509	106.9			38,948,572	140.7
Loss from operations		(12,740,587)	(43.8)			(218,687,829)	(79.0)
Other income (expense):
Interest expense, net		(774,903)	(2.7)			(105,662)	(0.4)
Gain (loss) on foreign currency transactions		680,392	2.3			(733,997)	(2.6)
Miscellaneous income		—	—			35,000	0.1
Total other income (expense), net		(94,511)	(0.4)			(804,659)	(2.9)
Net loss	$	(12,835,098)	(44.2)	%	$	(22,672,488)	(81.9)	%

Revenues:

Total revenues were approximately $29,071,000 for the nine months ended September 30, 2024, as compared to total revenues of approximately $27,681,000 for the nine months ended September 30, 2023, an increase of approximately $1,390,000, or 5%. Changes in foreign currency impacted total revenue by 2% for each of the respective periods of 2024 and 2023, respectively. Revenue from product sales was approximately $26,444,000 in the nine months ended September 30, 2024, as compared to approximately $23,736,000 in the nine months ended September 30, 2023, an increase of approximately $2,708,000, or 11%. Distributor sales increased by 16% and direct sales increased by 8% for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Grant income was approximately $2,627,000 for the nine months ended September 30, 2024 as compared to approximately $3,945,000 for the nine months ended September 30, 2023, a decrease of approximately $1,318,000, or 33%. This decrease was due to the completion of several grants during 2023.

Gross Profit:

For the nine months ended September 30, 2024, gross profit increased approximately $1,274,000 to $18,355,000 from $17,081,000 for the nine months ended September 30, 2023 due to increased revenue. Product gross margins were approximately 69% for the nine months ended September 30, 2024 as compared to approximately 71% for the nine months ended September 30, 2023. This decrease was due to a third quarter 2024 planned temporary slowdown in production to rebalance inventory levels coupled with a short-term manufacturing issue which resulted in a significantly lower number of CytoSorb devices produced.

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Research and Development Expenses:

For the nine months ended September 30, 2024, research and development expenses were approximately $5,619,000, as compared to research and development expenses of approximately $11,632,000 for the nine months ended September 30, 2023, a decrease of approximately $6,013,000, or 52%. This decrease was driven by a decrease in our clinical trial costs due to the completion of the STAR-T clinical trial in December 2023. Clinical expenses were approximately $3,525,000 in the nine months ended September 30, 2024 and approximately $8,153,000 for the nine months ended September 30, 2023, a decrease of approximately $4,628,000, or 57%. Non-grant related research and development costs decreased from approximately $3,479,000 in the nine months ended September 30, 2023 to approximately $2,094,000 in the nine months ended September 30, 2024, a decrease of approximately $1,385,000, or 40%. This reduction was a result of headcount reductions related to our cost saving initiatives. In addition, 2023 expenses included approximately $850,000 of costs incurred related to pre-production manufacturing activities required to bring the new manufacturing plant to a state of commercial readiness that did not recur in 2024.

Legal, Financial and Other Consulting Expenses:

Legal, financial, and other consulting expenses were approximately $2,325,000 for the nine months ended September 30, 2024, as compared to approximately $2,958,000 for the nine months ended September 30, 2023, a decrease of approximately $633,000, or 21%. This decrease is related to settlement costs of certain pending litigation matters in 2023 and a reduction of hiring fees in the nine months ended September 30, 2024 as compared to 2023.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were approximately $23,151,000 for the nine months ended September 30, 2024, as compared to approximately $24,358,000 for the nine months ending September 30, 2023, a decrease of approximately $1,207,000, or 5%. This decrease was primarily due to a reduction in salaries and related costs due to headcount reductions and a decrease in non-cash stock compensation. These reductions were offset by a reduction in grant spending that reduced the overhead absorption benefit to selling, general and administrative expense.

Interest Expense, Net:

Interest expense, net, was approximately $775,000 for the nine months ended September 30, 2024, compared to approximately $106,000 for the nine months ended September 30, 2023. The increase was due to interest incurred on the Avenue Capital Group debt that was closed during the second quarter of 2024, net of interest income received of approximately $270,000 on the total balance of cash and cash equivalents. This financing increased the principal amount of our debt to $15,000,000 from $5,000,000 and the interest rate increased to 13.5% from 8%.

Gain (Loss) on Foreign Currency Transactions:

For the nine months ended September 30, 2024, the gain on foreign currency transactions was approximately $680,000 as compared to a loss of approximately $734,000 for the nine months ended September 30, 2023. The 2024 gain was directly related to the increase in the spot exchange rate of the Euro to the U.S. dollar at September 30, 2024 as compared to December 31, 2023. The spot exchange rate of the Euro to the U.S. dollar was $1.11 per Euro at September 30, 2024, as compared to $1.10 per Euro at December 31, 2023. The 2023 loss was directly related to the decrease in the spot exchange rate of the Euro to the U.S. dollar at September 30, 2023 as compared to December 31, 2022. The spot exchange rate of the Euro to the U.S. dollar was $1.06 per Euro at September 30, 2023, as compared to $1.07 per Euro at December 31, 2022.

History of Operating Losses:

We have experienced substantial operating losses since inception. As of September 30, 2024, we had an accumulated deficit of approximately $295,340,000, which included losses of approximately $12,835,000 and $22,672,000 for the nine-month periods ended September 30, 2024 and 2023, respectively. Historically, losses have resulted principally from costs incurred in the research and development of our polymer technology, clinical studies, and general and administrative expenses.

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Liquidity and Capital Resources

Since inception, our operations have been primarily financed through the issuance of debt and equity securities. As of September 30, 2024, we had current assets of approximately $16,597,000 and current liabilities of approximately $8,430,000. As of September 30, 2024, $19.7 million of our total shelf amount was allocated to our ATM facility and remains available. During the nine months ended September 30, 2024, the Company sold 53,290 shares pursuant to the Sale Agreement, at an average selling price of $1.03 per share, generating net proceeds of approximately $53,200.

In June of 2024, we closed on a $20 million term-loan facility with Avenue Capital Group which provided an initial tranche of $15 million at the closing of which $10 million was immediately available at closing and $5 million constitutes restricted cash subject to release to the Company prior to March 31, 2025, provided certain conditions are met. Another tranche of $5 million may be disbursed at the Company’s request between July 1, 2025 and December 31, 2025, provided that the Company receives FDA marketing approval of its DrugSorb-ATR application. Concurrently with the closing of the first tranche, the Company paid off our existing debt with Bridge Bank.

In March of 2024, we received approximately $880,000 in cash from the approved sale of our net operating losses and research and development credits from the State of New Jersey.

We are also managing our resources proactively, continuing to invest in key areas such as our regulatory submissions of DrugSorb-ATR to U.S. FDA and Health Canada. We have also instituted and continue to maintain tight control over expenditures.

As of September 30, 2024 we have approximately $12.2 million in cash, including approximately $5.7 million and $6.5 million in unrestricted and restricted cash, respectively of which the unrestricted portions not expected to fund the Company’s operations beyond the next twelve months from the issuance of these consolidated financial statements. Our Avenue Capital Group debt facility provides for the release of between $3 million and $5 million of restricted cash upon the achievement of two milestones: 1) the receipt of the FDA’s acceptance of our DrugSorb-ATR submission, and 2) the raise of between $3 million and $5 million of additional equity financing. Achievement of both milestones would provide an additional $6 million to $10 million of unrestricted cash. With our cost cutting efforts, we believe this is sufficient to fund the Company’s operations through 2025. On October 22, 2024, the Company announced the FDA acceptance of the DrugSorb-ATR marketing submission. If these milestones are not achieved, we will need to raise additional capital to support our ongoing operations in the future. Meanwhile the Company continues to evaluate other traditional and alternative sources of capital, including additional less or non-dilutive debt financing, royalty financing, strategic or direct investments, equity financing, and/or combinations thereof. There can be no assurance that management will be successful in these endeavors.

Contractual Obligations

In March 2021, the Company 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 commencement date of the lease was April 1, 2021. The Initial Early Term began on the commencement date (April 1, 2021) and lasted two months. The Early Term commenced on June 1, 2021 and ended September 30, 2021. The lease also contains two five-year renewal options. Commencing on September 30, 2021, the remaining lease term will end in 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. 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 also provided 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.

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, 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.

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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.

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements.

Going Concern

As of September 30, 2024, the Company’s cash, cash equivalents and restricted cash balances were approximately $12.2 million, including approximately $5.7 million in cash and cash equivalents and approximately $6.5 million in restricted cash, of which the unrestricted portion 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 continues to pursue additional milestones related to its recently announced Avenue Capital Group debt facility that would increase its unrestricted cash position by up to $10 million. If these milestones are not achieved, we will need to raise additional capital to support our ongoing operations in the future. Meanwhile the Company continues to evaluate other traditional and alternative sources of capital, including additional less or non-dilutive debt financing, royalty financing, strategic or direct investments, equity financing, and/or combinations thereof. There can be no assurance that management will be successful in these endeavors.

Critical Accounting Policies and Estimates

A discussion of our critical accounting policies and estimates is contained in our Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures designed to ensure information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosures. A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

No change in our internal control over financial reporting occurred during the three and nine months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in litigation or other legal proceedings arising in the ordinary course of business. We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors.

For a discussion of risks that affect the Company’s business, please refer to Part I, Item IA, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 14, 2024.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Number		Description
10.1		Amendment to the Amended and Restated CytoSorbents Corporation 2014 Long-Term Incentive Plan.
31.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002.
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002.*
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002.*
101		The following materials from CytoSorbents Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at September 30, 2024 and December 31, 2023, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023, (iii) Consolidated Statement of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 and (v) Notes to Consolidated Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CYTOSORBENTS CORPORATION

Dated: November 7, 2024	By:	/s/ Phillip P. Chan
		Name: Phillip P. Chan
		Title: Chief Executive Officer
		(Principal Executive Officer)

Dated: November 7, 2024	By:	/s/ Peter J. Mariani
		Name: Peter J. Mariani
		Title: Chief Financial Officer
		(Principal Financial and Accounting Officer)

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Date	Price Target	Rating	Analyst
9/7/2023	$4.00	Buy	B. Riley Securities
10/14/2021	$10.00	Buy	B. Riley Securities

SEC Form 10-Q filed by Cytosorbents Corporation

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