UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2023

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

¨	~~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

~~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)

~~7 Deer Park Drive, Suite K~~

~~Monmouth Junction, New Jersey 08852~~

~~(Address of principal executive offices) (Zip Code)~~

~~(732)~~ (732) 329-8885

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CTSO	Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yesxþ 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 filerx	☐
Non-accelerated filer¨ ~~(Do not check if a smaller reporting company)~~	☑	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).¨☐ Yesxþ No

As of ~~November 7, 2017~~May 1, 2023, there were ~~28,691,325~~43,954,198 shares of the issuer’s common stock outstanding.

Table of Contents

CytoSorbents Corporation

FORM 10-Q

TABLE OF CONTENTS

	~~Page~~
		Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements		3

Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2023 (unaudited) and December 31, ~~2016~~2022		3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months ended March 31, 2023 and ~~Nine Months Ended September 30, 2017 and 2016~~2022 (unaudited)		4
Condensed Consolidated ~~Statement~~Statements of Changes in Stockholders’ Equity for the ~~Nine~~Three Months ~~Ended September 30, 2017~~ended March 31, 2023 and 2022 (unaudited)		5
Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months ~~Ended September 30, 2017~~ended March 31, 2023 and ~~2016~~2022 (unaudited)		6

Notes to Condensed Consolidated Financial Statements (unaudited)		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22	24

Item 3. Quantitative and Qualitative Disclosures about Market Risk		33

Item 4. Controls and Procedures		33

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	34	33

Item 1A. Risk Factors	34	33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	46	33

Item 3. Defaults ofUpon Senior Securities	46	33

Item 4. Mine Safety Disclosures	46	33

Item 5. Other Information	46	33

Item 6. Exhibits	46	34

This Quarterly Report on Form 10-Q includes our trademarks and trade names, such as ~~CytoSorb®, BetaSorb™~~“CytoSorb,” “CytoSorb XL,” “ECOS-300CY,” “BetaSorb,” “ContrastSorb,” “DrugSorb,” “HemoDefend-RBC,” “HemoDefend-BGA, “K⁺ontrol” and ~~HemoDefend™,~~“VetResQ,” which are protected under applicable intellectual property laws and are the property of CytoSorbents Corporation and ~~its~~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 toour 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.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial ~~Statements~~Statements.

CYTOSORBENTS CORPORATION

CONSOLIDATED BALANCE SHEETS

September 30, December 31,
2017 2016
(Unaudited) (As Adjusted)
ASSETS
Current Assets:
Cash and cash equivalents $ 15,400,348 $ 5,245,178
Grants and accounts receivable, net of allowance for doubtful accounts of $76,601 at September 30, 2017 and $65,414 at December 31, 2016 2,350,190 1,433,468
Inventories 1,089,343 833,976
Prepaid expenses and other current assets 546,124 315,802
Total current assets 19,386,005 7,828,424
Property and equipment, net 1,032,789 569,409
Other assets 1,799,515 1,296,011
Total long-term assets 2,832,304 1,865,420
Total Assets $ 22,218,309 $ 9,693,844

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable $ 1,288,230 $ 1,330,072
Current maturities of long-term debt 3,000,000 833,333
Accrued expenses and other current liabilities 1,489,931 2,114,666
Total current liabilities 5,778,161 4,278,071

Long-term debt, net of current maturities and debt acquisition costs 6,966,355 4,078,314

Total Liabilities 12,744,516 8,356,385

Commitments and Contingencies (Note 6)

Stockholders’ Equity:
Preferred Stock, par value $0.001, 5,000,000 shares authorized; -0- shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively — —
Common Stock, par value $0.001, 50,000,000 shares authorized; 28,481,082 and 25,483,966 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 28,481 25,484
Additional paid-in capital 158,734,206 143,929,397
Accumulated other comprehensive income (loss) (123,277 ) 898,684
Accumulated deficit (149,165,617 ) (143,516,106 )
Total stockholders' equity 9,473,793 1,337,459
Total Liabilities and Stockholders' Equity $ 22,218,309 $ 9,693,844


	March 31,
	2023		December 31,
	(Unaudited)		2022

ASSETS
Current Assets:
Cash and cash equivalents	$	19,048,410	$	22,144,567
Grants and accounts receivable, net of allowance for doubtful accounts of $46,510 as of March 31, 2023 and $76,041 as of December 31, 2022		5,527,715		5,664,941
Inventories		1,725,673		3,461,586
Prepaid expenses and other current assets		1,863,193		2,488,597
Total current assets		28,164,991		33,759,691

Property and equipment, net		10,695,013		10,743,032
Restricted cash		1,687,459		1,687,459
Right of use assets		12,469,905		12,603,901
Other assets		4,445,467		4,437,447
Total Assets	$	57,462,835	$	63,231,530

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,994,903	$	1,655,173
Lease liability – current portion		111,627		108,939
Accrued expenses and other current liabilities		7,329,386		7,950,440
Total current liabilities		10,435,916		9,714,552
Lease liability, net of current portion		13,060,760		13,142,005
Long-term debt		5,010,714		5,000,000
Total Liabilities		28,507,390		27,856,557

Commitments and Contingencies (Note 6)
Stockholders’ Equity:
Preferred Stock, Par Value $0.001, 5,000,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022		—		—
Common Stock, Par Value $0.001, 100,000,000 shares authorized; 43,851,380 and 43,635,715 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		43,851		43,635
Additional paid-in capital		288,514,368		287,000,021
Accumulated other comprehensive income		1,720,987		2,329,195
Accumulated deficit		(261,323,761)		(253,997,878)
Total Stockholders’ Equity		28,955,445		35,374,973
Total Liabilities and Stockholders’ Equity	$	57,462,835	$	63,231,530

See accompanying notes to consolidated financial statements.

Table of Contents

CYTOSORBENTS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
(Unaudited) (Unaudited
As Adjusted) (Unaudited) (Unaudited,
As Adjusted)
Revenue:
Sales $ 3,448,661 $ 2,143,116 $ 9,085,806 $ 5,593,235
Grant income 375,638 268,592 1,418,237 850,993
Total revenue 3,824,299 2,411,708 10,504,043 6,444,228
Cost of revenue 1,516,864 963,881 4,253,357 2,656,646
Gross profit 2,307,435 1,447,827 6,250,686 3,787,582

Other expenses:
Research and development 537,949 1,172,155 1,628,261 3,120,347
Legal, financial and other consulting 238.303 279,321 961,444 853,056
Selling, general and administrative 3,680,228 2,140,563 9,698,412 6,735,856
Total expenses 4,456,480 3,592,039 12,288,117 10,709,259

Loss from operations (2,149,045 ) (2,144,212 ) (6,037,431 ) (6,921,677 )

Other income/(expense):
Interest expense, net (253,780 ) (117,352 ) (497,683 ) (111,864 )
Gain on foreign currency transactions 348,546 73,445 1,221,334 176,096
Total other income (expense), net 94,766 (43,907 ) 723,651 64,232

Loss before benefit from income taxes (2,054,279 ) (2,188,119 )) (5,313,780 ) (6,857,445 )
Benefit from income taxes — — — —

Net loss (2,054,279 ) (2,188,119 )) (5,313,780 ) (6,857,445 )
Dividend, warrant exercise price adjustment — — 335,731 —
Net loss available to common stockholders (2,054,279 ) (2,188,119 ) (5,649,511 ) (6,857,445 )

Basic and diluted net loss per share of Common Stock $ (0.07 ) $ (0.09 ) $ (0.21 ) $ (0.27 )
Weighted average number of shares of Common Stock outstanding 28,206,437 25,444,565 27,231,145 25,420,650

Net loss $ (2,054,279 ) $ (2,188,119 ) (5,313,780 ) $ (6,857,445 )

Other comprehensive loss:
Currency translation adjustment (280,078 ) (60,820 ) (1,021,961 ) (161,593 )
Comprehensive loss $ (2,334,357 ) $ (2,248,939 ) $ (6,335,741 ) $ (7,019,038 )


	For the Three Months Ended March 31,
	2023		2022
	(Unaudited)		(Unaudited)
Revenue:
CytoSorb sales	$	7,906,269	$	7,866,865
Other product sales		3,770		57,592
Total product sales		7,910,039		7,924,457
Grant income		1,539,457		766,967
Total revenue		9,449,496		8,691,424
Cost of revenue		3,994,169		2,277,636
Gross margin		5,455,327		6,413,788

Other expenses:
Research and development		4,214,415		4,243,365
Legal, financial and other consulting		669,233		800,735
Selling, general and administrative		8,463,275		9,160,823
Total expenses		13,346,923		14,204,923
Loss from operations		(7,891,596)		(7,791,135)

Other income (expense):
Interest income (expense), net		(63,170)		8,027
Miscellaneous income/(expense)		(31,798)		30,000
Gain/(Loss) on foreign currency transactions		660,681		(1,213,290)
Total other expense, net		565,713		(1,175,263)

Loss before benefit from income taxes		(7,325,883)		(8,966,398)

Provision for income taxes		—		—

Net loss attributable to common stockholders	$	(7,325,883)	$	(8,966,398)

Basic and diluted net loss per common share	$	(0.17)	$	(0.21)

Weighted average number of shares of common stock outstanding		43,676,435		43,487,946

Net loss	$	(7,325,883)	$	(8,966,398)
Other comprehensive income/(loss):
Foreign currency translation adjustment		(608,208)		962,911
Comprehensive loss	$	(7,934,091)	$	(8,003,487)

See accompanying notes to consolidated financial statements.

Table of Contents

CYTOSORBENTS CORPORATION

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN ~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY

~~Period from December~~For the three months ended March 31, ~~2016 to September 30, 2017~~2023 and 2022 (Unaudited):

Accumulated
Additional Other
Common Stock Paid-In Comprehensive Accumulated Stockholders'
Shares Par value Capital Income (Loss) Deficit Equity

Balance at December 31, 2016
(As Originally Reported) 25,483,966 $ 25,484 $ 143,066,477 $ 898,684 $ (144,464,733 ) $ (474,088 )

Adjustment (see note 3) — — 862,920 — 948,627 1,811,547

Balance at December 31, 2016
(As Adjusted) 25,483,966 25,484 143,929,397 898,684 (143,516,106 ) 1,337,459

Stock based compensation - employees, consultants and directors — — 1,851,020 — — 1,851,020

Issuance of common stock-offering, net of fees incurred 2,837,949 2,838 11,968,625 — — 11,971,463

Other comprehensive income/(loss): foreign translation adjustment — — — (1,021,961 ) — (1,021,961 )

Issuance of restricted stock units 41,390 41 207,567 — — 207,608

Cashless exercise of stock options 2,074 2 (2 ) — — —

Proceeds from exercise of warrants 59,001 59 260,445 — — 260,504

Proceeds from exercise of stock options 56,702 57 181,423 — — 181,480

Dividend, warrant exercise price adjustment — — 335,731 — (335,731 ) —

Net loss — — — — (5,313,780 ) (5,313,780 )

Balance at September 30, 2017 28,481,082 $ 28,481 $ 158,734,206 $ (123,277 ) $ (149,165,617 ) $ 9,473,793
~~See accompanying notes to consolidated financial statements~~
5
~~CYTOSORBENTS CORPORATION~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

Accumulated

Additional

Other

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’


Shares

Par value

Capital

Income

Deficit

Equity
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

—

—

830,280

—

—

830,280
Issuance of common stock - offerings, net of fees incurred

197,665

198

698,237

—

—

698,435
Other comprehensive loss: foreign currency translation adjustment

—

—

—

(608,208)

—

(608,208)
Legal/audit fees related to ATM offering

—

—

(56,702)

—

—

(56,702)
Proceeds from the exercise of stock options for cash

18,000

18

42,532

—

—

42,550
Net loss

—

—

—

—

(7,325,883)

(7,325,883)
Balance at March 31, 2023

43,851,380

$
43,851

$
288,514,368

$
1,720,987

$
(261,323,761)

$
28,955,445

Balance at December 31, 2021

43,478,487

$
43,478

$
283,194,429

$
525,585

$
(221,185,295)

$
62,578,197
Stock-based compensation - employees, consultants and directors

—

—

787,417

—

—

787,417
Other comprehensive income: foreign currency translation adjustment

—

—

—

962,911

—

962,911
Legal/audit fees related to ATM offering

—

—

(40,359)

—

—

(40,359)
Issuance of restricted stock units

27,461

27

106,242

—

—

106,269
Net loss

—

—

—

—

(8,966,398)

(8,966,398)
Balance at March 31, 2022

43,505,948

$
43,505

$
284,047,729

$
1,488,496

$
(230,151,693)

$
55,428,037
Nine months ended Nine months ended
September 30, September 30,
2017 2016
(Unaudited) (Unaudited,
As Adjusted)

Cash flows from operating activities:
Net loss $ (5,313,780 ) $ (6,857,445 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 161,688 109,395
Amortization of debt costs 56,268 15,240
Bad debt expense 3,897 —
Stock-based compensation 1,851,020 724,025
Foreign currency transaction gain (1,221,334 ) (176,096 )
Changes in operating assets and liabilities:
Grants and accounts receivable (803,348 ) (747,117 )
Inventories (227,882 ) 143,200
Prepaid expenses and other current assets (8,528 ) 295,516
Other assets (15,000 ) (21,363 )
Accounts payable and accrued expenses (534,222 ) 862,754
Net cash used by operating activities (6,051,221 ) (5,651,891 )

Cash flows from investing activities:
Purchases of property and equipment (579,944 ) (155,696 )
Payments for patent costs (516,203 ) (341,665 )
Proceeds from redemptions of short-term investments — 2,192,000
Net cash provided (used) by investing activities (1,096,147 ) 1,694,639

Cash flows from financing activities:
Equity contributions - net of fees incurred 11,775,046 -
Proceeds from long-term debt 5,000,000 5,000,000
Payment of debt acquisition costs (1,560 ) (118,833 )
Proceeds from exercise of stock options 181,480 79,990
Proceeds from exercise of warrants 260,504 50,000

Net cash provided by financing activities 17,215,470 5,011,157
Effect of exchange rates on cash 87,068 4,293
Net increase in cash and cash equivalents 10,155,170 1,058,198
Cash and cash equivalents - beginning of period 5,245,178 5,316,851
Cash and cash equivalents - end of period $ 15,400,348 $ 6,375,049

Supplemental disclosure of cash flow information:

Cash paid during the period for interest $ 407,347 $ 71,233

Supplemental schedule of noncash investing and financing activities:

Settlement of accrued bonuses with restricted stock units $ 207,608 $ —
Dividend, warrant exercise price adjustment $ 335,731 $ —
Proceeds of stock sale not received $ 196,417 $ —

See accompanying notes to consolidated financial statements.

6
5

Table of Contents

CYTOSORBENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three

For the three

months ended

months ended

March 31,

March 31,

2023

2022


(Unaudited)

(Unaudited)
Cash flows from operating activities:


Net loss

$
(7,325,883)

$
(8,966,398)
Adjustments to reconcile net loss to net cash used in operating activities:

Non-cash restricted stock unit compensation

250,206

159,059
Depreciation and amortization

258,631

217,565
Bad debt expense

11,887

6,936
Amortization of right of use asset

55,439

64,523
Impairment of patents

111,224

305,505
Debt costs

10,714

—
Stock-based compensation

830,280

787,417
Foreign currency transaction (gain) loss

(660,681)

1,213,290
Changes in operating assets and liabilities:

Grants and accounts receivable

177,170

(239,152)
Inventories

1,747,144

(827,351)
Prepaid expenses and other current assets

795,775

307,097
Other assets

—

56,100
Accounts payable and accrued expenses

629,883

(1,203,761)
Net cash used in operating activities

(3,108,211)

(8,119,170)

Cash flows from investing activities:


Purchases of property and equipment

(509,669)

(710,239)
Payments for patent costs

(173,215)

(137,717)
Net cash used in investing activities

(682,884)

(847,956)

Cash flows from financing activities:


Equity contributions - net of fees incurred

641,733

(40,359)
Proceeds from exercise of stock options

42,550

—
Net cash (used in) provided by financing activities

684,283

(40,359)
Effect of exchange rates on cash

10,655

(107,408)
Net change in cash, cash equivalents and restricted cash

(3,096,157)

(9,114,893)

Cash, cash equivalents and restricted cash - beginning of period

23,832,026

53,825,166
Cash, cash equivalents and restricted cash - end of period

$
20,735,869

$
44,710,273

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$
71,112

$
—

Supplemental disclosure of non-cash financing activities:

Settlement of accrued bonuses with restricted stock units

$
—

$
106,269
Capital expenditures included in accounts payable

$
—

$
2,135,537

See accompanying notes to consolidated financial statements.

Table of Contents

CytoSorbents Corporation
Notes to Consolidated Financial Statements
(UNAUDITED)
~~September 30, 2017~~March 31, 2023
1. 1. BASIS OF PRESENTATION
The interim consolidated financial statements of CytoSorbents Corporation (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments, ~~necessary~~ for a fair ~~statement~~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. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, ~~2016~~2022, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March ~~3, 2017.~~9, 2023. The results for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022, are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.
~~The accompanying consolidated~~As of March 31, 2023, the Company’s cash, cash equivalents and restricted cash balances were approximately $20.7 million, which the Company expects will fund the Company’s operations beyond twelve months from the issuance of these financial ~~statements have been prepared on~~statements. As a result, the Company has determined that the going concern ~~basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.~~risk has been substantially mitigated.

As of September 30, 2017, the Company had an accumulated deficit of $149,165,617, which included net losses of $5,313,780 for the nine months ended September 30, 2017 and $6,857,445 for the nine months ended September 30, 2016. The Company’s losses have resulted principally from costs incurred in the research and development of the Company’s polymer technology and selling, general and administrative expenses. The Company intends to continue to conduct significant additional research, development, and clinical study activities which, together with expenses incurred for the establishment of manufacturing arrangements and a marketing and distribution presence and other selling, general and administrative expenses, are expected to result in continuing operating losses for the foreseeable future. The amount of future losses and when, if ever, the Company will achieve profitability is uncertain. The Company’s ability to achieve profitability will depend, among other things, on successfully completing the development of the Company’s technology and commercial products, obtaining additional requisite regulatory approvals in markets not covered by the CE Mark previously received and for potential label extensions of the Company’s current CE Mark, establishing manufacturing and sales and marketing arrangements with third parties, and raising sufficient funds to finance the Company’s activities, including clinical trials. No assurance can be given that the Company’s product development efforts will be successful, that the Company’s current CE Mark will enable the Company to achieve profitability, that additional regulatory approvals in other countries will be obtained, that any of the Company’s products will be manufactured at a competitive cost and will be of acceptable quality, or that the Company will be able to achieve profitability or that profitability, if achieved, can be sustained. These matters raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments related to the outcome of this uncertainty.
2. 2. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is a leader in ~~critical~~the treatment of life-threatening conditions in intensive care ~~immunotherapy, investigating~~ and ~~commercializing its CytoSorb~~cardiac surgery using blood ~~purification therapy to reduce deadly uncontrolled inflammation in hospitalized patients around the world, with the goal of preventing or treating multiple organ failure in life-threatening illnesses.~~purification. The Company, through its subsidiary CytoSorbents Medical, Inc. (formerly known as CytoSorbents, Inc.), is engaged in the research, development and commercialization of medical devices with its blood purification technology platform which incorporates a proprietary adsorbent, porous polymer technology. The Company, through its wholly owned European subsidiary, CytoSorbents Europe GmbH, conducts sales and marketing related operations for the CytoSorb device. In March 2016, the Company formed CytoSorbents Switzerland GmbH, a ~~wholly-owned~~wholly owned subsidiary of CytoSorbents Europe GmbH. This subsidiary, which began operations during the second quarter of 2016, provides marketing and direct sales services in Switzerland. In November 2018, the Company formed CytoSorbents Poland Sp. z.o.o., a wholly owned subsidiary of CytoSorbents Europe GmbH. This subsidiary, which began operations during the first quarter of 2019, provides marketing and direct sales services in Poland. In the third quarter of 2019, the Company formed CytoSorbents UK Limited, a wholly owned subsidiary of CytoSorbents Medical, Inc., which is responsible for the management of the Company’s clinical trial activities in the United Kingdom. In March 2022, the Company formed CytoSorbents Medical UK Limited to provide marketing and direct sales services in the United Kingdom and the Republic of Ireland. In October 2022, the Company formed CytoSorbents France SAS to provide marketing and direct sales services in France. CytoSorb,, the Company’s flagship product, iswas approved in the EUEuropean Union (“EU”) in March 2011 and is currently being marketed in and distributed in ~~forty-four~~more than 75 countries around the world, as ~~a safe and~~an effective extracorporeal cytokine ~~adsorber,~~absorber, designed to reduce the “cytokine storm” or “cytokine release syndrome” seen in critical illnesses that ~~could otherwise cause~~may result in massive inflammation, organ failure, and ~~death~~patient death. In May 2018, the Company received a label extension for CytoSorb covering use of the device for the removal of bilirubin and myoglobin which allows for the use of the device in ~~common critical illnesses such as sepsis, burn injury,~~the treatment of liver failure and trauma, ~~lung injury, and pancreatitis.~~respectively. CytoSorb is also being used during and after cardiac surgery to remove inflammatory mediators ~~such as cytokines and free hemoglobin, which~~that can lead to post-operative complications, including multiple organ failure. In ~~March 2011,~~January 2020, CytoSorb ~~was “CE Marked”~~received EU CE Mark label expansion to include the removal of ticagrelor during cardiopulmonary bypass in patients undergoing cardiothoracic surgery. In May 2020, CytoSorb also received EU CE Mark label expansion to include rivaroxaban removal for the same indication.
In April 2020, CytoSorb received United States Food and Drug Administration (“FDA”) Emergency Use Authorization (“EUA”) of CytoSorb for use in adult critically-ill COVID-19 patients with imminent or confirmed respiratory failure. The CytoSorb device has neither been cleared nor approved for the indication to treat patients with COVID-19 infection. The EUA will be effective until a declaration is made that the circumstances justifying the EUA have terminated or until revoked by the FDA.

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In April 2020, the Company also announced that the FDA had granted Breakthrough Designation for its DrugSorb-ATR Antithrombotic Removal System for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery. The Breakthrough Devices Program provides for more effective treatment of life-threatening or irreversibly debilitating disease or conditions, in this case the need to reverse the effects of ticagrelor in emergent or urgent cardiac surgery that can otherwise cause a high risk of serious or life-threatening bleeding. Through Breakthrough Designation, the FDA intends to work with CytoSorbents to expedite the development, assessment, and regulatory review of CytoSorbents’ technology for the removal of ticagrelor, while maintaining statutory standards of regulatory approval (e.g., 510(k), de novo 510(k) or premarket approval) consistent with the FDA’s mission to protect and promote public health. In July 2021, the Company received full approval of its Investigative Device Exemption (“IDE”) to conduct the pivotal STAR-T (Safe and Timely Antithrombotic Removal – Ticagrelor) double-blind randomized control trial (“RCT”) for up to 120 patients in the ~~European Union~~United States to support FDA marketing approval.

In August 2021, the Company announced that it was granted a second Breakthrough Device designation for its DrugSorb-ATR Antithrombotic Removal System by the FDA. This Breakthrough Device designation covers the removal of the Direct Oral Anticoagulants (DOACs) apixaban and rivaroxaban in a cardiopulmonary bypass circuit to reduce the likelihood of serious perioperative bleeding during urgent cardiothoracic surgery. In October 2021, the Company also received full FDA approval of an IDE application to conduct a double-blind, randomized, controlled clinical study for up to 120 patients entitled, “Safe and Timely Antithrombotic Removal – Direct Oral Anticoagulants (STAR-D),” in the United States to support FDA marketing approval.

If FDA marketing approval is obtained for either the removal of ticagrelor or direct oral anticoagulants indications, the device would be marketed as DrugSorb-ATR in the United States. The DrugSorb-ATR Antithrombotic Removal System is based on the same polymer technology as CytoSorb.

In May 2022, the Company announced that the Company entered into a 3-year preferred supplier agreement with Asklepios, making CytoSorb available without restrictions to all of the approximate 170 healthcare facilities across 14 states throughout Germany at which Asklepios operates. This includes Asklepios Klinik St. Georg in Hamburg, Germany, which pioneered the use of CytoSorb to remove antithrombotic drugs during cardiothoracic surgery and is well-known for their seminal publication on CytoSorb use for this application during emergency cardiac surgery in patients at high risk of bleeding.

In June 2022, the Company announced that, following a successful pilot program in three countries, the Company signed an expanded non-exclusive agreement with Nikkiso Europe GmbH (“~~EU”~~Nikkiso”) ~~allowing~~to distribute Nikkiso’s PureADJUST stand-alone hemoperfusion pump and accessories in a total of 14 countries. In addition to securing the rights to sell Nikkiso’s stand-alone pump and accessories in Germany, Austria, and Luxembourg, the Company entered into an expanded multi-country reseller agreement with Nikkiso covering the following countries: Belgium, Bosnia and Herzegovina, Croatia, Finland, France, Iceland, Lichtenstein, Poland, Serbia, Slovenia and Switzerland. The Company will also be able to provide field support services in these countries.

In August 2022, the Company entered into a Marketing Agreement (the “Marketing Agreement”) with Fresenius Medical Care Deutschland GmbH (“Fresenius”), which expands the Company’s strategic partnership with Fresenius by establishing a multi-stage global collaboration to combat life-threatening diseases in critical care. The Marketing Agreement provides for ~~commercial marketing.~~the combined marketing and promotion of CytoSorb with Fresenius’ critical care products by Fresenius’ marketing organization worldwide, excluding the United States. The Marketing Agreement has an initial term of three years, with an automatic renewal for an additional two years at the end of such initial term, subject to earlier termination by either of the parties (the “Term”). Compared to the prior co-marketing agreement between the parties, the Marketing Agreement intends to increase the commitments from both parties and to ensure an ongoing and consistent level of marketing and promotional activity specifically focused around CytoSorb, where Fresenius will actively market and promote CytoSorb as the featured blood purification therapy for removal of cytokines, bilirubin, and myoglobin on its critical care platforms. Specifically, the Marketing Agreement provides that various Fresenius-led in-person, virtual, social media, and web-based marketing programs and events will feature the CytoSorb therapy and highlight the cooperation between the two companies in the field of critical care during the Term. To help support the increased marketing and promotional efforts of the expanded collaboration, CytoSorbents has agreed to subsidize a portion of the marketing costs through a royalty payment to Fresenius Medical Care based on CytoSorb sales in the intensive care unit on Fresenius Medical Care platforms, excluding the United States. In addition to strengthening and expanding the global marketing of CytoSorb, the Company and Fresenius also plan to work together to bring new innovative solutions to the market. The Marketing Agreement also includes the certification of compatibility of CytoSorb for usage on Fresenius’ current critical care platforms. The launch of this program is expected to occur sometime in 2023.

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The technology is based upon biocompatible, highly porous polymer sorbent beads that can actively remove toxic substances from blood and other bodily fluids by pore capture and surface ~~absorption.~~adsorption. The Company has numerous products under development based upon this unique blood purification technology, which ~~include~~is protected by 19 issued U.S. patents and multiple international patents, with applications pending both in the U.S. and internationally, including HemoDefend, ContrastSorb, DrugSorb, DrugSorb-ATR and others. ~~As of September 30, 2017, the Company owns 32 issued United States~~These patents and ~~has multiple issued patents and pending~~ patent applications ~~worldwide. Our patent portfolio includes 16 issued United States patents as well as multiple issued patents and pending patent applications~~are directed to various compositions and methods of use related to ~~our~~the Company’s blood ~~purifications~~purification technologies ~~which~~and are expected to expire between ~~2018~~2023 and ~~2031,~~2038, absent any patent term extensions. Management believes that any near-term expiring patents will not have a significant impact on ~~our~~the Company’s ongoing business.
Stock Market Listing
On December 17, 2014, the Company’s common stock, par value $0.001 per share, ~~(the “Common Stock”)~~ was approved for listing on the ~~NASDAQ~~Nasdaq Capital Market ~~(NASDAQ)~~(“Nasdaq”), and it began trading on ~~NASDAQ~~Nasdaq on December 23, 2014, under the symbol ~~“CTSO”.~~“CTSO.” Previously, the Company’s ~~Common Stock~~common stock traded in the over-the-counter-market on the OTC Bulletin Board.
Basis of Consolidation and Foreign Currency Translation
The consolidated financial statements include the accounts of ~~the parent,~~ CytoSorbents Corporation and its ~~wholly-owned~~wholly owned subsidiaries, CytoSorbents Medical, Inc. and CytoSorbents Europe GmbH. In addition, the consolidated financial statements include CytoSorbents Switzerland GmbH, CytoSorbents Poland Sp. z.o.o., CytoSorbents Medical UK Limited and CytoSorbents France SAS, wholly owned subsidiaries of CytoSorbents Europe GmbH, and CytoSorbents UK Limited, a wholly owned subsidiary of CytoSorbents ~~Europe GmbH.~~Medical, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.
Translation gains and losses resulting from the process of remeasuring into the ~~U.S. dollar,~~United States Dollar, the foreign currency financial statements of ~~CytoSorbents Europe GmbH, for which~~ the ~~U.S. dollar~~European subsidiary are included in operations. The Euro is the functional currency ~~are included in operations.~~of the European Subsidiary. Foreign currency transaction gain ~~amounted to $348,546 and $73,445 for the three months ended September 30, 2017 and 2016, respectively. Foreign currency transaction gain~~(loss) included in net loss amounted to ~~$1,221,334~~approximately $661,000 and ~~$176,096~~$(1,213,000) for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. The Company translates assets and liabilities of ~~the European~~all of its foreign subsidiaries ~~whose functional currency is their local currency,~~ at the exchange rate in effect at the 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 ~~stockholder’s~~stockholders’ equity.
Cash and Cash Equivalents
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 summary of cash and cash equivalents and restricted cash to amounts shown in the consolidated balance sheets:

March 31, 2023

December 31, 2022
Cash and cash equivalents

$
19,048,410

$
22,144,567
Restricted cash

1,687,459

1,687,459
Total cash, cash equivalents and restricted cash

$
20,735,869

$
23,832,026

Restricted Cash
The Company’s total restricted cash in the amount of $1,687,459 consists of cash of $1,467,459 that the Company is obligated to maintain as collateral for the outstanding letter of credit with Bridge Bank that was provided to the landlord of the College Road facility as security and cash of $220,000 that the Company is obligated to maintain as collateral for the credit limit on the Company’s credit card accounts.
Grants and Accounts Receivable
Grants receivable represent amounts due from U.S. government agencies and are included in Grants and Accounts Receivable.
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Accounts receivable are unsecured, non-interest bearing customer obligations due under normal trade terms. The Company sells its devices to various hospitals and distributors. The Company performs ongoing credit evaluations of its customers’ financial ~~condition.~~conditions. Management reviews accounts receivable periodically to determine collectability. Balances that are determined to be uncollectible are written off to the allowance for doubtful accounts. The allowance for doubtful accounts ~~contains a general accrual for estimated bad debts and~~ amounted to approximately ~~$77,000~~$47,000 and ~~$65,000~~$76,000 at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, respectively.

Inventories

Inventories are valued at the lower of cost or ~~market.~~net realizable value under the first in, first out (FIFO) method. At ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the Company’s inventory was comprised of finished goods, which amounted to ~~$351,642~~$839,033 and ~~$307,483,~~$1,567,871, respectively; work in process which amounted to ~~$648,131~~$289,123 and ~~$467,663,~~$1,280,368, respectively; and raw materials, which amounted to ~~$89,570~~$597,517 and ~~$58,830,~~$613,347, respectively. Devices used in clinical trials or for research and development purposes are removed from inventory and charged to research and development expenses at the time of their use.

Donated devices are removed from inventory and charged to selling, general and administrative expenses.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation of property and equipment is provided for by the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of their economic useful lives or the term of the related leases. Gains and losses on depreciable assets retired or sold are recognized in the consolidated statements of operations and comprehensive loss in the year of disposal. Repairs and maintenance expenditures are expensed as incurred.

Patents

Legal costs incurred to establish and successfully defend patents are capitalized. When patents are issued, capitalized costs are amortized on the straight-line method over the related patent term. In the event a patent is abandoned, the net book value of the patent is written off.

Impairment or Disposal of Long-Lived Assets

The Company assesses the impairment of patents and other long-lived assets under accounting standards for the impairment or disposal of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value.

~~Warrants (See Note 3)~~

~~The Company recognizes~~ There was no impairment recorded during the ~~fair value of~~three months ended March 31, 2023. During the ~~warrants with a down round feature as a component of stockholders’ equity as of the date of the warrant grant. When the down round feature is triggered,~~three months ended March 31, 2023 and 2022, the Company ~~remeasures~~recorded an impairment charge of approximately $111,000 and $306,000, respectively, related to certain patent costs. This charge is included in legal, financial and other consulting in the ~~fair value~~consolidated statements of ~~the warrants,~~operations and ~~records the change in fair value as a dividend and as a reduction in net income available to common stockholders.~~

comprehensive loss.

Revenue Recognition

Product Sales: Revenues from sales of products to both direct and distributor/strategic partner customers are recognized at the time when ~~title and risk of loss~~control passes to the ~~customer.~~customer, in accordance with the terms of their respective contracts. Recognition of revenue ~~also requires reasonable assurance of collection of sales proceeds and completion of all~~occurs as each performance ~~obligations.~~

obligation is completed.

Grant Revenue:Revenue from grant income is based on contractual agreements. Certain agreements provide for reimbursement of costs, ~~while~~ other agreements provide for reimbursement of costs and an overhead ~~margin.~~margin and certain agreements are performance based, where revenue is earned based upon the achievement of milestones outlined in the contract. Revenues are recognized when ~~milestones have been achieved and revenues have been earned.~~the associated performance obligation is fulfilled. Costs are recorded as incurred. Amounts invoiced in excess of costs actually incurred on fixed price contracts are classified as deferred revenue and are included in accrued expenses and other current liabilities in the consolidated balance sheet. Costs subject to reimbursement by these grants have been reflected as costs of revenue.

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Research and Development

All research and development costs, payments to laboratories and research consultants ~~and costs of clinical trials and studies~~ are expensed when incurred.

Advertising Expenses

Advertising expenses are charged to activities when incurred. Advertising expenses amounted to approximately ~~$45,000~~$55,000 and ~~$28,000~~$81,000 for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively, and approximately $132,000 and $153,000 for the nine months ended September 30, 2017 and 2016,~~2022, respectively, and are included in selling, general, and administrative expenses on the consolidated ~~statement~~statements of ~~operations.~~

operations and comprehensive loss.

Income Taxes

Income taxes are accounted for under the asset and liability method prescribed by accounting standards for accounting for income taxes. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax asset will not be realized. The Company has provided a valuation allowance against all deferred tax assets. Under Section 382 of the Internal Revenue Code, the net operating losses generated prior to the previously completed reverse merger may be limited due to the change in ownership. Additionally, net operating losses generated subsequent to the reverse merger may be limited in the event of changes in ownership.

The Company follows accounting standards associated with uncertain tax positions. The Company had no unrecognized tax benefits at ~~September 30, 2017~~March 31, 2023 or December 31, ~~2016.~~2022. The Company files tax returns in the U.S. federal and ~~various~~ state jurisdictions.

The Company utilizes the Technology Business Tax Certificate Transfer Program to sell a portion of its New Jersey Net Operating Loss ~~carry forwards~~carryforwards to an industrial company.

~~Each of~~ CytoSorbents Europe GmbH, ~~and~~ CytoSorbents Switzerland GmbH, ~~files~~CytoSorbents Poland Sp. z.o.o., CytoSorbents UK Limited, CytoSorbents Medical UK Limited and CytoSorbents France file an annual corporate tax return, a VAT return and a trade tax return in Germany, Switzerland, Poland, France and ~~Switzerland,~~the United Kingdom, respectively.

Use of Estimates

The preparation of consolidated financial statements in conformity with ~~U.S. GAAP~~accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets, liabilities at the date of the balance sheet, and ~~liabilities.~~the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. ~~Significant estimates in these financials are the~~The valuation of options granted, allowance for doubtful accounts and ~~valuation methods used to determine the fair value~~recoverability of ~~the warrant liability.~~

patents are significant estimates in these consolidated financial statements.

Concentration of Credit Risk

The Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Federal Deposit Insurance ~~Corporation.~~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 ~~our~~the Company's revenues are from product sales in Germany. Substantially all of ~~our~~the Company's grant and other income are from ~~grant~~government agencies in the United States. ~~The following table provides a geographic summary~~(See Note 4 for further information relating to the Company’s revenue.)

Table of ~~revenues for the three and nine months ended September 30, 2017 and 2016:~~Contents

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Product Sales:
Germany $ 1,964,434 $ 1,327,193 $ 5,359,560 $ 3,653,995
All other countries 1,484,227 815,923 3,726,246 1,939,240

Grant and other income:
United States 375,638 268,592 1,418,237 850,993
Total revenue $ 3,824,299 $ 2,411,708 $ 10,504,043 $ 6,444,228

As of ~~September 30, 2017,~~March 31, 2023, two distributors accounted for approximately ~~33%~~30% of outstanding ~~grant~~grants and accounts receivable. AtAs of December 31, ~~2016, one distributor and one government agency~~2022, two distributors accounted for approximately ~~22%~~27% of outstanding ~~grant~~grants and accounts receivable. For the three months ended ~~September 30, 2017, no agency,~~March 31, 2023, one distributor or direct customer represented more than 10% of the Company’s revenue. For the three months ended September 30, 2016, one direct customer represented 11% of the Company’s total revenue. For the nine months ended September 30, 2017, no agency, distributor, or direct customer represented more than 10% of the Company’s revenue. For the nine months ended September 30, 2016, one direct customer accounted for approximately 11% of the Company’s total revenue and for the three months ended March 31, 2022, no customer accounted for more than 10% of the Company’s total revenue.

Financial Instruments

The carrying values of cash and cash equivalents, ~~short-term investments,~~accounts receivable, accounts payable ~~notes payable,~~and accrued expenses and other ~~debt obligations~~current liabilities approximate their fair values due to their short-term nature.

Net Loss Per Common Share

Basic ~~earnings~~loss per share is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted ~~earnings~~loss per common share is computed using the treasury stock method on the basis of the weighted-average number of shares of ~~Common Stock~~common stock plus the dilutive effect of potential common shares outstanding during the period. Dilutive potential common shares include outstanding ~~warrants,~~ stock options and restricted shares. The computation of diluted ~~earnings~~loss per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings ~~(See~~(see Note 7)8).

Stock-Based Compensation

The Company accounts for its stock-based compensation under the recognition requirements of accounting standards for accounting for stock-based compensation, for employees and directors whereby each option granted is valued at fair market value on the date of grant. Under these accounting standards, the fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model.

The Company also follows the guidance of accounting standards for accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling, goods or services for equity instruments issued to consultants.

~~Effects of Recent Accounting Pronouncements~~

In May 2014, the FASB issued ASU 2014-09, “Revenue with Contracts from Customers.” ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific guidance. The ASU introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2014, the FASB issued ASU 2015-14 which deferred the effective date by one year. Accordingly, the updated guidance is effective for public entities for interim and annual periods beginning after December 15, 2017 and early adoption is permitted as of the beginning of an interim or annual reporting period beginning after December 31, 2016. In 2016, the FASB issued ASU’s 2016-08, 2016-10 and 2016-12, all of which relate to this same topic and have the same effective date. The Company has evaluated the impact of these ASU’s and has determined that the adoption of this updated guidance may result in the deferral of revenue for certain distributors and strategic partners due to volume pricing discounts in the contracts. Also, revenues may be deferred on certain grant contracts with government agencies. The Company may also be required to capitalize costs incurred to obtain certain grant contracts and amortize these costs over the term of the related contract. Adoption of these ASU’s may require enhanced disclosures regarding contracts with customers including disaggregation of revenue, information about contract balances and performance obligations, significant judgments used in determining transaction price and assets recognized from costs to obtain a contract.

In July 2015, the FASB issued ASU 2015-11, “Inventory: Simplifying the Measurement of Inventory.” ASU 2015-11 clarifies current guidance regarding the valuation of inventory. ASU 2015-11 requires that inventory be measured at the lower of cost or net realizable value. This ASU does not apply to inventory that is measured using the last-in, first-out (“LIFO”) or the retail inventory method. The updated guidance is effective for public entities for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The Company has evaluated the impact of the updated guidance and has determined that the adoption of ASU 2015-11 is not expected to have a significant impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 outlines reporting requirements for Lessees to recognize a right-of-use asset and corresponding liability on the balance sheet for all leases covering a period of greater than 12 months. The liability is to be measured as the present value of the future minimum lease payments, plus any initial direct costs. The minimum payments are discounted using the rate implicit in the lease, or, if not known, the lessee’s incremental borrowing rate. The updated guidance is effective for public entities for fiscal years beginning after December 31, 2018. The Company is evaluating the impact of the updated guidance and has determined that the adoption of ASU 2016-02 may impact certain financial statement disclosures, particularly with regard to leases of premises.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).” The amendments in this Update relate to eight specific types of cash receipts and cash payments which current GAAP either is unclear or does not include specific guidance on the cash flow classification issues. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company will adopt the provisions of this ASU for its fiscal year beginning January 1, 2018. The adoption of ASU 2016-15 is not expected to have a significant impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718). The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company is evaluating the impact of the revised guidance and believes that this will not have a significant impact on its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, “Earning Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815). Part I of this Update addresses the complexity of accounting for certain financial instruments with down round features. The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company has elected to adopt the provisions of this ASU as of September 30, 2017 and has restated its current and comparative financial statements within this quarterly filing accordingly. (See Note 3).

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 ~~Research and Development.~~cost of revenue. Total freight costs amounted to approximately ~~$50,000~~$78,000 and ~~$28,000~~$68,000, respectively, for the three months ended ~~September 30, 2017~~March 31, 2023 and 2022.

Effect of Recent Accounting Pronouncements

In June 2016, ~~respectively, and approximately $178,000 and $99,000~~the FASB, issued ASU No. 2016-13 entitled, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU provides guidance on the calculation of credit losses, which includes the allowance for doubtful accounts on trade accounts receivable. The updated guidance is effective for public entities for fiscal years beginning after December 15, 2022. The Company implemented the ~~nine~~updated guidance during the three months ended ~~September 30 2017~~March 31, 2023 and ~~2016, respectively.~~

~~ADOPTION OF NEW ACCOUNTING STANDARD AND RESTATEMENT~~

Effective September 30, 2017, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2017-11, “Earning Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815). The provisions of this ~~ASU change the classification analysis of certain equity-linked~~did not have significant impact on its consolidated financial instruments (or embedded features) with down round features. The fair value of a financial instrument with a down round feature is now required to be classified as a component of stockholders equity, as opposed to a liability as it was previously required to be reported. In addition, this recorded fair value of the financial instrument is no longer to be subsequently remeasured. When the down round feature of the financial instrument is triggered due to a change in the underlying strike price, the change in the fair value is now required to be treated as a dividend and as a reduction of income available to common stockholders in accordance with the guidance of ASC-260. Accordingly, the Company has restated its current and historical financial statements to properly reflect the provisions of this ASU as discussed below.statements.

~~Prior accounting treatment~~ In connection with its March 11, 2014 offering, the Company issued warrants to purchase 816,000 shares of Common Stock. These warrants contain certain pricing provisions which apply if the Company sells or issues Common Stock or Common Stock equivalents at a price that is less than the exercise price of the warrants, over the life of the warrants, excluding certain exempt issuances. In addition, these warrants may only be exercised with cash. Accordingly, the Company recognized a liability for these warrants based on their fair value as of the date of grant. The initial warrant liability recognized on the related warrants totaled $862,920. At each subsequent quarter end, the Company then remeasured the fair value of the warrants, and recorded the change in the warrant liability as a component of net income. In April 2017, the Company closed on an underwritten public offering. The price of this offering was $4.50 per share of Common Stock which is less than the exercise price of the warrants. Accordingly, the exercise price of the warrants has been reduced to $4.50 per warrant, and the warrant liability was adjusted based upon the change in the underlying exercise price. There was no change in the number of warrants which were repriced. (see Note 4).
~~Current accounting treatment.~~ The warrant liability has been eliminated from the Company’s balance sheets for the quarterly periods and years 2014, 2015, 2016, and 2017. As of January 1, 2016, the fair value of the warrant liability amounted to $1,636,128. Accordingly, the Company has restated its retained earnings and additional paid in capital as of January 1, 2016 by $773,208 and $862,920, respectively, in accordance with the provisions of this ASU. In addition, the Company has restated its net income by $494,596 and $666,815 for the three and nine months ended September 30, 2016, respectively, for the effect of the change in the fair value of the warrant liability. In addition, as of September 30, 2017, the Company has restated its net income by $765,106, which eliminates the year to date 2017 change to the warrant liability that was a component of net income, The cumulative effect of these restatements resulted in an increase to retained earnings amounting to $948,627 and additional paid in capital of $862,920 as of December 31, 2016.
13
As a result of the repricing of the warrants which occurred in connection with the April 2017 equity offering, the Company additionally recorded a dividend of $335,731 during the nine months ended September 30, 2017.
4. ~~STOCKHOLDERS'~~3. STOCKHOLDERS’ EQUITY
Preferred Stock
In ~~December 2014,~~June 2019, the Company amended and restated its ~~articles~~certificate of ~~incorporation to reduce the total number of authorized shares of preferred stock.~~incorporation. The amended and restated ~~articles~~certificate of incorporation ~~authorize~~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.

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Shelf Registration
On July ~~29, 2015,~~14, 2021, the ~~Company’s~~Company filed a registration statement on Form S-3 ~~as filed~~ with the SEC, which was amended on July 20, 2021 and declared effective by the SEC on July ~~23, 2015, was declared effective using a “shelf” registration process. Under this shelf registration statement,~~27, 2021 (as amended, the “2021 Shelf”). The 2021 Shelf enables the Company ~~may issue,~~to offer and sell, in one or more offerings, any combination of ~~Common Stock,~~common stock, preferred stock, senior or subordinated debt securities, warrants orand units, up to a total dollar amount of ~~$100~~$150 million.
~~April 5, 2017 Equity Offering~~
Open Market Sale Agreement with Jefferies LLC
On April 5, 2017, the Company closed on the sale of an aggregate of 2,222,222 shares of Common Stock pursuant to the Company's existing shelf registration statement (Registration No. 333-205806) on Form S-3. The Company received gross proceeds of approximately $10,000,000, based on a public offering price of $4.50 per share.On April 11, 2017, the Company closed the sale of an additional 333,333 shares of the Company’s Common Stock, pursuant to the underwriters’ full exercise of an over-allotment option. The Company received gross proceeds of approximately $1,500,000 as a result of the exercise of the option. As a result, the company received total gross proceeds of $11,500,000, and,~~after deducting the underwriting discounts and commissions and expenses related to the offering, the Company received total net proceeds of approximately$10,300,000. As a result of this offering, the exercise price of the warrants issued i~~n connection with the Company’s March 11, 2014 public offering was reduced to $4.50 in accordance with the pricing provisions of those warrants. There was no change in the number of warrants which were repriced. These warrants remain exercisable on a cash-only basis.
~~November 4, 2015 Controlled Equity Offering~~
~~On November 4, 2015,~~December 30, 2021, the Company entered into ~~a Controlled Equity Offering~~^SM ~~Sales~~an Open Market Sale Agreement (the ~~“Sales~~“Sale Agreement”) with ~~Cantor Fitzgerald and Co., as agent (“Cantor”~~Jefferies LLC (the “Agent”), pursuant to which the Company ~~may offer to~~could sell, from time to time, ~~through Cantor,~~at its option, shares of the Company’s ~~Common Stock,~~common stock having an aggregate offering price of up to ~~$25,000,000 (the “Shares”) Any Shares~~$25 million through the Agent, as the Company’s sales agent. All shares of the Company’s common stock offered and sold, ~~will~~or to be offered and sold under the Sale Agreement would have been issued and sold pursuant to the Company’s ~~shelf registration statement on Form S-3 (Registration No. 333-205806), and the related prospectus previously declared effective~~2021 Shelf by the Securities and Exchange Commission (the SEC) on July 29, 2015 (the “Registration Statement”), as supplemented by a prospectus supplement, dated November 4, 2015, which the Company filed with the SEC pursuant to Rule 424(b)(5) under the Securities Act.
~~Under the Sales Agreement, Cantor may sell Shares by any method permitted by law and~~methods deemed to be an “at the market offering” as defined in Rule ~~415~~415(a)(4) promulgated under the Securities Act of 1933, as amended, ~~including sales made directly on NASDAQ, on any existing trading market for~~in block transactions or if specified by the ~~Common Stock or to or through a market maker. In addition, under the Sales Agreement, Cantor may sell the Shares by any other method permitted by law, including~~Company, in privately negotiated transactions. ~~The Company may instruct Cantor not to sell Shares if the sales cannot be effected at or above the price designated by the Company from time to time.~~
14
The Company is not obligated to make any sales of Shares under the Sales Agreement, and if it elects to make any sales, the Company can set a minimum sales price for the Shares. The offering of Shares pursuantSubject to the ~~Sales Agreement will terminate upon the earlier of (a) the sale of all the shares subject to the Sales Agreement and (b) the termination~~terms of the Sales Agreement, ~~by Cantor~~the Agent is required to use their commercially reasonable efforts consistent with their normal sales and trading practices to sell the shares of the Company’s common stock from time to time, based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company ~~as permitted therein. From November 4, 2015 through December 31, 2015,~~may impose). The Company is required to pay the ~~Company~~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 ~~28,880 shares, generating net proceeds of approximately $225,000 under the Sales Agreement.~~thereunder, if any. There were no sales pursuant to the Sale Agreement during the year ended December 31, ~~2016.~~2022. During the three months ended ~~September 30, 2017,~~March 31, 2023, the Company sold ~~282,394~~197,665 shares of its common stock, generating net proceeds of approximately ~~1,659,000. As of September 30, 2017, approximately $196,000 of these proceeds was held in escrow~~$698,000. In addition, during the year ended December 31, 2022 and ~~not received and is included in prepaid expenses and other current assets in~~during the ~~accompanying balance sheet. From October 1, 2017 through November 7, 2017,~~three months ended March 31, 2023, the Company ~~sold 157,398 shares, generating net proceeds of~~paid approximately ~~980,000. (See Note 8). In~~$90,000 and $57,000, respectively, in expenses related to the ~~aggregate, the Company has sold 468,672 shares at an average selling price of $6.30 per share, generating net proceeds of approximately $2,863,000 under the terms of the Sales~~Sale Agreement.
The Company pays a commission rate of 3.0% of the aggregate gross proceeds from each sale of Shares and has agreed to provide Cantor with customary indemnification and contribution rights. In 2015, the Company reimbursed Cantor $50,000 for certain specified expenses in connection with the execution of the Sales Agreement.
The Company intends to use the net proceeds raised through “at the market” sales for research and development activities, which include the funding of additional clinical studies and costs of obtaining regulatory approvals in countries not covered by the CE Mark, capital expenditures and other costs necessary to expand production capacity, support of various sales and marketing efforts, product development and general working capital purposes.
As a result of the repricing of the warrants which occurred in connection with the April 2017 equity offering, the Company recorded a dividend of $335,731 during the nine months ended September 30, 2017.
Stock-Based Compensation
~~Stock Options:~~
Total share-based employee, director, and consultant compensation for the three months ended March 31, 2023 and ~~nine months ended September 30, 2017 and 2016~~2022, amounted to approximately ~~$960,000~~$830,000 and ~~$124,000 and $1,851,000 and $599,000,~~$787,000, respectively. These amounts are included in the ~~statement~~consolidated statements of operations ~~under the captions research~~ and ~~development ($28,000 and $29,000 for the three months ended September 30, 2017 and 2016, and $73,000 and $121,000 for the nine months ended September 30, 2017 and 2016) and~~comprehensive loss under selling, general and administrative ~~($932,000 and $95,000 for the three months ended September 30, 2017 and 2016, and $1,778,000 and $478,000 for the nine months ended September 30, 2017 and 2016).~~
expenses.
The summary of the stock option activity for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023, is as follows:

Weighted
Weighted Average
Average Remaining
Exercise Price Contractual
Shares per Share Life (Years)
Outstanding, December 31, 2016 2,762,177 $ 4.69 6.0

Weighted

Weighted

Average

Average

Remaining

Exercise Price

Contractual


Shares

per Share

Life (Years)
Outstanding, December 31, 2022

8,109,824

$
5.11

6.91
Granted 1,180,950 5.45 9.7

100,000

$
2.65

—
Forfeited (17,640 ) 4.65 —

(326,539)

$
2.40

—
Expired (32,120 ) 36.33 —

(186,309)

$
4.75

—
Exercised (74,180 ) 3.56 —

(18,000)

$
2.36

—
Outstanding, September 30, 2017 3,819,187 $ 4.68 6.8
Outstanding, March 31, 2023

7,678,976

$
5.21

6.60
15

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 ~~$3.45~~$1.55 to ~~$6.20~~$3.50 per share) and expected life of the stock option ~~(10~~(6 years), the current price of the underlying stock and its expected volatility ~~(ranging from 66.8% to 80.8%~~(70.4%), expected dividends (-0-%) percent) on the stock and the risk free interest rate ~~(1.24%~~(ranging from 3.54 to ~~1.85%~~4.22%) for the expected term of the stock option.

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The ~~aggregate~~ intrinsic value is calculated atas the difference between the market value of the shares as of ~~September 30, 2017~~March 31, 2023, of ~~$6.20~~$3.37 and the exercise price of the shares.

Options Outstanding Options Outstanding
Options Outstanding
Number Weighted Weighted

Number

Weighted

Weighted

Range of Outstanding at Average Average Aggregate

Outstanding at

Average

Average

Aggregate
Exercise September 30, Exercise Remaining Intrinsic

March 31,

Exercise

Remaining

Intrinsic
Price 2017 Price Life (Years) Value

2023

Price

Life (Years)

Value
$0.88 - $11.48 3,819,187 $ 4.68 6.8 $ 6,045,932
$1.11 - $13.20

7,678,976

$
5.21

6.60

$
3,340,513

Options Exercisable Options Exercisable
Options Exercisable
Number Number Weighted

Weighted



Exercisable at Exercisable at Average Aggregate

Average

Aggregate
September 30, Exercise Intrinsic
2017 Price Value
2,592,062 $ 4.31 $ 5,125,994

March 31,

Exercise

Intrinsic
2023

Price

Value
5,306,799

$
6.03

$
851,555

The summary of the status of the Company’s non-vested options for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023, is as follows:

Weighted
Average
Grant Date
Shares Fair Value

Non-vested, January 1, 2017 912,547 $ 2.55

Weighted

Average

Grant Date


Shares

Fair Value

Non-vested, December 31, 2022

3,486,739

$
2.10
Granted 1,180,950 0.58

100,000

$
1.73
Forfeited (1,000 ) 2.41

(326,539)

$
1.44
Vested (865,372 ) 2.36

(888,023)

$
2.55
Non-vested, September 30, 2017 1,227,125 $ 0.62
Non-vested, March 31, 2023

2,372,177

$
2.00

As of ~~September 30, 2017,~~March 31, 2023, the Company had approximately ~~$470,000~~$3,781,000 of total unrecognized compensation cost related to stock options which will ~~on average,~~ be amortized over ~~one year.~~
approximately 47 months.
On ~~February 24, 2017,~~August 10, 2022, the Board of Directors granted options to purchase ~~953,200~~1,365,000 shares of ~~Common Stock~~common stock to certain senior managers of the ~~Company’s employees~~Company which will only vest upon the achievement of certain specific, predetermined milestones related to the Company’s ~~2017 operations.~~long-term performance goals. The grant date fair value of these unvested options amounted to approximately ~~$3,284,000.~~$1,620,000. As of ~~September 30, 2017, the Company has determined that it has met or will probably meet 45 percent~~March 31, 2023, none of these milestones ~~which equates to a vesting of 45 percent of~~has been met. Accordingly, no charge for these ~~options. Accordingly, the Company~~options has been recorded ~~expense of approximately $821,000 for the three months and $1,478,000 for the nine months ended September 30, 2017~~ in the consolidated ~~statement~~statements of ~~operations.~~operations and comprehensive loss for the quarter ended March 31, 2023.
16
Change in Control-Based Awards of Restricted Stock Units:
~~In April 2015, the~~The Board of Directors ~~also~~has granted ~~960,000~~ restricted stock units ~~valued at $7,747,200,~~ to ~~Company employees and 240,000 restricted stock units, valued at $1,936,000, to the~~ members of the Board of Directors, ~~which~~to the Company’s executive officers, and to employees of the Company. These restricted stock units will only vest upon a Change in Control of the Company, as defined in the ~~Company’s~~Amended and Restated CytoSorbents Corporation 2014 Long-Term Incentive ~~Plan (a “Change in Control”). Of~~Plan.
The following table is a summary of these restricted stock ~~units granted to Company employees in April 2015, 75,000 have been forfeited. In June 2016, the Board~~units:

Restricted Stock Units


Board of

Executive

Other



Directors

Management

Employees

Total

Intrinsic Value
December 31, 2022

346,500

779,500

1,764,500

2,890,500

$
4,480,275
Granted

—

—

58,000

58,000

Forfeited

—

—

(114,250)

(114,250)

March 31, 2023

346,500

779,500

1,708,250

2,834,250

$
9,551,423

Table of Directors granted an additional 414,000 restricted stock units to Company employees, valued at $1,941,660 at the time of issuance, which will only vest upon a Change in Control, bringing the total amount of change of control restricted stock units outstanding to 1,539,000. In February 2017, the Board of Directors granted an additional 129,500 restricted stock options to Company employees, Directors, and consultants valued at approximately $725,200 at the time of issuance, which will only vest upon a Change in Control, bringing the total amount of Change of Control restricted stock units outstanding to 1,668,500. Contents

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 ~~statement~~statements of operations and comprehensive loss for the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2023 and 2022.
Other Awards of Restricted Stock Units:
~~Performance Based Stock Awards:~~
~~Pursuant to a review of the compensation of the~~On February 28, 2020, certain named executive officers and senior ~~management of the Company, on June 7, 2016, the Board of Directors~~managers were granted ~~80,000~~168,100 restricted stock ~~units to certain senior managers of the Company.~~units. These awards were valued at ~~$375,200~~approximately $1,014,000 at the date of issuance, based upon the market price of the Company’s ~~Common Stock~~common stock at the date of the grant, and vest one third on the date of the grant one third on the first anniversary of the date of the grant, and one third on the second anniversary of the date of the grant. ~~These awards are charged to expense over the period which they vest.~~ For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2023 and 2022, the Company recorded a charge of approximately ~~$31,000~~$0 and ~~$77,000~~a reduction of expense of approximately $(65,000), respectively, related to ~~the vested portion of~~ these restricted stock unit awards.
~~Pursuant to a review of the compensation of the~~On April 12, 2021, certain named executive officers and senior ~~management of the Company and managements’ performance in 2016, on February 24, 2017, the Board of Directors~~managers were granted ~~125,000~~235,765 restricted stock ~~units to certain senior managers of the Company in order to settle bonuses accrued as of December 31, 2016.~~units. These awards were valued at approximately ~~$700,000~~$2,120,000 at the date of issuance, based upon the market price of the Company’s ~~Common Stock~~common stock at the date of the grant, and vest one third on the date of the grant, one third on the first anniversary of the date of the grant, and one third on the second anniversary of the date of the grant. For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2023 and 2022, the Company recorded a charge of approximately ~~$58,000~~$177,000 and ~~$175,000~~$177,000, respectively, related to these restricted stock unit awards.
On August 10, 2022, certain named executive officers and senior managers were granted 288,500 restricted stock units. These awards were valued at approximately $563,000 at the date of issuance, based upon the market price of the Company’s common stock at the date of the grant, and vested (or will vest) one third on the date of the grant, one third on the first anniversary of the date of the grant, and one third on the second anniversary of the date of the grant. For the three months ended March 31, 2023 and 2022, the Company recorded a charge of approximately $47,000 and $0, respectively, related to these restricted stock unit awards.
Additionally, in 2021 certain employees were offered 91,750 restricted stock units and in 2022 certain employees were offered 30,000 restricted stock units, as a condition of their employment. These awards were valued at approximately $778,068 at the date of issuance. 45,000 of the restricted stock units valued at $375,750 were forfeited in 2022. 46,750 of these restricted stock units vest upon the earlier of a Change in Control or one-third after the second anniversary of the award, one-third on the third anniversary of the award, and one-third on the fourth anniversary of the award. The other 30,000 of these restricted stock units vest upon the earlier of a Change in Control or four years from the date of the award. For the three months ended March 31, 2023 and 2022, the Company recorded a charge of approximately $27,000 and $47,000 respectively, related to these restricted stock unit awards.
The following table outlines the restricted stock unit activity for the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2023:

Weighted
Average
Grant Date
Shares Fair Value

Non-vested, January 1, 2017 53,335 $ 4.69
Granted 125,000 5.60
Vested (68,332 ) 5.24
Non-vested, September 30, 2017 110,003 $ 5.38

Weighted

Average

Grant Date

Shares

Fair Value
Non-vested, December 31, 2022

312,092

$
4.42
Granted

30,000

$
2.14
Non-vested, March 31, 2023

342,092

$
4.22

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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 March 31, 2023:

United States

Distributors/

Government


Direct

Strategic Partners

Agencies

Total
Product sales:








United States

$
3,770

$
—

$
—

$
3,770
Germany

3,337,904

—

—

3,337,904
All other countries

1,502,599

3,065,766

—

4,568,365
Total product revenue

4,844,273

3,065,766

—

7,910,039
Grant and other income:

United States

—

—

1,539,457

1,539,457

Total revenue

$
4,844,273

$
3,065,766

$
1,539,457

$
9,449,496

The following table disaggregates the Company's revenue by customer type and geographic area for the three months ended March 31, 2022:

United States

Distributors/

Government


Direct

Strategic Partners

Agencies

Total
Product sales:








United States

$
57,592

$
154,750

$
—

$
212,342
Germany

3,783,526

—

—

3,783,526
All other countries

1,204,932

2,723,657

—

3,928,589
Total product revenue

5,046,050

2,878,407

—

7,924,457
Grant and other income:

United States

—

—

766,967

766,967

Total revenue

$
5,046,050

$
2,878,407

$
766,967

$
8,691,424

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 U.S. 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.

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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
~~Warrants:~~The Company has been the recipient of various grant contracts from various agencies of the United States government, primarily the Department of Defense, to perform various research and development activities. These contracts fall into one of the following categories:
1. Fixed price – the Company invoices the contract amount in equal installments over the term of the contract without regard to the timing of the costs incurred related to this contract. If billings on fixed price contracts exceed the costs incurred, revenue will be deferred to the extent of the excess billings.
2. Cost reimbursement – the Company submits monthly invoices during the term of the contract for the amount of direct costs incurred during that month plus an agreed 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.
3. Cost plus – this type of contract is similar to a cost reimbursement contract but this type also allows for the Company to additionally invoice for a fee amount that is included in the contract.
4. Performance based – the Company submits invoices only upon the achievement of the milestones listed in the contract. The amount to be invoiced for each milestone is documented in the contract.
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.
~~As of September 30, 2017,~~In summary, the contracts the Company has with customers are the ~~following warrants~~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 ~~Common Stock outstanding:~~
Number of Shares Warrant Exercise Warrant
To be Purchased Price per Share Expiration Date
113,600 $ 3.750 June 21, 2018
110,000 $ 3.125 September 30, 2018
48,960 $ 7.500 March 11, 2019
717,000 $ 4.500 March 11, 2019
30,000 $ 9.900 January 14, 2020
1,019,560
17
~~In connection~~levels, and contracts with ~~its March 11, 2014 offering,~~various government agencies related to the Company’s grants. The Company ~~issued warrants~~does not currently incur any outside/third party incremental costs to ~~purchase 816,000 shares of Common Stock. As of September 30, 2017, 717,000~~obtain any of these ~~warrants remain outstanding. These warrants have certain pricing provisions which apply if~~contracts. The Company does incur internal costs, primarily salary related costs, to obtain the contracts related to the grants. Company ~~sells or issues Common Stock or Common Stock equivalents at a price that is less than~~employees spend time reviewing the ~~exercise price~~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 ~~warrants,~~contract. These internal costs are expensed as incurred.

The following table provides information about receivables and contract liabilities from contracts with customers:

March 31, 2023

December 31, 2022
Contract receivables, which are included in grants and accounts receivable

$
4,005,019

$
3,822,452
Contract liabilities, which are included in accrued expenses and other current liabilities

$
1,617,195

$
1,682,837

Contract receivables represent balances due from product sales to distributors amounting to $3,329,854 and $2,944,031 at March 31, 2023 and December 31, 2022, respectively, and billed and unbilled amounts due on government contracts amounting to $675,165 and $878,421 at March 31, 2023 and December 31, 2022, 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 ~~is currently $4.50, over~~amounted to $176,647 and $166,065 at March 31, 2023 and December 31, 2022, respectively, and deferred grant revenue related to the ~~life~~billing on fixed price government contracts in excess of ~~the warrants, excluding certain exempt issuances. These warrants are exercisable on a cash-only basis.~~costs incurred, which amounted to $1,440,548 and $1,516,772 at March 31, 2023 and December 31, 2022, respectively.

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5. LONG-TERM DEBT, NET

~~Loan and Security Agreement:~~

On June 30, 2016, ~~(the ”Closing Date”),~~ the Company and its ~~wholly-owned~~wholly owned subsidiary, CytoSorbents Medical, Inc. (together, the “Borrower”), entered into a Loan and Security Agreement ~~(the “Loan and Security Agreement”)~~ with Bridge Bank, a division of Western Alliance Bank, (the “Bank”), pursuant to which the ~~Bank agreed to loan up to an aggregate of~~Company borrowed $10 million ~~to the Company, to be disbursed~~ in two equal tranches of $5 million (the ~~first~~“Original Term Loans”). On March 29, 2018, the Original Term Loans were refinanced with the Bank pursuant to an Amended and Restated Loan and Security Agreement by and between the Bank and the Borrower (the “Amended and Restated Loan and Security Agreement”), under which the Bank agreed to loan the Borrower up to an aggregate of $15 million to be disbursed in two tranches (1) one tranche ~~the~~of $10 million (the “Term A Loan”), which was funded on the Closing Date and used to refinance the Original Term Loans, and (2) a second tranche of $5 million which may be disbursed at the Borrower’s sole request prior to March 31, 2019 provided certain conditions are met (the “Term B Loan”, and together with the Term A Loan, ~~and Term B Loan together,~~ the “Term Loans”). ~~The~~On July 31, 2019, the Borrower entered into the First Amendment to the Amended and Restated Loan and Security Agreement (the “First Amendment”) with the Bank, which amended certain provisions of the Amended and Restated Loan and Security Agreement and the 2018 Success Fee Letter (the “2018 Letter”). In connection with the execution of the First Amendment, the draw period for the Term B Loan was extended to August 15, 2019 and the Company ~~received~~drew down the full $5.0 million Term B Loan on the Settlement Date, bringing the total outstanding debt to $15 million at July 31, 2019. The proceeds of ~~the Term A Loan on June 30, 2016 and the proceeds from Term Loan B on June 30, 2017. The proceeds from the~~ Term Loans ~~will be~~were used for ~~working capital purposes and to fund~~ general business requirements in accordance with the Amended and Restated Loan and Security Agreement. On December 4, 2020 (the “Third Amendment Closing Date”), the Company closed on the Third Amendment (the “Third Amendment”) of its Amended Loan and Security Agreement with Bridge Bank. Under the terms of the Amendment, the Company repaid the outstanding principal balance of its existing $15 million term loans and simultaneously received a commitment from Bridge Bank to provide a new term loan of $15 million, if needed. On January 19, 2022 (the “Fourth Amendment Closing Date”), the Company closed on the Fourth Amendment (the “Fourth Amendment”) of its Amended Loan and Security Agreement with Bridge Bank. Under the terms of the Amendment, the Company received a commitment from Bridge Bank to provide a new term loan of up to $15 million, if needed and entered into the Fourth Amendment Success Fee Letter (the “2022 Success Fee Letter”). On December 28, 2022 (the "Fifth Amendment Date"), the Company entered into the Fifth Amendment of its Amended Loan and Security Agreement with Bridge Bank. The Fifth Amendment extends the draw period under the Fourth Amendment to the earlier of (i) March 1, 2023 and (ii) the occurrence of an Event of Default. On March 9, 2023, the Company entered into the Sixth Amendment of its Amended Loan and Security Agreement. The ~~Term Loans~~Sixth Amendment further extended the draw period to March 24, 2023. Therefore, no further draws are ~~secured by substantially all~~available as of the ~~assets~~date of this filing.

The Fourth Amendment provides a tranche of term loans (the “Term C Loans”) in the aggregate amount of $15 million, which are available for the Company ~~with~~to draw down at its sole discretion in three tranches of $5 million each at any time during the ~~exception of any intellectual property. Outstanding balances~~period commencing on the Fourth Amendment Date and ending on the earlier of (i) December 31, 2022 and (ii) the occurrence of an Event of Default (as defined in the Amended Loan and Security Agreement). The Term C Loans shall bear interest at the ~~thirty (30) day US dollar LIBOR rate reported~~Index Rate (defined in the Amendment as the greater of 3.25% or the Prime Rate as published by the Wall Street Journal on the last business date of the month immediately preceding the month in which the interest will accrue) plus ~~7.75%, adjusted monthly. This rate was 8.98% at September 30, 2017.~~

~~On the Closing Date, the Company was required to pay a non-refundable closing fee of $50,000 and expenses incurred by the Bank related~~1.25%. Pursuant to the Loan and Security Agreement of $24,000. On June 30, 2017, in connection with the closing of Term Loan B, the Company was required to pay expenses incurred by the Bank of $1,560. In addition, the Company incurred legal expenses related to the Loan and Security Agreement of $44,833. These costs, which total $120,393, have been presented as a direct deduction from the proceeds of the loan on the consolidated balance sheet in accordance with the provisions of ASC 850. These costs are being amortized over the loan period as a charge toFourth Amendment, interest expense. For the three months ended September 30, 2017 and 2016, the Company recorded interest expense amounting to $7,558 and $7,427, respectively, related to these costs. For the nine months ended September 30, 2017 and 2016, the Company recorded interest expenses amounting to $22,413 and $7,427, respectively, related to these costs. After accounting for the various costs outlined above, the effective interest rate on the Term ~~A Loan was 10.0% as~~C Loans is subject to an interest rate cap of ~~June 30, 2016. Commencing on~~8.00%. On December 27, 2022, the Company drew down the first ~~calendar day~~$5 million tranche of the ~~calendar month after a~~ Term ~~Loan is made;~~C loans available under the terms of the Fourth Amendment. Under the terms of the Fourth Amendment, commencing on February 1, 2023, the Company is required to make monthly payments of interest only ~~during~~through December 2023. The interest-only period will be further extended through June 2024 provided the ~~term~~Company has met both the required reserves test and the seventy-five percent test, as set forth in the Fourth Amendment, as of ~~each Term Loan.~~November 30, 2023. Commencing on ~~February~~January 1, ~~2018, subject to certain conditions as outlined in~~2024, if the ~~Loan~~Company does not meet both the required reserves test and ~~Security Agreement. The~~the 75% test, the Company ~~is required to~~shall make equal monthly payments of principal of ~~$333,333,~~$208,333, together with accrued and unpaid interest. Commencing on July 1, 2024, if the Company meets both the required reserves test and the 75% test, the Company shall make equal monthly payments of principal of $277,778, together with accrued and unpaid interest. In either event, all unpaid principal and accrued and unpaid interest shall be due and payable in full on ~~July~~December 1, ~~2020.~~2025.

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On the Fourth Amendment Closing Date, the Company was required to pay a non-refundable closing fee of approximately $18,750, which was amortized as a monthly charge to interest expense. On the Third Amendment Closing Date, the Company paid a non-refundable closing fee of $75,000, which was amortized as a charge to interest expense. In addition, the Amended and Restated Loan and Security Agreement requires the Company to pay a non-refundable final fee equal to 2.5% of the principal amount of ~~each~~the Term Loan funded upon the earlier of the (i) ~~July 1, 2020~~the maturity date or (ii) termination of the Term ~~Loan~~Loans via acceleration or prepayment. This final fee is being accrued and charged to interest expense over the term of the loan. For the three months ended ~~September 30, 2017 and 2016,~~March 31, 2023, the Company recorded interest expense of ~~$18,229 and $7,813, respectively, related to the final fee. For the nine months ended September 30, 2017 and 2016, the Company recorded interest expense of $33,854 and $7,813, respectively,~~approximately $10,714 related to the final fee. The Term Loans ~~shall be~~are evidenced by ~~one or more~~a secured promissory ~~notes~~note issued to the Bank by the Company. If the Company elects to prepay the Term ~~Loan(s)~~Loans pursuant to the terms of the Amended and Restated Loan and Security Agreement, it will owe a prepayment fee to the Bank, as follows: (1) for a prepayment made on or after the funding date of a Term Loan through and including the first anniversary of such funding date, an amount equal to 2.0% of the principal amount of such Term Loan prepaid; (2) for a prepayment made after the first anniversary of the funding date of a Term Loan through and including the second anniversary of such funding date, an amount equal to 1.5% of the principal amount of such Term Loan prepaid; and (3) for a prepayment made after the second anniversary of the funding date of a Term Loan, ~~through June 30, 2020,~~ an amount equal to 1.0% of the principal amount of such Term Loan prepaid.

Events of default which may cause repayment of the Term Loans 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 requiredThe Company’s and CytoSorbents Medical, Inc.’s obligations under the ~~Loan~~Amended and Security Agreement and to cure such default within a reasonable time frame, (3) the occurrence of a Material Adverse Event (as defined in the Loan and Security Agreement), (4) the attachment or seizure of a material portion of the Borrower’s assets if such attachment or seizure is not released, discharged or rescinded within 10 days, and (5) if the Borrower becomes insolvent or starts an insolvency proceeding or if an insolvency proceeding is brought by a third party against the Borrower and such proceeding is not dismissed or stayed within 30 days. The Loan and Security Agreement includes customary loan conditions, Borrower representations and warranties, Borrower affirmative covenants and Borrower negative covenants for secured transactions of this type.

Effective with the issuance of Term Loan B on June 30, 2017, the Company is required to meet a financial covenant which requires the Company to achieve consolidated trailing six month revenue from product sales equal to at least 75% of the projected revenue for such period in accordance with financial projections supplied to the Bank by the Company.

~~The Borrower’s obligations under the~~Restated Loan and Security Agreement are joint and severable and are secured by a first priority security interest in favor of the Bank with respect to the Company’s Shares (as defined in the Amended and Restated Loan and Security Agreement) and the Borrower’s Collateral (as defined in the Amended and Restated Loan and Security Agreement, which definition excludes the Borrower’s intellectual property and other customary exceptions).

2018 Success Fee Letter:

~~In connection with the Loan and Security Agreement, the Borrower simultaneously entered into a Success Fee Letter (the “Letter”) with the Bank.~~ 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 ~~Loans~~B Loan (as defined in the Restated Loan and Security Agreement) (the “Success Fee”) upon the first occurrence of any of the following ~~events (each a “Liquidity Event”):~~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~~common stock on ~~NASDAQ~~the Nasdaq Capital Market being ~~$8.00~~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 ~~hereof) or more~~thereof) for five ~~successive business days.~~

If the Success Fee is due pursuant to a Liquidity Event described in clause (d) of the definition thereof, the Company may elect, in lieu of paying the Success Fee in cash, to issue and sell to the Bank, in exchange for the Success Fee, such number of shares of the Company’s Common Stock as would be equal to the quotient (calculated by rounding up the nearest whole number) obtained by dividing (a) the Success Fee by (b) the volume weighted average price per share of the Company’s Common Stock for the same 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 ~~which~~ the ~~closing price per share~~date of the ~~Company’s Common Stock caused~~funding of the ~~Success Fee to become payable. The Bank’s right to receive the Success Fee and the Borrower’s~~Term B Loan. This obligation ~~to pay such Success Fee~~shall terminate on ~~June 30, 2021,~~the fifth anniversary of the funding of the Term B Loan and shall survive the termination of the loan agreement and the prepayment of the Term B Loan.

2022 Success Fee Letter:

Pursuant to the 2022 Success Fee Letter, the Borrower will pay to the Bank a success fee equal to (i) 1% of $5 million if the Company draws down the first tranche of the Term C Loan and ~~Security~~is payable only if the Company’s stock price equals or exceeds $8 for five consecutive trading days; (ii) 1.5% of $5 million if the Company draws down the second tranche of the Term C Loan and is payable only if the Company’s stock price equals or exceeds $10 for five consecutive trading days; and (iii) 2% of $5,000,000 if the Company draws down the third tranche of the Term C Loan and is payable only if the Company’s stock price equals or exceeds $12 for five consecutive trading days (together, the “Success Fee”). Borrower may pay the Success Fee in cash or in shares of common stock, at Borrower’s sole discretion. The right of Bank to receive the Success Fees and the obligation of the Borrower to pay the Success Fees hereunder shall terminate on the date that is 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.

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Long-term debt consists of the following ~~at September 30, 2017:~~as of March 31, 2023:

September 30, 2017 December 31, 2016

Principal amount $ 10,000,000 $ 5,000,000

$
5,000,000
Less unamortized debt acquisition costs (83,124 ) (103,978 )
Plus accrued final fee 49,479 15,625
Accrued final fee

10,714
Subtotal 9,966,355 4,911,647

5,010,714
Less Current maturities 3,000,000 833,333

—
Long-term debt net of current maturities $ 6,966,355 $ 4,078,314

$
5,010,714

~~Annual principal~~Principal payments of long-term debt are due as follows ~~at September 30,:~~during the periods ending March 31:

2018 $ 3,000,000
2019 4,000,000
2020 3,000,000
Total $ 10,000,000

2024

$
—
2025

2,500,000
2026

2,500,000
Total

$
5,000,000

6. ~~COMMITMENTS AND CONTINGENCIES~~

6.    COMMITMENTS AND CONTINGENCIES
Payroll Tax Examination
In December 2021, the Company was notified that its European subsidiary, CytoSorbents Europe GmbH, would be subject to an audit of their payroll tax and social cost filings for the four-year period from 2018 through 2021. The Company has determined that payroll taxes and social costs were not paid on certain employee expense reimbursements as is required by German tax rules. Accordingly, the Company accrued approximately $598,000 as an estimate of this liability as of December 31, 2021. In January 2023, the Company received an assessment from the German tax authorities for the payroll tax audit of approximately $90,000. In addition, it was determined that the Company would owe additional social security and VAT taxes related to this matter of approximately $83,000. Accordingly, the Company has adjusted its accrual related to this payroll tax audit to approximately $173,000 as of December 31, 2022. As of March 31, 2023, approximately $83,000 remains accrued. This liability is included in accrued expenses and other current liabilities in the consolidated balance sheet as of December 31, 2022 and March 31, 2023. The expense related to this examination was included in selling, general and administrative expenses on the consolidated statements of operations and comprehensive loss.
Employment Agreements
On July ~~14, 2015,~~30, 2019, CytoSorbents Corporation entered into amended and restated executive employment agreements with its principal executives, Dr. Phillip P. Chan, ~~President and~~ Chief Executive Officer, Vincent Capponi, President and Chief Operating Officer, and Kathleen P. Bloch, the Company’s former Chief Financial Officer. Each of ~~these~~the agreements has an initial term of three years and iswas retroactively effective as of January 1, ~~2015.~~2019. On ~~May 30, 2017,~~April 12, 2020, CytoSorbents Corporation ~~announced the appointment of~~entered into an executive employment agreement with Dr. ~~Eric R. Mortensen~~Efthymios Deliargyris, who began employment as ~~the Company’s~~ Chief Medical Officer ~~pursuant to the terms of an employment agreement dated~~on May ~~23, 2017. Dr. Mortensen’s employment agreement provides for~~1, 2020, with an initial term ~~commencing on June 1, 2017 and ending~~that expired on December 31, ~~2019. These~~2021. After the expiration of the initial terms, the employment agreements will automatically renew for additional terms of one year unless either party provides written notice of non-renewal at least 60 days prior to a renewal. In January 2023, these employment agreements automatically renewed for an additional one year.
The foregoing employment agreements each provide for base salary and other customary benefits which include participation in group insurance plans, paid time off and reimbursement of certain ~~business related~~business-related expenses, including travel and continuing educational expenses, as well as bonus and/or equity awards at the discretion of the Board of Directors. In addition, the agreements provide for certain termination benefits in the event of termination without ~~Cause~~“Cause” or voluntary termination of employment for “Good Reason”, as defined in each agreement. The agreements also provide for certain benefits in the event of a ~~Change in Control~~“Change of Control” of the Company, as defined in each agreement.

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Effective March 31, 2023, Ms. Bloch retired from her role as Chief Financial Officer of the Company. Ms. Bloch’s employment agreement expired on March 31, 2023, upon her retirement from the Company. In connection with Ms. Bloch’s retirement, the Company and Ms. Bloch entered into a Consulting Agreement, dated as of March 31, 2023 (the “Consulting Agreement”), pursuant to which Ms. Bloch will serve as a consultant to the Company and as the Company’s Interim Chief Financial Officer. In accordance with the terms of the Consulting Agreement, Ms. Bloch will continue to provide services to the Company which are customary in scope to those typically provided by a public company Chief Financial Officer. Unless terminated earlier by Ms. Bloch or by the Company upon fourteen days written notice, the Consulting Agreement will remain in effect until December 31, 2025, and thereafter as mutually agreed between the Company and Ms. Bloch.

Litigation

The Company is, from time to time, subject to claims and litigation arising ~~out of~~in the ordinary course of business. The Company intends to defend vigorously against any future claims and litigation. The Company is not currently a party to any legal proceedings.

Royalty Agreements

Pursuant to an agreement dated August 11, 2003, an existing investor agreed to make a $4 million equity investment in the Company. These amounts were received by the Company in 2003. In connection with this agreement the Company granted the investor a ~~future~~perpetual royalty of 3% on all gross revenues received by the Company from the sale of its CytoSorb ~~device.~~device which such rights were assigned to an existing investor in 2017. For the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, the Company recorded royalty expenses of approximately $234,000 and $232,000, respectively. These expenses are included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.

On August 1, 2022, the Company entered into the Marketing Agreement with Fresenius, which expands the Company’s strategic partnership with Fresenius by establishing a multi-stage global collaboration to combat life-threatening diseases in critical care. The Marketing Agreement has an initial term of three years, with an automatic renewal for an additional two years at the end of such initial term, subject to earlier termination by either of the parties (the “Term”). To help support the increased marketing and promotional efforts of the expanded collaboration, CytoSorbents has agreed to subsidize a portion of the marketing costs through a royalty payment to Fresenius Medical Care based on CytoSorb sales in the intensive care unit on Fresenius Medical Care platforms, excluding the United States. To help support the increased marketing and promotional efforts of the expanded collaboration, the Company has ~~recorded~~agreed to subsidize a portion of the marketing costs through royalty ~~costs~~payments to Fresenius. Initially, the Marketing Agreement provides for royalty payments equal to 0.9% of ~~approximately $101,000 and $63,000, respectively.~~the Company’s net sales of CytoSorb products made during the Term (excluding net sales in the United States). This initial royalty rate was determined based on certain assumptions regarding the percentage of the Company’s sale of CytoSorb products that are used with the Fresenius critical care platforms in the intensive care unit outside of the United States but is subject to adjustment if the Company determines that the underlying assumptions have changed significantly. For the ~~nine~~three months ended ~~September 30, 2017 and 2016,~~March 31, 2023, the Company ~~has recorded royalty costs of approximately $267,000 and $165,000, respectfully.~~

did not record any expense related to this agreement as Fresenius did not commence any marketing activities as defined by the agreement.

License ~~Agreements~~

Agreement

In ~~August~~an agreement dated September 1, 2006, the Company entered into a license agreement which provides the Company the exclusive right to use its patented technology and proprietary know how relating to adsorbent polymers for a period of 18 ~~years, which expires on August 7, 2024.~~years. Under the terms of the agreement, the Company has agreed to pay ~~royalties~~license fees of 2.5% to 5% on the sale of certain of its products if and when those products are sold commercially for a term not greater than 18 ~~years.~~years commencing with the first sale of such product. For the three months ended March 31, 2023 and 2022 per the terms of the license agreement, the Company recorded licensing expenses of approximately $390,000 and $387,000, respectively. These expenses 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 lasted until September 30, ~~2016 and 2015,~~2021. The lease also contains two five-year renewal options; however, the Company has determined that it is not likely that they will exercise these options. Commencing on September 30, 2021, the remaining lease term will last for 15.5 years. The lease requires monthly rental payments of $25,208 for the Initial Early Term, $88,254 for the Early Term and initial monthly payments of approximately $111,171 in the first year of the remaining term. Following the first year of the remaining term, the annual base rent will increase by approximately 2.75% annually over the remaining term. The lease also contains six months of rent abatement (months 1, 2, 3, 25, 26 and 27 of the remaining lease term). In addition to the base rent, payments of operating expenses and real estate taxes will be required. These payments are to be based on actual amounts incurred during 2021 multiplied by the Company’s share of the total building space (92.3%). The landlord will also provide an allowance of approximately $1,455,000 related to certain building improvements as outlined in the lease. In April 2021, the Company provided the landlord with a letter of credit in the amount of approximately $1,467,000 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 ~~royalty~~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 ~~$169,000~~$239 and ~~$84,000, respectively. For~~has a term of five years. The lease also has an option to extend the ~~nine months ended September 30, 2017~~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 ~~2016,~~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 facilities as the Company has ~~recorded royalty costs~~determined that it is probable that the renewal options will be exercised under each of the lease agreements. The discount rate used was the Company’s incremental borrowing rate, which is 9.8%, as the Company could not determine the rate implicit in the lease. As a result, the value of the right-of- use asset and related lease liability is as follows:

March 31,

December 31,


2023

2022
Right-of-use asset

$
12,469,905

$
12,603,901

Total lease liability

$
13,172,387

$
13,250,944
Less current portion

(111,627)

(108,939)
Lease liability, net of current portion

$
13,060,760

$
13,142,005

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The maturities of the lease liabilities are as follows as of March 31, 2023:

2024

$
1,275,860
2025

1,666,361
2026

1,705,626
2027

1,745,970
2028

1,787,423
Thereafter

16,780,192
Total lease payments

24,961,432
Present value discount

(11,789,045)
Total

$
13,172,387

For the three months ended March 31, 2023 and 2022, operating cash flows paid in connection with operating leases amounted to approximately ~~$446,000~~$633,000 and ~~$220,000, respectfully.~~$713,000, respectively.
As of March 31, 2023 and December 31, 2022, the weighted average remaining lease term was 13.4 years and 13.6 years, respectively.
7.
8. NET LOSS PER SHARE
Basic loss per share and diluted loss per share for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 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 ~~4,948,750~~10,855,000 and ~~4,058,557~~8,825,000 incremental shares ~~at September 30, 2017~~as of March 31, 2023 and ~~2016~~2022, respectively, have been excluded from the computation of diluted loss per share ~~for the three and nine months ended September 30, 2017 and 2016~~ as they are anti-dilutive.
8. ~~SUBSEQUENT EVENT~~

~~From October 1, 2017 through November 7, 2017, the Company sold 157,398 shares of its Common Stock under the terms of its Controlled Equity Offering~~^SM Sales Agreement with Cantor Fitzgerald and Co. The sale of these shares generated net proceeds of approximately $980,000, bringing the total net proceeds generated under the agreement to approximately $2,863,000. (See Note 4).
21
23

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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 ~~the~~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
This discussion of our financial condition and the results of operations should be read together with the financial statements, including the notes contained elsewhere in this Quarterly Report on Form 10-Q, and the financial statements, including the notes thereto, contained in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 3, 2017.
We are a leader in ~~critical~~the treatment of life-threatening conditions in the intensive care ~~immunotherapy, investigating~~(“ICU”) and ~~commercializing our CytoSorb~~cardiac surgery using blood purification ~~therapy~~via our proprietary polymer adsorption technology. We have a number of products commercialized and in development based on this technology platform. Our flagship product, CytoSorb^®, is already commercialized, and is being used to reduce deadly uncontrolled inflammation and dangerous substances in hospitalized patients around the world, with the goal of preventing or treating multiple organ failure, ~~in life-threatening illnesses~~bleeding, and ~~cardiac surgery.~~other potentially fatal complications. Organ failure is the cause of nearly half of all deaths in the ~~intensive care unit (“ICU”),~~ICU, with little to improve clinical outcome. CytoSorb ~~our flagship product,~~ is approved in the European Union (“EU”) as ~~a safe and~~an effective extracorporeal cytokine ~~filter and is~~absorber, designed to reduce the “cytokine storm” or “cytokine release syndrome” that could otherwise cause massive inflammation, organ failure and death in common critical illnesses such as sepsis, burn injury, trauma, lung injury, liver failure, cytokine release syndrome due to cancer immunotherapy, and pancreatitis. These are conditions where the mortality is extremely high, yet few to no effective treatments exist. In ~~addition,~~May 2018, we received a label expansion for CytoSorb covering use of the device for the removal of bilirubin and myoglobin in the treatment of liver disease and trauma, respectively. In January 2020, we received CE-Mark label expansion for CytoSorb covering the use of the device for the removal of the anti-platelet agent, ticagrelor, in patients undergoing surgery requiring cardiopulmonary bypass. In April 2020, the United States Food and Drug Administration (the “FDA”) granted Breakthrough Device Designation to CytoSorb for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery. In April 2020, we announced that the U.S. FDA has granted U.S. Emergency Use Authorization (“EUA”) of CytoSorb for use in critically ill patients with COVID-19 infection and respiratory failure. In May 2020, we received a CE-Mark label expansion for CytoSorb for the removal of rivaroxaban during cardiothoracic surgery requiring cardiopulmonary bypass. In August 2021, the Company announced that it was granted a second Breakthrough Device Designation for its DrugSorb-ATR Antithrombotic Removal System by the FDA to remove the direct oral anticoagulants, rivaroxaban and apixaban. The Company has initiated a pivotal randomized, controlled clinical trial in the U.S. and Canada, called the STAR-T trial, evaluating the use of DrugSorb-ATR during cardiothoracic surgery to remove ticagrelor to prevent or reduce perioperative bleeding complications in pursuit of U.S. FDA and Health Canada marketing approval.

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CytoSorb is used during and after cardiac surgery to remove inflammatory mediators, such as cytokines, activated complement, and free hemoglobin that can lead to post-operative complications such as acute kidney injury, lung injury, and shock. We believe CytoSorb has the potential to be used in many other inflammatory conditions, ~~such as cardiac surgery,~~including the treatment of autoimmune disease flares, ~~and potentially for cancer,~~ cytokine release syndrome in cancer immunotherapy, and other applications in cancer, ~~cachexia, a common syndrome that affects~~such as cancer ~~patients, where cytokines play a major role in the cause of inflammation.~~cachexia. CytoSorb has been used globally in more than ~~31,000~~203,000 human treatments to ~~date.~~ date in critical illnesses and in cardiac surgery. CytoSorb has received CE-Mark label expansions for the removal of bilirubin (liver disease), myoglobin (trauma) and both ticagrelor and rivaroxaban during cardiothoracic surgery. CytoSorb has also received FDA Emergency Use Authorization in the United States for use in critically ill COVID-19 patients with imminent or confirmed respiratory failure, in defined circumstances. The EUA will be effective until a declaration is made that the circumstances justifying the EUA have terminated or until revoked by the FDA. CytoSorb has been used globally in more than 7,650 COVID-19 patients todate. CytoSorb has also been granted FDA Breakthrough Designation for the removal of ticagrelor in a cardiopulmonary bypass circuit during emergent and urgent cardiothoracic surgery. CytoSorb was also granted a second FDA Breakthrough Device designation for the removal of the Direct Oral Anticoagulants (DOACs) apixaban and rivaroxaban in a cardiopulmonary bypass circuit to reduce the likelihood of serious perioperative bleeding during urgent cardiothoracic surgery.

We are focusing on three key objectives that we believe are the key to driving sustainable, long-term growth:

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Open the U.S. market by obtaining FDA Marketing approval for DrugSorb™-ATR to remove blood thinning drugs during cardiothoracic surgery (see Clinical Studies Update)

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Grow core CytoSorb sales to profitability, driven by numerous internal initiatives (see Sales and Marketing Update)

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Reduce cash burn and maintain tight control over expenses.

Our 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. The technology is protected by 19 issued U.S. patents and multiple international patents, with applications pending both in the U.S. and internationally. We have numerous ~~products~~other product candidates under development based upon this unique blood purification ~~technology. As of September 30, 2017, we own 32 issued United States patents~~technology, including CytoSorb XL, K+ontrol, HemoDefend-RBC, HemoDefend-BGA, ContrastSorb, DrugSorb, DrugSorb-ATR and have multiple issued and multiple pending patent applications in major markets worldwide. Our patent portfolio includes 16 issued United States patents as well as multiple issued and pending patent applications in major markets worldwide directed to various compositions and methods of use related to our blood purifications technologies, which are expected to expire between 2018 and 2031, absent any patent term extensions.

In March 2011, CytoSorb, as an extracorporeal cytokine filter indicated for use in clinical situations where cytokines are elevated, was “CE marked” in the EU, allowing for commercial marketing. The CE mark demonstrates that a conformity assessment has been carried out and the product complies with the Medical Devices Directive. The goal of CytoSorb is to prevent or treat organ failure by reducing cytokine storm and the potentially deadly systemic inflammatory response syndrome (“SIRS”) in diseases such as sepsis, trauma, burn injury, acute respiratory distress syndrome, pancreatitis, cytokine release syndrome in cancer immunotherapy, liver failure, and many others. Organ failure is the leading cause of death in the ICU, and remains a major unmet medical need, with little more than supportive care therapy (e.g., mechanical ventilation, dialysis, vasopressors, fluid support, etc.) as treatment options. By potentially preventing or treating organ failure, CytoSorb may improve clinical outcome, including survival, while reducing the need for costly ICU treatment, thereby potentially saving significant healthcare costs.

Our CE Mark enables CytoSorb to be sold throughout the European Union and member states of the European Economic Area. In addition, many countries outside the EU accept the CE Mark for medical devices, but may also require registration with or without additional clinical studies. The broad indication for which CytoSorb is CE marked allows it to be used “on-label” in diseases where cytokines are elevated including, but not limited to, critical illnesses such as those mentioned above, autoimmune disease flares, cancer cachexia, and many other conditions where cytokine-induced inflammation plays a detrimental role.

As part of the CE Mark approval process, we completed our randomized, controlled, European Sepsis Trial amongst 14 trial sites in Germany in 2011, with enrollment of 100 patients with sepsis and respiratory failure. The trial established that CytoSorb was sufficiently safe in this critically-ill population to support the CE Mark, and demonstrated the clearance of key cytokines.

In addition to CE marking, we also achieved ISO 13485:2003 Full Quality Systems certification, an internationally recognized quality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design, develop, manufacture and distribute medical devices in the EU. We manufacture CytoSorb at our manufacturing facilities in New Jersey for commercial sales abroad and for additional clinical studies. In September 2016, we were granted a three-year renewal for the CytoSorb CE Mark. In June 2017, we successfully completed an ISO 13485:2003 annual surveillance audit maintaining our good standing with our Notified Body.

From September 2011 through June 2012, we began a controlled market release of CytoSorb in select geographic territories in Germany. The purpose of this program was to prepare for commercialization of CytoSorb in Germany in terms of manufacturing, reimbursement, logistics, infrastructure, marketing, contacts, and other key issues.

In late June 2012, following the establishment of CytoSorbents Europe GmbH, a wholly-owned operating subsidiary of CytoSorbents Corporation, we began the commercial launch of CytoSorb in Germany with the hiring of Dr. Christian Steiner as Vice President of Sales and Marketing and three additional sales representatives who joined us and completed their sales training during the third quarter of 2012. The fourth quarter of 2012 represented the first quarter of direct sales with the four-person sales team in place. During this period, we expanded our direct sales efforts to include both Austria and Switzerland.

Fiscal year 2013 represented the first full year of CytoSorb commercialization. We focused our direct sales efforts in Germany, Austria and Switzerland with four sales representatives. The focus of the team was to encourage acceptance and usage by key opinion leaders (“KOLs”) throughout these countries. We believe our relationships with KOLs have been essential to drive adoption and recurrent usage of CytoSorb, facilitate purchases by hospital administration, arrange reimbursement, and generate data for papers and presentations. In addition, many of these KOL’s have been responsible for organizing more than 60 investigator initiated studies in Europe and abroad using CytoSorb, with approximately half in the planning stages, and half started, enrolling, or completed in multiple applications including sepsis, cardiac surgery, lung injury, trauma, pancreatitis, liver failure, kidney failure, and others. These studies are being supported by our European Medical Director.

In March 2016, we established CytoSorbents Switzerland GmbH, a wholly-owned subsidiary of CytoSorbents Europe GmbH, our wholly-owned subsidiary, to augment marketing and direct sales in Switzerland. This indirect subsidiary began operations during the second quarter of 2016. In the third quarter of 2016, we expanded our direct sales force efforts to include Belgium and Luxembourg.

~~As of November 1, 2017, our sales force includes 14 direct sales representatives, one contract sales person, 14 sales support staff, and multiple consultants.~~

We have complemented our direct sales efforts with sales to distributors and/or corporate partners. In 2013, we reached agreements with distributors in the United Kingdom, Ireland, the Netherlands, Russia and Turkey. In April 2014, we announced the distribution of CytoSorb in the Middle East, including Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain, and Oman (the Gulf Cooperative Council (“GCC”)) and Yemen, Iraq, and Jordan through an exclusive agreement with TechnoOrbits. In December 2014, we entered into an exclusive agreement with Smart Medical Solutions S.R.L., to distribute CytoSorb for critical care applications in Romania and the neighboring Republic of Moldova. In 2015, we announced exclusive distribution agreements with Aferetica SRL to distribute CytoSorb in Italy, AlphaMedix Ltd. to distribute CytoSorb in Israel, TekMed Pty Ltd. to distribute CytoSorb in Australia and New Zealand, and Hoang Long Pharma to distribute CytoSorb in Vietnam. In June 2016, we announced an exclusive distribution agreement with Palex Medical SA to distribute CytoSorb in Spain and Portugal. In September 2016, we announced an exclusive agreement with Armaghan Salamat Kish Group (Arsak) to distribute CytoSorb in Iran. In October 2016, we announced an exclusive agreement with Foxx Medical Chile SpA to distribute CytoSorb in Chile. In July 2017, we announced an exclusive agreement with Drogueria Ramon Gonzalez Revilla (DRGR) S.A. to distribute CytoSorb in Panama.

We have been expanding our strategic partnerships by number and scope. In September 2013, we entered into a strategic partnership with Biocon Ltd., India’s largest biopharmaceuticals company, with an initial distribution agreement for India and select emerging markets, under which Biocon has the exclusive commercialization rights for CytoSorb initially focused on sepsis. In October 2014, the Biocon partnership was expanded to include all critical care applications and cardiac surgery. In addition, Biocon committed to higher annual minimum purchases of CytoSorb to maintain distribution exclusivity and committed to conduct and publish results from multiple investigator initiated studies and patient case studies.

In December 2014, we entered into a multi-country strategic partnership with Fresenius Medical Care AG & Co KGaA (“Fresenius”) to commercialize the CytoSorb therapy. Under the terms of this agreement, Fresenius has exclusive rights to distribute CytoSorb for critical care applications in France, Poland, Sweden, Denmark, Norway, and Finland. The partnership allows Fresenius to offer an innovative and easy way to use blood purification therapy for removing cytokines in patients that are treated in the ICU. To promote the success of CytoSorb, Fresenius agreed to also engage in the ongoing clinical development of the product. This includes the support and publication of a number of small case series and patient case reports as well as the potential for future larger, clinical collaborations. Fresenius launched the product in these six countries in May 2016. In January 2017, the Fresenius partnership was expanded. The terms of the revised three-year agreement extend Fresenius’ exclusive distributorship of CytoSorb for all critical care applications in their existing territories through 2019 and include guaranteed minimum quarterly orders and payments, evaluable every one and a half years. In addition, we have entered into a new comprehensive co-marketing agreement with Fresenius. Under the terms of the agreement, CytoSorbents and Fresenius will jointly market CytoSorb and Fresenius’ CytoSorb compatible blood tubing sets to Fresenius’ critical care customer base in all countries where CytoSorb is being actively commercialized. CytoSorb will continue to be sold by our direct sales force or through our international network of distributors and partners, while Fresenius will sell all ancillary products to their customers. Fresenius will also provide a written endorsement of CytoSorb for use with their multiFiltrate and multiFiltratePRO acute care dialysis machines that can be used by us and our distribution partners to promote CytoSorb worldwide. Training and preparation for this co-marketing program began in 2017 and is ongoing, with implementation of the co-marketing program underway in certain initial countries.

In September 2016, we entered into a multi-country strategic partnership with Terumo Cardiovascular Group to commercialize CytoSorb for cardiac surgery applications. Under the terms of the agreement, Terumo has exclusive rights to distribute the CytoSorb cardiopulmonary bypass (“CPB”) procedure pack for intra-operative use during cardiac surgery in France, Sweden, Denmark, Norway, Finland and Iceland. Terumo launched the product in these six countries in December 2016.

In March 2017, we entered into a partnership with Dr. Reddy’s Laboratories Ltd. for the South African market. Under the terms of the agreement, Dr. Reddy’s has the exclusive right to distribute CytoSorb for intensive care, cardiac surgery, and other hospital applications in South Africa. This is a multi-year agreement and is subject to annual minimum purchases of CytoSorb to maintain exclusivity.

~~We are currently evaluating other potential distributor and strategic partner networks in other major countries where we are approved to market the device.~~

Concurrent with our commercialization plans, we intend to conduct or support additional clinical studies in sepsis, cardiac surgery, and other critical care diseases to generate additional clinical data to expend the scope of clinical experience for marketing purposes, to increase the number of treated patients, and to support potential future publications. We have completed a single arm, dose ranging trial in Germany amongst several clinical trial sites to evaluate the safety and efficacy of CytoSorb when used 24 hours per day for seven days, each day with a new device, and are conducting final statistical analysis of the data. Patients are being stratified for age, cytokine levels, and co-morbid illnesses in this matched pairs analysis.

In addition, we now have more than 60 investigator-initiated studies planned, with approximately half in an advanced stage, enrolling or ready to enroll, or completed around the world. These trials, which are funded and supported by well-known university hospitals and KOLs, are the equivalent of Phase II clinical studies. They will provide invaluable information regarding the success of the device in the treatment of sepsis, cardiac pulmonary bypass surgery, trauma, and many other indications, and if successful, are expected to be integral in helping to drive additional usage and adoption of CytoSorb.

In January 2017 we launched the VetResQ product for specific use with the veterinary market, following registration with the FDA. VetResQ serves a niche veterinary market and will take some time to develop. Initial market entry will be with large academic institutions. The product line is composed of three different product sizes for treatment of small animals such as cats to larger animals, such as dogs weighing over 50 kilograms.

In February 2015, the U.S. Food and Drug Administration (“FDA”) approved our Investigational Device Exemption (“IDE”) application to commence a planned U.S. cardiac surgery feasibility study called REFRESH I (REduction of FREe Hemoglobin) amongst 20 patients and three U.S. clinical sites. The FDA subsequently approved an amendment to the protocol, expanding the trial to be a 40-patient randomized controlled study (20 treatment, 20 control) in eight clinical centers. REFRESH I represents the first part of a larger clinical trial strategy intended to support the approval of CytoSorb in the U.S. for intra-operative use during cardiac surgery.

The REFRESH I study was designed to evaluate the safety and feasibility of CytoSorb when used intra-operatively in a heart-lung machine to reduce plasma free hemoglobin (pfHb) and cytokines in patients undergoing complex cardiac surgery. The study was not powered to measure effect on clinical outcomes. The length, complexity and invasiveness of these procedures cause hemolysis and inflammation, leading to high levels of plasma free hemoglobin, cytokines, activated complement, and other substances. These inflammatory mediators are correlated with the incidence of serious post-operative complications such as kidney injury, renal failure and other organ dysfunction. The goal of CytoSorb is to actively remove these inflammatory and toxic substances as they are being generated during the surgery and reduce complications. Enrollment was completed with 46 patients, on which safety was assessed. A total of 38 patients were evaluable for pfhB and completed all aspects of the study.

The primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma free hemoglobin levels, respectively. On October 5, 2016, we announced positive top-line safety data. In addition, following a detailed review of all reported adverse events in a total of 46 enrolled patients, the independent Data Safety Monitoring Board (“DSMB”) found no safety concerns related to the CytoSorb device, achieving the primary safety endpoint of the trial. In addition, the therapy was well-tolerated and technically feasible, implementing easily into the cardiopulmonary bypass circuit without the need for an additional external blood pump. This study represents the first randomized controlled trial demonstrating the safety of intra-operative CytoSorb use in patients undergoing high risk cardiac operations.

Investigators of the REFRESH I trial submitted an abstract with data, including free hemoglobin data, from the REFRESH I trial which was selected for a podium presentation at the American Association of Thoracic Surgery conference on May 1, 2017. On May 5, 2017, we announced additional REFRESH I data, including data on the reduction of plasma free hemoglobin and activated complement from the study and disclosed that investigators of the study have submitted a manuscript of the REFRESH I trial for publication.

The Company has recently met with the FDA regarding REFRESH 2, intended to be a pivotal, registration trial for US approval, to discuss trial design and address any clinical and technical questions. In parallel, the Company initiated discussions with previous trial sites that participated in the REFRESH I study that are familiar with the CytoSorb device and intraoperative use during CPB. The Company believes using sites that previously participated in REFRESH I will accelerate the process of site startup and a planned fourth quarter 2017 launch of REFRESH 2.

The market focus for CytoSorb is the prevention or treatment of organ failure in life-threatening conditions, including commonly seen illnesses in the ICU such as infection and sepsis, trauma, burn injury, ARDS, complications of cancer immunotherapy, and others. Severe sepsis and septic shock, a potentially life-threatening systemic inflammatory response to a serious infection, accounts for approximately 10% to 20% of all ICU admissions and is one of the largest target markets for CytoSorb. Sepsis is a major unmet medical need with no approved products in the U.S. or Europe to treat it. As with other critical care illnesses, multiple organ failure is the primary cause of death in sepsis. When used with standard of care therapy, that includes antibiotics, the goal of CytoSorb in sepsis is to reduce excessive levels of cytokines and other inflammatory toxins, to help reduce the SIRS response and either prevent or treat organ failure.

In addition to the sepsis indication, we intend to conduct or support additional clinical studies in sepsis, cardiac surgery, and other critical care diseases where CytoSorb could be used, such as ARDS, trauma, severe burn injury, acute pancreatitis, and in other acute conditions that may benefit by the reduction of cytokines in the bloodstream. Some examples include the prevention of post-operative complications of cardiac surgery (cardiopulmonary bypass surgery) and damage to organs donated for transplant prior to organ harvest. We intend to generate additional clinical data to expand the scope of clinical experience for marketing purposes, to increase the number of treated patients, and to support potential future publications.

Our proprietary ~~hemocompatible porous~~ polymer ~~bead technology forms~~technologies form the basis of a broad technology portfolio. Some of our products and product candidates include:

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CytoSorb -— an extracorporeal hemoperfusion cartridge approved in the EU for cytokine removal, with the goal of reducing SIRS and sepsis and preventing or treating organ failure.

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DrugSorb-ATR — an investigational extracorporeal antithrombotic removal system based on the same polymer technology as CytoSorb that is being evaluated in the U.S. STAR-T and future STAR-D pivotal randomized, controlled trials to reduce the level of antithrombotic drugs, ticagrelor, apixaban and rivaroxaban to reduce bleeding complications in patients undergoing cardiothoracic surgery while on these drugs.

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ECOS-300CY — an adsorption cartridge approved in the E.U. for use with ex vivo organ perfusion systems to remove cytokines and other inflammatory mediators in the organ perfusate, with the goal of maintaining or improving solid organ function prior to transplant. In 2021, commercialization of PerSorb™ and Aferetica’s PerLife™ ex vivo organ perfusion system commenced in Italy.

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CytoSorb XL — an intended next generation successor to CytoSorb currently in advanced pre-clinical testing designed to reduce a broad range of cytokines and inflammatory mediators, including lipopolysaccharide endotoxin, from blood.

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VetResQ -—a broad spectrum blood purification adsorber designed to help treat deadly inflammation and toxic injury in animals with critical illnesses such as septic shock, toxic shock syndrome, severe systemic inflammation, toxin-mediated diseases, pancreatitis, trauma, liver failure, and drug intoxication. ~~Commercially available~~VetResQ is being commercialized in the United States.

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~~HemoDefend –~~ HemoDefend-RBC—a development-stage blood purification technology designed to remove non-infectious contaminants in blood transfusion ~~products. The~~products, with the goal of ~~HemoDefend is to reduce~~reducing transfusion reactions and ~~improve~~improving the quality and safety of ~~older~~ blood.

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HemoDefend-BGA—a development-stage purification technology that can remove anti-A and anti-B antibodies from plasma and whole blood, to enable “universal plasma,” and safer whole blood transfusions, respectively.

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K⁺ontrol – —a development-stage blood purification technology designed to ~~treat~~reduce excessive levels of potassium in the blood that can be fatal in severe ~~hyperkalemia by reducing potassium from whole blood and other bodily fluids.~~hyperkalemia.

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ContrastSorb – —a development-stage extracorporeal hemoperfusion cartridge designed to remove IV contrast from the blood of ~~high risk~~high-risk patients undergoing CTradiological imaging with contrast, or interventional radiology procedures such as cardiac ~~catheterization.~~catheterization and angioplasty. The goal of ContrastSorb is to prevent contrast-induced nephropathy.

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DrugSorb – —a development-stage extracorporeal hemoperfusion cartridge designed to remove toxic chemicals from the blood (e.g., drug overdose, high dose regional chemotherapy).

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BetaSorb – —a development-stage extracorporeal hemoperfusion cartridge designed to remove mid-molecular weight toxins, such asb ~~2-microglobulin,~~ b2-microglobulin, that standard high-flux dialysis cannot remove effectively. The goal of BetaSorb is to improve the efficacy of dialysis or hemofiltration.

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, 2022 as filed with the SEC on March 9, 2023. 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, and the STAR-T study is now 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 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 April 2023, the study reached the 2^nd milestone of 67% enrollment or 80 patients. The study is expected to reach 100% enrollment sometime in the summer of 2023. Because of the brisk enrollment of the trial, we have elected to forego an interim analysis at this stage which would have otherwise taken several months to conclude, and instead focus on completing trial enrollment on schedule and initiate the final study analysis, while preserving the full statistical power of the study.

In October 2021, we also received full FDA approval of an Investigational Device Exemption (IDE) application to conduct a double-blind, randomized, controlled clinical study for up to 120 patients entitled, “Safe and Timely Antithrombotic Removal – Direct Oral Anticoagulants (STAR-D),” in the United States to support FDA marketing approval. This was done under the previously announced 2^nd FDA Breakthrough Device Designation granted for our DrugSorb-ATR Antithrombotic Removal System. This Breakthrough Device designation covers the removal of the Direct Oral Anticoagulants (DOACs) apixaban and rivaroxaban in a cardiopulmonary bypass circuit to reduce the likelihood of serious perioperative bleeding during urgent cardiac surgery. Study enrollment was paused in November of 2022 for business reasons and is scheduled to resume after completion of the STAR-T trial.

In January 2020, CytoSorb received European Union CE Mark label expansion to include the removal of ticagrelor during cardiopulmonary bypass in patients undergoing cardiothoracic surgery. In May 2020, CytoSorb also received European Union CE Mark label expansion to include rivaroxaban removal for the same indication. The international Safe and Timely Antithrombotic Removal (STAR) Registry is designed to capture real world clinical and health economic outcomes with intraoperative antithrombotic drug removal. The Registry is actively recruiting in the U.K., Germany, Austria and Sweden and is planned to expand to additional countries in 2023. The intent of the Registry is to report outcomes at international conferences and submit the results for publication on a rolling basis as enrollment progresses with estimated first data readouts in 2023.

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In April 2020, we received U.S. FDA Emergency Use Authorization for the treatment of adult critically ill COVID-19 patients with confirmed or imminent respiratory failure. The U.S. CytoSorb Therapy in COVID-19 (CTC) Registry was launched to capture outcomes and device utilization patterns from multiple U.S. participating centers. Initial results on critically ill COVID-19 patients on extracorporeal membrane oxygenation (ECMO) treated with CytoSorb at participating U.S. centers showed high survival rates (73%) compared with the international benchmark Extracorporeal Life Support Organization (ELSO) Registry. The initial CTC results on the first 52 critically ill patients from five U.S. ECMO centers were presented at the International Symposium of Intensive Care Medicine conference in August 2021 in Brussels, Belgium, and published in the peer reviewed journal Frontiers in Medicine. The CTC registry completed enrollment with 100 patients from five centers, and the final results mirror the high survival (74%) seen in the previous analysis and have been submitted for publication.

The German PROCYSS multicenter, randomized controlled trial evaluating the ability of CytoSorb to restore hemodynamic stability in patients with refractory septic shock is actively enrolling. The speed of enrollment remains uncertain due to COVID-19 related institutional research staff shortages. We are evaluating options to improve enrollment, including a study protocol amendment for potential study design optimization.

The international COSMOSRegistry was designed to capture real world outcomes and device utilization patterns across multiple critical care indications including but not limited to sepsis, acute respiratory failure, postoperative vasoplegia, acute liver failure, and acute pancreatitis. The Registry is actively enrolling in Spain and Germany with plans to expand in more countries in 2023. The intent of the Registry is to report outcomes at international conferences and submit the results for publication on a rolling basis as enrollment progresses.

Sales and Marketing Update

The following are the key initiatives that we have been executing upon to drive product sales growth in the future.

Near-term growth drivers

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Resume In-person Sales from a Strong Customer Base: Our core customer base accounts for the majority of our direct sales and grew by 20-25% at the start of the pandemic and has remained stable since. We are in close contact with all of these accounts and have confirmed that COVID-19 related issues, including its effect on staffing and numbers of ICU patients, were the primary issue for volatility in ordering. We have begun to see an easing of these negative impacts of COVID-19 and we have experienced a return to in-person selling, which we believe will reinvigorate growth.

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New Therapy Divisions: We have established three distinct therapy divisions within our commercial operations including Critical Care, Cardiovascular, and Liver/Kidney/other to develop these markets internationally with the focus of leaders with area-specific medical and commercial expertise, who will work closely with our sales teams and best serve the needs and interests of our customers. We have already seen our efforts bear fruit with now more than 150 cardiac surgery centers internationally who have begun to use CytoSorb to remove antithrombotic drugs during urgent cardiac surgery, for example. We believe this infrastructure will yield many more similar successes across a broad array of applications.

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New Exclusive Private Hospital Chain Partnerships: We are now the preferred supplier of hemoadsorption technology to the three largest private hospital chains in Germany, including Asklepios Kliniken GmbH, and the former hospitals of RHÖN-KLINIKUM AG. Many of these hospitals are already current customers and our agreements facilitate access and sales of CytoSorb to these and all other relevant institutions within these hospital networks.

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Rise of Existing and New Applications: Among the many applications, we highlight:

Shock: Many studies have highlighted the ability of CytoSorb to remove inflammatory mediators and help to stabilize shock, a potentially fatal drop in blood pressure, in a wide range of patients. A recent 2019 meta-analysis, found that approximately 10% of ICU patients have septic shock at admission and 8% of patients admitted to the ICU have septic shock at some point in their hospital stay, with a high mortality of 38%. CytoSorb is being used around the world as a treatment of shock and we are conducting the PROCYSS RCT to formally evaluate CytoSorb as a treatment of this common and major unmet medical need.

Liver disease: In the treatment of acute liver disease, CytoSorb outperforms the market leading MARS® platform (Baxter) in the ex vivo removal of many liver toxins, but has the added benefit of removing cytokines and inflammatory mediators, while being much easier to use. In real-world practice, CytoSorb has replaced MARS at many accounts.

Lung Injury: Our U.S. CTC registry highlights the high survival of critically ill COVID-19 patients with acute respiratory distress syndrome (ARDS) treated with CytoSorb and ECMO under FDA Emergency Use Authorization. We believe these data demonstrate a therapeutic strategy of “enhanced lung rest” using the combined therapies that can be extrapolated to the treatment of ARDS in non-COVID patients, a very large market.

Longer-term growth drivers

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Stand-alone blood pump strategy: There are many applications where a simple, low-cost hemoperfusion pump is adequate to implement our CytoSorb blood purification technology, without the complexity of a large dialysis or continuous renal replacement therapy (CRRT) machine, without the need for a dialysis technician, and where patients do not need to have failed kidneys. This would greatly simplify treatment with CytoSorb in the ICU - potentially enabling its more ubiquitous and earlier use on more patients while opening the door for more new applications in the emergency room, surgery suites, and elsewhere, in what we call the “hospital-wide” application. We have initially partnered with a major international dialysis company to distribute a high-quality hemoperfusion machine in Germany, Austria, and Luxembourg and are in the midst of a soft launch, to be followed by a broader rollout in these countries later this year, and in more countries in the not-to-distant future. The machine is only as good as the therapy that is being run on it, and CytoSorb is the market leading cytokine adsorbing technology that makes this an excellent combination treatment and a potentially game-changing new business model going forward.

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Expansion of direct sales territories: Although opening new countries with a direct sales force requires time, cost, and effort, it also allows us to directly lead the effort, drive results, and benefit from more profitable sales. With the announcement of expansion of direct sales into the U.K., Ireland and France, we now sell direct in three of the E.U.’s Big 5 Economies – Germany, France and the U.K. – and a total of 15 countries direct overall, while working with distributors or partners in the other two Big 5 Economies: Italy, and Spain.

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Investment in important clinical studies in shock, liver failure, cardiac surgery, ATR, etc: We are committed to funding Company-sponsored studies in key areas that we believe will drive international adoption and usage, with the goal of becoming a standard of care for those applications.

COVID-19 Business Update

COVID-19 patients develop life-threatening complications such as acute respiratory distress syndrome (ARDS), shock (i.e. a potentially fatal drop in blood pressure), kidney failure, acute cardiac injury, thromboses and emboli, and secondary bacterial infections. The underlying cause for these complications is often a massive, systemic inflammatory response, leading to the damage of vital organs such as the lungs, heart, and kidneys, and ultimately multiple organ failure and death in many cases. Hypercoagulability, thought triggered by inflammation, and resulting thromboembolic events such as pulmonary emboli and thrombotic microangiopathy, play another critical role in the pathophysiology of COVID-19 infection and severity of illness.

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The use of CytoSorb in patients infected with COVID-19 in Italy, China, Germany and France began in March 2020. During the pandemic, CytoSorb has been used to treat dangerous inflammation and related life-threatening complications in more than 7,650 COVID-19 patients in more than 30 countries. Based upon initial data and reports from physicians treating these complications, CytoSorb use has generally been associated with a marked reduction in cytokine storm and inflammation, improved lung function, weaning from mechanical ventilation, decannulation from extracorporeal membrane oxygenation (ECMO), and a reversal of shock.

The use of CytoSorb has not been approved in the U.S. by the FDA. However, under certain circumstances, investigational medical devices that have not yet been FDA-approved may be made available for emergency use in the U.S. under the FDA’s Expanded Access Program (“EAP”). On April 13, 2020, we announced that the FDA, in a different program than the EAP, granted U.S. Emergency Use Authorization (EUA) of CytoSorb for use in adult critically ill COVID-19 patients. Under the EUA, CytoSorbents was able to make CytoSorb available, through commercial sales, to all hospitals in the U.S. for use in patients, 18 years of age or older, with confirmed COVID-19 infection who are admitted to the intensive care unit with confirmed or imminent respiratory failure and who have early acute lung injury or ARDS, severe disease, or life-threatening illness resulting in respiratory failure, septic shock, and/or multiple organ dysfunction or failure. The CytoSorb device has been authorized by FDA under an EUA. It has neither been cleared nor approved for the indication to treat patients with COVID-19 infection. The EUA will be effective until a declaration is made that the circumstances justifying the EUA have terminated or until revoked by the FDA.

The U.S. CTC (CytoSorb Therapy in COVID-19) Registry was launched to capture outcomes and device utilization patterns from multiple U.S. participating centers. Primary results on observed ICU mortality of COVID-19 patients with acute respiratory distress syndrome (ARDS) requiring extracorporeal membrane oxygenation (ECMO) and treated with CytoSorb according to FDA EUA criteria were presented at the International Symposium of Intensive Care Medicine conference in September 2021 in Brussels, Belgium. In December 2021, we announced the publication of these results in the peer-reviewed journal Frontiers in Medicine. The CTC Registry has completed enrollment and the final results confirming high survival (74%) were presented at the European Society of Intensive Care Medicine conference in October 2022 and also have been submitted for publication.

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 ~~for example,~~ the Defense Advanced Research Projects Agency ~~or DARPA,~~(“DARPA”), the U.S. Army, U.S. Special Operations Command (“USSOCOM”), the U.S. Air Force, Air Force Material Command (“USAF/AFMC”) and ~~the Joint Program Executive Office for Chemical Biologic Defense.~~

In August 2012, we were awarded a $3.8 million, five-year contract by DARPA for our “Dialysis-Like Therapeutics” (“DLT”) program to treat sepsis. DARPA has been instrumental in funding many of the major technological and medical advances since its inception in 1958, including development of the Internet, development of GPS, and robotic surgery. The DLT program in sepsis seeks to develop a therapeutic blood purification device that is capable of identifying the cause of sepsis (e.g., cytokines, toxins, pathogens, activated cells) and remove these substances in an intelligent, automated, and efficient manner. Our contract was for advanced technology development of our hemocompatible porous polymer technologies to remove cytokines and a number of pathogen and biowarfare toxins from blood. We have completed our work under the contract with DARPA and SSC Pacific under Contract No. N66001-12-C-4199, that provided for maximum funding of approximately $3,825,000. As of September 30, 2017,others. Currently, we have ~~received approximately $3,825,000~~ongoing projects funded, in ~~funding under this contract and no funding remains.~~

In September 2012, we were awarded a Phase II Small Business Innovation Research (“SBIR”) contract by the U.S. Army Medical Research and Material Command to evaluate our technology for the treatment of trauma and burn injury in large animal models. In 2013, we finalized the Phase II SBIR contract which provided for a maximum funding of approximately $803,000 with the granting agency. This work is supported by the U.S. Army Medical Research and Material Command under an amendment to Contract W81XWH-12-C-0038. In June 2016, this contract was further amended to increase the maximum funding by $443,000 to approximately $1,246,000. As of September 30, 2017, we received approximately $1,246,000 in funding under this contract and no funding remains.

In September 2013, the National Heart, Lung and Blood Institute (“NHLBI”), a division of the National Institutes of Health, awarded us a Phase I SBIR contract, (contract number HHSN-268201-300044C), valued at $203,351, to further advance our HemoDefend blood purification technology for packed red blood cell (“pRBC”) transfusions. The University of Dartmouth collaborated with us as a subcontractor on the project, entitled “Elimination of blood contaminants from pRBCs using HemoDefend hemocompatible porous polymer beads.” The overall goal of this program is to reduce the risk of potential side effects of blood transfusions, and help to extend the useful life of pRBCs. Our performance under this contract has been completed.

In October 2015, we were awarded a Phase II SBIR contract by the NHLBI, with support from U.S. SOCOM, to help advance our HemoDefend blood purification technology towards commercialization for the purification of pRBC transfusions. The contract, entitled “pRBCs Contaminant Removal with Porous Polymer Beads” (contract number HHSN-268201-600006C), provides for maximum funding of approximately $1,522,000 over a two year period. In September 2017, the contract was amended to extend the term to September 2018. As of September 30, 2017, we have received approximately $1,059,000 and have approximately $463,000 remaining under this contract.

In March 2016, we were awarded a Phase I SBIR contract for its development program entitled “Mycotoxin Absorption with Hemocompatible Porous Polymer Beads.” The purpose of this contract is to develop effective blood purification countermeasures for weaponized mycotoxins that can be easily disseminated in water, food and air. This work is being funded by the U.S. Joint Program Executive Office for Chemical and Biological Defense, or JPEO-CBD, under contract number W911QY-16-P-0048 and provides for maximum funding of $150,000. As of September 30, 2017, we received approximately $150,000 and no funding is remaining under this contract.

In June 2016, we were awarded a Phase I Small Business Technology Transfer (“STTR”) contract for a development program entitled “Use of Highly Porous Polymer Beads to Remove Anti-A and Anti-B antibodies from Plasma for Transfusion”. The purpose of this contract is to develop our HemoDefend blood purification technology to potentially enable universal plasma. This work is being fundedpart, by the U.S. Army Medical Research Acquisition Activity (“USAMRAA”) ~~under contract W81XWH-16-C-0025~~, the NHLBI, and ~~provides~~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 ~~maximum funding~~the year ended December 31, 2022, as filed with the SEC on March 9, 2023.

Research and Development Update

Our research and development work levels have returned back to pre-pandemic levels. The hiring of ~~$150,000.~~key technical staff remains a challenge in the current economic environment. Our recruiting process is ongoing, so that we can obtain the technical staff required to be able to timely execute on our various grant and non-grant related research and development projects. As of ~~September 30, 2017,~~March 31, 2023, the revenue remaining to be earned on open grant contracts is $9.9 million. Overall, grant funded programs, HemoDefend-BGA™ (Universal Plasma), HemoDefend-RBC™ and K⁺ontrol™, continue to progress and we ~~received approximately $150,000 and no funding is remaining under this contract.~~

~~In July 2016, we were awarded a Phase I SBIR contract for its development program entitled “Investigation of a sorbent-based potassium adsorber for~~have been the treatment of hyperkalemia induced by traumatic injury and acute kidney injury in austere conditions”. The objective of this Phase I project is to develop two novel and distinct treatment options for life-threatening hyperkalemia. This work is being funded by the USAMRAA under contract W81XWH-16-C-0080 and provides for maximum fundingbeneficiary of approximately ~~$150,000. As~~$15.8 million, $4.7 million and $7.7 million in total funding, respectively, awarded to date.

Table of ~~September 30, 2017, we received approximately $150,000~~Contents

Impact of Inflation and ~~no funding is remaining under this contract.~~Other Issues:

The current high inflationary environment has impacted us in various ways. Due to the current competitive labor market and rising inflation, our labor costs have risen significantly in order to attract and retain qualified employees throughout our organization. In January 2017, the Company was awarded a Phase II SBIR contract to continue development of CytoSorb for fungal mycotoxin blood purification. This program will focus on demonstrating the ability of CytoSorb to absorb mycotoxins in vivo and improve survival in animals. This contract provides for maximum funding of $999,996 over two years. This program is funded by the Chemical and Biological Defense (“CBD”) SBIR program under Contract number W911QY-17-C-0007. As of September 30, 2017,addition, we have ~~received approximately $262,000~~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 ~~approximately $738,000 remaining under this contract.~~

~~In May 2017, the Company was awarded a Phase II STTR contract Titled “Use of Highly Porous Polymer Beads~~also made it more expensive to ~~Remove Anti-A~~support our operations, manufacturing, and ~~Anti-B Antibiotics from Plasma Transfusion”. The purpose of this contract is to continue development of~~commercial activities. We have also experienced increases in our HemoDefend blood purification technology to potentially enable universal plasma. CytoSorbents will collaborate with researchers at Penn State University on this project. This contract provides for maximum funding of $999,070 over two years. This work is being funded by the USAMRAA under contract number W81XWH-17-C-0053. As of September 30, 2017,transportation costs; however, we have ~~received approximately $160,000 and have approximately $839,000 remaining under this contract.~~

been able to substantially mitigate these cost increases by implementing bulk shipping methods. In May 2017, the Company was awarded a Congressionally Directed Medical Research Program (“CDMRP”) Phase I contract to improve delayed evacuation and prolonged field care for severe burn injury via novel hemoadsorptive and hydration therapies. This work is being funded by the USAMRAA under contract number W81WH-17-2-0013. This contract provides for maximum funding of $719,000 over four years. As of September 30, 2017,addition, we have ~~received approximately $32,000 and have approximately $687,000 remaining under this contract.~~

~~In September 2017,~~been able to mitigate most supply chain issues that existed during the ~~Company was awarded a Phase II SBIR contract for its development program entitled “Investigation~~COVID-19 pandemic by ordering larger quantities of ~~a sorbent-based potassium adsorber for~~inventory as they were available. Inflationary pressures may continue to impact our product gross margins in the treatment of hyperkalemia induced by traumatic injury and acute kidney injury”. The purpose of this contract is to continue development of two novel and distinct treatment options for life-threatening hyperkalemia. This work is being funded by the USAMRAA under contract W81XWH-17-C-0142 and provides for maximum funding of $999,871. As of September 30, 2017, no funding has yet been received under this contract.

~~Results of Operations~~

future.

Comparison for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016:~~2022:

Revenues:

Revenue from product sales was approximately ~~$3,449,000~~$7,910,000 in the three months ended ~~September 30, 2017,~~March 31, 2023, as compared to approximately ~~$2,143,000~~$7,924,000 in the three months ended ~~September 30, 2016, an increase~~March 31, 2022, a decrease of approximately ~~$1,306,000,~~$14,000. As a result of the decrease in the average exchange rate of the Euro to the U.S. dollar, 2023 product sales were negatively impacted by approximately $349,000. For the three months ended March 31, 2023, the average exchange rate of the Euro to the U.S. dollar was $1.07 as compared to an average exchange rate of $1.12 for the three months ended March 31, 2022. Direct sales decreased approximately $202,000, or ~~61%~~4%. ~~This increase was largely driven~~Distributor sales increased approximately $188,000, or 7%. There were no sales to hospitals in the United States under the EUA granted by ~~an increase~~the FDA for the three months ended March 31, 2023, as compared to sales of approximately $155,000 in ~~direct~~the first quarter of 2022. There were no sales ~~from both new customers and repeat orders from existing customers, along with an increase~~related to the demand for CytoSorb to treat COVID-19 patients during the three months ended March 31, 2023 as compared to approximately $300,000 in ~~distributor sales.~~

the first quarter of 2022.

Grant income was approximately ~~$375,000~~$1,539,000 for the three months ended ~~September 30, 2017~~March 31, 2023 as compared to approximately ~~$269,000~~$767,000 for the three months ended ~~September 30, 2016,~~March 31, 2022, an increase of approximately ~~$106,000.~~$772,000, or 101%. This increase was a result of a strategic decision to deploy our research and development employees exclusively to grant related activities during the three months ended March 31, 2023. In addition, revenue ~~recognized from~~earned on new ~~grants.~~grant awards was approximately $312,000 during the three months ended March 31, 2023.

~~As a result of the increases in both product sales and grant income,~~Total revenues were approximately $9,449,000 for the three months ended ~~September 30, 2017, we generated total revenue of approximately $3,824,000,~~March 31, 2023, as compared to total revenues of approximately ~~$2,412,000,~~$8,691,000 for the three months ended ~~September 30, 2016,~~March 31, 2022, an increase of approximately ~~$1,412,000~~$758,000, or ~~59%~~9%.

Cost of Revenues:

For the three months ended ~~September~~March 30, ~~2017~~2023 and ~~2016,~~2022, cost of revenue was approximately ~~$1,517,000~~$3,994,000 and ~~$964,000,~~$2,278,000, respectively, an increase of approximately ~~$553,000.~~$1,716,000. Product cost of revenues increased approximately ~~$385,000~~$976,000 during the three months ended ~~September 30, 2017~~March 31, 2023 as compared to the three months ended ~~September 30, 2016~~March 31, 2022. This increase was due start-up activities related to ~~increased sales.~~our new manufacturing facility. Product gross margins were ~~approximately 69% for the three months ended September 30, 2017, as compared to~~ approximately 68% for the three months ended ~~September 30, 2016. This increase in gross margin was primarily~~March 31, 2023, as compared to approximately 80% for the three months ended March 31, 2022, also due to ~~the mix of direct and distributor sales.~~start-up activities.

Research and Development Expenses:

For the three months ended ~~September 30, 2017,~~March 31, 2023, research and development expenses were approximately ~~$538,000~~$4,214,000 as compared to research and development expenses of approximately ~~$1,172,000~~$4,243,000 for the three months ended ~~September 30, 2016. The~~March 31, 2022, a decrease of approximately ~~$634,000~~$29,000. This decrease was due to a decrease in clinical trial costs of approximately $807,000 related to ~~our various clinical studies and trials of approximately $519,000 and an increase in direct labor and other costs being deployed toward grant-funded activities of approximately $168,000, which had~~ the ~~effect of decreasing the amount~~pause of our ~~non-reimbursable research~~STAR-D trial in November 2022, and ~~development costs. These decreases were offset by an increase~~a decrease in ~~our non-clinical~~non-grant related research and development activities of approximately ~~$53,000.~~$72,000. These decreases were offset by 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.

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Legal, Financial and Other Consulting ~~Expense:~~

Expenses:

Legal, financial and other consulting expenses were approximately ~~$238,000~~$669,000 for the three months ended ~~September 30, 2017,~~March 31, 2023, as compared to approximately ~~$279,000~~$801,000 for the three months ended ~~September 30, 2016. The~~March 31, 2022, a decrease of approximately ~~$41,000~~$132,000. This decrease was due to a decrease in legal fees of approximately ~~$29,000~~$174,000 related to the abandonment of certain ~~corporate initiatives~~patent applications in ~~the three months ended September 30, 2016 that did not recur in the three months ended September 30, 2017~~2022 and a decrease in accounting and other consulting ~~fees~~costs of approximately ~~$23,000.~~$33,000. These decreases were offset by an increase in ~~auditing and accounting~~employment agency fees of approximately ~~$11,000.~~$75,000.

Selling, General and Administrative ~~Expense:~~

Expenses:

Selling, general and administrative expenses were approximately ~~$3,680,000~~$8,463,000 for the three months ended ~~September 30, 2017,~~March 31, 2023, as compared to approximately ~~$2,141,000~~$9,161,000 for the three months ending ~~September 30, 2016. The increase~~March 31, 2022, a decrease of ~~$1,539,000~~approximately $698,000. This decrease was due to ~~an increase in non-cash stock-based compensation expense of approximately $927,000 primarily based upon progress toward meeting the 2017 operating milestones, increases~~a decrease in salaries, commissions and related costs of approximately ~~$94,000 due to headcount additions and personnel related costs, an increase~~$641,000, a decrease in ~~royalty~~commercial insurance expenses of approximately ~~$124,000 due to the increase~~$76,000, a decrease in ~~product sales, additional sales~~travel and ~~marketing costs, which include advertising and conferences~~entertainment expenses of approximately ~~$220,000, an increase in rent expense of approximately $29,000 related to facility expansion, an increase~~$28,000, a decrease in public relations costs of approximately ~~$42,000, an increase~~$23,000, a decrease in ~~stock transfer fees~~advertising costs of approximately ~~$6,000, an increase~~$18,000 and a decrease in ~~office supplies and related expenses of approximately $47,000 and~~ other general and administrative ~~cost increases~~expenses of approximately ~~$50,000.~~$46,000. These decreases were offset by increases in non-cash stock compensation and non-cash restricted stock expense of approximately $134,000.

~~Interest Income (Expense):~~

Gain (Loss) on Foreign Currency Transactions:

For the three months ended September 30, 2017, interest expense was approximately $254,000, as compared to interest expense of approximately $117,000 for the three months ended September 30, 2016. This increase in interest expense of approximately $137,000 is directly related to interest expense incurred related to the Company’s draw down of Term Loan B with Bridge Bank on which $5,000,000 was drawn on June 30, 2017 and was outstanding for the three months ended September 30, 2017.

~~Gain (Loss) on Foreign Currency Transactions:~~

~~For the three months ended September 30, 2017,~~March 31, 2023, the gain on foreign currency transactions was approximately ~~$349,000,~~$661,000 as compared to a loss of approximately ~~$73,000~~$1,213,000 for the three months ended ~~September 30, 2016.~~March 31, 2022. The ~~2017~~2023 gain iswas directly related to the increase in the spot exchange rate of the Euro ~~at September 30, 2017~~to the U.S. dollar as of March 31, 2023 as compared to ~~June 30, 2017.~~December 31, 2022. The spot exchange rate of the Euro to the U.S. dollar was ~~$1.17~~$1.09 per Euro ~~at September 30, 2017~~as of March 31, 2023, as compared to ~~$1.14~~$1.07 per Euro ~~at June 30, 2017. The 2016 gain is directly related to the increase in the exchange rate~~as of ~~the Euro at September 30, 2016 as compared to June 30, 2016. The exchange rate of the Euro to the U.S. dollar was $1.12 per Euro at September 30, 2016 as compared to $1.11 per Euro at June 30, 2016.~~ December 31, 2022.

~~Comparison for the nine months ended September 30, 2017 and 2016:~~

~~Revenues:~~

Revenue from product sales was approximately $9,086,000 in the nine months ended September 30, 2017, as compared to approximately $5,593,000 in the nine months ended September 30, 2016, an increase of approximately $3,493,000, or 62%. This increase was largely driven by an increase in direct sales from both new customers and repeat orders from existing customers, along with an increase in distributor sales.

Grant income was approximately $1,418,000 for the nine months ended September 30, 2017, as compared to approximately $851,000 for the nine months ended September 30, 2016, an increase of approximately $567,000, or 67%. This increase was a result of revenue recognized from new grants.

As a result of the increases in both product sales and grant income, for the nine months ended September 30, 2017, we generated total revenue of approximately $10,504,000, as compared to total revenue of approximately $6,444,000, for the nine months ended September 30, 2016, an increase of approximately $4,060,000, or 63%.

~~Cost of Revenues:~~

Interest Expense, net:

For the ~~nine~~three months ended September 30, 2017 and 2016, cost of revenue was approximately $4,253,000 and $2,657,000, respectively, an increase of approximately $1,596,000. Product cost of revenues increased approximately $1,073,000 during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 due to increased sales. Product gross margins were approximately 67% for the nine months ended September 30, 2017, as compared to approximately 66% for the nine months ended September 30, 2016 primarily due to the mix of direct and distributor sales. Grant income related expenses increased due to direct labor and other costs being deployed toward grant-funded activities, an increase of approximately $523,000 during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.

~~Research and Development Expenses~~:

For the nine months ended September 30, 2017, research and development expenses were approximately $1,628,000, as compared to research and development expenses of approximately $3,120,000 for the nine months ended September 30, 2016, a decrease of approximately $1,492,000. This decrease was due to a reduction in costs related to the various clinical studies of approximately $1,057,000 and an increase in direct labor and other costs being deployed toward grant-funded activities of approximately $524,000, which had the effect of decreasing the amount of our non-reimbursable research and development costs. These decreases were offset by increases in other research and development costs of approximately $89,000.

~~Legal, Financial and Other Consulting Expense:~~

Legal, financial and other consulting expenses were approximately $961,000 for the nine months ended September 30, 2017, as compared to approximately $853,000 for the nine months ended September 30, 2016. The increase of approximately $108,000 was due to an increase in employment agency fees of approximately $110,000 related to the hiring of senior level personnel and increases in legal fees of approximately $56,000 related to various corporate initiatives. These increases were offset by decreases in accounting and audit fees of approximately $14,000 due to fees incurred related to the audit of our internal controls as required by The Sarbanes-Oxley Act of 2002 in 2016 that did not recur in 2017 and a decrease in consulting fees of approximately $46,000.

~~Selling, General and Administrative Expense:~~

Selling, general and administrative expenses were approximately $9,698,000 for the nine months ended September 30, 2017, as compared to approximately $6,736,000 for the nine months ending September 30, 2016, an increase of $2,962,000. The increase in selling, general, and administrative expenses was due to an increase in non-cash stock compensation expense of approximately $1,427,000 primarily based upon progress toward meeting the 2017 operating milestones, increases in salaries, commissions and related costs of approximately $489,000 due to headcount additions and increases in product sales, an increase in royalty expenses of approximately $329,000 due to the increase in product sales, additional sales and marketing costs, which include advertising and conferences of approximately $360,000 and an increase in travel and entertainment costs and other expenses of approximately $64,000, an increase in occupancy cost of approximately $84,000 related to facility expansion, an increase in public relations expense of approximately $64,000, an increase in office supplies and related expenses of approximately $100,000 and other general and administrative cost increases of approximately $45,000.

~~Interest Income (Expense):~~

~~For the nine months ended September 30, 2017,~~March 31, 2023, interest expense was approximately ~~$498,000,~~$63,000, as compared to interest income of approximately ~~$112,000~~$8,000 for the nine months ended September 30, 2016. This increase in interest expense of approximately $386,000 is directly related to interest expense incurred and amortization of loan acquisition costs related to the Company’s financing facility with Bridge Bank on which $5,000,000 was drawn on June 30, 2016 and outstanding for the nine months ended September 30, 2017 and $5,000,000 was drawn on June 30, 2017 and was outstanding during the three months ended ~~September 30, 2017.~~

~~Gain (Loss) on Foreign Currency Transactions:~~

~~For~~March 31, 2022. The change was the nine months ended September 30, 2017, the gain on foreign currency transactions was approximately $1,221,000, as compared to approximately $176,000 for the nine months ended September 30, 2016. The 2017 gain is directlyresult of interest incurred related to the ~~increase in the exchange rate~~draw down of the ~~Euro at September 30, 2017, as compared to~~$5,000,000 Term Loan with Bridge Bank in December 31, 2016. The exchange rate of the Euro to the U.S. dollar was $1.17 per Euro at September 30, 2017 as compared to $1.05 per Euro at December 31, 2016. The 2016 gain is directly related to the increase in the exchange rate of the Euro at September 30, 2016, as compared to December 31, 2015. The exchange rate of the Euro to the U.S. dollar was $1.12 per Euro at September 30, 2016 as compared to $1.08 per Euro at December 31, 2015.2022.

History of Operating Losses:

We have experienced substantial operating losses since inception. As of ~~September 30, 2017,~~March 31, 2023, we had an accumulated deficit of approximately ~~$149,166,000,~~$261,324,000, which included ~~losses~~a loss of approximately ~~$5,314,000 and $6,857,000~~$7,326,000 for the ~~nine month~~three-month periods ended ~~September 30, 2017 and 2016, respectively.~~March 31, 2023. Historically, losses have resulted principally from costs incurred in the research and development of our polymer technology, clinical studies, and general and administrative expenses.

Liquidity and Capital Resources

Since inception, our operations have been primarily financed through the issuance of debt and equity securities. ~~At September 30, 2017,~~As of March 31, 2023, we had current assets of approximately ~~$19,386,000 including cash on hand of approximately $15,400,000~~$28,165,000 and current liabilities of approximately ~~$5,778,000.~~

~~During the three months ended September 30, 2017, the Company sold 282,394 shares~~$10,436,000. As of ~~its Common Stock, generating net proceeds~~March 31, 2023, $25 million of our total shelf amount was allocated to our ATM facility, of which approximately ~~$1.7~~$24.3 million ~~under the terms~~is still available. In April of ~~its existing Controlled Equity Offering~~^SM ~~Sales Agreement with Cantor Fitzgerald and Co. From October 1, 2017 through November 7, 2017, the Company sold an additional 157,398 shares of its Common Stock, generating net proceeds of~~2023, we received approximately ~~$1.0 million under the terms of the Sales Agreement. Total net proceeds generated from these sales during 2017 amounted to approximately $2.6 million.~~

On June 30, 2016, the Company and its wholly-owned subsidiary, CytoSorbents Medical, Inc., entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Bridge Bank, a division of Western Alliance Bank, (the “Bank”), pursuant to which the Bank agreed to loan up to an aggregate of $10 million to the Company, to be disbursed$1,000,000 in ~~two equal tranches of $5 million. We received the proceeds~~cash from the ~~first tranche on June 30, 2016~~approved sale of our net operating losses and research and development credits from the ~~second tranche on June 30, 2017.~~State of New Jersey.

We are also managing our resources proactively, continuing to invest in key areas such as our U.S. pivotal STAR-T trial. We have instituted tighter cost controls which are expected to materially reduce our planned cash burn in 2023.

On April 5, 2017, the Company closed on the sale of an aggregate of 2,222,222 shares of Common Stock pursuant to the Company's existing shelf registration statement (Registration No. 333-205806) on Form S-3. The Company received gross proceeds of approximately $10 million, based on a public offering price of $4.50 per share.On April 11, 2017, the Company closed the sale of an additional 333,333 shares of the Company’s Common Stock, pursuant to the underwriters’ full exercise of an over-allotment option. The Company received gross proceeds of approximately $1.5 million as a result of the exercise of the option. As a result, the Company received total gross proceeds of $11.5 million, and,~~after deducting the underwriting discounts and commissions and estimated expenses related to the offering, the Company received total net proceeds of approximately$10.3 million.~~

As a result of the receipt of additional proceeds under the Loan and Security Agreement in June 2017, and in conjunction with the closing of the equity financing in April 2017 and recent sales of the Company’s common stock under the Controlled Equity Offering^SM ~~Sales Agreement, we~~We believe that we have sufficient ~~liquidity~~cash to fund ~~our~~the Company’s operations ~~into 2019; however, we~~beyond twelve months from the issuance of the accompanying financial statements.

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COVID-19 Impact on Financial Results

For the first year and a half of the coronavirus pandemic, COVID-19 was generally a positive driver for CytoSorb sales and highlighted the use of CytoSorb to treat cytokine storm and hyperinflammation. Because of this, the pandemic was a catalyst for CytoSorb orders from existing customers and also from new hospitals in countries where CytoSorb was not previously sold. We believe this awareness of CytoSorb increased overall usage during the COVID-19 pandemic and may ~~need~~help to ~~raise additional capital to fund clinical trials~~drive further CytoSorb sales in the ~~United States and/or Germany. We will be better able~~future.

However, starting in the third quarter of 2021, the protracted COVID-19 pandemic began to ~~assess this~~have a negative impact on our business, due to pandemic-driven adverse market conditions worldwide, especially in Germany which is our largest market. The excessive workload in hospitals due to COVID has led to an exodus of healthcare workers from acute care worldwide, leaving hospitals short-staffed, particularly nursing. This in turn has forced the reduction in ICU beds and allowable patient censuses, and reduced the scheduling of revenue generating surgical procedures, resulting in decreased revenue and economic weakness at hospitals. Meanwhile, in 2022 the rates of severe COVID-19 illness requiring ICU care, and COVID-related death have been disproportionately very low. This is mainly attributed to high rates of vaccinations, natural immunity, and the availability of anti-viral drugs that are associated with reduced severity of illness, reduced need ~~once~~for hospitalization, and risk of death. These factors, in turn, have decreased the ~~specific protocols~~numbers of patients treatable with CytoSorb.

Additionally, COVID slowed our ability to generate clinical data to support our sales and marketing efforts. Currently, we are ~~finalized with appropriate regulatory bodies.~~seeing an easing of the of the negative impacts of COVID-19. In 2023, we have regained access to hospitals and physicians which should positively impact our product sales in the future. The lessened impact of COVID-19 has also had a positive impact on patient enrollment of pivotal STAR-T clinical trial.

Contractual Obligations

In ~~September 2017,~~March 2021, the Company entered into a ~~Sixteenth Amendment to Lease Agreement with~~lease agreement for a new operating facility at 305 College Road East, Princeton, ~~Corporate Plaza, LLC,~~New Jersey, which ~~expands our space to approximately 15,745 square feet~~contains office, laboratory, manufacturing and ~~extended the term~~warehouse space. The commencement date of the lease ~~for its corporate headquarters~~was April 1, 2021. The Initial Early Term began on the commencement date (April 1, 2021) and ~~manufacturing facility through May 31, 2019 and, effective~~lasted two months. The Early Term commenced on June 1, ~~2017, increased~~2021 and lasted until September 30, 2021. The lease also contains two five-year renewal options. Commencing on September 30, 2021, the remaining lease term will last for 15.5 years. The lease required 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 ~~obligation to $28,210 per month. In addition, the~~of $7,784 and other costs of approximately $239 and has a term of five years. The lease ~~amendment provides the Company with~~also has an option to extend the lease term ~~of the lease~~ for an additional ~~one year~~five-year period through ~~May~~March 31, ~~2020 upon certain conditions.~~2031.

In September ~~2016,~~2021, the Company ~~entered into~~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 agreement with Klimik GmbH for 600 square meters of office and warehouse space for its wholly-owned subsidiary CytoSorbents Europe GmbH. The lease, which commenced on September 1, 2016, has a rent obligation of $6,986 per month. The lease expires onterm to August 31, ~~2021. The lease also provides the Company with an option to extend the term of the lease for an additional five year period through August 31, 2026.~~2031.

~~The following table summarizes our obligations with regard to our contractual obligations as of September 30, 2017, and the expected timing of maturities of those contractual obligations.~~

Less than
1 Year 1-3 Years 3-5 Years Over 5 Years
Operating Lease Obligations $ 422,354 $ 393,349 $ 76,848 –
Long-term debt 3,000,000 4,000,000 3,000,000 –
$ 3,408,831 $ 4,384,333 $ 3,076,848 –
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
~~Going Concern~~
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. We believe that we have adequate cash for more than the next 12 months of operations, however, we may need have to raise additional capital to support clinical trials in the U.S. and/or elsewhere. We will be better able to address this need once the specific protocols of these trials are finalized.
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As of September 30, 2017, we had an accumulated deficit of approximately $149,166,000, which included net losses of approximately $5,314,000 for the nine months ended September 30, 2017, and $6,857,000 for the nine months ended September 30, 2016. In part due to these losses, our audited consolidated financial statements were prepared assuming we will continue as a going concern, and the auditors’ report on those financial statements expressed substantial doubt about our ability to continue as a going concern. Our losses have resulted principally from costs incurred in the research and developmentA discussion of our ~~polymer technology~~critical accounting policies and selling, general and administrative expenses. We intend to continue to conduct significant additional research, development, and clinical study activities which, together with expenses incurred for the establishmentestimates is contained in our Annual Report on Form 10-K.

Table of manufacturing arrangements and a marketing and distribution presence, and other selling, general and administrative expenses, are expected to result in continuing operating losses for the foreseeable future. The amount of future losses and when, if ever, we will achieve profitability are uncertain. Our ability to achieve profitability will depend, among other things, on successfully completing the development of our technology and commercial products, obtaining additional requisite regulatory approvals in markets not covered by the CE Mark and for potential label extensions of our current CE Mark, establishing manufacturing and sales and marketing arrangements with third parties, and raising sufficient funds to finance our activities. No assurance can be given that our product development efforts will be successful, that our current CE Mark will enable us to achieve profitability, that additional regulatory approvals in other countries will be obtained, that any of our products will be manufactured at a competitive cost and will be of acceptable quality, or that the we will be able to achieve profitability or that profitability, if achieved, can be sustained. These consolidated financial statements do not include any adjustments related to the outcome of this uncertainty.Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
We are exposed to certain market risks in the ordinary course of business. These risks result primarily from changes in foreign currency exchange rates and interest rates. In addition, international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures and other regulations and restrictions.
To date we have not utilized derivative financial instruments or derivative commodity instruments. We do not expect to employ these or other strategies to hedge market risk in the foreseeable future. Cash is held in checking, savings, and money market funds, which are subject to minimal credit and market risk. We generate sales in both dollars and euros most significantly, the majority of our sales are in Euros and changes in the exchange rate of the Euro to the U.S. dollar may positively or negatively impact our revenue. On the other hand, should sales decline due to a devaluation of the Euro relative to the U.S. dollar, expenses related to CytoSorbents Europe GmbH would also decline. This produces a natural currency hedge. We believe that the market risks associated with these financial instruments are immaterial, although there can be no guarantee that these market risks will be immaterial to us in the future.
Item 4. Controls and ~~Procedures~~
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 Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Interim 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 Interim 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 Interim 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.
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No change in our internal control over financial reporting occurred during the three months ended ~~September 30, 2017~~March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION
Item 1. Legal ~~Proceedings~~
Proceedings.
We are from time to time subject to claims and litigation arising in the ordinary course of business. We intend to defend vigorously against any future claims and litigation. We are not currently a party to any legal proceedings.

Item 1A. Risk ~~Factors~~Factors.
~~Described below are various~~For a discussion of risks ~~and uncertainties~~ that ~~may~~ affect ~~our business. These risks and uncertainties are not~~ the ~~only ones we face. You should recognize that other significant risks and uncertainties may arise~~Company’s business, please refer to Part I, Item IA, “Risk Factors” in the future, which we cannot foresee at this time. Also, the risks that we now foresee might affect us to a greater or different degree than expected. Certain risks and uncertainties, including ones that we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general, may also affect our business. If any of the risks described below actually occur, our business, financial condition or results of operations could be materially and adversely affected.
~~We have a history of losses and expect to incur substantial future losses, and the report of our auditor~~Company’s Annual Report on ~~our consolidated financial statements expresses substantial doubt about our ability to continue as a going concern~~.
We have experienced substantial operating losses since inception. As of September 30, 2017, we had an accumulated deficit of approximately $149,166,000, which included net losses of approximately $5,314,000 and $6,857,000Form 10-K for the ~~nine months~~year ended ~~September 30, 2017 and 2016, respectively. Due in part to these losses, our audited consolidated financial statements have been prepared assuming we will continue~~December 31, 2022, as a going concern, and the auditors’ report on those financial statements express substantial doubt about our ability to continue as a going concern. Our losses have resulted principally from costs incurred in the research and development of our polymer technology and general and administrative expenses. We intend to conduct significant additional research, development, and clinical study activities which, together with expenses incurred for the establishment of manufacturing arrangements and a marketing and distribution presence and other general and administrative expenses, are expected to result in continuing operating losses for the foreseeable future. The amount of future losses and when, if ever, we will achieve profitability are uncertain. Our ability to achieve profitability will depend, among other things, on continued adoption and usage of our products in the market, obtaining additional regulatory approvals in markets not covered by the CE Mark, establishing sales and marketing arrangements with third parties, satisfactory reimbursement in key territories, and raising sufficient funds to finance our activities. No assurance can be given that our product development efforts will be successful, that our current CE Mark will enable us to achieve profitability, that additional regulatory approvals in other countries will be obtained, that any of our products will be manufactured at a competitive cost and will be of acceptable quality, that reimbursement will be available or satisfactory, that we will be able to achieve profitability or that profitability, if achieved, can be sustained, or our ability to raise additional capital when needed or on terms acceptable to us. Our failure with respect to any or all of these matters would have a material adverse effect on our business, operating results, financial condition and prospects.
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~~We will require additional capital in the future to fund our operations.~~
As of September 30, 2017, we had current assets of approximately $19,386,000, including cash on hand of approximately $15,400,000 and current liabilities of approximately $5,778,000. For the nine months ended September 30, 2017, our cash burn was approximately $6.6 million. Our current and historical cash burn is not necessarily indicative of our future use of cash and cash equivalents.
We will require additional financing in the future in order to complete additional clinical studies and to support the commercialization of our proposed products. There can be no assurance that we will be successful in our capital raising efforts. Our long-term capital requirements are expected to depend on many factors, including:
· ~~continued progress and cost of our research and development programs;~~
· ~~progress with pre-clinical studies and clinical studies;~~
·
~~the time and costs involved in obtaining regulatory clearance in other countries and/or for other~~
~~indications;~~
·
~~costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent~~
~~claims;~~
· ~~costs of developing sales, marketing and distribution channels;~~
· ~~market acceptance and reimbursement of our products; and~~
· ~~cost for training physicians and other health care personnel.~~
~~We have an effective shelf registration statement~~filed with the SEC ~~which enables us to raise up to $100 million in equity financing. We entered into a Controlled Equity Offering~~^SM Sales Agreement with Cantor Fitzgerald & Co. in November 2015 for the offer and sale of up to an aggregate of $25,000,000 of shares of our common stock. During 2017, we have sold a total of 439,792 shares of our common stock, under the terms if the Sales Agreement, generating net proceeds of approximately $2.6 million.on March 9, 2023.

On June 30, 2016, we entered into a Loan and Security Agreement with Bridge Bank, a division of Western Alliance Bank (the “Bank”), pursuant to which the Bank agreed to loan us up to an aggregate of $10,000,000, to be disbursed in two equal tranches of $5,000,000. We received the proceeds from the first tranche on June 30, 2016 and from the second tranche on June 30, 2017. In addition, in April 2017, we raised net proceeds of approximately $10.3 million from the sale of 2,555,555 shares of our common stock. Despite the foregoing, we expect we will require additional financing in the future. Should the financing we require be unavailable to us, or on terms unacceptable to us when we require it, the consequences could have a material adverse effect on our business, operating results, financial condition and prospects.
In addition, in the event that additional funds are obtained through arrangements with collaborative partners or other non-dilutive sources, we may have to relinquish economic and/or proprietary rights to some of our technologies or products under development that we would otherwise seek to develop or commercialize by ourselves. Such events may have a material adverse effect on our business, operating results, financial condition and prospects.
Although historically we have been a research and development company, we are in the process of commercializing our products. There can be no assurance that we will be successful in developing and expanding commercial operations or balancing our research and development activities with our commercialization activities.
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We have historically been engaged primarily in research and development activities and have generated limited revenues to date. With the launch of our CytoSorb product in the EU and abroad, there can be no assurance that we will be able to successfully manage the balance of our research and development operations with our planned commercial enterprise. Potential investors should be aware of the problems, delays, expenses and difficulties frequently encountered by an enterprise in balancing development, which include unanticipated problems relating to testing, product registration, regulatory compliance and manufacturing, with commercialization, which includes problems with market adoption, reimbursement, marketing problems and additional costs. Our products and product candidates will require significant additional research and testing, and we will need to overcome significant regulatory burdens prior to commercialization in other countries, such as the U.S., and for ongoing compliance for our CE Mark. We will also need to raise additional funds to complete additional clinical studies and obtain regulatory approvals in other countries before we can begin selling our products in markets not covered by our CE Mark. In addition, we may be required to spend significant funds on building out our commercial operations. There can be no assurance that after the expenditure of substantial funds and efforts, we will successfully develop and commercialize any products, generate any significant revenues or ever achieve and maintain a substantial level of sales of our products.
If users of our products are unable to obtain adequate reimbursement from third-party payers, or if reimbursement is not available in specific countries, or if new restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve anticipated revenues.
The continuing efforts of government and insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of health care may affect our future revenues and profitability, the future revenues and profitability of our potential customers, suppliers and collaborative partners, and the availability of capital. For example, in certain foreign markets, pricing or profitability of medical devices is subject to government control. In the United States, given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely continue to focus on health care reform, the cost of medical devices and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of these proposals could materially harm our business, financial condition and results of operations.
Our ability to commercialize our products will depend in part on the extent to which appropriate reimbursement levels for the cost of our products and related treatment are obtained by governmental authorities, private health insurers and other organizations, such as health maintenance organizations (“HMOs”). Third-party payers are increasingly challenging the prices charged for medical care. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and medical devices, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for our products. The cost containment measures that health care payers and providers are instituting and the effect of any health care reform could materially harm our ability to operate profitably.
Outside of the United States, reimbursement systems vary significantly by country. Many foreign markets often have a combination of government-managed and privately-managed healthcare systems that govern reimbursement for medical devices and related procedures. Socialized medicine is common in the EU, and reimbursement and the pricing of medical devices is often subject to governmental control. Application for reimbursement, subsequent approvals, if any, and pricing negotiations with governmental authorities can take considerable time after a device has been CE marked. Private insurance has similar challenges. CytoSorb is currently reimbursed in Germany under government-funded insurance, and in other countries may be covered under the DRG, or “lump sum payment” reimbursement, or other generalized reimbursement for acute care medical products. We are continuously working to obtain or improve upon the type and amount of reimbursement available to us in countries where CytoSorb is available, and as we attempt to move from an existing reimbursement platform to a new reimbursement platform, we may experience interruptions and/or reductions in the amount available for reimbursement. Because of this, there can be no assurance that new reimbursement will be obtained or that existing reimbursement will continue or that such reimbursement will be sufficient to adequately cover the cost of the device or treatment. As a result, our future revenues, profitability and access to capital may be negatively affected by any interruption or reduction in amounts of reimbursement. We plan to seek reimbursement for our product in other EU and non-EU countries to help further adoption. There can be no assurance when, or if, this additional reimbursement might be approved.
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~~We depend upon key personnel who may terminate their employment with us at any time.~~
As of November 1, 2017, we have 76 full-time employees and several temporary employees. Our success will depend to a significant degree upon the continued services of our key management team and advisors, including, Dr. Phillip Chan, our Chief Executive Officer; Kathleen P. Bloch, our Chief Financial Officer; Vincent Capponi, our Chief Operating Officer and Dr. Eric R. Mortensen, our Chief Medical Officer. Although these individuals have long-term employment and consulting agreements, there can be no assurance that key management personnel or other members of our management team and advisors will continue to provide services to us. In addition, our success will depend on our ability to attract and retain other highly skilled personnel. We may be unable to recruit such personnel on a timely basis, if at all. Management and other employees may voluntarily terminate their employment with us at any time. The loss of services of key personnel, or the inability to attract and retain additional qualified personnel, could result in delays in development or approval of our products, loss of sales and diversion of management resources.
~~Acceptance of our medical devices in the marketplace is uncertain, and failure to achieve market acceptance will prevent or delay our ability to generate revenues.~~
Our future financial performance will depend, at least in part, upon the introduction and customer acceptance of our products. Even with CE Mark approval for our CytoSorb device as a cytokine filter, our products and product candidates may not achieve market acceptance in the countries that recognize and accept the CE Mark. Additional approvals from other regulatory authorities (such as the FDA) will be required before we can market our device in countries not covered by the CE Mark. There is no guarantee that we will be able to achieve additional regulatory approvals, and even if we do, our products may not achieve market acceptance in the countries covered by such approvals. The degree of market acceptance will depend upon a number of factors, including:
· ~~the receipt of regulatory clearance of marketing claims for the uses that we are developing;~~
· ~~the establishment and demonstration of the advantages, safety and efficacy of our polymer technology;~~
· ~~pricing and reimbursement policies of government and third-party payers such as insurance companies, health maintenance organizations and other health plan administrators;~~
· ~~our ability to attract corporate partners, including medical device companies, to assist in commercializing our products; and~~
· ~~our ability to effectively market our products.~~
Physicians, patients, payers or the medical community in general may be unwilling to accept, utilize or recommend any of our products. Approval of our CytoSorb device as a cytokine filter as well as the data we have gathered in our clinical studies to support device usage in this indication may not be sufficient for market acceptance in the medical community. We may also need to conduct additional clinical studies to gather additional data for marketing purposes. If we are unable to obtain regulatory approval or commercialize and market our products when planned, we may not achieve any market acceptance or generate revenue.
If we are unable to obtain and maintain patent protection for our products and product candidates, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and product candidates similar or identical to ours, and our ability to successfully commercialize our products and product candidates may be adversely affected.
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Our commercial success will depend, in part, on our ability to obtain and maintain patent protection in the United States and other countries with respect to our products and product candidates. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our products and product candidates that are important to our business. We cannot be certain that patents will be issued or granted with respect to applications that are currently pending or that we apply for in the future with respect to one or more of our products and product candidates, or that issued or granted patents will not later be found to be invalid and/or unenforceable.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, distribution partners, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection.
The patent position of medical device companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued, and even if issued, the patents may not meaningfully protect our products or product candidates, effectively prevent competitors and third parties from commercializing competitive products or otherwise provide us with any competitive advantage. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative products in a non-infringing manner.
Changes in the patent laws, implementing regulations or interpretation of the patent laws in the United States and other countries may also diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions.
We cannot be certain that our patents and patent rights will be effective in protecting our products, product candidates and technologies. In addition, certain of our existing patents expire over the next one to 10 years. Failure to protect such assets may have a material adverse effect on our business, operations, financial condition and prospects.
~~We may face litigation from third parties claiming that our products infringe on their intellectual property rights, or seek to challenge the validity of our patents.~~
Our future success is also dependent in part on the strength of our intellectual property, trade secrets and know-how, which have been developed from years of research and development. In addition to the “Purolite” litigation discussed below, we may be exposed to additional future litigation by third parties seeking to challenge the validity of our rights based on claims that our technologies, products or activities infringe the intellectual property rights of others or are invalid, or that we have misappropriated the trade secrets of others.
Since our inception, we have sought to contract with large, established manufacturers to supply commercial quantities of our adsorbent polymers. As a result, we have disclosed, under confidentiality agreements, various aspects of our technology with potential manufacturers. We believe that these disclosures, while necessary for our business, have resulted in the attempt by potential suppliers to improperly assert ownership claims to our technology in an attempt to gain an advantage in negotiating manufacturing rights.
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We previously engaged in discussions with the Brotech Corporation and its affiliate, Purolite International, Inc. (collectively referred to as “Purolite”), which had demonstrated a strong interest in being our polymer manufacturer. For a period of time beginning in December 1998, Purolite engaged in efforts to develop and optimize the manufacturing process needed to produce our polymer products on a commercial scale. However, the parties eventually decided not to proceed. In 2003, Purolite filed a lawsuit against us asserting, among other things, co-ownership and co-inventorship of certain of our patents. On September 1, 2006, the United States District Court for the Eastern District of Pennsylvania approved a Stipulated Order and Settlement Agreement under which we and Purolite agreed to the settlement of the action. The Settlement Agreement provides us with the exclusive right to use our patented technology and proprietary know how relating to adsorbent polymers for a period of 18 years. Under the terms of the Settlement Agreement, we have agreed to pay Purolite royalties of 2.5% to 5% on the sale of certain of our products if and when those products are sold commercially.
Several years ago we engaged in discussions with the Dow Chemical Company, which had indicated a strong interest in being our polymer manufacturer. After a Dow representative on our Advisory Board resigned, Dow filed and received several patents naming our former Advisory Board member as an inventor. In management’s view, the Dow patents improperly incorporate our technology and should not have been granted to Dow. The existence of these Dow patents could result in a potential dispute with Dow in the future. In the event such a dispute arises, we may be forced to spend significant time and resources to defending our position. There can be no assurances that such efforts will be successful and not have a material adverse effect on our business, operating results, financial condition and prospects.
~~The expiration or loss of patent protection may adversely affect our future revenues and operating earnings.~~
We rely on patent, trademark, trade secret and other intellectual property protection in the discovery, development, manufacturing, and sale of our products and product candidates. In particular, patent protection is important in the development and eventual commercialization of our products and product candidates. Patents covering our products and product candidates normally provide market exclusivity, which is important in order for our products and product candidates to become profitable.
Certain of our patents will expire in the next one to 10 years. While we are seeking additional patent coverage which may protect the technology underlying these patents, there can be no assurances that such additional patent protection will be granted, or if granted, that these patents will not be infringed upon or otherwise held enforceable. Even if we are successful in obtaining a patent, patents have a limited lifespan. In the United States, the natural expiration of a utility patent typically is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Without patent protection for our products and product candidates, we may be open to competition from generic versions of such methods and devices.
We have commenced the process of seeking regulatory approvals of our products and product candidates, but the approval process involves lengthy and costly clinical studies and is, in large part, not in our control. The failure to obtain government approvals, internationally or domestically, for our products and product candidates, or to comply with ongoing governmental regulations could prevent, delay or limit introduction or sale of our products and result in the failure to achieve revenues or maintain our operations.
CytoSorb has already achieved marketing authorization in the EU under the CE marking process and the Medical Devices Directive. It is manufactured at our manufacturing facility in New Jersey under ISO 13485 Full Quality Systems certification. The manufacturing and marketing of our products will be subject to extensive and rigorous government regulation in the EU, as well as in the U.S. and in other countries. In the U.S. and other countries, the process of obtaining and maintaining required regulatory approvals is lengthy, expensive, and uncertain. There can be no assurance that we will ever obtain the necessary additional approvals to sell our products in the United States or other non-EU countries. Even if we do ultimately receive FDA approval for any of our products, we will be subject to extensive ongoing regulation. While we have received approval from our Notified Body to apply the CE Mark to our CytoSorb device, we will be subject to extensive ongoing regulation and auditing requirements to maintain the CE Mark.
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Our products will be subject to international regulation as medical devices under the Medical Devices Directive. In Europe, which we expect to provide the initial market for our products, the Notified Body and Competent Authority govern, where applicable, development, clinical studies, labeling, manufacturing, registration, notification, clearance or approval, marketing, distribution, record keeping, and reporting requirements for medical devices. Different regulatory requirements may apply to our products depending on how they are categorized by the Notified Body under these laws. Current international regulations classify our CytoSorb device as a Class IIb device. Even though we have received CE Mark certification of the CytoSorb device, there can be no assurance that we will be able to continue to comply with the required annual auditing requirements or other international regulatory requirements that may be applicable. In addition, there can be no assurance that government regulations applicable to our products or the interpretation of those regulations will not change. The extent of potentially adverse government regulation that might arise from future legislation or administrative action cannot be predicted. There can be no assurances that reimbursement will be granted or that additional clinical data will be required to establish reimbursement.
We have conducted limited clinical studies of our CytoSorb device. Clinical and pre-clinical data is susceptible to varying interpretations, which could delay, limit or prevent additional regulatory clearances.
To date, we have conducted limited clinical studies on our CytoSorb product. There can be no assurance that we will successfully complete additional clinical studies necessary to receive additional regulatory approvals in markets not covered by the CE Mark. While studies conducted by us and others have produced results we believe to be encouraging and indicative of the potential efficacy of our products and technology, data already obtained, or in the future obtained, from pre-clinical studies and clinical studies do not necessarily predict the results that will be obtained from later pre-clinical studies and clinical studies. Moreover, pre-clinical and clinical data are susceptible to varying interpretations, which could delay, limit or prevent additional regulatory approvals. A number of companies in the medical device and pharmaceutical industries have suffered significant setbacks in advanced clinical studies, even after promising results in earlier studies. The failure to adequately demonstrate the safety and effectiveness of an intended product under development could delay or prevent regulatory clearance of the device, resulting in delays to commercialization, and could materially harm our business. Even though we have received approval to apply the CE Mark to our CytoSorb device as a cytokine filter, there can be no assurance that we will be able to receive approval for other potential applications of CytoSorb, or that we will receive regulatory clearance from other targeted regions or countries.
We rely extensively on research and testing facilities at various universities and institutions, which could adversely affect us should we lose access to those facilities. At the same time, relationships with these individuals and entities are the subject of heightened scrutiny and may present the potential for future healthcare enforcement risk.
Although we have our own research laboratories and clinical facilities, we collaborate with numerous institutions, universities and commercial entities to conduct research and studies of our products. We currently maintain a good working relationship with these parties. However, should the situation change, the cost and time to establish or locate alternative research and development facilities could be substantial and delay gaining CE Mark for other potential applications of our products, our other product candidates or technologies, and/or FDA approval and commercializing our products. In addition, our interactions, communications, and financial relationships with these individuals and entities present future healthcare enforcement risks.
~~We are and will be exposed to product liability risks, and clinical and preclinical liability risks, which could place a substantial financial burden upon us should we be sued.~~
Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of medical devices. We cannot be sure that claims will not be asserted against us. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.
We cannot give assurances that we will be able to continue to obtain or maintain adequate product liability insurance on acceptable terms, if at all, or that such insurance will provide adequate coverage against potential liabilities. Claims or losses in excess of any product liability insurance coverage that we may obtain could have a material adverse effect on our business, financial condition and results of operations.
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~~Certain university and other relationships are important to our business and may potentially result in conflicts of interests.~~
Dr. John Kellum and others are critical care advisors and consultants of ours and are associated with institutions such as the University of Pittsburgh Medical Center. Their association with these institutions may currently or in the future involve conflicting interests in the event they or these institutions enter into consulting or other arrangements with competitors of ours.
~~We have limited manufacturing experience, and once our products are approved, we may not be able to manufacture sufficient quantities at an acceptable cost, or without shut-downs or delays.~~
In March 2011, we received approval from our Notified Body to apply the CE Mark to our CytoSorb device for commercial sale as a cytokine filter. We also achieved ISO 13485:2003 Full Quality Systems certification, an internationally recognized quality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design, develop, manufacture and distribute medical devices in the EU. We manufacture CytoSorb at our manufacturing facilities in New Jersey for sale in the EU and for additional clinical studies. Manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices (“cGMP”). As such, we are subject to continual review and periodic inspections to assess compliance with cGMP as required by our International notified body and those FDA regulations governing companies that export medical products for sale outside the United States. Accordingly, we must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We have limited experience in establishing, supervising and conducting commercial manufacturing. If we or the third-party manufacturers of our products fail to adequately establish, supervise and conduct all aspects of the manufacturing processes, we may not be able to commercialize our products.
While we currently believe we have established sufficient production capacity to supply potential near term demand for the CytoSorb device, we will need to scale up and increase our manufacturing capabilities in the future. No assurance can be given that we will be able to successfully scale up our manufacturing capabilities or that we will have sufficient financial or technical resources to do so on a timely basis or at all.
~~Due to our limited marketing, sales and distribution experience, we may be unsuccessful in our efforts to sell our products.~~
We expect to enter into agreements with third parties for the commercial marketing, and distribution of our products. There can be no assurance that parties we may engage to market and distribute our products will:
· ~~satisfy their financial or contractual obligations to us;~~
· ~~adequately market our products; or~~
· ~~not offer, design, manufacture or promote competing products.~~
If for any reason any party we engage is unable or chooses not to perform its obligations under our marketing and distribution agreement, we would experience delays in product sales and incur increased costs, which would harm our business and financial results.
~~Our results of operations can be significantly affected by foreign currency fluctuations and regulations.~~
A significant portion of our revenues is currently derived in the local currencies of the foreign jurisdictions in which our products are sold. Accordingly, we are subject to risks relating to fluctuations in currency exchange rates. In the future, and especially as we further expand our sales efforts in international markets, our customers will increasingly make payments in non-U.S. currencies. Fluctuations in foreign currency exchange rates could affect our revenues, operating costs and operating margins. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency. We cannot predict the effect of future exchange rate fluctuations on our operating results.
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~~If we are unable to convince physicians and other health care providers as to the benefits of our products, we may incur delays or additional expense in our attempt to establish market acceptance.~~
Broad use of our products may require physicians and other health care providers to be informed about our products and their intended benefits. The time and cost of such an educational process may be substantial. Inability to successfully carry out this education process may adversely affect market acceptance of our products. We may be unable to educate physicians regarding our products in sufficient numbers or in a timely manner to achieve our marketing plans or to achieve product acceptance. Any delay in physician education may materially delay or reduce demand for our products. In addition, we may expend significant funds towards physician education before any acceptance or demand for our products is created, if at all.
The market for our products is rapidly changing and competitive, and new devices and drugs, which may be developed by others, could impair our ability to maintain and grow our business and remain competitive.
The medical device and pharmaceutical industries are subject to rapid and substantial technological change. Developments by others may render our technologies and products noncompetitive or obsolete. We also may be unable to keep pace with technological developments and other market factors. Technological competition from medical device, pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities and budgets than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us.
~~Our business could be harmed by adverse economic conditions in Germany, our primary geographical market, or by economic and/or political instability in the EU caused by Brexit, or other factors.~~
For the nine months ended September 30, 2017, we derived a majority of our net product sales from sales in Germany. Despite modest European and global growth, there are many economic and political issues that could negatively impact the health of Germany’s economy, the broader EU economy, and the world economy overall. Examples include the uncertainty over the United Kingdom’s intent to leave the EU, also known as “Brexit,” economic instability in a number of EU member countries, and changes in the political leadership in the EU and United States. Germany and other European countries face additional risks to their local economies, some of which include the impact of foreign exchange fluctuations, unemployment, tightening of monetary policy, the economic burden of immigration, diminished liquidity and reliance on debt, the rising cost of healthcare, and other factors. In addition, the German government, insurance companies, health maintenance organizations and other payers of healthcare costs continue to focus on healthcare reform and containment of healthcare costs. We cannot predict whether Germany’s economy will continue to grow or decline consistent with the overall global economy, which decline would negatively impact the demand for medical devices and healthcare technologies generally and lead to reduced spending on the products we provide. In addition, continued healthcare cost containment efforts may result in lower prices and a reduction or elimination of reimbursement for our products. Due to the concentration of our product sales in this country, any of the foregoing may have a negative impact on our revenues, business operations and financial condition.
Our business may be negatively affected if the United States and/or the countries in which we sell our products participate in wars, military actions or are otherwise the target of international terrorism.
Involvement in a war or other military action or international acts of terrorism may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in (i) delays or cancellations of customer orders, (ii) a general decrease in consumer spending on healthcare technology, (iii) our inability to effectively market and distribute our products globally or (iv) our inability to access capital markets, our business and results of operations could be materially and adversely affected. We are unable to predict whether acts of international terrorism or the involvement in a war or other military actions by the United States and/or the countries in which we sell our products will result in any long-term commercial disruptions or if such involvement or responses will have any long-term material adverse effect on our business, results of operations, or financial condition.
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~~We could be adversely affected by violations of the Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.~~
We are subject to the Foreign Corrupt Practices Act (the “FCPA”), which generally prohibits companies and their intermediaries from making payments to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage. We are also subject to anti-bribery laws in the jurisdictions in which we operate. Although we have policies and procedures designed to ensure that we, our employees and our agents comply with the FCPA and other anti-bribery laws, there is no assurance that such policies or procedures will protect us against liability under the FCPA or other laws for actions taken by our agents, employees and intermediaries with respect to our business or any businesses that we acquire. We do business in a number of countries in which FCPA violations have recently been enforced. Failure to comply with the FCPA, other anti-bribery laws or other laws governing the conduct of business with foreign government entities, including local laws, could disrupt our business and lead to severe criminal and civil penalties, including imprisonment, criminal and civil fines, loss of our export licenses, suspension of our ability to do business with the federal government, denial of government reimbursement for our products and/or exclusion from participation in government healthcare programs. Other remedial measures could include further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity. We could also be adversely affected by any allegation that we violated such laws.
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.
Our products are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exports of our products must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers.
In addition, changes in our products or changes in applicable export or import laws and regulations may create delays in the introduction and sale of our products in international markets or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import laws and regulations, shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons, products, or technologies targeted by such laws and regulations, could also result in decreased use of our products, or in our decreased ability to export or sell our products to existing or potential customers. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition and results of operations.
~~Cyberattacks and other security breaches could compromise our proprietary and confidential information which could harm our business and reputation.~~
In the ordinary course of our business, we generate, collect and store proprietary information, including intellectual property and business information. The secure storage, maintenance, and transmission of and access to this information is important to our operations and reputation. Computer hackers may attempt to penetrate our computer systems and, if successful, misappropriate our proprietary and confidential information including e-mails and other electronic communications. In addition, an employee, contractor, or other third-party with whom we do business may attempt to obtain such information, and may purposefully or inadvertently cause a breach involving such information. While we have certain safeguards in place to reduce the risk of and detect cyber-attacks, our information technology networks and infrastructure may be vulnerable to unpermitted access by hackers or other breaches, or employee error or malfeasance. Any such compromise of our data security and access to, or public disclosure or loss of, confidential business or proprietary information could disrupt our operations, damage our reputation, provide our competitors with valuable information, and subject us to additional costs which could adversely affect our business.
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~~Risks Connected to Our Securities~~
~~The price of our Common Stock has been highly volatile due to factors that will continue to affect the price of our stock.~~
On December 3, 2014, we effected a twenty-five-for-one (25:1) reverse split of our Common Stock. Immediately after the reverse stock split, we changed our state of incorporation from the State of Nevada to the State of Delaware pursuant to an Agreement and Plan of Merger, dated December 3, 2014, whereby we merged with and into our recently formed, wholly-owned Delaware subsidiary. On December 17, 2014, we received approval for up-listing to The NASDAQ Capital Market (“NASDAQ”) and our Common Stock began trading on NASDAQ on December 23, 2014 under the symbol “CTSO.” Our Common Stock closed as high as $6.30 and as low as $3.45 per share between January 1, 2017 and September 30, 2017 on NASDAQ. On November 3, 2017, the closing price of our Common Stock, as reported on NASDAQ, was $6.13. Historically, medical device company securities such as our Common Stock have experienced extreme price fluctuations. Some of the factors leading to this volatility include, but are not limited to:
· ~~fluctuations in our operating results;~~
· ~~announcements of product releases by us or our competitors;~~
· ~~announcements of acquisitions and/or partnerships by us and our competitors; and~~
· ~~general market conditions.~~
~~There is no assurance that the price of our Common Stock will not continue to be volatile.~~
~~Directors, executive officers and principal stockholders own a significant percentage of the shares of Common Stock, which will limit your ability to influence corporate matters.~~
Our directors, executive officers and principal stockholders together beneficially own a significant percentage of the voting control of the Common Stock on a fully diluted basis. Accordingly, these stockholders could have a significant influence over the outcome of any corporate transaction or other matter submitted to stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets and also could prevent or cause a change in control. The interests of these stockholders may differ from the interests of our other stockholders. Third parties may be discouraged from making a tender offer or bid to acquire us because of this concentration of ownership.
Our Board of Directors may, without stockholder approval, issue and fix the terms of shares of preferred stock and issue additional shares of Common Stock adversely affecting the rights of holders of our Common Stock.
On December 3, 2014, we effected a twenty-five-for-one (25:1) reverse split of our Common Stock. Immediately after the reverse stock split, we changed our state of incorporation from the State of Nevada to the State of Delaware pursuant to an Agreement and Plan of Merger, dated December 3, 2014, whereby we merged with and into our recently formed, wholly-owned Delaware subsidiary. Pursuant to the Agreement and Plan of Merger effecting the merger, we adopted the certificate of incorporation, as amended and restated, and bylaws of our Delaware subsidiary as our certificate of incorporation and bylaws at effective time of the merger. As a result, our certificate of incorporation, as amended and restated, 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. Currently, our certificate of incorporation, as amended and restated, which was effective December 3, 2014, authorizes the issuance of up to 50,000,000 shares of Common Stock, of which approximately 21,519,000 shares remain available for issuance as of September 30, 2017 and may be issued by us without stockholder approval.
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Anti-takeover provisions in our charter documents and under Delaware law could prevent or delay transactions that our stockholders may favor and may prevent stockholders from changing the direction of our business or our management.
After giving effect to our merger into our wholly-owned Delaware subsidiary, provisions of our certificate of incorporation, as amended and restated, and bylaws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares, and may also frustrate or prevent any attempt by stockholders to change the direction or management of us. For example, these provisions:
· ~~authorize the issuance of “blank check” preferred stock without any need for action by stockholders;~~
· ~~eliminate the ability of stockholders to call special meetings of stockholders;~~
· ~~prohibit stockholder action by written consent; and~~
· ~~establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.~~
~~Compliance with changing corporate governance and public disclosure regulations may result in additional expense.~~
Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations will require an increased amount of management attention and external resources. In addition, prior to the merger, our current management team was not subject to these laws and regulations, as we were a private corporation. We intend to continue to invest all reasonably necessary resources to comply with evolving standards, which may result in increased general and administrative expense and a diversion of management time and attention from revenue-generating activities to compliance activities.
~~Our Common Stock is thinly traded on The NASDAQ Capital Market exchange and no assurances can be made about stock performance, liquidity, or maintenance of our NASDAQ listing.~~
Prior to December 23, 2014, our Common Stock was quoted on the OTCQB, which provided significantly less liquidity than a securities exchange (such as the New York Stock Exchange or the Nasdaq Stock Market). On December 17, 2014, our Common Stock was approved for trading on NASDAQ. Beginning on December 23, 2014, our Common Stock began trading on NASDAQ under the symbol “CTSO.” Although currently listed on NASDAQ, there can be no assurance that we will continue to meet NASDAQ’s minimum listing requirements or that of any other national exchange. In addition, there can be no assurances that a liquid market will be created for our common stock. If we are unable to maintain listing on NASDAQ or if a liquid market for our Common Stock does not develop, our Common Stock may remain thinly traded.
~~Future sales of our Common Stock may cause our share price to fall.~~
~~In November 2015, we entered into a Controlled Equity Offering~~^SM Sales Agreement with Cantor Fitzgerald & Co. to offer shares of our Common Stock from time to time through “at-the-market” offerings, pursuant to which we offer and sell shares of our Common Stock for an aggregate offering price of up to $25 million. We are not obligated to make or continue to make any sale of shares of our Common Stock under the “at-the-market” offerings. Although any sale of securities pursuant to the “at-the-market” offerings will result in a concomitant increase in cash for each share sold, it may result in shareholder dilution and may cause our share price to fall.
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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. ~~During the three months ended September 30, 2017, the Company sold 282,394 shares~~
None.

Table of ~~its Common Stock under the terms of its Controlled Equity Offering~~^SM Sales Agreement with Cantor Fitzgerald & Co., generating net proceeds of approximately $1,659,000. From October 1, 2017 through November 7, 2017, the Company sold 157,398 shares of its Common Stock, generating net proceeds of approximately $980,000.Contents

Item 6. Exhibits.

~~Number~~
~~Description~~
Number
Description
~~31.1~~
10.1

Sixth Amendment to the Amended and Restated Loan and Security Agreement, dated as of March 8, 2023, by and among CytoSorbents Corporation, CytoSorbents Medical, Inc. and Western Alliance Bank (incorporate by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022).
10.2

Consulting Agreement, dated March 31, 2023, by and between the Company and Ms. Kathleen P. Bloch (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 6, 2023).**
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 Interim 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, 2017,~~March 31, 2023, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, (ii) Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016,~~2022, (iii) Consolidated Statement of Changes in Stockholders’ Equity for the ~~period from December~~three months ended March 31, ~~2016 to September 30, 2017,~~2023 and 2022, (iv) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016~~2022 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.
** Portions of this exhibit identified by [***] have been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both not material and is private or confidential.
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34

Table of Contents

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~~
CYTOSORBENTS CORPORATION
Dated: ~~November 9, 2017~~May 2, 2023
By:
/s/ Phillip P. Chan
Name: Phillip P. Chan
Title: ~~President and~~ Chief Executive Officer
(Principal Executive Officer)

Dated: ~~November 9, 2017~~May 2, 2023
By:
/s/ Kathleen P. Bloch
Name: Kathleen P. Bloch, CPA
Title: Interim Chief Financial Officer
(Principal Financial and Accounting Officer)