CytoSorbents(CTSO) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including Balance Sheets, Statements of Operations, Stockholders' Equity, and Cash Flows, highlighting a going concern issue due to insufficient cash for future operations - The Company's cash and cash equivalents of approximately $10.0 million as of September 30, 2023, are not expected to fund operations beyond the next twelve months, raising substantial doubt about its ability to continue as a going concern[21] Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Unaudited) | Metric | September 30, 2023 ($) | December 31, 2022 ($) | | :-------------------------------- | :------------------- | :------------------ | | Cash and cash equivalents | 8,359,047 | 22,144,567 | | Total current assets | 19,260,643 | 33,759,691 | | Total Assets | 47,575,037 | 63,231,530 | | Total current liabilities | 11,972,396 | 9,714,552 | | Total Liabilities | 29,063,415 | 27,856,557 | | Total Stockholders' Equity | 18,511,622 | 35,374,973 | Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Operations and Comprehensive Loss Highlights (Unaudited) | Metric (Three months ended Sep 30) | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :--------------------------------- | :------------ | :------------ | :------------ | :--------- | | Total revenue | 8,810,847 | 8,111,353 | 699,494 | 8.6% | | Gross margin | 5,606,866 | 3,617,377 | 1,989,489 | 55.0% | | Loss from operations | (7,350,198) | (9,017,338) | 1,667,140 | -18.5% | | Net loss | (9,193,520) | (12,200,837) | 3,007,317 | -24.6% | | Basic and diluted net loss per share | (0.21) | (0.28) | 0.07 | -25.0% | | Metric (Nine months ended Sep 30) | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :-------------------------------- | :------------ | :------------ | :------------ | :--------- | | Total revenue | 27,681,164 | 25,298,335 | 2,382,829 | 9.4% | | Gross margin | 17,080,743 | 14,976,020 | 2,104,723 | 14.1% | | Loss from operations | (21,867,828) | (25,165,524) | 3,297,696 | -13.1% | | Net loss | (22,672,487) | (32,046,457) | 9,373,970 | -29.2% | | Basic and diluted net loss per share | (0.52) | (0.74) | 0.22 | -29.7% | Consolidated Statements of Changes in Stockholders' Equity Changes in Stockholders' Equity (Nine months ended Sep 30, 2023) | Item | Amount ($) | | :--------------------------------------- | :----------- | | Balance at December 31, 2022 | 35,374,973 | | Stock-based compensation | 2,486,679 | | Foreign translation adjustment | 654,792 | | Issuance of common stock offerings, net | 2,107,119 | | Proceeds from exercise of stock options | 213,307 | | Issuance of restricted stock units | 403,941 | | Legal/audit fees related to ATM offering | (56,702) | | Net loss | (22,672,487) | | Balance at September 30, 2023 | 18,511,622 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Nine months ended Sep 30) | Cash Flow Activity | 2023 ($) | 2022 ($) | | :----------------- | :------------ | :------------ | | Operating | (15,247,725) | (22,893,955) | | Investing | (800,314) | (6,249,496) | | Financing | 2,263,724 | (40,359) | | Net change in cash | (13,785,520) | (29,585,468) | Notes to Consolidated Financial Statements 1. BASIS OF PRESENTATION This section outlines the basis for preparing interim financial statements, noting a going concern issue due to insufficient cash - The interim consolidated financial statements are prepared in conformity with U.S. GAAP and include normal recurring adjustments, with the Company's cash position raising substantial doubt about its ability to continue as a going concern, necessitating additional capital[20][21] 2. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section details the Company's core business, product commercialization, strategic agreements, and significant accounting policies for various financial metrics - CytoSorbents Corporation specializes in blood purification for life-threatening conditions, with its flagship product CytoSorb approved in the EU and marketed in over 75 countries, and has expanded direct sales to India, France, and the UK, also receiving FDA Breakthrough Device Designations for DrugSorb-ATR[22][25][26][27] - The distribution agreement with Nikkiso Europe GmbH expired in September 2023, and the Company is seeking a new supplier for a stand-alone hemoperfusion pump[29] - A Marketing Agreement with Fresenius Medical Care Deutschland GmbH aims to strengthen global marketing of CytoSorb, with a program launch expected in 2024[30][32] Cash, Cash Equivalents and Restricted Cash | Category | September 30, 2023 ($) | December 31, 2022 ($) | | :-------------------------------- | :------------------- | :------------------ | | Cash and cash equivalents | 8,359,047 | 22,144,567 | | Restricted cash | 1,687,459 | 1,687,459 | | Total cash, cash equivalents and restricted cash | 10,046,506 | 23,832,026 | - The allowance for doubtful accounts decreased from approximately $76,000 at December 31, 2022, to $57,000 at September 30, 2023[40] - The Company recorded impairment charges of approximately $183,000 and $476,000 for the three and nine months ended September 30, 2023, respectively, related to certain patent costs[44] - Advertising expenses decreased significantly, from $143,000 to $49,000 for the three months ended September 30, 2023, and from $358,000 to $143,000 for the nine months ended September 30, 2023[48] - Freight costs increased from $79,000 to $140,000 for the three months ended September 30, 2023, and from $166,000 to $341,000 for the nine months ended September 30, 2023[59] 3. STOCKHOLDERS' EQUITY This section details changes in stockholders' equity, including authorized shares, common stock offerings, stock-based compensation, and stock option activity - The Company's certificate of incorporation authorizes 5,000,000 shares of preferred stock and 100,000,000 shares of common stock[63][64] - Under an Open Market Sale Agreement with Jefferies LLC, the Company sold 590,348 shares for net proceeds of approximately $2,107,000 during the nine months ended September 30, 2023[67] Stock-Based Compensation Expense | Period | 2023 ($) | 2022 ($) | | :----------------------------------- | :---------- | :---------- | | Three months ended September 30 | 1,086,000 | 1,005,000 | | Nine months ended September 30 | 2,487,000 | 2,554,000 | Stock Option Activity (Nine months ended Sep 30, 2023) | Activity | Shares | Weighted Average Exercise Price per Share ($) | | :----------------------- | :---------- | :-------------------------------------------- | | Outstanding, Dec 31, 2022| 9,474,824 | 4.66 | | Granted | 2,583,880 | 3.45 | | Forfeited | (748,381) | 2.96 | | Expired | (435,781) | 5.10 | | Exercised | (84,093) | 2.61 | | Outstanding, Sep 30, 2023| 10,790,449 | 4.48 | - As of September 30, 2023, the Company had approximately $7,990,000 of total unrecognized compensation cost related to stock options, to be amortized over approximately 41 months[71] - Restricted stock units granted to Board members, executive officers, and employees will only vest upon a Change in Control of the Company, with no charge recorded due to vesting uncertainty[82] 4. REVENUE This section disaggregates revenue by customer type and geographic area, detailing product sales and grant income, and notes changes in contract receivables Revenue Disaggregation by Customer Type and Geographic Area (Three months ended Sep 30, 2023) | Category / Region | Direct Sales ($) | Distributors/Strategic Partners ($) | Government Agencies ($) | Total ($) | | :---------------- | :--------------- | :---------------------------------- | :---------------------- | :----------- | | Product sales: | | | | | | United States | 44,933 | — | — | 44,933 | | Germany | 2,937,431 | — | — | 2,937,431 | | All other countries | 1,267,051 | 3,504,601 | — | 4,771,652 | | Total product revenue | 4,249,415 | 3,504,601 | — | 7,754,016 | | Grant and other income: | | | | | | United States | — | — | 1,056,831 | 1,056,831 | | Total revenue | 4,249,415 | 3,504,601 | 1,056,831 | 8,810,847 | Revenue Disaggregation by Customer Type and Geographic Area (Nine months ended Sep 30, 2023) | Category / Region | Direct Sales ($) | Distributors/Strategic Partners ($) | Government Agencies ($) | Total ($) | | :---------------- | :--------------- | :---------------------------------- | :---------------------- | :----------- | | Product sales: | | | | | | United States | 55,284 | — | — | 55,284 | | Germany | 9,443,787 | — | — | 9,443,787 | | All other countries | 4,263,375 | 9,974,022 | — | 14,237,397 | | Total product revenue | 13,762,446 | 9,974,022 | — | 23,736,468 | | Grant and other income: | | | | | | United States | — | — | 3,944,696 | 3,944,696 | | Total revenue | 13,762,446 | 9,974,022 | 3,944,696 | 27,681,164 | - The Company's two primary revenue streams are CytoSorb device sales (direct and distributor) and grant income from U.S. government agencies[91] - Contract receivables from product sales to distributors increased from $2,944,031 at December 31, 2022, to $4,122,442 at September 30, 2023[97] 5. LONG-TERM DEBT, NET This section details the Company's long-term debt, including a term loan facility, interest-only payment terms, and future principal payment obligations - The Company has a $15 million term loan facility with Bridge Bank, with the first $5 million tranche drawn in December 2022, and no further draws available as of the filing date[99][100] - Interest-only payments are required through December 2023, with potential extension through June 2024 if certain financial tests are met, and principal payments begin January 2024 or July 2024, depending on these tests[100] Long-term Debt as of September 30, 2023 | Item | Amount ($) | | :------------------------ | :--------- | | Principal amount | 5,000,000 | | Accrued final fee | 32,143 | | Subtotal | 5,032,143 | | Less current maturities | (833,333) | | Long-term debt net of current maturities | 4,198,810 | Principal Payments of Long-term Debt | Period ending September 30 | Amount ($) | | :------------------------- | :--------- | | 2024 | 833,333 | | 2025 | 3,333,334 | | 2026 | 833,333 | | Total | 5,000,000 | 6. COMMITMENTS AND CONTINGENCIES This section covers key personnel changes, the settlement of a litigation matter, and details on royalty and licensing expenses - Kathleen P. Bloch was re-appointed as Chief Financial Officer effective September 18, 2023, replacing Alexander D'Amico whose employment was mutually terminated[108][109] - The Company settled a litigation matter for $280,000, which is included in accrued expenses and other current liabilities[110][196] Royalty Expenses | Period | 2023 ($) | 2022 ($) | | :----------------------------------- | :------- | :------- | | Three months ended September 30 | 229,000 | 187,000 | | Nine months ended September 30 | 703,000 | 627,000 | Licensing Expenses | Period | 2023 ($) | 2022 ($) | | :----------------------------------- | :------- | :------- | | Three months ended September 30 | 308,000 | 312,000 | | Nine months ended September 30 | 940,000 | 1,046,000| 7. LEASES This section details the Company's operating lease agreements for facilities in the U.S. and Germany, including right-of-use assets, lease liabilities, and associated cash flows - The Company leases operating facilities in the United States (Princeton, NJ) and Germany, with the Princeton lease commencing June 1, 2021, for 15.5 years and annual base rent increases of approximately 2.75%[116] Right-of-Use Asset and Lease Liability | Item | September 30, 2023 ($) | December 31, 2022 ($) | | :------------------------ | :------------------- | :------------------ | | Right-of-use asset | 12,196,049 | 12,603,901 | | Total lease liability | 13,009,413 | 13,250,944 | | Less current portion | (117,204) | (108,939) | | Lease liability, net of current portion | 12,892,209 | 13,142,005 | - Operating cash flows paid for leases amounted to approximately $633,000 and $1,801,000 for the three and nine months ended September 30, 2023, respectively[120] 8. NET LOSS PER SHARE This section explains the computation of net loss per share, noting the exclusion of anti-dilutive outstanding options and restricted stock awards - All outstanding options and restricted stock awards, representing approximately 14,119,000 incremental shares at September 30, 2023, were excluded from diluted loss per share computation as they were anti-dilutive[123] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition and operational results, covering product developments, clinical trials, sales strategies, and liquidity challenges, including a going concern warning Overview This overview highlights CytoSorbents' leadership in blood purification, its key strategic objectives, and its robust intellectual property portfolio - CytoSorbents is a leader in blood purification for life-threatening conditions, with its flagship product, CytoSorb, commercialized globally and used in over 221,000 human treatments[129][130] - Key objectives include obtaining FDA marketing approval for DrugSorb-ATR in the U.S., growing core CytoSorb sales to profitability, and reducing cash burn[131][132] - The Company's technology is protected by 19 issued U.S. patents and multiple international patents, with several product candidates under development[131][133] Clinical Studies Update This section provides updates on key clinical trials, including the completed STAR-T trial, paused STAR-D trial, and positive results from the U.S. CTC Registry - The pivotal STAR-T trial for DrugSorb-ATR completed patient enrollment in July 2023 and final patient follow-up in August 2023, with initial data analysis expected before year-end to support FDA marketing approval[136] - Enrollment in the STAR-D trial for Direct Oral Anticoagulants (DOACs) was paused in November 2022 and is expected to resume after STAR-T trial activities conclude[137] - The U.S. CTC (CytoSorb Therapy in COVID-19) Registry completed enrollment with 100 patients, showing high 90-day survival (74%) in critically ill COVID-19 patients treated with CytoSorb and ECMO[140] Sales and Marketing Update This section outlines the Company's sales and marketing strategies, focusing on near-term and long-term growth drivers, and updates on distribution agreements - Near-term growth drivers include resuming in-person sales, establishing new therapy divisions (Critical Care, Cardiovascular, Liver/Kidney/other), and securing new exclusive private hospital chain partnerships in Germany[143][144] - Longer-term growth drivers focus on expanding existing and new applications (shock, liver disease, lung injury), developing a stand-alone blood pump strategy, expanding direct sales territories (UK, Ireland, France), and investing in clinical studies[147] - Biocon Biologics divested its Dermatology and Nephrology businesses in India, leading to a temporary distribution agreement with Eris Lifesciences for CytoSorb products in India until December 31, 2025, with negotiations for a new agreement underway[146] COVID-19 Business Update This section details CytoSorb's application in COVID-19 patients under EUA and notes the easing of pandemic-related business impacts - CytoSorb has been used in over 7,650 COVID-19 patients globally, with U.S. Emergency Use Authorization (EUA) granted for critically ill COVID-19 patients with respiratory failure[150][151] - The negative impacts of the COVID-19 pandemic, such as staffing shortages and reduced surgical procedures, are easing, leading to improved hospital access and patient enrollment in clinical trials[183][184] Government Research Grants This section reports on government research grants, specifically a Phase I SBIR award from the U.S. Department of the Air Force for combat injury treatment - The Company received a Phase I SBIR award from the U.S. Department of the Air Force for $74,918 to explore new ways to treat combat injuries, with funding fully earned as of September 30, 2023[153] Research and Development Update This section updates on research and development activities, noting a return to pre-pandemic work levels and a strategic focus on high-potential product candidates - Research and development work levels have returned to pre-pandemic levels, with $7.6 million remaining to be earned on open grant contracts[154] - The Company is consolidating R&D teams to focus on HemoDefend-BGA and DrugSorb-ATR products, identified as having the highest commercial success potential, while concluding grant obligations for HemoDefend-RBC and K+ontrol[156] Impact of Inflation and Other Issues This section discusses the impact of inflation on the Company's operations, including increased labor, raw material, and energy costs - Inflation has led to increased labor costs, raw material prices (especially oil-based chemicals), and energy costs, with transportation cost increases mitigated by bulk shipping[157] Comparison for the three months ended September 30, 2023 and 2022 This section compares the Company's financial performance for the three months ended September 30, 2023, and 2022, focusing on revenue, gross margins, and key expenses Revenue Comparison (Three months ended Sep 30) | Revenue Category | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :--------------- | :---------- | :---------- | :---------- | :--------- | | Product sales | 7,754,000 | 6,463,000 | 1,291,000 | 20% | | Grant income | 1,057,000 | 1,649,000 | (592,000) | -36% | | Total revenues | 8,811,000 | 8,111,000 | 700,000 | 9% | - Product gross margins increased from approximately 55% in Q3 2022 to 72% in Q3 2023, primarily due to the absence of inefficiencies associated with the relocation of production activities[161] Expense Comparison (Three months ended Sep 30) | Expense Category | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :---------- | :---------- | | Cost of revenue | 3,204,000 | 4,494,000 | (1,290,000) | -28.7% | | Research and development | 3,749,000 | 3,290,000 | 459,000 | 14.0% | | Legal, financial and other consulting | 1,103,000 | 610,000 | 494,000 | 81.0% | | Selling, general and administrative | 8,104,000 | 8,735,000 | (631,000) | -7.2% | | Loss on foreign currency transactions | (1,810,000) | (3,230,000) | 1,420,000 | -44.0% | Comparison for the nine months ended September 30, 2023 and 2022 This section compares the Company's financial performance for the nine months ended September 30, 2023, and 2022, focusing on revenue, gross margins, and key expenses Revenue Comparison (Nine months ended Sep 30) | Revenue Category | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :--------------- | :---------- | :---------- | :---------- | :--------- | | Product sales | 23,736,000 | 21,718,000 | 2,019,000 | 9% | | Grant income | 3,945,000 | 3,580,000 | 364,000 | 10% | | Total revenues | 27,681,000 | 25,298,000 | 2,383,000 | 9% | - Product gross margins increased from approximately 68% in the nine months ended September 30, 2022, to 71% in the same period of 2023, driven by production efficiencies at the new manufacturing facility[172] Expense Comparison (Nine months ended Sep 30) | Expense Category | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :---------- | :---------- | | Cost of revenue | 10,600,000 | 10,322,000 | 278,000 | 2.7% | | Research and development | 11,632,000 | 11,717,000 | (85,000) | -0.7% | | Legal, financial and other consulting | 2,958,000 | 2,089,000 | 869,000 | 41.6% | | Selling, general and administrative | 24,358,000 | 26,335,000 | (1,977,000) | -7.5% | | Loss on foreign currency transactions | (734,000) | (6,967,000) | 6,233,000 | -89.5% | History of Operating Losses This section details the Company's history of operating losses, including its accumulated deficit and net losses for recent periods - As of September 30, 2023, the Company had an accumulated deficit of approximately $276,670,000, including net losses of $22,672,000 and $32,046,000 for the nine-month periods ended September 30, 2023 and 2022, respectively[177] Liquidity and Capital Resources This section assesses the Company's liquidity and capital resources, highlighting its cash position, the need for additional funding, and available ATM facility - As of September 30, 2023, the Company had approximately $10.0 million in cash (including $8.4 million unrestricted and $1.7 million restricted), which is expected to fund operations only through Q1 2024[181] - The Company needs to raise additional capital and is exploring various sources, including debt financing, royalty financing, strategic or direct investments, and equity financing[181] - Approximately $22.8 million remains available under the Company's $25 million ATM facility[180] Contractual Obligations This section outlines the Company's contractual obligations, primarily focusing on long-term lease agreements for its operating facilities - The Company has lease agreements for operating facilities in New Jersey and Germany, with the main Princeton facility lease extending for 15.5 years from September 2021[185] Off-balance Sheet Arrangements This section confirms that the Company has no off-balance sheet arrangements to report - The Company has no off-balance sheet arrangements[188] Going Concern This section addresses the Company's going concern status, noting insufficient cash to fund operations beyond twelve months - The Company's cash position of approximately $10.0 million as of September 30, 2023, is insufficient to fund operations beyond twelve months, raising substantial doubt about its ability to continue as a going concern[189] Critical Accounting Policies and Estimates This section refers to the Company's Annual Report on Form 10-K for a detailed discussion of critical accounting policies and estimates - A discussion of critical accounting policies and estimates is contained in the Company's Annual Report on Form 10-K[190] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms that quantitative and qualitative disclosures about market risk are not applicable for this report - Quantitative and qualitative disclosures about market risk are not applicable[191] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were functioning effectively as of September 30, 2023[193] - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2023[194] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company settled a litigation matter for $280,000, recorded as a liability and expense, with no other current legal proceedings - The Company settled a litigation matter for $280,000, included in accrued expenses and other current liabilities[196] - The Company is not currently a party to any other legal proceedings[197] Item 1A. Risk Factors This section updates risk factors, highlighting the Company's history of losses, going concern doubt, economic risks in Germany, geopolitical instability, and the continuous need for additional capital - The Company has a history of substantial operating losses, with an accumulated deficit of approximately $276,670,000 as of September 30, 2023, and its auditor's report expresses substantial doubt about its ability to continue as a going concern[199] - Adverse economic conditions in Germany, which accounts for approximately 40% of net product sales, or broader economic/political instability in the EU or globally, could negatively impact the Company's business[200][202] - Geopolitical tensions and conflicts, such as the Russia-Ukraine conflict and the Israel-Gaza conflict, could disrupt commerce and negatively affect the Company's global operations and financial condition[203] - The Company will require additional capital to fund future operations, commercialization, clinical studies, and working capital, with no assurance of obtaining such financing on acceptable terms[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities or use of proceeds were reported - No unregistered sales of equity securities or use of proceeds to report[209] Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities to report - No defaults upon senior securities to report[210] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable for this report - Mine safety disclosures are not applicable[211] Item 5. Other Information This section discloses a 10b5-1 Trading Plan adoption and the termination of a public offering process due to market conditions, with the Company pursuing alternative capital sources - Vincent Capponi, President and COO, adopted a 10b5-1 Trading Plan for the sale of up to 62,700 shares of common stock between January 2, 2024, and March 28, 2024[212] - The Company terminated a confidential marketing process for an underwritten public offering due to market conditions not being conducive for terms in the best interest of stockholders[213] - The Company continues to pursue alternative capital sources, including debt financing, royalty financing, strategic or direct investments, and equity financing[214] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including employment agreements, certifications, and XBRL data - Exhibit 10.1 includes the Employment Agreement for Ms. Kathleen Bloch, dated September 18, 2023[215] - Certifications of the Principal Executive Officer and Principal Financial Officer are furnished under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[215] - XBRL formatted financial statements and cover page interactive data file are included as Exhibits 101 and 104[215] Signatures This section contains the signatures of the Company's Chief Executive Officer and Chief Financial Officer, certifying the report - The report is signed by Phillip P. Chan, Chief Executive Officer, and Kathleen P. Bloch, Chief Financial Officer, on November 9, 2023[221]