What changed in this filing

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Item 1. Financial Statements

2020-11-04 compared with 2020-08-04 · 122 added, 104 removed, 514 unchanged (31% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

Current Assets:

Cash and cash equivalents

Grants and accounts receivable, net of allowance for doubtful accounts of $ 70,746 at June 30, 2020 and $ 145,313 at December 31, 2019

Grants and accounts receivable, net of allowance for doubtful accounts of $ 69,640 at September 30, 2020 and $ 145,313 at December 31, 2019

Prepaid expenses and other current assets

15 unchanged sentences

Preferred Stock, Par Value $ 0.001 , 5,000,000 shares authorized;

- 0 - shares issued and outstanding at June 30, 2020 and December 31, 2019

-0- shares issued and outstanding at September 30, 2020 and December 31, 2019

Common Stock, Par Value $ 0.001 , 100,000,000 shares authorized;

36,811,870 and 32,616,107 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

43,175,685 and 32,616,107 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Accumulated deficit

7 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

CytoSorb sales

15 unchanged sentences

Gain (loss) on foreign currency transactions

( 1,051,854 )

Total other income (expense), net

Loss before benefit from income taxes

( 1,257,515 )

( 1,773,557 )

Net loss before benefit from income taxes

( 6,885,061 )

( 7,159,464 )

( 15,316,292 )

Benefit from income taxes

3 unchanged sentences

( 15,316,292 )

( 8,431,232 )

Basic and diluted net loss per common share

3 unchanged sentences

( 15,316,292 )

( 8,431,232 )

Other comprehensive income (loss):

Currency translation adjustment

( 1,047,749 )

( 1,043,280 )

Comprehensive loss

6 unchanged sentences

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three and six months ended June 30, 2020 (Unaudited)

For the three and nine months ended September 30, 2020 (Unaudited)

Comprehensive

Stockholders’

Balance at March 31, 2020

Income (Loss)

Balance at June 30, 2020

( 195,109,194 )

3 unchanged sentences

foreign translation adjustment

Proceeds from exercise of stock options

Cashless exercise of stock options

( 1,047,749 )

Balance at June 30, 2020

Proceeds from exercise of stock options

Issuance of restricted stock units

Balance at September 30, 2020

( 195,948,923 )

5 unchanged sentences

foreign translation adjustment

( 1,043,280 )

Proceeds from exercise of stock options

3 unchanged sentences

( 7,159,464 )

Balance at June 30, 2020

Balance at September 30, 2020

( 195,948,923 )

1 unchanged sentence

Stockholders’

Balance at March 31, 2019

Balance at June 30, 2019

( 177,955,046 )

Stock based compensation - employees, consultants and directors

Other comprehensive (loss):

Other comprehensive income:

foreign translation adjustment

Proceeds from exercise of stock options

Cashless exercise of stock options

Issuance of restricted stock units

Fees related to Open Market Sales Agreement

( 6,885,061 )

Balance at June 30, 2019

Balance at September 30, 2019

( 184,840,107 )

2 unchanged sentences

Stock based compensation - employees, consultants and directors

Issuance of common stock, net of fees

Other comprehensive income:

1 unchanged sentence

Proceeds from exercise of stock options

Cashless exercise of stock options

Cashless exercise of warrants

Issuance of restricted stock units

Cashless exercise of stock options

Fees related to Open Market Sales Agreement

Proceeds from exercise of warrants

1 unchanged sentence

( 15,316,292 )

Balance at June 30, 2019

Balance at September 30, 2019

( 184,840,107 )

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended

Nine months ended

September 30,

Cash flows from operating activities:

7 unchanged sentences

Stock-based compensation

Foreign currency transaction loss

Foreign currency transaction (gain) loss

( 1,416,577 )

Changes in operating assets and liabilities:

Grants and accounts receivable

( 1,083,938 )

Prepaid expenses and other current assets

8 unchanged sentences

( 1,410,082 )

( 1,116,894 )

Cash flows from financing activities:

Equity contributions - net of fees incurred

Equity contributions-net of fees

Fees related to equity facility

Proceeds from long-term debt

1 unchanged sentence

( 1,410,900 )

Payment of debt acquisition costs

Proceeds from exercise of stock options

13 unchanged sentences

Notes to Consolidated Financial Statements

June 30, 2020

September 30, 2020

BASIS OF PRESENTATION

4 unchanged sentences

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, 2019 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2020.

The results for the three and six months ended June 30, 2020 and 2019 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 results for the three and nine months ended September 30, 2020 and 2019 are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.

Prior to June 30, 2020, the Company's consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

1 unchanged sentence

Gross proceeds from the Offering amounted to approximately $ 57.5 million and, after deducting the underwriting discounts and commissions and expenses related to the Offering, the Company received total net proceeds of approximately $ 53.8 million.

As a result of the Offering, the Company’s cash balance increased to approximately $ 89.0 million, which the Company expects will fund the Company’s operations well beyond the next twelve months.

As of September 30, 2020, the Company’s cash balance was approximately $ 88.0 million, which the Company expects will fund the Company’s operations well beyond the next twelve months.

As a result, the Company has determined that the going concern risk has been eliminated.

12 unchanged sentences

which is responsible for the management of our clinical trial activities in the United Kingdom.

CytoSorb, the Company’s flagship product, was approved in the European Union (“EU”) in March 2011, and is currently being marketed and distributed in sixty-five countries around the world, as a safe and effective extracorporeal cytokine absorber, designed to reduce the “cytokine storm” that could otherwise cause massive inflammation, organ failure and death in common critical illnesses such as sepsis, burn injury, trauma, lung injury, and pancreatitis.

CytoSorb, the Company’s flagship product, was approved in the European Union (“EU”) in March 2011, and is currently being marketed and distributed in sixty-six countries around the world, as a safe and effective extracorporeal cytokine absorber, designed to reduce the “cytokine storm” that could otherwise cause massive inflammation, organ failure and death in common critical illnesses such as sepsis, burn injury, trauma, lung injury, and pancreatitis.

In May 2018, the Company received a label extension for CytoSorb covering use of the device for the removal of bilirubin and myoglobin which allows for the use of the device in the treatment of liver failure and trauma, respectively.

1 unchanged sentence

In April 2020, the Company announced that the United States Food and Drug Administration (the “FDA”) granted Emergency Use Authorization (“EUA”) of CytoSorb for use in critically-ill patients infected with COVID-19.

Under the EUA, the Company can make CytoSorb available, through commercial sales, to all hospitals in the United States for use in patients, 18 years of age or older, with confirmed COVID-19 infection who are admitted to the intensive care unit (ICU) with confirmed or imminent respiratory failure who have early acute lung injury or acute respiratory distress syndrome (ARDS), severe disease, or life-threatening illness resulting in respiratory failure, septic shock, and/or multiple organ dysfunction or failure.

have early acute lung injury or acute respiratory distress syndrome (ARDS), severe disease, or life-threatening illness resulting in respiratory failure, septic shock, and/or multiple organ dysfunction or failure.

The CytoSorb device has neither been cleared nor approved for the indication to treat patients with COVID-19 infection.

2 unchanged sentences

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, FDA intends to work with CytoSorbents to expedite the development, assessment, and regulatory review of CytoSorb 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.

Through Breakthrough Designation, the FDA intends to work with CytoSorbents to expedite the development, assessment, and regulatory review of CytoSorb 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.

The technology is based upon biocompatible, highly porous polymer sorbent beads that can actively remove toxic substances from blood and other bodily fluids by pore capture and surface adsorption.

13 unchanged sentences

Translation gains and losses resulting from the process of remeasuring into the United States Dollar, the foreign currency financial statements of CytoSorbents Europe GmbH, for which the Euro is the functional currency, are included in operations.

Foreign currency transaction gain included in net loss amounted to approximately $705,000 and $297,000 for the three months ended June 30, 2020 and 2019, respectively.

Foreign currency transaction gains (loss) included in net loss amounted to approximately $36,000 and $(96,000) for the six months ended June 30, 2020 and 2019, respectively.

Foreign currency transaction gain (loss) included in net loss amounted to approximately $ 1,381,000 and $( 956,000 ) for the three months ended September 30, 2020 and 2019, respectively.

Foreign currency transaction gain (loss) included in net loss amounted to approximately $ 1,417,000 and $( 1,052,000 ) for the nine months ended September 30, 2020 and 2019, respectively.

The Company translates assets and liabilities of CytoSorbents Europe GmbH at the exchange rate in effect at the consolidated balance sheet date.

11 unchanged sentences

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 $71,000 and $145,000 at June 30, 2020 and December 31, 2019, respectively.

Inventories are valued at the lower of cost or net realizable value under the first in, first out (FIFO) method.

At June 30, 2020 and December 31, 2019, the Company’s inventory was comprised of finished goods, which amounted to $ 471,177 and $ 305,452 , respectively;

At September 30, 2020 and December 31, 2019, the Company’s inventory was comprised of finished goods, which amounted to $ 637,735 and $ 305,452 , respectively;

work in process which amounted to $ 1,137,834 and $ 1,523,923 , respectively;

28 unchanged sentences

Advertising expenses are charged to activities when incurred.

Advertising expenses amounted to approximately $ 55,000 and $ 93,000 for the three months ended June 30, 2020 and 2019, respectively, and approximately $ 86,000 and $ 145,000 for the six months ended June 30, 2020 and 2019, respectively, and are included in selling, general, and administrative expenses on the consolidated statement of operations.

Advertising expenses amounted to approximately $ 32,000 and $ 70,000 for the three months ended September 30, 2020 and 2019, respectively, and approximately $ 118,000 and $ 215,000 for the nine months ended September 30, 2020 and 2019, respectively, and are included in selling, general, and administrative expenses on the consolidated statements of operations.

Income taxes are accounted for under the asset and liability method prescribed by accounting standards for accounting for income taxes.

6 unchanged sentences

The Company follows accounting standards associated with uncertain tax positions.

The Company had no unrecognized tax benefits at June 30, 2020 or December 31, 2019.

The Company had no unrecognized tax benefits at September 30, 2020 or December 31, 2019.

The Company files tax returns in the U.S.

14 unchanged sentences

(See Note 4 for further information relating to the Company’s revenue.)

As of June 30, 2020, one distributor accounted for approximately 21 % of outstanding grants and accounts receivable.

As of September 30, 2020, one distributor accounted for approximately 20 % of outstanding grants and accounts receivable.

As of December 31, 2019, no agency, distributor/strategic partners or direct customer represented more than 10 % of outstanding grants and accounts receivables.

For the three and six months ended June 30, 2020, no agency, distributor, or direct customer represented more than 10 %of the Company’s total revenue.

For the three and six months ended June 30, 2019, no agency, distributor, or direct customer represented more than 10 % of the Company’s total revenue.

For the three months ended September 30, 2020, one distributor accounted for approximately 13 % of the Company's total revenue.

For the nine months ended September 30, 2020, no agency, distributor, or direct customer represented more than 10 % of the Company’s total revenue.

For the three and nine months ended September 30, 2019, no agency, distributor, or direct customer represented more than 10 %of the Company’s total revenue.

Financial Instruments

12 unchanged sentences

The Company records other shipping and handling costs in cost of revenue.

Total freight costs amounted to approximately $ 149,000 and $ 212,000 , respectively, for the three months ended June 30, 2020 and 2019, and $ 282,000 and $ 358,000 , respectively, for the six months ended June 30, 2020 and 2019.

Total freight costs amounted to approximately $ 188,000 and $ 133,000 , respectively, for the three months ended September 30, 2020 and 2019, and $ 471,000 and $ 491,000 , respectively, for the nine months ended September 30, 2020 and 2019.

STOCKHOLDERS’ EQUITY

4 unchanged sentences

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.

July 24, 2020 Offering

On July 24, 2020, the Company closed an underwritten public offering of 6,052,631 shares of its common stock at a public offering price of $ 9.50 per share (the "Offering").

The Company completed the Offering pursuant to the terms of an Underwriting Agreement, dated as of July 21, 2020, by and among the Company and Cowen and Company, LLC and SVB Leerink LLC, as representatives of the several underwriters named therein.

The Company received gross proceeds of approximately $ 57.5 million from the Offering.

After deducting the underwriting discounts and commissions and fees and expenses payable by the Company in connection with the Offering, the Company received net proceeds of approximately $ 53.8 million.

Shelf Registration

22 unchanged sentences

During the year ended December 31, 2019, the Company sold 191,244 shares pursuant to the Amended Sale Agreement, at an average selling price of $ 4.11 per share, generating net proceeds of approximately $ 762,000 .

During the six months ended June 30, 2020, the Company sold 3,868,258 shares pursuant to the Amended Sale Agreement, at an average selling price of $ 6.41 per share, generating net proceeds of approximately $ 24,062,000 .

During the period from July 1, 2020 through July 31, 2020, the Company sold 242,367 shares pursuant to the Amended Sale Agreement, at an average selling price of $ 10.27 per share, generating net proceeds of approximately $ 2,414,000 .

During the nine months ended September 30, 2020, the Company sold 4,110,625 shares pursuant to the Amended Sale Agreement, at an average selling price of $ 6.64 per share, generating net proceeds of approximately $ 26,476,000 .

In the aggregate, the Company has sold 4,301,869 shares pursuant to the Amended Sale Agreement, at an average selling price of $ 6.53 per share, generating net proceeds of approximately $ 27,238,000 .

In addition, during the three and six months ended June 30, 2020, the Company paid approximately $ 49,000 in expenses related to the Amended Sale Agreement.

In addition, during the nine months ended September 30, 2020, the Company paid approximately $ 49,000 in expenses related to the Amended Sale Agreement.

Stock-Based Compensation

Total share-based employee, director, and consultant compensation amounted to approximately $ 1,046,000 and $ 1,776,000 for the three and six months ended June 30, 2020, and $ 145,000 and $ 372,000 for the three and six months ended June 30, 2019, respectively.

Total share-based employee, director, and consultant compensation amounted to approximately $ 1,088,000 and $ 802,000 for the three months ended September 30, 2020 and 2019, and approximately $ 2,864,000 and $ 1,175,000 for the nine months ended September 30, 2020 and 2019, respectively.

These amounts are included in the consolidated statements of operations and comprehensive loss under selling, general and administrative expenses.

The summary of the stock option activity for the six months ended June 30, 2020 is as follows:

The summary of the stock option activity for the nine months ended September 30, 2020 is as follows:

Exercise Price

Outstanding, December 31, 2019

Outstanding, June 30, 2020

Outstanding, September 30, 2020

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 $ 5.68 to $ 10.58 per share) and expected life of the stock option ( 10 years ), the current price of the underlying stock and its expected volatility (ranging from 64.8 percent to 69.8 percent), expected dividends (- 0 - percent) on the stock and the risk free interest rate (ranging from 0.28 to 0.36 percent) for the term of the stock option.

The intrinsic value is calculated at the difference between the market value as of June 30, 2020 of $ 9.90 and the exercise price of the shares.

The intrinsic value is calculated at the difference between the market value as of September 30, 2020 of $ 7.975 and the exercise price of the shares.

Options Outstanding

Outstanding at

September 30,

$ 2.65 - $ 14.50

1 unchanged sentence

Exercisable at

The summary of the status of the Company’s non-vested options for the six months ended June 30, 2020 is as follows:

September 30,

The summary of the status of the Company’s non-vested options for the nine months ended September 30, 2020 is as follows:

Non-vested, December 31, 2019

Non-vested, June 30,2020

As of June 30, 2020, the Company had approximately $ 3,764,000 of total unrecognized compensation cost related to stock options which will be amortized over 33 months .

On February 28, 2020, the Board of Directors allotted a pool of options to purchase 1,041,325 shares of common stock to the Company’s employees which will be awarded based upon the achievement of certain specific, predetermined milestones related to the Company’s 2020 operations.

Non-vested, September 30, 2020

As of September 30, 2020, the Company had approximately $ 3,233,000 of total unrecognized compensation cost related to stock options which will be expensed over 30 months .

On February 28, 2020, the Board of Directors granted options to purchase 1,041,325 shares of common stock to the Company’s employees which will vest upon the achievement of certain specific, predetermined milestones related to the Company’s 2020 operations.

Once awarded, these options will vest in four equal traunches, the first traunch vesting on the date of the award.

The grant date fair value of these unvested options amounted to approximately $ 6,279,000 .

Based upon an assessment by management, which was reviewed with the Board of Directors, as of June 30, 2020, the Company met approximately 20 % of these milestones, and accordingly, we have recorded $ 197,000 in stock option expense related to these options in each of the three and six month periods ended June 30, 2020, respectively.

Based upon an assessment by management, which was reviewed with the Board of Directors, as of September 30, 2020, the Company met approximately 62.5 % of these milestones, and

accordingly we have recorded $ 419,000 and $ 616,000 in stock option expense related to these options in the three and nine months ended September 30, 2020, respectively.

Change in Control-Based Awards of Restricted Stock Units:

The Board of Directors has granted restricted stock units to members of the Board of Directors, to the Company’s executive officers, and to certain employees of the Company.

These specific restricted stock units will only vest upon a Change in Control of the Company, as defined in the Company's 2014 Long-Term Incentive Plan.

These specific restricted stock units will only vest upon a Change in Control of the Company, as defined in the Company's Amended and Restated 2014 Long-Term Incentive Plan.

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

2 unchanged sentences

December 31, 2019

June 30, 2020

Due to the uncertainty over whether these restricted stock units will vest, which will only happen upon a Change in Control, no charge for these restricted stock units has been recorded in the consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020 and 2019.

September 30, 2020

Performance-Based Awards of Restricted Stock Units:

1 unchanged sentence

These awards were valued at approximately $ 1,148,000 at the date of issuance, based upon the market price of the Company’s 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 months and six months ended June 30, 2020 and 2019, the Company recorded a charge of approximately $ 0 and $ 0 , and $ 96,000 and $ 96,000 , related to these restricted stock unit awards , respectively.

For the three and nine months ended September 30, 2020 and 2019, the Company recorded a charge (credit) of approximately $ 0 and $ 96,000 , and $( 23,000 ) and $ 298,000 , related to these restricted stock unit awards , respectively.

Pursuant to a review of the compensation of the senior management of the Company and managements’ performance in 2018, on March 4, 2019 the Board of Directors granted 22,220 restricted stock units to certain senior managers of the Company in order to settle bonuses accrued as of December 31, 2017.

These awards were valued at approximately $ 179,000 at the date of issuance, based upon the market price of the Company’s 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 six months ended June 30, 2020 and 2019, the Company recorded a charge of approximately $ 12,000 and $ 21,000 , and $ 14,000 and $ 19,000 , related to these restricted stock unit awards , respectively.

For the three and nine months ended September 30, 2020 and 2019, the Company recorded a charge of approximately $ 12,000 and $ 15,000 , and $ 22,000 and $ 34,000 , related to these restricted stock unit awards , respectively.

Pursuant to a review of the compensation of the senior management of the Company and managements’ performance in 2019, on July 22, 2019 the Board of Directors granted 180,300 restricted stock units to certain senior managers of the Company in order to settle bonuses accrued as of December 31, 2018.

These awards were valued at approximately $ 1,300,000 at the date of issuance, based upon the market price of the Company’s 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 six months ended June 30, 2020 and 2019, the Company recorded a charge of approximately $ 93,000 and $ 196,000 and $ 0 and $ 0 , related to these restricted stock unit awards , respectively.

For the three and nine months ended September 30, 2020 and 2019, the Company recorded a charge of approximately $ 256,000 and $ 103,000 and $ 461,000 and $ 525,000 , related to these restricted stock unit awards , respectively.

Pursuant to a review of the compensation of the senior management of the Company and managements’ performance in 2019, on February 28, 2020, the Board of Directors granted 168,100 restricted stock units to certain senior managers of the Company in order to settle bonuses accrued as of December 31, 2019.

These awards were valued at approximately $ 1,014,000 at the date of issuance, based upon the market price of the Company’s 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 six months ended June 30, 2020 and 2019, the Company recorded a charge of approximately $ 84,000 and $ 451,000 and $ 0 and $ 0 , related to these restricted stock unit awards , respectively.

The following table outlines the restricted stock unit activity for the six months ended June 30, 2020:

For the three and nine

months ended September 30, 2020 and 2019, the Company recorded a charge of approximately $ 84,000 and $ 0 and $ 535,000 and $ 0 , related to these restricted stock unit awards , respectively.

The following table is a summary of the activity related to these restricted stock units during the nine months ended September 30, 2020:

Non-vested, January 1, 2020

Non-vested, June 30, 2020

As of June 30, 2020, the Company had no warrants outstanding.

The following table disaggregates the Company’s revenue by customer type and geographic area for the three months ended June 30, 2020:

Non-vested, September 30, 2020

As of September 30, 2020, the Company had no warrants outstanding.

The following table disaggregates the Company’s revenue by customer type and geographic area for the three months ended September 30, 2020:

United States

8 unchanged sentences

Total revenue

The following table disaggregates the Company’s revenue by customer type and geographic area for the three months ended June 30, 2019:

The following table disaggregates the Company’s revenue by customer type and geographic area for the three months ended September 30, 2019:

United States

8 unchanged sentences

Total revenue

The following table disaggregates the Company's revenue by customer type and geographic area for the six months ended June 30, 2020:

The following table disaggregates the Company's revenue by customer type and geographic area for the nine months ended September 30, 2020:

United States

8 unchanged sentences

Total revenue

The following table disaggregates the Company's revenue by customer type and geographic area for the six months ended June 30, 2019:

The following table disaggregates the Company's revenue by customer type and geographic area for the nine months ended September 30, 2019:

United States

44 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

1 unchanged sentence

Contract liabilities

Contract liabilities represent the value of free of charge goods and credit rebates earned in accordance with the terms of certain direct customer agreements during the periods ended June 30, 2020 and December 31, 2019, and deferred revenue on distributor/strategic partner contracts.

Deferred revenue is the difference between the average selling price anticipated for the year ended 2020 and the actual price invoiced during the six months ended June 30, 2020.

Contract liabilities represent the value of free of charge goods and credit rebates earned in accordance with the terms of certain direct customer agreements during the periods ended September 30, 2020 and December 31, 2019, and deferred revenue on distributor/strategic partner contracts.

Deferred revenue is the difference between the average selling price anticipated for the year ended 2020 and the actual price invoiced during the nine months ended September 30, 2020.

There was no deferred revenue liability as of December 31, 2019.

2 unchanged sentences

(together, the “Borrower”), entered into a Loan and Security Agreement with Bridge Bank, a division of Western Alliance Bank, (the “Bank”), pursuant to which the Company borrowed $ 10 million in two equal tranches of $ 5 million (the “Original Term Loans”).

On March 29, 2018 (the “Closing Date”), 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 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 could have been 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, the “Term Loans”).

On March 29, 2018 (the “Closing Date”), 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 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 could have been disbursed at the Borrower’s sole request prior to March 31, 2019 provided certain conditions were met (the “Term B Loan” and together with the Term A Loan, the “Term Loans”).

On July 31, 2019 (the “Settlement Date”), 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”).

2 unchanged sentences

The outstanding balances on Term Loans bear interest at the prime rate reported in the Wall Street Journal plus 3.66 %.

This rate was 6.91 % at June 30, 2019.

This rate was 6.91 % at September 30, 2020.

On the Closing Date, the Company was required to pay a non-refundable closing fee of $ 25,000 , expenses incurred by the Bank related to the Amended and Restated Loan and Security Agreement of $ 11,000 and a portion of the final fee for the period the Original Term Loans was outstanding of $ 85,938 .

3 unchanged sentences

These costs are being amortized over the loan period as a charge to interest expense.

For the three and six months ended June 30, 2020, the Company recorded interest expense amounting to $ 8,524 and $ 17,048 , and for both the three and six months ended June 30, 2019 the Company recorded interest expense amounting to $ 8,129 , respectively, related to these costs.

For the three and nine months ended September 30, 2020, the Company recorded interest expense amounting to $ 8,524 and $ 25,573 , and for both the three and nine months ended September 30, 2019 the Company recorded interest expense amounting to $ 8,393 and $ 24,651 , respectively, related to these costs.

Under the terms of the First Amendment, commencing on the first calendar day of the calendar month after the Term B Loan was made, the Company is required to make monthly payments of interest-only through April 2020.

The interest-only period will be further extended through November 2020 provided the Borrower has been compliant with its obligations under the financial covenant revenue test set forth in the Amended and Restated Loan and Security Agreement for all months from the month immediately after the month in which the Term B Loan is funded through March 2020.

Since the Company has complied with its obligations under the financial covenant revenue test through March 2020, commencing on November 1, 2020, the Company shall make equal monthly payments of principal of $ 833,333 , together with accrued and unpaid interest.

All unpaid principal and accrued and unpaid interest shall be due and payable in full on April 1, 2022.

Since the Company has complied with its obligations under the financial covenant revenue test through March 2020, commencing on November 1, 2020, the Company will make equal monthly payments of principal of $ 833,333 , together with accrued and unpaid interest.

All unpaid principal and accrued and unpaid interest will be due and payable in full on April 1, 2022.

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 Term Loan funded upon the earlier of the (i) April 1, 2022 maturity date or (ii) termination of the Term Loan via acceleration or prepayment.

This final fee is being accrued and charged to interest expense over the term of the loan.

For the three and six months ended June 30, 2020 and 2019, the Company recorded interest expense of $ 27,344 and $ 15,625 , respectively, and $ 54,687 and $ 31,250 , respectively, related to the final fee.

This final fee is being accrued and charged to interest expense over the term of the Term Loans.

For the three and nine months ended September 30, 2020 and 2019, the Company recorded interest expense of $ 27,344 and $ 23,437 , respectively, and $ 82,031 and $ 54,687 , respectively, related to the final fee.

The Term Loans are evidenced by secured promissory notes issued to the Bank by the Company.

4 unchanged sentences

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 required under the Amended and Restated Loan 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 Amended and Restated 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 Amended and Restated 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.

The Company is in substantial compliance with these covenants.

The Amended and Restated 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.

The Company is in compliance with these covenants.

The Company’s and CytoSorbents Medical, Inc.’s obligations under the Amended and 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).

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or (d) the closing price per share for the Company’s common stock on the Nasdaq Capital Market being the greater of (i) 70 % or more over $ 7.05 , the closing price of the Company’s common stock on March 29, 2018 (after giving effect to any stock splits or consolidations effected after the date thereof) for five successive business days, or (ii) at least 26.13 % more than the average price of Company’s common stock for the 365 day period ending on the date of the funding of the Term B Loan.

Long-term debt consists of the following at June 30, 2020:

Long-term debt consists of the following at September 30, 2020:

Principal amount

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Long-term debt net of current maturities

Principal payments of long-term debt are due as follows during the year ended June 30 th :

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

Payroll Protection Program:

18 unchanged sentences

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 royalty of 3 % on all gross revenues received by the Company from the sale of its CytoSorb device.

For the three months ended June 30, 2020 and 2019, the Company has recorded royalty costs of approximately $ 281,000 and $ 175,000 , respectively.

For the six months ended June 30, 2020 and 2019, the Company has recorded royalty costs of approximately $ 523,000 and $ 309,000 , respectively.

In 2003, the Company granted a perpetual royalty (the “Royalty”) equal to three percent of all gross revenues received by the Company from sales of CytoSorb in the applications of sepsis, cardiopulmonary bypass surgery, organ donor, chemotherapy and inflammation control.

For the three months ended September 30, 2020 and 2019, the Company has recorded royalty costs of approximately $ 306,000 and $ 169,000 , respectively.

For the nine months ended September 30, 2020 and 2019, the Company has recorded royalty costs of approximately $ 829,000 and $ 478,000 , respectively.

License Agreements

1 unchanged sentence

Under the terms of the agreement, the Company has agreed to pay royalties 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 commencing with the first sale of such product.

For the three months ended June 30, 2020 and 2019, per the terms of the license agreement, the Company has recorded royalty costs of approximately $ 467,000 and $ 292,000 , respectively.

For the six months ended June 30, 2020 and 2019, the Company recorded royalty costs of approximately $ 871,000 and $ 515,000 , respectively.

For the three months ended September 30, 2020 and 2019, per the terms of the license agreement, the Company has recorded royalty costs of approximately $ 510,000 and $ 282,000 , respectively.

For the nine months ended September 30, 2020 and 2019, the Company recorded royalty costs of approximately $ 1,381,000 and $ 797,000 , respectively.

Effective January 1, 2019, the Company adopted the provisions of Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842).

The provisions of this ASU require the Company to record a right-of-use asset and related lease liability related to their leases.

Accordingly, the Company has adjusted its December 31, 2018 consolidated balance sheet to properly reflect the provisions of this ASU as discussed below.

The Company leases its operating facilities in both the United States and Germany under operating lease agreements.

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Initial Measurement of Right-Of-Use Asset and Lease Liability:

The Company's consolidated balance sheets reflects the value of the right-of-use asset and related 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.

2 unchanged sentences

As a result, the value of the right-of- use asset and related lease liability is as follows:

September 30,

Right-of-use asset

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Lease liability, net of current portion

The maturities of the lease liabilities are as follows as of June 30, 2020:

For the three months ended June 30, 2020 and 2019, operating cash flows paid in connection with operating leases amounted to approximately $ 213,000 and $ 230,000 , and $ 447,000 and $ 440,000 for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020 and December 31, 2019, the weighted average remaining lease term was 4.30 years and 4.01 years, respectively.

The maturities of the lease liabilities due in the twelve months ending September 30, 2020:

For the three months ended September 30, 2020 and 2019, operating cash flows paid in connection with operating leases amounted to approximately $ 211,000 and $ 234,000 , and $ 658,000 and $ 674,000 for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and December 31, 2019, the weighted average remaining lease term was 4.3 years and 4.10 years, respectively.

NET LOSS PER SHARE

Basic loss per share and diluted loss per share for the three months ended June 30, 2020 and 2019 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 and options and restricted stock awards representing approximately 7,828,000 and 5,664,000 incremental shares at June 30, 2020 and 2019, respectively, have been excluded from the computation of diluted loss per share as they are anti-dilutive.

Basic loss per share and diluted loss per share for the three months ended September 30, 2020 and 2019 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 and options and restricted stock awards representing approximately 7,749,000 and 7,329,000 incremental shares at September 30, 2020 and 2019, respectively, have been excluded from the computation of diluted loss per share as they are anti-dilutive.

SUBSEQUENT EVENTS

During the period from July 1, 2020 through July 31, 2020, the Company sold 242,367 shares of its common stock pursuant to the Amended Sale Agreement, at an average selling price of $ 10.27 per share, generating net proceeds of approximately $ 2,414,000 (see Note 3).

On July 21, 2020, the Company received notification that it received a U.S.

Army Medical Research Acquisition Activity Award (the “USAMRAAA”) for its HemoDefend™ platform, a development-stage technology designed to be a practical, low cost, and effective way to safeguard the quality and safety of the blood supply.

The USAMRAAA award, for up to $ 4,421,487 , was granted to the Company in order to develop a highly efficient adsorber to remove anti-A and Anti-B antibodies from blood and plasma for transfusion.

This Award is supported by the U.S.

Department of Defense Peer Reviewed Medical Research Program (PRMRP)/Congressionally Directed Medical Research Program (CDMRP) under Contract No.

W81XWH2010712.

On July 24, 2020, the Company completed the Offering pursuant to the terms of an Underwriting Agreement, dated as of July 21, 2020, by and among the Company and Cowen and Company, LLC and SVB Leerink LLC, as representatives of the several underwriters named therein.

The Company issued and sold an aggregate of 6,052,631 shares of common stock in the Offering and received gross proceeds of approximately $ 57.5 million, before deducting the underwriting discounts and commissions and fees and expenses payable by the Company in connection with the offering.

On October 9, 2020, the Company announced that the U.S.

Army Medical Research Acquisition Activity (USAMRAA), has awarded the Company a two-year SBIR Sequential Phase II contract valued at $ 1,098,588 to optimize development of the HemoDefend-BGA™ adsorber.

The HemoDefend-BGA adsorber can rapidly remove greater than 99 % of anti-A and anti-B antibodies from plasma to create a “universal plasma” that could be administered to anyone, irrespective of blood type, while maintaining critical coagulation activity.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements