Cytosorbents Corp 10-Q

Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2026 because of the material weaknesses identified in our internal controls over financial reporting, which are being actively remediated (see below). 29 Table of Contents Management’s Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Discussion of Material Weaknesses A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in our internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected on a timely basis. Material Weakness — Continuing from 2024 The Company previously disclosed a material weakness in internal control over financial reporting as of December 31, 2024 in our Annual Report on Form 10-K for the year ended December 31, 2024 related to the accounting for non-cash stock-based compensation corresponding to grants of Restricted Stock Units. Specifically, our controls were not effectively designed or operating to ensure that restricted stock unit grants or vesting activities were recorded within the proper accounts and at the proper amounts. As described below, while management has developed and implemented certain remediation actions to address the material weakness, further actions are still ongoing or have not been implemented for a sufficient amount of time to test and conclude on the effectiveness of the remediation actions as of March 31, 2026. Although most of our remediation efforts have been in place and functioning properly for much of the year, in connection with our preparation of our consolidated financial statements as of and for the year ended December 31, 2025, we identified two transactions related to unique RSU vesting events that required adjustment. As a result, the material weakness related to the accounting for stock-based compensation corresponding to Restricted Stock Units continues to be present as of March 31, 2026. Material Weakness — Newly Identified in 2025 During the year ended December 31, 2025, management identified a new material weakness related to the Company’s financial statement consolidation and reporting, as controls over the consolidation and monthly close processes were deemed not to be operating effectively, a determination which is at least partially attributable to the significant volume of manual procedures involved in these processes. Specifically, deficiencies in the review and reconciliation of intercompany balances resulted in (i) losses not being appropriately allocated to the correct jurisdiction when preparing the income tax provision and (ii) foreign currency transaction gains related to an intercompany balance being recorded incorrectly during the fourth quarter of 2025. As a result, net operating losses were not initially reflected properly in the income tax disclosures, and foreign currency transaction gains were materially misstated in the Company’s consolidated financial statements prior to being corrected. 30 Table of Contents Remediation Activities Remediation of the identified material weaknesses and strengthening our internal control environment is an identified priority for us and will continue to be a priority in 2026. We are committed to completing the remediation of these material weaknesses as expeditiously as possible and expect these enhancements to be fully implemented during the fiscal year ending December 31, 2026. However, the material weaknesses will not be considered fully remediated until the new controls have been operational for a sufficient period of time and tested to demonstrate their effectiveness. With continued oversight from the Audit Committee, the Company’s management has begun to design and implement changes in processes and controls to remediate the material weaknesses described above. These internal control enhancements include, but are not limited to, the following: Accounting for Stock-Based Compensation Corresponding to Grants of Restricted Stock Units Management intends to continue implementing measures to strengthen our internal control over the accounting for restricted stock unit grant and vesting events. These efforts are intended to ensure accurate and timely reporting in accordance with U.S. GAAP for both interim and annual periods. Key steps in our remediation plan include: - Developing and implementing more robust control procedures to validate that the inputs and assumptions used in stock-based compensation expense calculation models are accurate and reflect proper application of generally accepted accounting principles. - Increasing oversight and review by executive management to ensure the completeness and accuracy of restricted stock unit expense calculations and their corresponding Journal Entries. Financial Statement Consolidation and Reporting Actions to address this material weakness are currently being developed, with the following primary solutions having been identified: - A consolidation tool is currently being implemented, which will eliminate the need for the Company to manually execute the consolidation of its various entities at the end of each period. - A financial close automation tool is also being implemented, which will create automated workflows, approval streams, and checklists for a variety of period-end close procedures (balance sheet reconciliations, etc.). - Period-end analytics and the metrics and variance thresholds applied to those analytics are to be enhanced in order to make them more precise tools for the purpose of identifying potential errors or misstatements. Change in Internal Control over Financial Reporting Except as discussed above, there have been no changes in the Company’s internal controls over financial reporting during the three months ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Notwithstanding the material weaknesses, management has concluded that the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with U.S. GAAP. ​ 31 Table of Contents PART II. OTHER INFORMATION