What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-02 · 187 added, 139 removed, 237 unchanged (58% of the section changed)

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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.

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, 2021, as filed with the SEC on March 10, 2022.

This discussion of our financial condition and the results of operations should be read together with the consolidated financial statements, including the notes contained elsewhere in this Quarterly Report on Form 10-Q, and the consolidated financial statements, including the notes thereto, contained in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 10, 2022.

We are a leader in the treatment of life-threatening conditions in the intensive care (“ICU”) and cardiac surgery using blood purification via our proprietary polymer adsorption technology.

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FDA marketing approval.

In October 2022, we announced the release of new cardiac surgery data at the European Association for Cardio-Thoracic Surgery (EACTS) highlighting the benefit of CytoSorb when used intraoperatively during cardiothoracic surgery in Staphylococcus aureus infective endocarditis, heart transplantation, and to remove antithrombotic agents.

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.

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market by obtaining FDA Marketing approval for DrugSorb™-ATR to remove blood thinning drugs during cardiothoracic surgery (see clinical studies update)

• Grow core CytoSorb sales to profitability, driven by numerous internal initiatives (sales and marketing update)

• Grow core CytoSorb sales to profitability, driven by numerous internal initiatives (see sales and marketing update)

• Transition CytoSorb production to our new manufacturing facility and headquarters in Princeton, New Jersey this year

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In October 2021, the first patient was enrolled, and the STAR-T study is now actively recruiting at multiple sites.

Pending continuing uncertainty from the ongoing COVID-19 pandemic and widespread staffing shortages at participating institutions, the speed of enrollment remains uncertain, however, we anticipate that the study to reach its first scheduled milestone of 33% patient enrollment that will trigger the first Data Safety Monitoring Board (DSMB) meeting in the 3 rd quarter of 2022 and that overall study enrollment will complete in 2023.

We have also recently received FDA approval to expand the study to Canada and believe that this will further accelerate enrollment based on the very frequent use of ticagrelor there and the excellent track record of Canadian sites as top enrollers in cardiac surgery trials.

Accordingly, we will be prioritizing our clinical resources to STAR-T with the intent of further accelerating trial enrollment to achieve a potential completion of enrollment of all 120 patients by Summer 2023.

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, “ S afe and T imely A ntithrombotic R emoval – D irect Oral Anticoagulants ( STAR-D ),” in the United States to support FDA marketing approval.

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The first patient was enrolled in April 2022 and currently we have the majority of sites activated and recruiting.

Pending the continuing uncertainty from the long-standing impact of the COVID-19 pandemic that has resulted in widespread staffing shortages at participating institutions, we expect the study to complete enrollment in 2023.

However, based on the prioritization of our resources to accelerate STAR-T enrollment, we are pausing the STAR-D study with the intent of resuming the study, either when STAR-T nears, or is at, completion or when we have the financial resources to do so.

This will save an estimated $4 million in expenses in 2023.

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.

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The international S afe and T imely A ntithrombotic R emoval ( STAR ) Registry is designed to capture real world clinical and health economic outcomes with intraoperative antithrombotic drug removal.

The Registry is actively enrolling patients in the U.K.

and Germany and is planned to expand to additional EU countries before the end of 2022.

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 and we expect initial data readouts starting in 2023.

The Registry is actively enrolling patients in the U.K., Germany and Austria and has reached 100 patients enrolled to date.

The Registry is planned to expand to additional EU countries with the intent of reporting results at international conferences and also submitting these results for publication on a rolling basis with initial data readouts starting in 2023.

In April 2020, we received U.S.

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The initial CTC results 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 has completed enrollment and the final results will be presented at the European Society of Intensive Care Medicine conference in October 2022 and have also been submitted for publication.

The CTC has completed enrollment at 100 critically ill COVID-19 patients on ECMO and CytoSorb, and the final results have been presented at the European Society of Intensive Care Medicine conference in October 2022 confirming high survival and have also 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 now actively enrolling at multiple sites.

The speed of enrollment remains uncertain due to COVID-19 however we currently estimate that the next important milestone of the interim analysis after 50% enrollment will occur in 2023.

The German multicenter Hep-On-Fire study was designed to evaluate CytoSorb in patients suffering from acute liver failure due to alcoholic hepatitis, however, it has experienced executional delays in its current form and has not initiated enrollment to date.

Accordingly, we are actively evaluating available options for study optimization and are targeting the relaunch of the study in 2023.

The German Hep-On-Fire study experienced significant operational delays and was stopped.

We continue to assess options for a pilot study evaluating CytoSorb in patients suffering from acute liver failure due to alcoholic hepatitis and we will be providing further updates in the course of 2023.

The international COSMOS Registry 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 undergoing start-up activities and scheduled to begin enrollment in the second half of 2022 with the goal of being active in multiple countries in 2023.

The Registry has now begun patient enrollment at several centers in two countries, with the goal of being active at many more centers 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.

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Near-term growth drivers

• Focus on STAR-T :

We are focusing our internal resources on our lead program, the STAR-T clinical trial.

We expect to have 40 patients enrolled in November 2022.

Should the pace of the study continue, we expect to achieve the second millstone of 80 patients enrolled this spring 2023, which would trigger a formal interim analysis, and if needed, expected potential completion of enrollment of all 120 patients by Summer 2023.

• 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.

Our core customer base accounts for the majority of our direct sales grew from the start of the pandemic.

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, are the primary issue for volatility in ordering.

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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.

• Expand Existing Strategic Partnerships:

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 the combined marketing and promotion of CytoSorb with Fresenius’ critical care products by Fresenius’ marketing organization worldwide, excluding the United States.

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.

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 between CytoSorb and Fresenius’ current critical care platforms.

• Rise of Existing and New Applications:

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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.

There are many applications where a simple, low-cost stand-alone hemoperfusion pump is sufficient to implement our CytoSorb blood purification technology.

By making available such a pump to our customers, we believe it will expand the numbers of patients where CytoSorb is used, while making it easier to initiate CytoSorb therapy earlier in the course of the disease.

Early intervention with CytoSorb, particularly before renal failure has developed, has been cited as a key predictor of treatment success in a number of published studies.

In the future, we also believe that the availability of an easy-to-use stand-alone pump will enable "hospital-wide"

applications of CytoSorb, such as in the emergency room, surgery suites, and elsewhere.

In June 2022, we announced that, following a successful pilot program in three countries, we have signed an expanded non-exclusive agreement with Nikkiso Europe GmbH (Nikkiso) to distribute their PureADJUST stand-alone hemoperfusion pump and accessories in a total of 14 countries.

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France, Italy, and Spain.

• 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

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The use of CytoSorb in patients infected with COVID-19 in Italy, China, Germany and France began in March 2020.

CytoSorb has now been used to treat dangerous inflammation and related life-threatening complications in more than 7,650 COVID-19 patients in more

than 30 countries as of June 30, 2022.

CytoSorb has now been used to treat dangerous inflammation and related life-threatening complications in more than 7,650 COVID-19 patients in more than 30 countries as of September 30, 2022.

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.

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In December 2021, we announced the publication of these results in the peer-reviewed journal Frontiers in Medicine .

As of September 2022, the CTC Registry has completed enrollment and the final results were presented at the European Society of Intensive Care Medicine conference in October 2022 and also have been submitted for publication.

Government Research Grants:

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On May 9, 2022, the Company received a U.S.

Army Medical Research Acquisition Activity Award (the “USAMRAAA”) entitled “Demonstration of the Safety and Efficacy of Field-Ready Blood Group Antibody (BGA) Adsorber in the Porcine Universal Transfusion Model.” The Department of Defense (DoD) Defense Medical Research and Development Program (DMRDP) Joint Program Committee 6 (JPC-6) Combat Casualty Care Research Program (CCCRP) Battlefield Resuscitation for the Immediate Stabilization of Combat Casualties Award, for up to $1,977,024, was granted to the Company to validate the safety and efficacy of the BGA device in a preclinical study in pigs.

Model.” The Department of Defense (DoD) Defense Medical Research and Development Program (DMRDP) Joint Program Committee 6 (JPC-6) Combat Casualty Care Research Program (CCCRP) Battlefield Resuscitation for the Immediate Stabilization of Combat Casualties Award, for up to $1,977,024, was granted to the Company to validate the safety and efficacy of the BGA device in a preclinical study in pigs.

This award is being funded by the USAMRAAA under Contract No.

W81XWH-22-1-0235.

The contract effective date is August 1, 2022.

The contract effective date was August 1, 2022.

On August 22, 2022, the Company received a U.S.

Army Medical Research Acquisition Activity Award (the “USAMRAAA”) entitled “Integrating Isoagglutinin Reduction for a Universal Dried Plasma Product for Battlefield and First Responder Use.” This three-year Phase III contract, which is valued at $4,292,641, is to be used to customize the design of the HemoDefend-BGA™ filter for sterile integration into collections systems for freeze-dried plasma processing to generate freeze-dried universal plasma.

Without the need for blood typing, widespread availability of universal plasma could help save lives via faster emergency treatment in both civilian and military settings.

This award is being funded by the USAMRAAA under Contract No.

W81XWH-22-C0046.

The contract effective date was August 22, 2022.

On August 29.

2022, the Company was granted a Phase I Small Business Innovation Research (SBIR) award entitled “Novel Extracorporeal Therapy for the Reversal of Septic Shock and Restoring Hemodynamic Stability” by the National Institute of General Medical Sciences (NIGMS), a division of the U.S.

National Institutes of Health.

This eight-month award, which is valued at $281,835, will allow CytoSorbents to test the ability of its novel and existing polymers to remove cytokines and lipopolysaccharide (LPS) endotoxin, a well-known potent and deadly trigger of sepsis and septic shock, from septic porcine plasma.

The contract effective date was September 1, 2022.

Manufacturing Update

We are continuing the transition of our manufacturing operations from the Deer Park Road location to our new facility at 305 College Road in Princeton, New Jersey.

The build out of the manufacturing and laboratory areas are substantially complete.

The administrative offices are substantially complete as well.

The remaining costs to complete the current build out are estimated to be approximately $400,000.

We are currently in the process of transferring the polymer manufacturing activities to the new facility, which will be completed before the end of the year.

All other manufacturing processes have already been relocated to the new facility.

In September 2022, we announced that we have received ISO 13485 Certification of our new manufacturing facility from our European Union (E.U.) notified body, clearing the way for full manufacturing of CytoSorb®, DrugSorb®-ATR, and ECOS-300CY® from the new manufacturing site.

We also have capacity to add additional product lines as they are developed.

Once complete, this facility will have the capacity to support approximately $400 million in total product sales.

Research and Development Update

Our research and development efforts have experienced challenges due to the COVID-19 pandemic.

Due primarily to the ongoing pandemic, we have encountered challenges hiring the required technical staff.

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 June 30, 2022, the revenue remaining to be earned on open grant contracts is $10.2 million.

Our research and development efforts have experienced challenges due to the COVID-19 pandemic over the last 2 years.

As the COVID-19 pandemic transitions from a pandemic to an endemic, we have started to advance our research programs forward.

We have been able to hire much needed technical staff and we are restructuring our research team to focus greater efforts on our grant related projects to reduce the current backlog of work.

During this past quarter, the number of billable hours worked on our grant related projects increased by approximately 29%.

Prior issues related to blood availability for research has significantly decreased.

As of September 30, 2022, the revenue remaining to be earned on open grant contracts is $13.2 million.

Overall, grant funded programs, HemoDefend-BGA™ (Universal Plasma), HemoDefend-RBC™ and K + ontrol™, continue to progress and we have been the beneficiary of approximately $15.8 million, $4.7 million and $7.7 million in total funding, respectively, awarded to date.

The development of our HemoDefend-RBC™ filter, which is designed to remove potassium and non-infectious contaminants in transfused packed red blood cells, has also been impacted by the COVID-19 pandemic.

The development of this filter requires the use of human blood procured from commercial blood banks to perform the validation testing necessary to support an IDE submission.

Currently, due primarily to the COVID-19 pandemic, the national blood supply is experiencing blood shortages and supply has been inconsistent for research purposes.

As a result, we have experienced disruptions in our blood supply and cannot predict when deliveries will stabilize.

We are continuing to seek alternative supplies of blood to support the required validation testing.

This may delay an IDE submission.

Comparison for the three months ended June 30, 2022 and 2021:

Revenue from product sales was approximately $7,331,000 in the three months ended June 30, 2022, as compared to approximately $11,365,000 in the three months ended June 30, 2021, a decrease of approximately $4,034,000, or 36%.

Impact of Inflation and Other Issues:

During 2022, 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 addition, we have experienced raw material price increases primarily related to the oil-based chemicals used in the polymer manufacturing process as well additional requests for higher fuel surcharges from most suppliers.

Rising energy costs, including electricity and fossil fuels, have also made it more expensive to support our operations, manufacturing, and commercial activities.

We have also experienced increases in our transportation costs;

however, we have been able to substantially mitigate these cost increases by implementing bulk shipping methods.

In addition, we have been able to mitigate most supply chain issues that existed during the COVID-19 pandemic by ordering larger quantities of inventory as they were available.

Inflationary pressures may continue to impact our product gross margins in the future.

Comparison for the three months ended September 30, 2022 and 2021:

Revenue from product sales was approximately $6,463,000 in the three months ended September 30, 2022, as compared to approximately $8,902,000 in the three months ended September 30, 2021, a decrease of approximately $2,439,000 or 27%.

The decrease in the average exchange rate of the Euro to the U.S.

dollar negatively impacted 2022 product sales by approximately $771,000.

For the three months ended June 30, 2022, the average exchange rate of the Euro to the U.S.

dollar was $1.06 as compared to an average exchange rate of $1.21 for the three months ended June 30, 2021.

We estimate that demand for CytoSorb to treat COVID-19 patients was di minimis in the second quarter of 2022 as compared to approximately $1.7 million in the second quarter of 2021.

This decrease is partly attributed to high rates of vaccinations that are associated with reduced severity of illness, reduced need for hospitalization, and risk of death.

For the three months ended September 30, 2022, the average exchange rate of the Euro to the U.S.

dollar was $1.01 as compared to an average exchange rate of $1.18 for the three months ended September 30, 2021.

We estimate that demand for CytoSorb to treat COVID-19 patients was de minimis in the third quarter of 2022 as compared to approximately $1.1 million in the third quarter of 2021.

This decrease is partly attributed to high rates of vaccinations that are associated with reduced severity of illness, reduced need for hospitalization, and reduced risk of death.

Overall direct sales declined by approximately $1,407,000 resulting primarily from lower sales in Germany due to COVID-19 pandemic-driven market conditions, and unfavorable currency conversions.

Although improved, COVID-19 restrictions remain in place at many hospitals throughout Germany and these restrictions continue to limit our access to hospital personnel, particularly the physicians.

Grant income was approximately $1,165,000 for the three months ended June 30, 2022 as compared to approximately $659,000 for the three months ended June 30, 2021, an increase of approximately $506,000, or 77%.

During the three months ended June 30, 2021, our research and development employees were either deployed to work-from-home status or reassigned to assist in activities related to increasing the production of CytoSorb.

Although improved, continued staffing shortages, reduction in ICU bed capacity, decreased elective surgical procedures, hospital budgets, and hospital restrictions which at some hospitals continue to limit our access to hospital personnel, continue to impact the hospital market.

Grant income was approximately $1,649,000 for the three months ended September 30, 2022 as compared to approximately $859,000 for the three months ended September 30, 2021, an increase of approximately $790,000, or 92%.

During the three months ended September 30, 2021, our research and development employees were either deployed to work-from-home status or reassigned to assist in activities related to increasing the production of CytoSorb.

In 2022, research and development employees were assigned exclusively to grant and other research and development activities.

Total revenues were approximately $8,496,000 for the three months ended June 30, 2022, as compared to total revenues of approximately $12,024,000 for the three months ended June 30, 2021, a decrease of approximately $3,528,000, or 29%.

Total revenues were approximately $8,111,000 for the three months ended September 30, 2022, as compared to total revenues of approximately $9,760,000 for the three months ended September 30, 2021, a decrease of approximately $1,649,000, or 17%.

Cost of Revenues:

For the three months ended June 30, 2022 and 2021, cost of revenue was approximately $3,551,000 and $2,710,000, respectively, an increase of approximately $840,000, of which approximately $482,000 was due to an increase in grant cost of revenue.

Product cost of revenue was approximately $2,453,000 and $2,094,000, respectively, for the three months ended June 30, 2022 and 2021, an increase of approximately $359,000.

The increase is due primarily to inefficiencies associated with the relocation of our production activities to our new manufacturing facility in Princeton, New Jersey during the second quarter of 2022.

Product gross margins were approximately 67% for the three months ended June 30, 2022 as compared to approximately 82% for the three months ended June 30, 2021.

The decrease in the gross margin percentage in 2022 was due primarily to the move to our new production facility as mentioned above.

In addition, to a lesser extent, product gross margin was negatively impacted due to an increase in the percent contribution of lower margin distributor sales.

For the three months ended September 30, 2022 and 2021, cost of revenue was approximately $4,494,000 and $2,463,000, respectively, an increase of approximately $2,031,000.

This increase was due to an increase in grant cost of revenue due to the increase billable hours charged our grant related projects of approximately $757,000, an equipment failure of a refrigeration unit at our new manufacturing facility that caused a write-off of approximately $599,000 of work-in-process inventory (see Note 2) and to inefficiencies associated with lower production due to a decrease in sales and the process of relocating our production activities to the new facility.

Product cost of revenue was approximately $2,916,000 and $1,642,000, respectively, for the three months ended September 30, 2022 and 2021, an increase of approximately $1,274,000.

This increase was due to the equipment failure of a refrigeration unit and to inefficiencies associated with the relocation of our production activities as discussed above.

Product gross margins were approximately 55% for the three months ended September 30, 2022 as compared to approximately 82% for the three months ended September 30, 2021.

The decrease in the gross margin percentage in 2022 was due to the factors mentioned above.

Excluding the write-off of inventory related to the equipment failure, product gross margin would have been 64%.

Research and Development Expenses :

For the three months ended June 30, 2022, research and development expenses were approximately $4,183,000, as compared to research and development expenses of approximately $3,699,000 for the three months ended June 30, 2021, an increase of approximately $484,000.

This increase was due to an increase in our clinical trial activities of approximately $541,000 due to activities related to our STAR-T and STAR-D trials in the United States.

This was offset by a decrease in non-grant related labor and other costs of approximately $57,000.

For the three months ended September 30, 2022, research and development expenses were approximately $3,290,000, as compared to research and development expenses of approximately $4,262,000 for the three months ended September 30, 2021, a decrease of approximately $972,000.

This decrease was due to a decrease in our clinical trial spend of approximately $666,000, and a decrease in our non-grant labor and other costs of approximately $306,000 as we prioritized our grant related projects.

Legal, Financial and Other Consulting Expenses:

Legal, financial and other consulting expenses were approximately $679,000 for the three months ended June 30, 2022, as compared to approximately $718,000 for the three months ended June 30, 2021.

The decrease of approximately $39,000 was due to a decrease in legal fees of approximately $20,000, a decrease in employment agency fees of approximately $9,000, and a decrease in consulting fees of approximately $49,000.

The decreases were offset by an increase in accounting fees of approximately $39,000.

Legal, financial and other consulting expenses were approximately $610,000 for the three months ended September 30, 2022, as compared to approximately $665,000 for the three months ended September 30, 2021.

The decrease of approximately $55,000, was due to a decrease in employment agency fees of approximately $37,000 and a decrease in consulting fees of approximately $88,000.

These decreases were offset by an increase in legal fees of approximately $63,000 and an increase in accounting fees of approximately $7,000.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were approximately $8,439,000 for the three months ended June 30, 2022, as compared to approximately $9,821,000 for the three months ending June 30, 2021, a decrease of $1,382,000.

This decrease was related to a decrease in royalty expenses of approximately $348,000 due to the decrease in product sales, a decrease in non-cash restricted stock expense of approximately $1,459,000 related to restricted stock units granted to the Company’s executive officers, a decrease in non-cash stock compensation expense of approximately $797,000, and a decrease in other general and administrative expenses of approximately $116,000, offset by an increase in salaries, commissions and related costs of approximately $275,000, an increase in sales and marketing costs, which include advertising and conference attendance of approximately $396,000, an increase in travel and entertainment costs of approximately $317,000 and an increase in occupancy costs of approximately $350,000 related to the rent expense on our new manufacturing facility.

Gain (Loss) on Foreign Currency Transactions:

For the three months ended June 30, 2022, the loss on foreign currency transactions was approximately $2,523,000 as compared to a gain of approximately $234,000 for the three months ended June 30, 2021.

Selling, general and administrative expenses were approximately $8,735,000 for the three months ended September 30, 2022, as compared to approximately $7,777,000 for the three months ended September 30, 2021, an increase of $958,000.

This increase was due to an increase sales and marketing costs, which include advertising and conference attendance of approximately $417,000, an increase in salaries, severence, commissions and related costs of approximately $116,000, an increase in travel and entertainment costs of approximately $44,000, an increase in occupancy costs of approximately $387,000 related to the rent expense on our new manufacturing facilityand an increase in other general and administrative expenses of approximately $153,000.

These increases were offset by a decrease in royalty expenses of approximately $159,000 due to the decrease in product sales.

Loss on Foreign Currency Transactions:

For the three months ended September 30, 2022, the loss on foreign currency transactions was approximately $3,230,000 as compared to a loss of approximately $1,013,000 for the three months ended September 30, 2021.

The 2022 loss was directly related to the decrease in the spot exchange rate of the Euro to the U.S.

dollar at June 30, 2022 as compared to March 31, 2022.

dollar at September 30, 2022 as compared to June 30, 2022.

The spot exchange rate of the Euro to the U.S.

dollar was $1.05 per Euro at June 30, 2022, as compared to $1.11 per Euro at March 31, 2022.

The 2021 gain was directly related to the increase in the spot exchange rate of the Euro at June 30, 2021 as compared to March 31, 2021.

dollar was $0.98 per Euro at September 30, 2022, as compared to $1.05 per Euro at June 30, 2022.

The 2021 loss was directly related to the decrease in the spot exchange rate of the Euro at September 30, 2021 as compared to June 30, 2021.

The spot exchange rate of the Euro to the U.S.

dollar was $1.19 per Euro at June 30, 2021, as compared to $1.17 per Euro at March 31, 2021.

Comparison for the six months ended June 30, 2022 and 2021:

Revenue from product sales was approximately $15,255,000 in the six months ended June 30, 2022, as compared to approximately $21,509,000 in the six months ended June 30, 2021, a decrease of approximately $6,254,000, or 29%.

dollar was $1.16 per Euro at September 30, 2021, as compared to $1.19 per Euro at June 30, 2021.

Comparison for the nine months ended September 30, 2022 and 2021:

Revenue from product sales was approximately $21,718,000 in the nine months ended September 30, 2022, as compared to approximately $30,411,000 in the nine months ended September 30, 2021, a decrease of approximately $8,693,000, or 29%.

The decrease in the average exchange rate of the Euro to the U.S.

dollar negatively impacted 2022 product sales by approximately $2,252,000.

For the six months ended June 30, 2022, the average exchange rate of the Euro to the U.S.

dollar was $1.09 as compared to an average exchange rate of $1.21 for the six months ended June 30, 2021.

Though difficult to quantify, we estimate that approximately $300,000 of total product sales in the six months ended June 30, 2022 was due to the demand for CytoSorb to treat COVID-19 patients as compared to $3.5 million in the six months ended June 30, 2021.

This decrease is partly attributed to high rates of vaccinations that are associated with reduced severity of illness, reduced need for hospitalization, and risk of death.

For the nine months ended September 30, 2022, the average exchange rate of the Euro to the U.S.

dollar was $1.06 as compared to an average exchange rate of $1.20 for the nine months ended September 30, 2021.

Though difficult to quantify, we estimate that approximately $300,000 of total product sales in the nine months ended September 30, 2022 was due to the demand for CytoSorb to treat COVID-19 patients as compared to $4.6 million in the nine months ended September 30, 2021.

This decrease is partly attributed to high rates of vaccinations that are associated with reduced severity of illness, reduced need for hospitalization, and reduced risk of death.

Overall direct sales declined by of approximately $6,786,000 resulting primarily from lower sales in Germany due to COVID-19 pandemic-driven market conditions and unfavorable currency exchange conversions.

Although improved, COVID-19 restrictions remain in place at many hospitals throughout Germany and these restrictions continue to limit our access to hospital personnel, particularly the physicians.

Grant income was approximately $1,932,000 for the six months ended June 30, 2022 as compared to approximately $1,114,000 for the six months ended June 30, 2021, an increase of approximately $818,000 or 73%.

During the six months ended June 30, 2021, our research and development employees were either deployed to work-from-home status or reassigned to assist in activities related to increasing the production of CytoSorb.

Grant income was approximately $3,580,000 for the nine months ended September 30, 2022 as compared to approximately $1,973,000 for the nine months ended September 30, 2021, an increase of approximately $1,607,000 or 81%.

During the nine months ended September 30, 2021, our research and development employees were either deployed to work-from-home status or reassigned to assist in activities related to increasing the production of CytoSorb.

In 2022, research and development employees were assigned exclusively to grant and other research and development activities.

Total revenues were approximately $17,187,000 for the six months ended June 30, 2022, as compared to total revenues of approximately $22,623,000 for the six months ended June 30, 2021, a decrease of approximately $5,436,000, or 24%.

Total revenues were approximately $25,298,000 for the nine months ended September 30, 2022, as compared to total revenues of approximately $32,383,000 for the nine months ended September 30, 2021, a decrease of approximately $7,085,000, or 22%.

Cost of Revenues:

For the six months ended June 30, 2022 and 2021, cost of revenue was approximately $5,828,000 and $5,462,000, respectively, an increase of approximately $366,000.

Product cost of revenue was approximately $4,008,000 and $4,426,000, respectively, for the six months ended June 30, 2022 and 2021, a decrease of approximately $418,000.

This decrease was due primarily to lower sales.

Product gross margins were approximately 74% for the six months ended June 30, 2022 and approximately 79% for the six months ended June 30, 2021.

The reduction in product gross margin is due primarily to inefficiencies associated with the relocation of our production activities to our new manufacturing facility in Princeton, New Jersey during the second quarter of 2022.

In addition, to a lesser extent, product gross margin was negatively impacted due to an increase in the percent contribution of lower margin distributor sales.

For the nine months ended September 30, 2022 and 2021, cost of revenue was approximately $10,322,000 and $7,925,000, respectively, an increase of approximately $2,397,000.

This increase was due to an increase in grant cost of revenue due to the increase billable hours charged our grant related projects of approximately $1,451,000, an equipment failure of a refrigeration unit at our new manufacturing facility that caused a write-off of approximately $599,000 of work-in-process inventory (see Note 2) and to inefficiencies associated with lower production due to a decrease in sales and the process of relocating our production activities to the new facility, including a scheduled four-week production hiatus in Q2 2022.

Product gross margins were approximately 68% for the nine months ended September 30, 2022 and approximately 80% for the nine months ended September 30, 2021.

The decrease in the gross margin percentage in 2022 was due to the factors mentioned above.

Excluding the write-off of inventory related to the equipment failure, 2022 product gross margin would have been 71%.

Research and Development Expenses:

For the six months ended June 30, 2022, research and development expenses were approximately $8,427,000 as compared to research and development expenses of approximately $5,981,000 for the six months ended June 30, 2021, an increase of approximately $2,446,000.

This increase was due to an increase in costs associated with our clinical trial activities of approximately $1,951,000 due to activities related to our STAR-T and STAR-D trials in the United States, an increase in salaries related to our clinical trial activities of approximately $142,000 due to the hiring of clinical expertise and an increase in non-grant related research and development labor of approximately $193,000 and an increase in non-grant related research and development costs of approximately $160,000.

For the nine months ended September 30, 2022, research and development expenses were approximately $11,717,000 as compared to research and development expenses of approximately $10,244,000 for the nine months ended September 30, 2021, an increase of approximately $1,473,000.

This increase was due to an increase in costs associated with our clinical trial activities of approximately $1,498,000 primarily related to our STAR-T and STAR-D trials in the United States and an increase in non-grant related research and development labor of approximately $350,000 due to the hiring of additional technical staff.

These increases were offset by a decrease in non-grant related research and development costs of approximately $374,000 as we prioritized our grant related projects.

Legal, Financial and Other Consulting Expenses:

Legal, financial and other consulting expenses were approximately $1,480,000 for the six months ended June 30, 2022, as compared to approximately $1,426,000 for the six months ending June 30, 2021.

The increase of approximately $54,000 was due to an increase in legal fees of approximately $304,000 due to the abandonment of certain patent applications and an increase in accounting fees of approximately $122,000.

Legal, financial and other consulting expenses were approximately $2,089,000 for the nine months ended September 30, 2022, as compared to approximately $2,090,000 for the nine months ended September 30, 2021.

The decrease of approximately $1,000 was due to an increase in legal fees of approximately $368,000 due to the abandonment of certain patent applications and an increase in accounting fees of approximately $129,000.

These increases were offset by decreases in hiring fees of approximately $302,000 and consulting fees of approximately $196,000.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were approximately $17,600,000 for the six months ended June 30, 2022, as compared to $17,531,000 for the six months ended June 30, 2021, an increase of $69,000.

This increase is related to an increase in salaries, commissions and related costs of approximately $1,210,000, an increase in sales and marketing costs, which include advertising and conference attendance of approximately $682,000, an increase in travel and entertainment costs of approximately $469,000 and an increase in occupancy costs of approximately $723,000 related to the rent expense on our new manufacturing facility.

These increases were offset by a decrease in royalty expenses of approximately $531,000, a decrease in non-cash restricted stock expense of approximately $1,742,000 related to restricted stock units granted to the Company’s executive officers, a decrease in non-cash stock compensation expense of approximately $677,000, and a decrease in other general and administrative expenses of approximately $65,000.

Gain (Loss) on Foreign Currency Transactions:

For the six months ended June 30, 2022, the loss on foreign currency transactions was approximately $3,736,000 as compared to a loss of approximately $1,071,000 for the six months ended June 30, 2021.

Selling, general and administrative expenses were approximately $26,335,000 for the nine months ended September 30, 2022, as compared to $25,308,000 for the nine months ended September 30, 2021, an increase of $1,027,000.

This increase is related to an increase in salaries, severence, commissions and related costs of approximately $1,326,000, an increase in sales and marketing costs, which include advertising and conference attendance of approximately $1,098,000, an increase in travel and entertainment costs of approximately $513,000, an increase in occupancy costs of approximately $1,110,000 related to the rent expense on our new manufacturing facility and an increase in other general and administrative expenses of approximately $53,000.

These increases were offset by a decrease in royalty expenses of approximately $691,000, a decrease in non-cash restricted stock expense of approximately $1,711,000 related to restricted stock units granted to the Company’s executive officers and a decrease in non-cash stock compensation expense of approximately $671,000.

Loss on Foreign Currency Transactions:

For the nine months ended September 30, 2022, the loss on foreign currency transactions was approximately $6,967,000 as compared to a loss of approximately $2,084,000 for the nine months ended September 30, 2021.

The 2022 loss was directly related to the decrease in the spot exchange rate of the Euro to the U.S.

dollar as of June 30, 2022 as compared to December 31, 2021.

dollar as of September 30, 2022 as compared to December 31, 2021.

The spot exchange rate of the Euro to the U.S.

dollar was $1.05 per Euro as of June 30, 2022, as compared to $1.14 per Euro at December 31, 2021.

The 2021 loss was directly related to the decrease in the spot exchange rate of the Euro as of June 30, 2021 as compared to December 31, 2020.

dollar was $0.98 per Euro as of September 30, 2022, as compared to $1.14 per Euro at December 31, 2021.

The 2021 loss of approximately $2,084,000 was directly related to the decrease in the spot exchange rate of the Euro as of September 30, 2021 as compared to December 31, 2020.

The spot exchange rate of the Euro to the U.S.

dollar was $1.16 per Euro at September 30, 2021, as compared to $1.22 per Euro at December 31, 2020.

History of Operating Losses:

We have experienced substantial operating losses since inception.

As of June 30, 2022, we had an accumulated deficit of approximately $241,031,000, which included losses of approximately $19,846,000 and $8,845,000 for the six-month periods ended June 30, 2022 and 2021, respectively.

As of September 30, 2022, we had an accumulated deficit of approximately $253,232,000, which included losses of approximately $32,046,000 and $15,252,000 for the nine-month periods ended September 30, 2022 and 2021, respectively.

Historically, losses have resulted principally from costs incurred in the research and development of our polymer technology, clinical studies, and general and administrative expenses.

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Since inception, our operations have been primarily financed through the issuance of debt and equity securities.

As of June 30, 2022, we had current assets of approximately $41,647,000 including unrestricted cash on hand of approximately $30,164,000 and current liabilities of approximately $10,554,000.

As of June 30, 2022, $25 million of our total shelf amount was allocated to our ATM facility, all of which is still available.

As of September 30, 2022, we had current assets of approximately $32,381,000 including unrestricted cash on hand of approximately $22,552,000 and current liabilities of approximately $10,119,000.

As of September 30, 2022, $25 million of our total shelf amount was allocated to our ATM facility, all of which remains available.

In addition, we have $15 million of debt availability, providing financial flexibility, if needed.

In April of 2022, we received approximately $740,000 in cash from the approved sale of our net operating losses and research and development credits from the State of New Jersey.

As of June 30, 2022, cash and cash equivalents were $31.9 million, including $1.7 million in restricted cash, compared to $44.7 million as of March 31, 2022.

The change in cash, or our second quarter 2022 cash burn, was approximately $12.9 million.

This included non-recurrent expenditures of $4.8 million related to the construction, capital equipment and other costs associated with the build out of our new manufacturing facility.

Most of the costs associated with the new facility have already been incurred, except for an estimated $300,000 in additional costs to be paid over the remainder of 2022.

In addition, the inefficiencies caused by necessary production shutdowns associated with the relocation to our new production facility and lower sales volumes, reduced gross margins from greater than 80% in the first quarter of 2022 to 67% in the second quarter of 2022, unfavorably impacting our cash burn by approximately $1.0 million.

We expect gross margins to return to previous levels as we complete the relocation to the new facility by the end of this year, end the lease at our Deer Park Drive facility, and begin to capture manufacturing efficiencies driven by expected improvement in market conditions and increased product demand.

In addition, due to the timing of certain collections, grant and accounts receivables grew by $0.6 million in the second quarter.

Excluding these aforementioned factors impacting our second quarter 2022 cash burn, our burn for the second quarter 2022 would have been approximately $6.5 million.

Over the past quarters, we have strategically built up our inventory as a buffer against any potential disruption in production with the transition to the new facility.

By December 31, 2022, we expect to be able to reduce our inventory by approximately $1.0 million, which will be a source of working capital.

As of September 30, 2022, cash and cash equivalents were $22.6 million compared to $30.2 million as of June 30, 2022.

The change in cash, or our third quarter 2022 cash burn, was approximately $7.7 million.

This cash burn was due to lower-than-expected sales volumes, product gross margins that were lower due to decreased production volumes, and other factors (e.g.

a delay in realizing savings from cost cutting due to notice periods and labor laws in Europe).

A reduction in product gross margins from 80% in Q1 2022 to 64% (excluding the previously mentioned inventory write-off) in Q3 2022, unfavorably impacted our cash burn by approximately $1.9 million.

We expect product gross margins to return to previous levels as we transition production fully to the new facility by the end of this year, end the lease at our Deer Park Drive facility, and begin to capture manufacturing efficiencies driven by expected improvement in market conditions and increased product demand.

We are also managing our resources proactively, continuing to invest in key areas such as our U.S.

pivotal STAR-T and STAR-D trials.

In April 2022, we began instituting tighter cost controls which are expected to reduce our planned cash burn by an additional $2 million per quarter.

We are currently actively engaged in making further reductions to our operating costs to reduce our future cash burn.

We believe that we have sufficient cash to fund the Company’s operations beyond twelve months from the issuance of these consolidated financial statements.

clinical program.

while driving cost-cutting throughout our Company.

At the beginning of Q2 2022, we began instituting tighter cost controls and have reduced our headcount (including full and part-time employees and consultants) internationally by 10%, with the goal of reducing our cash burn.

In addition, we have shifted our R&D headcount to funded grant programs, where we have an extensive $13.2 million backlog as of September 30, 2022.

Some of our costs savings of our headcount reduction are not yet visible in our results due to notice periods and labor laws in Europe, but will be reflected in our 2023 operating budget.

We are continuing to identify areas for additional potential cost savings to reduce our future cash burn.

Meanwhile, we are working diligently to prioritize activities that we believe have a near-term return on

investment and advance our strategic priorities, which cutting non-core or non-essential activities and spend.

Our goal is, through a combination of driving an increase in sales and gross margin, and cutting costs, to significantly reduce our cash burn and to extend our operating runway with the resources we have.

Including cash related to the use of a portion of our available debt facility, we believe that we have sufficient cash to fund the Company’s operations beyond twelve months from the issuance of these consolidated financial statements.

COVID-19 Impact on Financial Results

Product revenues in the six months ended June 30, 2022 were negatively impacted by pandemic-driven adverse market conditions, especially in Germany which is our largest market.

This was due to another wave in new COVID-19 cases in Germany, driven by the Omicron variant.

This prompted many hospitals throughout Germany to either maintain or reinstitute restrictions such as visitation rights to non-essential visitors.

However, unlike prior waves in Germany, the rates of severe COVID-19 illness requiring ICU care, and death have been disproportionately very low.

This is being partly attributed to high rates of vaccinations that are associated with reduced severity of illness, reduced need for hospitalization, and risk of death.

Our product revenues decreased by 29% during the six months ended June 30, 2022 to approximately $15.3 million from approximately $21.5 million in the six months ended June 30, 2021.

Though difficult to quantify, we estimate that approximately $300,000 of our product revenues were directly or indirectly related to COVID-19 during the six-month period ended June 30, 2022 as compared to $3.5 million during the six months ended June 30, 2021.

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.

Hyperinflammation is associated with the most severe COVID-19 illness and is correlated to the development of respiratory failure and the need for mechanical ventilation and ECMO.

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 help to drive further CytoSorb sales in the future.

However, starting in Q3 2021, the protracted COVID-19 pandemic began to have a negative impact on our business, due to pandemic-driven adverse market conditions worldwide, especially in Germany which is our largest market.

This was exacerbated by multiple waves of new COVID-19 cases in Germany and Austria this year, with the largest surge since the pandemic began occurring in Q1 2022, driven by the Omicron variant.

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, 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 for hospitalization, and risk of death.

These factors, in turn, have decreased the numbers of patients treatable with CytoSorb.

The pandemic also directly disrupted our normal sales processes.

These disruptions have been amplified in Germany and Austria due to multiple waves of new COVID-19 cases this year.

For example, we have experienced decreased access of our sales representatives to hospitals and fewer sales meetings with physicians due to visitor restrictions, COVID infections in the majority of our sales force and many hospital workers resulting in sick leave and in a slowdown of business, = decreased effectiveness of virtual medical conferences, and limits on our ability to market new indications, such as ticagrelor and rivaroxaban removal.

Additionally, COVID slowed our ability to generate clinical data to support our sales and marketing efforts.

These factors negatively impacted our critical care and cardiac surgery markets in Germany, contributing to lower-than-expected sales of CytoSorb for the nine months ended September 30, 2022.

We would expect over time to regain unrestricted access to hospitals and physicians which should positively impact our product sales in the future.

The above factors have had a negative impact on our product sales, where CytoSorb is used primarily on critically ill patients in the ICU, including COVID-19 patients in respiratory distress or failure, or in cardiac surgery.

Our product revenues decreased by 29% during the nine months ended September 30, 2022 to approximately $21.7 million from approximately $30.4 million in the nine months ended September 30, 2021.

Though difficult to quantify, we estimate that approximately $300,000 of our product revenues were directly or indirectly related to COVID-19 during the nine-month period ended September 30, 2022 as compared to $4.6 million during the nine months ended September 30, 2021.

With the pandemic in flux, it is difficult to predict what the near-term impact of COVID-19 will have on overall ongoing product sales.

We expect that COVID-19 revenues will continue to decline in future periods, as increasing vaccinations globally result in fewer new cases, hospitalizations, and deaths from COVID-19.

As the COVID-19 pandemic wains, these expectations may change depending on whether there is a resurgence of COVID-19, or a containment of the pandemic.

However, we also expect an eventual recovery in the hospital markets, with a positive impact on our core, non-COVID related sales.

These assumptions are dependent on the course of the pandemic.

In addition, as a result of the EUA granted by the FDA on April 11, 2020, we began shipping CytoSorb to hospitals in the United States.

Sales to hospitals in the United States under the EUA amounted to approximately $173,000 for the six months ended June 30, 2022.

Sales to hospitals in the United States under the EUA amounted to approximately $182,000 for the nine months ended September 30, 2022.

Given the significant decrease in COVID-19 cases in the U.S.

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sales under FDA EUA will have a significant impact on our overall product sales during the remainder of 2022.

The COVID-19 pandemic had generally been a positive driver for CytoSorb sales and it has highlighted the use of CytoSorb to treat cytokine storm and hyperinflammation.

This has been a catalyst for CytoSorb orders from existing customers, but 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 could help drive further CytoSorb sales in the future.

However, since the beginning of the COVID-19 pandemic, we have experienced disruptions to our normal sales processes.

These disruptions have been amplified more recently in Germany as a result of a wave of new COVID-19 cases.

For example, we have experienced decreased access of our sales representatives to hospitals and fewer sales meetings with physicians, approximately 40% of our direct salesforce in Germany contracting COVID-19 during 2022, decreased effectiveness of virtual medical conferences, and limits on our ability to market new indications, such as ticagrelor and rivaroxaban removal.

Additionally, hospitals have reduced the number of surgeries and other non-COVID-19 hospitalized patients and slowed our ability to generate clinical data to support our sales and marketing efforts.

These factors negatively impacted our critical care and cardiac surgery markets in Germany, resulting in lower-than-expected sales of CytoSorb during the quarter ended June 30, 2022.

With the pandemic in flux, it is difficult to predict what the near-term impact of COVID-19 will have on overall ongoing product sales.

We would expect over time to regain unrestricted access to hospitals and physicians which should positively impact our product sales in the future.

The COVID-19 pandemic did not impact grant income during the first half of 2022 but did negatively impact first half 2021 results, when our research and development employees were either deployed to work-from-home or reassigned to assist in production activities to increase production of CytoSorb.

The COVID-19 pandemic did not impact grant income during the nine months ended September 30, 2022 but did negatively impact first half 2021 results, when our research and development employees were either deployed to work-from-home or reassigned to assist in production activities to increase production of CytoSorb.

Currently, the team is executing upon our grant contracts.

Our grant income increased by 73% during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Our grant income increased by 81% during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

However, this may change depending on whether there is a resurgence of COVID-19, which may result in a reduction of grant income until such time as the pandemic is over, however, this reduction is not expected to have a material impact on our financial results because of the low gross margins associated with grant activities.

There has been a worldwide slowdown in clinical trial activities as medical providers focus on COVID-19 patients, as well as widespread staffing shortages.

This has resulted in temporary pauses and delays in a number of our company-sponsored clinical trials, which has resulted in lower-than-expected costs and expenses associated with clinical trial activity.

In addition, because of ongoing COVID-19-related delays in the U.K., we elected to stop our TISORB single arm trial in April 2021, in favor of dedicating those resources to the U.S.

During the pandemic, there was a worldwide slowdown in clinical trial activities as medical providers focused on COVID-19 patients, exacerbated by widespread staffing shortages.

This resulted in temporary pauses and delays in a number of our company-sponsored clinical trials, which resulted in lower-than-expected costs and expenses associated with clinical trial activity.

For example, because of COVID-19-related delays in the U.K., we elected to stop our TISORB single arm trial in April 2021, in favor of dedicating those resources to the U.S.

STAR-T randomized controlled trial in the United States which is currently enrolling.

These clinical trial activities and related expenses are expected to increase substantially as the impact of the COVID-19 pandemic continues to ease, especially in the U.S.

In addition to the acute impact of the pandemic relating to the strain from high COVID-19 patient numbers, major healthcare systems

throughout the world, including the United States and Germany, where we have substantial clinical trial activities, are also challenged by the long-term effects of the pandemic on the health care system and are encountering difficulty retaining and recruiting hospital personnel including personnel needed to support research activities.

It is uncertain when these complex headwinds on health care delivery and clinical research activities will resolve and until then these factors may result in reduced capabilities of institutions to contribute patient recruitment into clinical trials with the potential to slow enrollment in our Company-sponsored clinical trials.

In addition, certain of our selling, general, and administrative expenses, such as travel and conference expenses, continue to be lower than pre-COVID-19 levels due to the continuing restrictions on travel and the cancelling of medical and investor conferences during the pandemic.

This is also a temporary situation which is not expected to continue once the pandemic is contained.

Currently, the direct impact of COVID infections on clinical studies has abated both in the U.S.

and Europe, though we continue to observe the aftermath of COVID in the staffing shortages and resource constraints at clinical sites, the financial pressures that hospitals face, the interest of patients to participate in clinical trials, and on the overall execution of our international clinical programs.

We believe the clinical trial environment will improve over time, but the timing is uncertain.

As the pandemic fades and business returns to pre-pandemic levels, we expect certain of our selling, general, and administrative expenses, such as travel and conference expenses that have been curtailed by COVID, to increase.

Contractual Obligations

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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.

The lease also contains nine months of rent abatement.

In addition to the base rent, payments of operating expenses and real estate taxes will be required.

18 unchanged sentences

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.

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.

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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 of June 30, 2022, the Company’s cash, cash equivalents and restricted cash balances were approximately $31.9 million, which the Company expects will fund the Company’s operations beyond twelve months from the issuance of these consolidated financial statements.

As of September 30, 2022, the Company’s cash and cash equivalents (excluding restricted cash) were approximately $22.6 million, which the Company expects will fund the Company’s operations beyond twelve months from the issuance of these consolidated financial statements.

In addition, the Company has $15 million of debt availability and $25 million of availability under its ATM facility to provide additional liquidity, as needed.

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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 2. Management’s Discussion and Analysis