Cytosorbents
Annual Report 2017

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KCytosorbents Corp - CTSOFiled: March 08, 2018 (period: December 31, 2017)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D . C . 20549 FORM 10-K (Mark One) xANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 or ¨TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-36792 CYTOSORBENTS CORPORATION(Exact name of registrant as specified in its charter) Delaware 98-0373793(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)organization) 7 Deer Park Drive, Suite KMonmouth Junction, New Jersey 08852(Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (732) 329-8885 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered:common stock, $0.001 par value The Nasdaq Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes þ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes þ No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.þ Yes ¨ No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).Yes þ No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. þ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, oremerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth companyin Rule 12b-2 of the Exchange Act. Large Accelerated Filer ¨Accelerated Filer þNon-accelerated Filer ¨ (do not check if a smaller reporting company)Smaller reporting company ¨ Emerging growth company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)¨ Yes þ No The aggregate market value of the common stock of the registrant held by non-affiliates as of June 30, 2017 was approximately $107,833,057. As of February28, 2018 there were outstanding 29,471,343 shares of common stock. Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Documents incorporated by reference: Portions of the CytoSorbents Corporation definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’sfiscal year are incorporated by reference into Part III of this Form 10-K and certain documents are incorporated by reference into Part IV of this Form 10-K. Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CYTOSORBENTS CORPORATIONANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS Page PART I Item 1. Business.2 Item 1A. Risk Factors.38 Item 1B. Unresolved Staff Comments.47 Item 2. Properties.47 Item 3. Legal Proceedings.47 Item 4. Mine Safety Disclosures.47 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.48 Item 6. Selected Financial Data.50 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.51 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.62 Item 8. Financial Statements and Supplementary Data.62 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.62 Item 9A. Controls and Procedures.62 Item 9B. Other Information.63 PART III Item 10. Directors, Executive Officers and Corporate Governance.63 Item 11. Executive Compensation.63 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters63 Item 13. Certain Relationships and Related Transactions and Director Independence.64 Item 14. Principal Accounting Fees and Services.64 Part IV Item 15. Exhibits, Financial Statement Schedules.65 Item 16. Form 10-K Summary67 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K, or this Report, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act,and Section 21E of the Exchange Act. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events orconditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,”“plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue,” negatives thereof or similar expressions. These forward-lookingstatements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations;business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cashneeds, business plans and future financial results, and any other statements that are not historical facts. Unless otherwise indicated, the terms “CytoSorbents,”“Company,” “we,” “us” and “our” refer to CytoSorbents Corporation. From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in ourpresentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report and in anyother reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statementsrepresent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many ofthose factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-lookingstatements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to adifferent extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, whichspeak only as of the date of the applicable Report or public statement. All subsequent written and oral forward-looking statements concerning other mattersaddressed in this Report or public statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by thecautionary statements contained or referred to in this Report. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of newinformation, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. For discussion of factorsthat we believe could cause our actual results to differ materially from expected and historical results see “Item 1A — Risk Factors” below. TRADEMARKS This Report includes our trademarks and trade names, such as CytoSorb®, BetaSorb™, HemoDefend™, and VetResQ™, which are protected underapplicable intellectual property laws and are the property of CytoSorbents Corporation and its subsidiaries. This Report also contains the trademarks, tradenames and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and servicemarks referred to in this Report may appear without the ™, ®, or SM symbols, but such references are not intended to indicate, in any way, that we will notassert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, trade names and service marks. We donot intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, arelationship with, or endorsement or sponsorship of us by, these other parties. 1 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART I Item 1. Business. Overview We are a leader in critical care immunotherapy, investigating and commercializing our CytoSorb blood purification technology to reduce deadlyuncontrolled inflammation in hospitalized patients around the world, with the goal of preventing or treating multiple organ failure in life-threateningillnesses and cardiac surgery. Organ failure is the cause of nearly half of all deaths in the intensive care unit (“ICU”), with little to improve clinical outcome.CytoSorb, our flagship product, is approved in the European Union (“EU”) as a safe and effective extracorporeal cytokine filter and is 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. These are conditions where the mortality is extremely high, yet no effective treatments exist. In addition, CytoSorb can be usedin other inflammatory conditions such as cardiac surgery, autoimmune disease flares, and potentially for cancer, cytokine release syndrome in cancerimmunotherapy, and cancer cachexia, a common syndrome that affects cancer patients, where cytokines play a major role in the cause of inflammation.CytoSorb has been used globally in more than 35,000 human treatments to date in critical illnesses and in cardiac surgery. Our purification technologies arebased on biocompatible, highly porous polymer beads that can actively remove toxic substances from blood and other bodily fluids by pore capture andsurface adsorption. We have numerous products under development based upon this unique blood purification technology, protected by 15 issued and 2allowed but not yet issued U.S. patents and multiple applications pending, including HemoDefend, ContrastSorb, DrugSorb, and others. In March 2011, CytoSorb, as an extracorporeal cytokine filter indicated for use in clinical situations where cytokines are elevated, was “CE marked”in the EU, allowing for commercial marketing. The CE mark demonstrates that a conformity assessment has been carried out and the product complies withthe Medical Devices Directive. The goal of CytoSorb is to prevent or treat organ failure by reducing cytokine storm and the potentially deadly systemicinflammatory response syndrome (“SIRS”) in diseases such as sepsis, trauma, burn injury, acute respiratory distress syndrome, pancreatitis, liver failure, andmany others. Organ failure is the leading cause of death in the ICU, and remains a major unmet medical need, with little more than supportive care therapy(e.g., mechanical ventilation, dialysis, vasopressors, fluid support, etc.) as treatment options. By potentially preventing or treating organ failure, CytoSorbmay improve clinical outcome, including survival, while reducing the need for costly ICU treatment, thereby potentially saving significant healthcare costs. Our CE Mark enables CytoSorb to be sold throughout the European Union and member states of the European Economic Area. In addition, manycountries outside the EU accept the CE Mark for medical devices, but may also require registration with or without additional clinical studies. The broadindication for which CytoSorb is CE marked allows it to be used “on-label” in diseases where cytokines are elevated including, but not limited to, criticalillnesses such as those mentioned above, autoimmune disease flares, cancer cachexia, and many other conditions where cytokine-induced inflammation playsa detrimental role. Cytokines are small proteins that normally stimulate and regulate the immune response. However, in certain diseases, particularly life-threateningconditions commonly seen in the ICU, such as sepsis and infection, trauma, acute respiratory distress syndrome (“ARDS”), severe burn injury, liver failure,and acute pancreatitis, cytokines are often produced in vast excess – a condition often called cytokine storm. Left unchecked, this cytokine storm can lead toa severe maladaptive SIRS that can then cause cell death, multiple organ dysfunction syndrome, and multiple organ failure. Failure of vital organs such as theheart, lungs, and kidneys, accounts for nearly half of all deaths in the ICU, despite the wide availability of supportive care therapies, or “life support”, such asdialysis, mechanical ventilation, extracorporeal membrane oxygenation, and vasopressors. By replacing the function of failed organs, these supportive caretherapies can initially help to keep patients alive, but do not help patients recover faster, and in many cases can increase the risk of dangerous complications.Unlike these supportive care therapies, the goal of the CytoSorb cytokine filter is to proactively prevent or treat organ failure by reducing cytokine storm andreducing the maladaptive SIRS response. In doing so, CytoSorb targets the reduction in the severity of patient illness and the need for intensive care, whilepotentially improving clinical outcome and saving healthcare costs. As part of the CE Mark process, we completed our randomized, controlled, European Sepsis Trial amongst 14 trial sites in Germany in 2011, withenrollment of 100 patients with sepsis and respiratory failure. The trial established that CytoSorb was sufficiently safe in this critically-ill population tosupport the CE mark and published in PLOS ONE. In the European Sepsis Trial, the treatment was well-tolerated with no serious device related adverse eventsreported. The trial also demonstrated the ability of CytoSorb to reduce cytokines such as IL-6. The trial was not powered to demonstrate significant reductionin other clinical endpoints such as mortality. In addition to CE marking, we also achieved ISO 13485:2003 Full Quality Systems certification, an internationally recognized quality standarddesigned to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design, develop,manufacture and distribute medical devices in the EU. We manufacture CytoSorb at our manufacturing facilities in New Jersey for commercial sales abroadand for additional clinical studies. In September 2016, we were granted a two-year renewal for the CytoSorb CE Mark. In June 2017, we successfullycompleted an ISO 13485:2003 annual surveillance audit maintaining our good standing with our Notified Body. We also established dedicatedreimbursement for CytoSorb in Germany, with other countries pending. 2 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. From September 2011 through June 2012, we began a controlled market release of CytoSorb in select geographic territories in Germany. Thepurpose of this program was to prepare for commercialization of CytoSorb in Germany in terms of manufacturing, reimbursement, logistics, infrastructure,marketing, contacts, and other key issues. In late June 2012, following the establishment of our European subsidiary, CytoSorbents Europe GmbH, a wholly-owned operating subsidiary ofCytoSorbents Corporation, we began the commercial launch of CytoSorb in Germany with the hiring of Dr. Christian Steiner as Vice President of Sales andMarketing and three additional sales representatives who joined us and completed their sales training during the third quarter of 2012. The fourth quarter of2012 represented the first quarter of direct sales with the full sales team in place. During this period, we expanded our direct sales efforts to include bothAustria and Switzerland. In March 2016, we established CytoSorbents Switzerland GmbH, a wholly-owned subsidiary of CytoSorbents Europe GmbH, our wholly-ownedsubsidiary, to conduct marketing and direct sales in Switzerland. This indirect subsidiary began operations during the second quarter of 2016. Fiscal year 2013 represented the first full year of CytoSorb commercialization. We focused our direct sales efforts in Germany, Austria andSwitzerland with four sales representatives. The focus of the team was to encourage acceptance and usage by key opinion leaders (“KOLs”) throughout thesecountries. By the end of 2017, we had hundreds of KOLs in critical care, cardiac surgery, and blood purification who are either using CytoSorb or planning touse CytoSorb in the near future. We believe our relationships with KOLs are essential to drive adoption and recurrent usage of CytoSorb, facilitate purchasesby hospital administration, arrange reimbursement, and generate data for papers and presentations. In addition, we now currently have more than 60investigator initiated-studies planned, in process or completed in Europe and abroad in multiple applications including sepsis, cardiac surgery, lung injury,trauma, pancreatitis, liver failure, kidney failure, and others. These studies are being supported by our European Medical Director. As of February 15, 2017,we have increased our European sales, marketing and clinical support team to 18 direct sales people, one contract sales person, and 13 sales and distributorsupport staff. We have complemented our direct sales efforts with sales to distributors and/or corporate partners. In 2013, we reached agreement with distributorsin the United Kingdom, Ireland, the Netherlands, Russia and Turkey. In April 2014, we announced distribution of CytoSorb in the Middle East, includingSaudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain, and Oman (the Gulf Cooperative Council (“GCC”)) and Yemen, Iraq, and Jordan through anexclusive agreement with TechnoOrbits. In December 2014, we entered into an exclusive agreement with Smart Medical Solutions S.R.L., to distributeCytoSorb for critical care applications in Romania and the neighboring Republic of Moldova. In 2015, we announced exclusive distribution agreementswith Aferetica SRL to distribute CytoSorb in Italy, AlphaMedix Ltd. to distribute CytoSorb in Israel, TekMed Pty Ltd. to distribute CytoSorb in Australia andNew Zealand, and Hoang Long Pharma to distribute CytoSorb in Vietnam. In June 2016, we announced an exclusive distribution agreement with PalexMedical SA to distribute CytoSorb in Spain and Portugal. In September 2016, we announced an exclusive agreement with Armaghan Salamat Kish Group(Arsak) to distribute CytoSorb in Iran. In October 2016, we announced an exclusive agreement with Foxx Medical Chile SpA to distribute CytoSorb in Chile.In July 2017, we announced an exclusive agreement with Droguería, Ramón, González, Revilla (DRGR) S.A. to distribute CytoSorb in Panama. We have been expanding our strategic partnerships by number and scope. In September 2013, we entered into a strategic partnership with BioconLtd., India’s largest biopharmaceuticals company, with an initial distribution agreement for India and select emerging markets, under which Biocon has theexclusive commercialization rights for CytoSorb initially focused on sepsis. In October 2014, the Biocon partnership was expanded to include all criticalcare applications and cardiac surgery. In addition, Biocon committed to higher annual minimum purchases of CytoSorb to maintain distribution exclusivityand committed to conduct and publish results from multiple investigator initiated studies and patient case studies. In December 2017, the Biocon partnershipwas further expanded to include exclusive distribution of CytoSorb in Malaysia. Under the terms of the agreement, Biocon has committed to minimumannual purchases in Malaysia to maintain exclusivity this territory. In addition, the term of the original agreement was extended to December 2022 In December 2014, we entered into a multi-country strategic partnership with Fresenius Medical Care AG & Co KGaA (“Fresenius”) tocommercialize the CytoSorb therapy. Under the terms of this agreement, Fresenius has exclusive rights to distribute CytoSorb for critical care applications inFrance, Poland, Sweden, Denmark, Norway, and Finland. The partnership allows Fresenius to offer an innovative and easy way to use blood purificationtherapy for removing cytokines in patients that are treated in the ICU. To promote the success of CytoSorb, Fresenius agreed to also engage in the ongoingclinical development of the product. This includes the support and publication of a number of small case series and patient case reports as well as thepotential for future larger, clinical collaborations. Fresenius launched the product in these six countries in May 2016. In January 2017, the Freseniuspartnership was expanded. The terms of the revised three-year agreement extend Fresenius’ exclusive distributorship of CytoSorb for all critical careapplications in their existing territories through 2019 and include guaranteed minimum quarterly orders and payments, evaluable every one and a half years.In addition, we have entered into a new comprehensive co-marketing agreement with Fresenius. Under the terms of the agreement, CytoSorbents andFresenius will jointly market CytoSorb to Fresenius’ critical care customer base in all countries where CytoSorb is being actively commercialized. CytoSorbwill continue to be sold by our direct sales force or through our international network of distributors and partners, while Fresenius will sell all ancillaryproducts to their customers. Fresenius will also provide a written endorsement of CytoSorb for use with their multiFiltrate and multiFiltratePRO acute caredialysis machines that can be used by us and our distribution partners to promote CytoSorb worldwide. Training and preparation for this co-marketingprogram began in five initial counties in 2017 and is continuing, with implementation of the co-marketing program in addition countries planned for thefuture. 3 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In September 2016, we entered into a multi-country strategic partnership with Terumo Cardiovascular Group to commercialize CytoSorb for cardiacsurgery applications. Under the terms of the agreement, Terumo has exclusive rights to distribute the CytoSorb cardiopulmonary bypass (CPB”) procedurepack for intra-operative use during cardiac surgery in France, Sweden, Denmark, Norway, Finland and Iceland. Terumo launched the product in these sixcountries in December 2016. In March 2017, we entered into a partnership with Dr. Reddy’s Laboratories Ltd. for the South African market. Under the terms of the agreement, Dr.Reddy’s has the exclusive right to distribute CytoSorb for intensive care, cardiac surgery, and other hospital applications in South Africa. This is a multi-yearagreement and is subject to annual minimum purchases of CytoSorb to maintain exclusivity. Overall, we have established either direct sales or distribution (via distributors or strategic partners) of CytoSorb in 45 countries worldwide.Registration of CytoSorb is typically required in each of these countries prior to active commercialization. With CE Mark approval, this can be typicallyachieved within several months in EU countries. Outside of the EU, the process is more variable and can take several months to more than a year due todifferent requirements for documentation and clinical data. Variability in the timing of registration affects the initiation of active commercialization in thesecountries, which affects the timing of expected CytoSorb sales. We actively support all of our distributors and strategic partners in the product registrationprocess. We cannot generally predict the timing of these registrations, and there can be no guarantee that we will ultimately achieve registration in countrieswhere we have established distribution. For example, in August 2014 we announced exclusive distribution of CytoSorb in Taiwan with HemoscienCorporation. However, in March 2015, due to the complexity we encountered with Taiwanese product registration, we elected to terminate our agreementwith Hemoscien. Outside of the EU, CytoSorb is actively being commercialized in Turkey, India, Australia, New Zealand, Russia, South Africa, Serbia,Norway, Vietnam, Chile, Iceland, Saudi Arabia and Panama. We cannot guarantee that we will generate meaningful sales in the countries where we haveestablished registration, due to other factors such as market adoption and reimbursement. We are currently actively evaluating other potential distributor andstrategic partner networks in other major countries that accept CE Mark approval. The market focus for CytoSorb is the prevention or treatment of organ failure in life-threatening conditions, including commonly seen illnesses inthe ICU such as infection and sepsis, trauma, burn injury, ARDS, and others. Severe sepsis and septic shock, a potentially life-threatening systemicinflammatory response to a serious infection, accounts for approximately 10% to 20% of all ICU admissions and is one of the largest target markets forCytoSorb. Sepsis is a major unmet medical need with no approved products in the U.S. or Europe to treat it. As with other critical care illnesses, multipleorgan failure is the primary cause of death in sepsis. When used with standard of care therapy, that includes antibiotics, the goal of CytoSorb in sepsis is toreduce excessive levels of cytokines and other inflammatory toxins, to help reduce the SIRS response and either prevent or treat organ failure. In addition to the sepsis indication, we intend to conduct or support additional clinical studies in sepsis, cardiac surgery, and other critical carediseases where CytoSorb could be used, such as ARDS, trauma, severe burn injury, acute pancreatitis, and in other acute conditions that may benefit by thereduction of cytokines in the bloodstream. Some examples include the prevention of post-operative complications of cardiac surgery (cardiopulmonarybypass surgery) and damage to organs donated for transplant prior to organ harvest. We intend to generate additional clinical data to expand the scope ofclinical experience for marketing purposes, to increase the number of treated patients, and to support potential future publications. We have completed a single arm, dose ranging trial in Germany amongst several clinical trial sites to evaluate the safety and efficacy of CytoSorbwhen used 24 hours per day for seven days, each day with a new device and are conducting final statistical analysis of the data. Patients are being stratifiedfor age, cytokine levels, and co-morbid illnesses in this matched pairs analysis. These additional dosing data are intended to help clinicians with additionaltreatment options for CytoSorb, help support the positive clinical data from our first European Sepsis Trial, and help shape the trial protocol for a pivotalsepsis study. In addition to the dosing study, we plan to use data generated and published in the more than 60 investigator-initiated studies and trials sponsoredby us currently planned, enrolling or completed in Europe and abroad. Approximately half of these studies are in the planning stages, and half started,enrolling or completed. These trials, which are funded and supported by well-known university hospitals and KOLs, are the equivalent of Phase 2 clinicalstudies. They will provide invaluable information regarding the success of the device in the treatment of sepsis, cardio-pulmonary bypass surgery, trauma,and many other indications, and if successful, will be integral in helping to drive additional usage and adoption of CytoSorb. 4 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In addition to sepsis and other critical care applications, cardiac surgery is an important application for CytoSorb in the European market. There areapproximately one million cardiac surgery procedures performed annually in the U.S. and EU combined including, for example, coronary artery bypass graftsurgery, valve replacement surgery, heart and lung transplant, congenital heart defect repair, aortic reconstruction, and left ventricular assist device (“LVAD”)implantation. Cardiac surgery can result in inflammation and the production of high levels of inflammatory cytokines, as activation of complement, andcause hemolysis, leading to the release of toxic plasma free hemoglobin. These can lead to post-operative complications such as respiratory failure,circulatory failure, and acute kidney injury. CytoSorb has a unique competitive advantage as the only cytokine and free hemoglobin removal technologythat can be used during the operative procedure and can be easily installed in a bypass circuit in a heart-lung machine without the need for an additionalpump. Direct cytokine and hemoglobin removal with CytoSorb enables it to replace the existing market for leukoreduction filters in cardiac surgery thatattempt to indirectly reduce cytokines by capturing cytokine-producing leukocytes – an inefficient and suboptimal approach. In February 2015, the U.S. Food and Drug Administration (“FDA”) approved our Investigational Device Exemption (“IDE”) application tocommence a planned U.S. cardiac surgery feasibility study called REFRESH I (REduction of FREe Hemoglobin) amongst 20 patients and three U.S. clinicalsites. The FDA subsequently approved an amendment to the protocol, expanding the trial to be a 40 patient randomized controlled study (20 treatment, 20control) in eight clinical centers. REFRESH I as the first part of a larger clinical trial strategy intended to support the approval of CytoSorb in the U.S. forintra-operative use during cardiac surgery. The REFRESH I study was designed to evaluate the safety and feasibility of CytoSorb when used intra-operatively in a heart-lung machine to reduceplasma free hemoglobin (pfHb) and cytokines in patients undergoing complex cardiac surgery. The study was not powered to measure effect on clinicaloutcomes. The length, complexity and invasiveness of these procedures cause hemolysis and inflammation, leading to high levels of plasma freehemoglobin, cytokines, activated complement, and other substances. These inflammatory mediators are correlated with the incidence of serious post-operative complications such as kidney injury, renal failure and other organ dysfunction. The goal of CytoSorb is to actively remove these inflammatory andtoxic substances as they are being generated during the surgery and reduce complications. Enrollment was completed with 46 patients. A total of 38 patientswere evaluable for pfHb and completed all aspects of the study. The primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma freehemoglobin levels, respectively. On October 5, 2016, we announced positive top-line safety data. In addition, following a detailed review of all reportedadverse events in a total of 46 enrolled patients, the independent Data Safety Monitoring Board (“DSMB”) found no serious device related adverse eventswith the CytoSorb device, achieving the primary safety endpoint of the trial. In addition, the therapy was well-tolerated and technically feasible,implementing easily into the cardiopulmonary bypass circuit without the need for an additional external blood pump. This study represents the firstrandomized controlled trial demonstrating the safety of intra-operative CytoSorb use in patients undergoing high risk cardiac operations. Investigators of the REFRESH I trial submitted an abstract with data, including free hemoglobin data, from the REFRESH I trial which was selectedfor a podium presentation at the American Association of Thoracic Surgery conference on May 1, 2017. On May 5, 2017, we announced additionalREFRESH I data, including data from the study on the reduction of pfHb and activated complement and disclosed that investigators of the study havesubmitted a manuscript of the REFRESH I trial for publication. In December 2017, the FDA approved our IDE application for our REFRESH 2 study. The REFRESH 2 study is a pivotal trial designed to providethe key safety and efficacy data needed to support United States regulatory approval for the use of CytoSorb in cardiac surgery, which we are planning topursue via the premarket approval (PMA) pathway. The IDE approval allows us to aggressively move forward with our clinical trial sites to complete the finalsteps prior to the official start of the study. The REFRESH 2 pivotal study will assess the effectiveness of intraoperative CytoSorb blood treatment onpostoperative acute kidney injury (AKI), the primary endpoint of the study and one of the most common adverse events in patients undergoing complexcardiac surgery. The REFRESH 2 trial is a randomized, controlled, blinded, multi-center, clinical trial designed to evaluate intraoperative CytoSorb use as atherapy to reduce the incidence and severity of AKI, as measured by Kidney Disease Improving Global Outcomes (KDIGO) criteria, following complexcardiac surgery. The trial will enroll up to 400 patients at increased risk of cardiovascular AKI, undergoing elective, non-emergent open heart surgery foreither valve replacement, or aortic reconstruction with hypothermic cardiac arrest. The Company has initiated discussions with previous trial sites thatparticipated in the REFRESH I study that are familiar with the CytoSorb device and intraoperative use during CPB. The Company believes using sites thatpreviously participated in REFRESH I will accelerate the process of site startup and the launch of REFRESH 2. The Company is ramping the trial, and hasbegun screening patients at a key site involved in REFRESH 1 and is working to add additional centers experienced in the conduct of clinical trials incomplex cardiac surgery. We anticipate that this study will take at least two yeas to complete, and could take longer if enrollment challenges or other factorscausing delays are encountered. Even though we have obtained CE Mark approval, no guarantee or assurance can be given that our CytoSorb product will work as intended or thatwe will be able to obtain FDA approval to sell CytoSorb in the U.S. or approval in any other country or jurisdiction. Because of the limited studies we haveconducted, we are subject to substantial risk that our technology will have little or no effect on the treatment of any indications that we have targeted. 5 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We have been successful in obtaining technology development contracts from agencies in the U.S. Department of Defense, including the DefenseAdvanced Research Projects Agency (“DARPA”), the U.S. Army, and the U.S. Air Force, as well as the National Institutes of Health. See the section entitled“Government Research Grants” of this Item 1 of this Report for information regarding the specific grants. In January 2017, we launched VetResQ™ for the United States veterinary market, following registration with the FDA. VetResQ is a broad spectrumblood purification adsorber designed to help treat deadly inflammation and toxic injury in animals with critical illnesses such as septic shock, toxic shocksyndrome, severe systemic inflammation, toxin-mediated diseases, pancreatitis, trauma, liver failure, and drug intoxication. Based upon cumulative studies,VetResQ is capable of reducing a broad range of excessive inflammatory mediators and toxins that could otherwise cause direct tissue injury or serioussystemic inflammation that can rapidly lead to instability, organ failure, and death. VetResQ is manufactured in the United States for the treatment of cats,dogs, horses, and animals of comparable size. VetResQ is compatible with standard hemodialysis, continuous renal replacement therapy (“CRRT”), andhemoperfusion blood pumps. VetResQ is available only for veterinary animal usage and is not for human use. We do not expect VetResQ to be significantsource of revenue for us in the near term. In addition to CytoSorb and VetResQ, we are developing other products utilizing our adsorbent polymer technology that have not yet receivedregulatory approval including HemoDefend, CytoSorb-XL, ContrastSorb, DrugSorb, BetaSorb, and others. The HemoDefend technology platform is adevelopment-stage blood purification system that can remove contaminants in transfused blood products, with the goal of reducing potentially fataltransfusion reactions and improving the quality of blood. CytoSorb-XL is a development-stage, next-generation product to CytoSorb, adding endotoxinremoval capability to cytokine, exotoxin, and other inflammatory mediator removal. ContrastSorb is designed to remove intravenous radiocontrast (IVcontrast), that is administered during interventional radiology procedures, for example, coronary angiograms for heart disease, and computed tomography(CT scans) or computer axial tomography imaging (CAT scans) that can cause kidney failure in high risk patients, for example, those with pre-existingkidney disease, diabetes, hypertension, congestive heart failure, and who are of old age. DrugSorb is designed to remove toxic drugs from blood, such as indrug overdose. The BetaSorb filter was designed for use with renal replacement therapy in end-stage renal disease patients, to remove mid-molecular weighttoxins that are not adequately removed by hemodialysis or hemofiltration. BetaSorb is not the current focus of our near-term commercialization plans. Withthe exception of HemoDefend, all of these products are known medically as hemoperfusion devices. During hemoperfusion, blood is removed from the bodyvia a catheter or other blood access device, perfused through a filter medium where toxic compounds are removed, and returned to the body. Hemoperfusion,along with hemodialysis and hemofiltration, are the three major forms of blood purification. HemoDefend is a development-stage blood purification technology platform designed to safeguard and protect the blood supply. Continueddevelopment of the product is being supported through a $1.5 Phase II SBIR contract funded by the National Heart, Lung and Blood Institute (NHLBI) – adivision of the National Institutes of Health (“NIH”), and U.S. Special Operations Command (USSOCOM). We seek to license the HemoDefend platform andhave not yet received regulatory approval in any markets. HemoDefend consists of a mixture of proprietary porous polymer beads that target the removal ofcontaminants that can cause transfusion reactions or cause disease in patients receiving the tens of millions of transfused blood products administeredworldwide each year. These contaminants include, for example, foreign antibodies, antigens, cytokines, free hemoglobin, bioactive lipids, toxins, drugs, andother inflammatory mediators that either were from the donor or accumulated during blood storage. The goal of the HemoDefend technology is to reducethese contaminants in transfused blood products to reduce transfusion reactions, to keep new blood fresh, and to improve the quality and safety of blood. The HemoDefend beads are intended to be used in multiple configurations, including as a common in-line filter between the blood bag and thepatient as well as a patent-pending “Beads in a Bag” treatment configuration, where the beads are placed directly into a blood storage bag. Once blood is putinto this bag, the beads begin to automatically remove contaminants from the blood, and are designed to continue purifying blood throughout the entireblood storage period. The use of neutrally buoyant beads eliminates the need for mixing and is compatible with current blood storage conditions. Integratedfilters in the bag prevent beads from leaving the bag during the transfusion process. The base polymer meets ISO 10993 standards for biocompatibility,hemocompatibility, genotoxicity, cytotoxicity, acute sensitivity and complement activation and can therefore directly contact blood for extended periods oftime. In addition, the beads are inert and stable at a wide range of temperatures, and do not contain any antibodies, biologics, ligands, or drugs. Because ofthis, the beads have a very long shelf life that is consistent with blood storage bag manufacturing standards. No special equipment or handling is required,making it well-suited for mainstream and military applications, as well as for use in less developed countries that are not well-equipped to test and processblood products. CytoSorb-XL is a development-stage, porous polymer bead technology that combines lipopolysaccharide endotoxin removal with the robustcytokine, toxin, and inflammatory mediator reduction achieved by CytoSorb. CytoSorb-XL and its novel endotoxin binding chemistry is the subject of abroad composition of matter patent application, intended to protect the technology worldwide for the next two decades. In a head-to-head comparison withthe leading endotoxin adsorber, Toraymyxin (Toray, Japan), CytoSorb-XL matched the level of endotoxin reduction in an in vitro plasma recirculationsystem on a comparable volume basis. CytoSorb-XL is expected to replace stand-alone endotoxin specific filters by offering superior performance in theremoval of not just endotoxin, but a much broader array of inflammatory mediators that drive uncontrolled deadly inflammation, organ failure, and death insepsis. The expected market for CytoSorb-XL is similar in size and scope as for CytoSorb. 6 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ContrastSorb is a development-stage blood purification technology that is being optimized for the removal of IV contrast from blood in order toprevent contrast-induced nephropathy (“CIN”). CIN is the acute loss of renal function within the first 48 hours following IV contrast administration. Anestimated 65 million CT scans are performed worldwide with IV contrast each year to enhance the images and make it easier to identify anatomic structures.IV contrast is also administered during vascular interventional radiology procedures and angiography of blood vessels in the brain, heart, limbs, and otherparts of the body to diagnose and treat atherosclerosis (narrowing of blood vessels due to cholesterol deposits), vascular injury, aneurysms, etc. For example,an estimated 10 million coronary angiograms are performed worldwide each year to diagnose and treat coronary artery disease by placing coronary stents,performing balloon angioplasty, or atherectomy (removal of plaque in arteries). The reported risk of CIN in patients undergoing contrast enhanced CT scanshas been reported to be 2% to 13%. For coronary intervention, the risk has been estimated to be as high as 20% to 30% in high risk patients with pre-existingrenal insufficiency, long-term diabetes, hypertension, congestive heart failure, and older age. The use of low osmolar IV contrast, hydration of patients pre-procedure, orally administration of N-acetylcysteine, and other agents to prevent CIN have demonstrated modest benefit in some clinical studies, but in manycases, the results across studies have been equivocal and inconsistent. In high risk patients, the direct removal of IV contrast from the blood withContrastSorb to prevent CIN represents a potentially more effective alternative. DrugSorb is a development-stage blood purification technology that is capable of removing a wide variety of drugs and chemicals from blood, as apotential treatment for drug overdose, drug toxicity, toxic chemical exposure, use in high-dose regional chemotherapy, and other applications. It hasdemonstrated extremely high single pass removal efficiency of a number of different drugs that exceeds the extraction capability of hemodialysis or otherfiltration technologies. It is similar in action to activated charcoal hemoperfusion cartridges that have been available for many years, but has the advantage ofhaving inherent biocompatibility and hemocompatibility without coatings, and can be easily customized for specific agents. Our BetaSorb device is intended to remove beta2, -microglobulin and other mid-molecular weight toxins from the blood of patients suffering fromchronic kidney failure who rely on long term dialysis therapy to sustain their life. Standard high-flux hemodialysis is very effective in removing small uremictoxins, but much less effective in removing these mid-molecular weight toxins that functional kidneys normally remove. BetaSorb utilizes an adsorbentpolymer packed into a similarly shaped and constructed cartridge as utilized for our CytoSorb product, although the polymers used in the two devices arephysically different, with one optimized for short-term critical care use and the other specifically designed for the needs of long-term chronic usage. TheBetaSorb device also incorporates industry standard connectors at either end of the device, which connect directly into the extra-corporeal circuit(bloodlines) in series with a dialyzer. To date, we have manufactured the BetaSorb device on a limited basis for testing purposes, including for use in clinicalstudies. We initially identified end stage renal disease as the target market for our polymer-based adsorbent technology. However, during the development ofBetaSorb, we identified several applications for our adsorbent technology in the treatment of critical care patients. As a result, we shifted our priorities topursue critical care applications (such as for the treatment of sepsis) for our technology given that the potential for usage of BetaSorb in chronic conditionssuch as end stage renal disease is anticipated to have a longer and more complex regulatory pathway. We may pursue our BetaSorb product in the future afterthe commercialization of the CytoSorb device. At such time as we determine to proceed with our proposed BetaSorb product, if ever, we will need to conductadditional clinical studies using the BetaSorb device and obtain separate regulatory approval in Europe and/or the U.S. We have conducted clinical studies using our BetaSorb device in patients with chronic kidney failure, which have provided valuable data thatunderpin the development of the critical care applications for our technology. The BetaSorb device has been used in a total of four human pilot studies,involving 20 patients, in the U.S. and Europe. The studies included approximately 345 treatments, with some patients using the device for up to 24 weeks (inmultiple treatment sessions lasting up to four hours, three times per week) in connection with the application of our products to patients suffering fromchronic kidney failure. Corporate History We were originally organized as a Delaware limited liability company in August 1997 as Advanced Renal Technologies, LLC. We changed ourname to RenalTech International, LLC in November 1998, and to MedaSorb Technologies, LLC in October 2003. In December 2005, MedaSorbTechnologies, LLC converted from a limited liability company to a corporation. CytoSorbents Corporation was incorporated in Nevada on April 25, 2002 asGilder Enterprises, Inc., and was originally engaged in the business of installing and operating computer networks that provided high-speed access to theInternet. On June 30, 2006, we disposed of our original business, and pursuant to an Agreement and Plan of Merger, acquired all of the stock of MedaSorbTechnologies, Inc., a Delaware corporation, in a merger, and the business of MedaSorb Technologies, Inc. became our business. Following the merger, in July2006, we changed our name to MedaSorb Technologies Corporation. In November 2008, we changed the name of our operating subsidiary from MedaSorbTechnologies, Inc. to CytoSorbents, Inc. In May 2010, we finalized the name change of MedaSorb Technologies Corporation to CytoSorbents Corporation.On October 28, 2014, we changed the name of our operating subsidiary from CytoSorbents, Inc. to CytoSorbents Medical, Inc. 7 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On December 3, 2014, we effected a twenty-five-for-one (25:1) reverse split of our common stock. As a result of this reverse stock split, shares of ourcommon stock outstanding were reduced by approximately 96%. Based on the 582,097,092 shares of common stock outstanding as of December 3, 2014, thetotal number of shares of common stock outstanding after the reverse stock split, including accounting for fractional shares which were rounded up to thenext whole number, were 23,284,040 shares. Accordingly, all share, option and warrant information included in this Annual Report has been retroactivelyadjusted to reflect the reduced number of shares resulting from this action. Immediately after the reverse stock split, pursuant to an Agreement and Plan ofMerger dated December 3, 2014, we changed our state of incorporation from the State of Nevada to the State of Delaware, whereby we merged with and intoour recently formed, wholly-owned Delaware subsidiary. At the effective time of the merger, (i) we merged with and into our Delaware subsidiary, (ii) ourseparate corporate existence in Nevada ceased to exist, (iii) the Delaware subsidiary became the surviving corporation, (iv) the certificate of incorporation, asamended and restated, and the bylaws of the Delaware subsidiary became our certificate of incorporation and bylaws, and (v) each share of our common stockoutstanding immediately prior to the effective time was converted into one fully-paid and non-assessable share of our common stock as a Delawarecorporation. The reverse stock split, the merger and the Agreement and Plan of Merger were approved by our Board of Directors and stockholdersrepresenting a majority of our then-outstanding common stock. All references to “us”, “we”, or the Company, on or after December 3, 2014, refer toCytoSorbents Corporation, a Delaware corporation. Our executive offices are located at 7 Deer Park Drive, Suite K, Monmouth Junction, New Jersey 08852, and our telephone number is (732) 329-8885. Our website address is http://www.cytosorbents.com . We have included our website address as an inactive textual reference only. We make availablefree of charge through our website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendmentsto those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file suchmaterial, or furnish it to the SEC. We also similarly make available, free of charge on our website, the reports filed with the SEC by our executive officers,directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided tous by those persons. We are not including the information contained at http://www.cytosorbents.com , or at any other website address, as part of, orincorporating it by reference into, this Annual Report on Form 10-K. We have been engaged in research and development since our inception and have raised approximately $112 million from investors. These proceedshave been used to fund the development of multiple product applications and to conduct clinical studies, to establish in-house manufacturing capacity tomeet commercial and clinical testing needs, expand our intellectual property through additional patents, and to develop extensive proprietary know-howwith regard to our products. For the years ended December 31, 2017, 2016 and 2015, our research and development expenses amounted to approximately$4,049,000, $4,783,000 and $3,871,000, respectively. There are no customer-sponsored research activities relating to the development of new products. We have raised funds through various means including convertible note offerings, equity transactions, and term loans. Our most significantfinancing transactions are discussed below. Shelf Registration On July 29, 2015, the Company’s registration statement on Form S-3, as filed with the SEC on July 23, 2015, (Registration No. 333-205806) (the“Shelf Registration Statement”) was declared effective using a “shelf” registration process. Under this shelf registration statement, the Company may issue, inone or more offerings, any combination of common stock, preferred stock, senior or subordinated debt securities, warrants, or units, up to a total dollaramount of $100 million. April 5, 2017 Equity Offering On April 5, 2017, the Company closed on the sale of an aggregate of 2,222,222 shares of common stock pursuant to the Shelf RegistrationStatement. The Company received gross proceeds of approximately $10,000,000, based on a public offering price of $4.50 per share. On April 11, 2017, theCompany closed the sale of an additional 333,333 shares of the Company’s common stock, pursuant to the underwriters’ full exercise of an over-allotmentoption. The Company received gross proceeds of approximately $1,500,000 as a result of the exercise of the option. As a result, the Company received totalgross proceeds of $11,500,000, and, after deducting the underwriting discounts and commissions and expenses related to the offering, the Company receivedtotal net proceeds of approximately $10,300,000. As a result of this offering, the exercise price of the warrants issued in connection with the Company’sMarch 11, 2014 public offering was reduced to $4.50 in accordance with the pricing provisions of those warrants. There was no change in the number ofwarrants which were repriced. These warrants remain exercisable on a cash-only basis. 8 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. November 4, 2015 Controlled Equity Offering On November 4, 2015, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgeraldand Co., as agent (“Cantor”), pursuant to which the Company may offer to sell, from time to time through Cantor, shares of the Company’s common stock,having an aggregate offering price of up to $25,000,000 (the “Shares”) Any Shares offered and sold will be issued pursuant to the Company’s ShelfRegistration Statement, as supplemented by a prospectus supplement, dated November 4, 2015, which the Company filed with the SEC pursuant to Rule424(b)(5) under the Securities Act. Under the Sales Agreement, Cantor may sell Shares by any method permitted by law and deemed to be an “at the market offering” as defined in Rule415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on The Nasdaq Capital Market(“Nasdaq”), on any existing trading market for the common stock or to or through a market maker. In addition, under the Sales Agreement, Cantor may sellthe Shares by any other method permitted by law, including in privately negotiated transactions. The Company may instruct Cantor not to sell Shares if thesales cannot be effected at or above the price designated by the Company from time to time. The Company is not obligated to make any sales of Shares under the Sales Agreement, and if it elects to make any sales, the Company can set aminimum sales price for the Shares. The offering of Shares pursuant to the Sales Agreement will terminate upon the earlier of (a) the sale of all the sharessubject to the Sales Agreement and (b) the termination of the Sales Agreement by Cantor or the Company, as permitted therein. From November 4, 2015through December 31, 2015, the Company sold 28,880 shares, generating net proceeds of approximately $225,000 under the Sales Agreement. There were nosales during the year ended December 31, 2016. During the year ended December 31, 2017, the Company sold 550,000 shares at an average price of $6.31 pershare, generating net proceeds of approximately $3,367,000. From January 1, 2018 through March 7, 2018, the Company sold 465,112 shares at an averagecost of $7.91 per share, generating net proceeds of approximately $3,568,000. In the aggregate, the Company has sold 1,043,992 shares at an average sellingprice of $7.07 per share, generating net proceeds of approximately $7,159,000 under the terms of the Sales Agreement. The Company pays a commission rate of 3.0% of the aggregate gross proceeds from each sale of Shares and has agreed to provide Cantor withcustomary indemnification and contribution rights. In 2015, the Company reimbursed Cantor $50,000 for certain specified expenses in connection with theexecution of the Sales Agreement. The Company intends to use the net proceeds raised through “at the market” sales for research and development activities, which include thefunding of additional clinical studies and costs of obtaining regulatory approvals in countries not covered by the CE Mark, capital expenditures and othercosts necessary to expand production capacity, support of various sales and marketing efforts, product development and general working capital purposes. Research and Development We have been engaged in research and development since inception. Since 2012, we have been awarded an aggregate of approximately $11.1million in grants and contracts from DARPA ($3.8M over 5 years), the U.S. Army ($100K Phase I SBIR; $50K Phase I option, $803K Phase II SBIR, $443KPhase II enhancement), the Congressionally Directed Medical Research Program Office, (“CDRMP”), $718K, the National Heart, Lung and Blood Instituteand USSOCOM ($203K Phase I SBIR; $1.5M Phase II SBIR), the Joint Program Executive Office – Chemical and Biological Defense, (JPEO-CBD), ($150KPhase I and Phase I option, $1.0M Phase II) ,the U.S. Army Peritoneal dialysis/mesh packing for hyperkalemia ($150K Phase I SBIR, $1.0M and Phase II),Universal Plasma ($150K Phase I and 1.0M Phase II) to further develop our technologies for sepsis, trauma and burn injury, and blood transfusions,respectively. Some payments are based on achieving certain technology milestones. Technology, Products and Applications For approximately the past half-century, the field of blood purification has been focused on hemodialysis, a mature, well accepted medicaltechnique primarily used to sustain the lives of patients with permanent or temporary loss of kidney function. It is widely understood by the medicalcommunity that dialysis has inherent limitations in that its ability to remove toxic substances from blood drops precipitously as the size of toxins increases.Our hemocompatible adsorbent technology is expected to address this shortcoming by removing toxins and toxic compounds largely untouched by dialysistechnology. Our polymer adsorbent technology can remove drugs, bioactive lipids, inflammatory mediators such as cytokines, free hemoglobin, toxins, andimmunoglobulin from blood and physiologic fluids depending on the polymer construct. It is believed that the technology may have many applications inthe treatment of common, chronic and acute healthcare conditions including, but not limited to, the adjunctive treatment and/or prevention of sepsis; thetreatment of other critical care illnesses such as severe burn injury, trauma, acute respiratory distress syndrome and pancreatitis; the prevention of post-operative complications of cardiopulmonary bypass surgery; the treatment of cancer cachexia; the treatment of cytokine release syndrome in cancerimmunotherapy, the prevention of damage to organs donated by brain-dead donors prior to organ harvest; the prevention of transfusion reactions caused bycontaminants in transfused blood products; the prevention of contrast induced nephropathy, the treatment of drug overdose, and the treatment of chronickidney failure. These applications vary by cause and complexity as well as by severity but share a common characteristic i.e. high concentrations ofinflammatory mediators and toxins in the circulating blood. 9 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our flagship product, CytoSorb, animal-targeted VetResQ, and other product candidates under development, including CytoSorb XL, BetaSorb,ContrastSorb, and DrugSorb, consist of a cartridge containing adsorbent, porous polymer beads, although the polymers used in these devices are physicallydifferent. The cartridges incorporate industry standard connectors at either end of the device, which connect directly to the extracorporeal circuit (bloodlines)in series with a dialyzer as a standalone device. The extra-corporeal circuit consists of plastic blood tubing, our blood filtration cartridges containingadsorbent polymer beads, pressure monitoring gauges, and a blood pump to maintain blood flow. The patient’s blood is accessed through a catheter insertedinto his or her veins. The catheter is connected to the extra-corporeal circuit and the blood pump draws blood from the patient, pumps it through the cartridgeand returns it back to the patient in a closed loop system. All of these devices are expected to be compatible with standard blood pumps or hemodialysismachines used commonly in hospitals and will therefore not require hospitals to purchase additional expensive equipment, and will require minimaltraining. The polymer beads designed for the HemoDefend platform are intended to be used in multiple configurations, including a point-of-transfusion in-line filter between the blood bag and the patient, as well as a patent-pending “Beads in a Bag” configuration, where the beads are placed directly into a bloodstorage bag. Markets We are a critical care focused immunotherapy company. Immunotherapy is the ability to control the immune response to fight disease. Critical caremedicine includes the treatment of patients with serious or life-threatening conditions who require comprehensive care in the ICU, with highly-skilledphysicians and nurses and advanced technologies to support critical organ function to keep patients alive. Examples of such conditions include severe sepsisand septic shock, severe burn injury, trauma, acute respiratory distress syndrome and severe acute pancreatitis. In the U.S., an estimated $110 billion or 0.7%of the U.S. gross domestic product is spent annually on critical care medicine. In larger hospitals, critical care treatment accounts for up to 20% of a hospital’soverall budget and often results in financial losses for the hospital. In many critical care illnesses, the mortality is often higher than 30%. A major cause of death is multiple organ failure, where vital organs such as thelungs, kidneys, heart and liver are damaged and no longer function properly. Such patients are kept alive with supportive care therapy, or “life support”, suchas mechanical ventilation, dialysis and vasopressor treatment, that is designed to keep the patient from dying while using careful patient management to tipthe balance towards gradual recovery over time. Unfortunately, most supportive care therapies only help to keep patients alive by supporting organ functionbut do not help reverse the underlying causes of organ failure and do not help patients recover more quickly. Because of this, the treatment course is oftenpoorly defined and highly variable, leading to lengthy ICU stays, a higher risk of adverse outcomes from hospital acquired infections, medical errors, andother factors, as well as exorbitant costs. There is an urgent need for more effective “active” therapies that can help to reverse or prevent organ failure. Ourmain product, CytoSorb, is a unique cytokine filter designed to try to address this void, by reducing “cytokine storm” and working to reduce the subsequentdeadly inflammation that can lead to organ failure and death. Together the total addressable market to address these numerous critical care applications in theU.S. and EU with CytoSorb is estimated at $10 billion to $15 billion. Sepsis Sepsis is characterized by a systemic inflammatory response triggered by a severe infection. It is commonly seen in the ICU, accounting forapproximately 10% to 20% of all ICU admissions. However, there are currently no approved products that are available to treat sepsis in the U.S. or EU. Eachyear, there are more than one million and 1.5 million new cases of severe sepsis or septic shock in the U.S. and Europe, respectively. Based on the reportedincidence of sepsis in a number of developed countries, the worldwide incidence is estimated to be 18 million cases per year. The Global Sepsis Allianceestimates there are more than 30 million cases per year with approximately 6-9 million deaths. According to the CDC, the incidence of serious infection andsepsis has doubled in the U.S. in the past 10 years. The main driver of sepsis incidence is the aging demographic, specifically patients who are older than age65 who are more prone to infection and now account for two-thirds of patients hospitalized for sepsis and the majority of sepsis deaths. Other factorscontributing to the increase in sepsis incidence include the spread of antibiotic resistant bacteria like methicillin-resistant Staphylococcus aureus (“MRSA”),an increase in co-morbid conditions like HIV, cancer and diabetes that increases the risk of infection, an increasing use of implantable devices like artificialhips and knees that are prone to colonization by bacteria, and the appearance of new highly virulent or contagious strains of common pathogens such asH3N2 or H1N1 influenza. There are generally three categories of sepsis, including mild to moderate sepsis, severe sepsis and septic shock. Mild to moderate sepsis typicallyoccurs with an infection that is responsive to antibiotics or antiviral medication. An example is a patient with self-limiting influenza or a treatablecommunity acquired pneumonia. Mortality is generally very low. Severe sepsis is sepsis with evidence of organ dysfunction. An example is a patient whodevelops respiratory failure due to a severe pneumonia and requires mechanical ventilation in the ICU. Severe sepsis has a mortality rate of approximately25% to 35% despite the use of antibiotics and the highest level of available care. Septic shock, or severe sepsis with low blood pressure that is not responsiveto fluid resuscitation, is the most serious form of sepsis with an expected mortality in excess of 40% to 50%, and up to 90-100% if it is refractory tovasopressors and other therapies. 10 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In sepsis, there are two major problems: the infection and the body’s immune response to the infection. Antibiotics are main therapy used to treat thetriggering infection, and although antibiotic resistance is growing, the infection is often eventually controlled. However, it is the body’s immune response tothis infection that frequently leads to the most devastating damage. Recently, the 3 rd International Consensus Definition Task Force defined sepsis as “life-threatening organ dysfunction due to a dysregulated host response to infection.” The body’s immune system normally produces large amounts ofinflammatory mediators called cytokines to help stimulate and regulate the immune response during an infection. In severe infection, however, many peoplesuffer from a massive, unregulated overproduction of cytokines, often termed “cytokine storm” that can kill cells and damage organs, leading to multipleorgan dysfunction syndrome and multiple organ failure, and in many cases death. Until recently, there have been no available therapies in the U.S. or EU thatcan control the aberrant immune response and cytokine storm. Our CytoSorb device is a first-in-class, clinically-proven broad-spectrum extracorporealcytokine filter currently approved for sale in the E.U. The goal of CytoSorb is to prevent or treat organ failure by reducing cytokine storm and controlling a“run-away” immune response, while antibiotics work to control the actual infection. CytoSorb has been evaluated in the randomized, controlled EuropeanSepsis Trial in 100 patients in Germany with predominantly septic shock and acute respiratory distress syndrome or acute lung injury. The therapy was safe inmore than 300 human treatments and generally well-tolerated. CytoSorb demonstrated the ability to reduce a broad range of cytokines from the blood ofcritically ill patients. In a post-hoc analysis, this was associated with improvements in clinical outcome in two high-risk patient populations – those with veryhigh cytokine levels and patients 65 years of age and older. We have completed a follow-up Dosing study at several clinical trial sites in Germany,supporting the safety of continuous treatment, exchanging a new device daily for up to 7 days. The only treatment that had been approved to treat sepsis in the U.S. or EU was Xigris from Eli Lilly. Because of concerns of cost, limited efficacy,and potentially dangerous side effects including the increased risk of fatal bleeding events such as intracranial bleeding for those at risk, and also because ofproblems with reimbursement, worldwide sales of Xigris decreased from $160M in 2009 to $104M in 2010. In October 2011, following its PROWESSSHOCK trial that demonstrated no benefit in mortality in septic shock patients, Lilly voluntarily withdrew Xigris from all markets worldwide, and is nolonger available as a treatment. Development of most other experimental therapies has been discontinued, including Eritoran from Eisai, CytoFab from BTG/Astra Zeneca,Talactoferrin from Agennix, and others. Spectral Medical, Inc. is collaborating with Toray on the EUPHRATES trial, combining an endotoxin assay with extracorporeal endotoxin removalby Toraymyxin, a polymyxin-B immobilized polystyrene fiber cartridge. The study began in June 2010 and completed enrollment in June 2016.Endotoxemia is a result of Gram negative sepsis, which only accounts for 45% of cases of sepsis. It is a potent stimulator of cytokine storm. However, all anti-endotoxin strategies have failed pivotal studies to date, believed to be the result of intervening too late in the sepsis cascade. The original trial was designedas a randomized control trial in 360 patients with septic shock and high endotoxin levels (≥ 0.60 EAA units) as confirmed by Spectral’s Endotoxin ActivityAssay (“EAA”). In a second interim analysis finalized in April 2014, following the enrollment of 184 patients with 28-day follow-up, the DSMBrecommended that the trial continue. However, the expected trial size was increased to 650 patients and the exclusion criteria was modified to only acceptsicker patients with a multiple organ dysfunction syndrome score greater than 9. In September 2015, Spectral reported that the composite mortality in the newsubgroup had risen to ~50%, from ~30% previously. New statistical analysis on patients in the new subgroup, and comparable patients in a Europeantreatment registry, led to a sample size recalculation of 446 evaluable patients. Spectral announced in June 2016 that they had completed enrollment for theEUPHRATES trial. In October 2016, Spectral announced top-line results that the trial did not meet the main goal of absolute reduction in 28 day all-causemortality, but reiterated safety of treatment and potential benefit in the sickest group of patients (multiple organ dysfunction score > 9). There have now beenseveral large scale studies failing to demonstrate the beneficial effect of Toraymyxin on 28-day mortality in sepsis. Few therapies are currently under development. In April 2015, Leading Biosciences began a 260 patient randomized, controlled Phase 2 clinicalSSAIL trial in septic shock patients using its investigational orally administered drug, LB1148, also known as tranexemic acid. Tranexemic acid is a serineprotease inhibitor, designed to inhibit digestive enzymes and preserve and promote healing of the intestine’s mucosal barrier, with the goal of preventing theescape of potent digestive enzymes into the blood, which could exacerbate sepsis. Leading Biosciences originally projected completion of the trial inDecember 2016 but terminated the study due to slow enrollment. Currently, there are two late stage trials ongoing. The first of which was initiated in November 2012 and was an 800 patient Phase III randomizedcontrolled SCARLET study began for Recomodulin (ART 123, Artisan/Asahi Kasei), a recombinant human thrombomodulin, for the treatment of septicpatients with coagulopathy. In mid-2013, following an interim analysis of safety data, the DSMB recommended that the trial continue. The primarycompletion date of the trial was expected to be March 2015, however based on a review of the web site clinicaltrials.gov, the trial has been completed but noresults have been posted. Recomodulin has been approved in Japan since 2009 for the treatment of disseminated intravascular coagulation, a latecomplication of sepsis, at a cost of $5,800 per treatment. Although it has other activity, it works primarily by a similar anticoagulant mechanism to Xigris.Because of this, it has only demonstrated a limited mortality benefit in earlier studies (~9%: 34.6% control as compared to 26% treatment), similar to thatseen in Xigris’ initial PROWESS Trial (~6%: 31% control as compared to 25% treatment) and is unlikely to have greater benefit in larger scale studies.According to clinicaltrials.gov, the estimated study completion date is July 2019. 11 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The second study is being conducted by Atox Bio, a development stage company in clinical studies with peptide therapeutics that are designed toprevent superactivation of the immune response by certain toxins such as toxic shock syndrome toxin. It is currently focused on necrotizing soft tissueinfections. The investigational peptide, AB103, is being evaluated in the ACCUTE Trial, a Phase 3 randomized controlled trial in 60 investigative sites inthe U.S in 290 patients with necrotizing soft tissue infections. Primary outcomes include 28-day survival, amputation, and reduction in the modifiedsequential organ failure assessment score. According to clinicaltrials.gov, the estimated study completion date is March 2019. Severe sepsis and septic shock patients are among the most expensive patients to treat in a hospital. Because of this, we believe that cost savings tohospitals and/or clinical efficacy, rather than the cost of treatment itself, will be the determining factor in the adoption of CytoSorb in the treatment of sepsis.CytoSorb is approved in the EU and is being sold directly in Germany, Austria, Switzerland, Belgium and Luxembourg with our own direct sales force. InDecember 2016, we announced the achievement of a permanent, dedicated reimbursement procedure code for CytoSorb therapy in Germany, providing forspecific and enhanced reimbursement in the largest medical device market in Europe. We have established strategic partnerships with Fresenius MedicalCare, the world’s largest dialysis company, for exclusive distribution of CytoSorb for critical care applications in France, Poland, Denmark, Sweden, Norway,and Finland, and Terumo Cardiovascular, the largest cardio surgery disposables company, for exclusive distribution of the CytoSorb Cardiopulmonary BypasKit in France, Denmark, Sweden, Norway, Finland, and Iceland. We are also partnered with Biocon Ltd, India’s largest biopharmaceutical company, forexclusive distribution of CytoSorb in India, Sri Lanka, Malaysia, and other select emerging markets and Dr. Reddy’s Laboratories, for exclusive distributionof CytoSorb in South Africa We have ongoing discussions with potential corporate partners and independent distributors to market CytoSorb in other selectEU countries and in other countries outside the EU that accept CE Mark approval. We have established direct sales or distribution of CytoSorb in 45countries worldwide. We estimate that the market potential in Europe for our products is larger than that in the U.S. For example, in the U.S. and Europe, there are anestimated one million and 1.5 million new cases, respectively, of severe sepsis and septic shock annually. In Germany alone, according to the German SepsisSociety, there are approximately 154,000 cases of severe sepsis each year. Germany is the largest medical device market in Europe and the third largest in theworld. Sepsis patients are treated in the ICU for 12 to 18 days on average and for a total of 20 to 25 days in the hospital. A typical severe sepsis or septicshock patient in the U.S. costs approximately $45,000 to $60,000 to treat without using CytoSorb. CytoSorb therapy for sepsis typically costs in the range of$1,000 to $5,000, depending on the number of treatments. The goal of therapy is to not only improve clinical outcomes, but to also reduce the severity ofillness and reduce the need for costly ICU care (estimated at approximately $4,300 per day in the ICU in the U.S.). The cost of CytoSorb therapy represents afraction of what is currently spent on the treatment of patients with sepsis and would be cost-effective if it decreased ICU stay by one to two days. Based uponthis price point, the total addressable market for CytoSorb for the treatment of sepsis in the U.S. and EU is approximately $6 billion to $8 billion. Cardiac Surgery There are approximately 500,000 cardiopulmonary bypass and cardiac surgery procedures performed annually in the U.S., 500,000 in the EU, andapproximately 1.5 million procedures worldwide. These include relatively common procedures including coronary artery bypass graft surgery, valvereplacement surgery, heart and lung transplant, aortic reconstruction, congenital heart defect repair, and LVAD for the treatment of heart failure. Cardiacsurgery can result in inflammation and the production of high levels of inflammatory cytokines, activation of complement, as well as hemolysis, causing therelease of free hemoglobin. These can lead to post-operative complications including infection, pulmonary, renal, and neurological dysfunction.Complications lead to longer ICU recovery times and hospital stays, increased morbidity and mortality, and higher costs. An average coronary artery bypassgraft procedure already costs approximately $36,000 in the U.S. without complications. According to the National Foundation for Transplants, a heart andlung transplant and first year expenses costs $1.2 million in the U.S. The use of CytoSorb to reduce cytokines and other inflammatory mediators during andafter the surgical procedure may prevent or mitigate these post-operative complications. During the procedure, the CytoSorb filter can be incorporated in abypass circuit in the heart-lung machine without the need for a separate pump, a unique competitive advantage over other technologies. After the surgery,CytoSorb can be used similarly to dialysis on patients that develop a severe post-operative inflammatory response. Direct cytokine and hemoglobin removalwith CytoSorb enables it to replace the existing market for leukoreduction filters in cardiac surgery that attempt to indirectly reduce cytokines by capturingcytokine-producing leukocytes – an inefficient and suboptimal approach. Modified ultrafiltration is sometimes used after termination of cardiopulmonarybypass in cardiac surgery to remove excess fluid and inflammatory substances, but has had mixed benefit. The peri-procedural total addressable market forCytoSorb in the U.S. and EU in cardiothoracic surgery procedures is estimated to be $500 million to $1 billion. 12 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Acute Respiratory Distress Syndrome Acute lung injury (“ALI”) and ARDS are two of the most serious conditions on the continuum of respiratory failure when both lungs arecompromised by inflammation and fluid infiltration, severely compromising the lung’s ability to both oxygenate the blood and rid the blood of carbondioxide produced by the body. There are an estimated 165,000 cases of acute respiratory distress syndrome in the U.S. each year, with more cases in the EU.Patients with ALI and ARDS typically require mechanical ventilation, and sometimes extracorporeal membrane oxygenation therapy, to help achieveadequate oxygenation of the blood. Patients on mechanical ventilation are at high risk of ongoing ventilator-induced lung injury, oxygen toxicity,barotrauma, ventilator-acquired pneumonias, and other hospital acquired infections, and outcome is significantly dependent on the presence of other organdysfunction as well as co-morbid conditions such as pre-existing lung disease (e.g., emphysema or chronic obstructive pulmonary disease) and age. Becauseof this, mortality is typically greater than 30%, even with modern medicine and ventilation techniques. ALI and ARDS can be precipitated by a number ofconditions including pneumonia and other infections, burn and smoke inhalation injury, aspiration, reperfusion injury and shock. Cytokine injury plays amajor role in the vascular compromise and cell-mediated damage to the lung through tight junction disruption of respiratory endothelium, leading tocapillary leak syndrome, and other factors. Reduction of cytokine levels may either prevent or mitigate lung injury, enabling patients to wean frommechanical ventilation faster, potentially reducing numerous sequelae such as infection, pneumothoraces, and respiratory muscle deconditioning, and allowfaster ICU discharge, thereby potentially saving costs. CytoSorb treatment of patients with either ALI or ARDS in the setting of sepsis was the subject of ourEuropean Sepsis Trial where in a post-hoc analysis in patients with very high cytokine levels, we observed faster ventilator weaning in CytoSorb treatedpatients that showed a statistical trend to benefit. Future, prospectively defined, larger studies are required to confirm these findings. Although a number oftherapies have been tried such as corticosteroids, nitric oxide, surfactant therapy, and others, there are currently no approved treatments for ARDS. Only lowtidal volume ventilation has been demonstrated to improve mortality (31.0 as compared to 39.8% control) in this patient population. However, even with thisintervention, mortality is still unacceptably high. The total addressable market for CytoSorb to treat ARDS and ALI in the EU is estimated to be between$500 million to $1.25 billion, and between $1 billion to $2 billion in the U.S .and EU. Severe Burn Injury In the U.S., there are approximately 2.4 million burn injuries per year, with 650,000 treated by medical professionals and approximately 75,000requiring hospitalization. Aggressive modern management of burn injury, including debridement, skin grafts, anti-microbial dressings and mechanicalventilation for smoke and chemical inhalation injury has led to significant improvements in survival of burn injury to approximately 95% on average inleading burns centers. However, there remains a need for better therapies to reduce the mortality in those patients with large burns and inhalation injury aswell as to reduce complications of burn injury and hospital length of stay for all patients. According to National Burn Repository Data, the average hospitalstay for burn patients is directly correlated with the percent total body surface area (“TBSA”) burned. Every 1% increase of TBSA burned equates toapproximately 1 additional day in the hospital. A single patient with more than 30% TBSA burned who survives, is hospitalized for an average of 30 daysand costs approximately $200,000 to treat. Major causes of death following severe burn and smoke inhalation injury are multiple organ failure(hemodynamic shock, respiratory failure, acute renal failure) and sepsis, particularly in patients with greater than 30% TBSA burns. Specifically, burns andinhalation injury lead to severe systemic and localized lung inflammation, loss of fluid, and cytokine overproduction. This “cytokine storm” causesnumerous problems, including: hypovolemic shock and inadequate oxygen and blood flow to critical organs, acute respiratory distress syndrome preventingadequate oxygenation of blood, capillary leakage resulting in tissue edema and intravascular depletion, hypermetabolism leading to massive proteindegradation and catabolism and yielding increased risk of infection, impaired healing, severe weakness and delayed recovery, immune dysfunction causing ahigher risk of secondary infections (wound infections, pneumonia) and sepsis, and direct apoptosis and cell-mediated killing of cells, leading to organdamage. Up to a third of severe hospitalized burn patients develop multiple organ failure and sepsis that can often lead to complicated, extended hospitalcourses, or death. Broad reduction of cytokine storm has not been previously feasible and represents a novel approach to limiting or reversing organ failure,potentially enabling more rapid mechanical ventilation weaning, prevention of shock, reversal of the hypermetabolic state encouraging faster healing andpatient recovery, reducing hospital costs, and potentially improving survival. The total addressable market in the EU for CytoSorb to address burn and smokeinhalation injury is estimated at $150 million to $350 million and $300 million to $600 million in the U.S and EU. Trauma According to the National Center for Health Statistics, in the U.S., there are more than 31 million visits to hospital emergency rooms, with 1.9million hospitalizations, and 167,000 deaths every year due to injury. The leading causes of injury are trauma from motor vehicle accidents, being struck byan object or other person, and falls. Trauma is a well-known trigger of the immune response and a surge of cytokine production or cytokine storm. In trauma,cytokine storm contributes to a systemic inflammatory response syndrome and a cascade of events that cause cell death, organ damage, organ failure andoften death. Cytokine storm exacerbates physical trauma in many ways. For instance, trauma can cause hypovolemic shock due to blood loss, while cytokinestorm causes capillary leak and intravascular volume loss, and triggers nitric oxide production that causes cardiac depression and peripheral dilation. Shockcan lead to a lack of oxygenated blood flow to vital organs, causing organ injury. Severe systemic inflammation and cytokine storm can lead to acute lunginjury and acute respiratory distress syndrome as is often seen in ischemia and reperfusion injury following severe bleeding injuries. Penetrating woundinjury from bullets, shrapnel and knives, can lead to infection and sepsis, another significant cause of organ failure in trauma. Complicating matters is thebreakdown of damaged skeletal muscle, or rhabdomyolysis, from blunt trauma that can lead to a massive release of myoglobin into the blood that cancrystallize in the kidneys, leading to acute kidney injury and renal failure. Renal failure in trauma is associated with a significant increase in expectedmortality. Cytokine and myoglobin reduction by CytoSorb and related technologies may have benefit in trauma, potentially improving clinical outcome.The total addressable market for CytoSorb for the treatment of trauma is estimated to be $1.5 billion to $2.0 billion in the U.S. and the EU. 13 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Severe Acute Pancreatitis Acute pancreatitis is the inflammation of the pancreas that results in the local release of digestive enzymes and chemicals that cause severeinflammation, necrosis and hemorrhage of the pancreas and local tissues. Approximately 210,000 people in the U.S. are hospitalized each year with acutepancreatitis with roughly 20% requiring ICU care. It is caused most frequently by a blockage of the pancreatic duct or biliary duct with gallstones, cancer,hyperlipidemia, or from excessive alcohol use. Severe acute pancreatitis is characterized by severe pain, inflammation, and edema in the abdominal cavity, aswell as progressive systemic inflammation, generalized edema, and multiple organ failure that is correlated with high levels of cytokines and digestiveenzymes in the blood. Little can be done to treat severe acute pancreatitis today, except for pancreatic duct decompression with endoscopic techniques,supportive care therapy, pain control, enteral tube feeding, and fluid support. ICU stay is frequently measured in weeks and although overall ICU mortality isapproximately 10%, patients with multiple organ failure have a much higher risk of death. CytoSorb may potentially benefit overall outcomes in episodes ofacute pancreatitis by removing a diverse set of toxins from blood. The total addressable market for CytoSorb for the treatment of severe acute pancreatitis inthe U.S. and EU is estimated to be between $400 million to $600 million. Cancer Cachexia and Cancer Immunotherapy Cancer cachexia is a progressive wasting syndrome characterized by rapid weight loss, anorexia, and physical debilitation that significantlycontributes to death in the majority of cancer patients. Cancer cachexia is a systemic inflammatory condition, driven by excessive pro-inflammatorycytokines and other factors, that cripples the patient’s physical and immunologic reserve to fight cancer. Despite afflicting millions of patients worldwideeach year, there are no effective approved treatments for cancer cachexia, with only symptomatic treatments available. CytoSorb blood purification may stopor reverse cancer cachexia through broad reduction of cytokines and other inflammatory mediators, when treated over time. For example, CytoSorbefficiently removes TNF-alpha (originally called “cachectin” or “cachexin” when first isolated in cancer cachexia patients) and other major pro-inflammatorycytokines including IL-1, IL-6, and gamma interferon that can cause cachexia. This broad immunotherapy approach may lead to improved clinical outcomeswhile reducing patient suffering. In February 2014, we announced a research collaboration with researchers at the University of Pennsylvania School of Veterinary Medicine toevaluate the use of CytoSorb as a treatment for cancer cachexia in animals. Demonstrating the potential benefit of CytoSorb therapy in animals may providethe data to begin evaluating the therapy in human cancer patients in the U.S. and Europe. CytoSorb is approved in the EU with a broad indication for use,allowing it to be used in any clinical situation where cytokines are elevated, including the potential treatment today of cancer related issues such as cancercachexia. Because of this, any positive data from this collaboration could potentially be translated to human studies relatively quickly. The collaboration will also explore the use of CytoSorb as a primary immunotherapy to treat cancer, or in synergy with more traditionalchemotherapy or immunotherapy agents. CytoSorb may also represent a rescue or salvage therapy in activated CAR T-cell cancer immunotherapy, where cytokine release syndrome (i.e. CRSor cytokine storm) is common, and can lead to organ failure and death in certain patients. In the CRS literature, researchers have drawn parallels to both macrophage activating syndrome and secondary hemophagocyticlymphohistiocytosis (HLH) which produce a similar clinical picture and cytokine storm profile. To date, CytoSorb has been used successfully inapproximately a dozen cases of secondary HLH. In March 2017, the pioneer of CAR T-cell immunotherapy, Dr. Carl June at University of Pennsylvania,joined our scientific advisory board. In 2017, both Kymriah from University of Pennsylvania and Novartis, and Yescarta from Kite Pharma and GileadSciences, received FDA approval for the treatment of certain hematologic cancers. The total addressable market for CytoSorb for the treatment of cancer cachexia and cancer in the U.S. and EU is estimated to be in excess of $4billion. Brain-Dead Organ Donors There are in excess of 6,000 brain dead organ donors each year in the United States; worldwide, the number of these organ donors is estimated to beat least double the U.S. brain dead organ donor population. There is a severe shortage of donor organs. Currently, there are more than 100,000 individuals ontransplant waiting lists in the United States. Cytokine storm is common in these organ donors, resulting in reduced viability of potential donor organs. Thepotential use of CytoSorb hemoperfusion to control cytokine storm in brain dead organ donors could increase the number of viable organs harvested from thedonor pool and improve the survival of transplanted organs. A proof-of-concept pilot study using our technology in human brain dead donors has beenpublished. In addition, CytoSorb treatment in a porcine animal model of brain death demonstrated a reduction in cytokines as well as a preservation ofcardiac function compared to untreated controls. 14 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Blood Transfusions The HemoDefend platform is a development-stage technology designed to be a practical, low cost, and effective way to safeguard the quality andsafety of the blood supply. In the U.S. alone, 15 million packed red blood cell (“pRBC”) transfusions and another 15 million transfusions of other bloodproducts (e.g., platelet, plasma, and cryoprecipitate) are administered each year with an average of 10% of all U.S. hospital admissions requiring a bloodtransfusion. The sheer volume of transfusions, not just in the U.S., but worldwide, complicates an already difficult task of maintaining a safe and reliableblood supply. Trauma, invasive operative procedures, critical care illnesses, supportive care in cancer, military usage, and inherited blood disorders are justsome of the drivers of the use of transfused blood. In war, hemorrhage from trauma is a leading cause of preventable death, accounting for an estimated 30%to40% of all fatalities. For example, in Operation Iraqi Freedom, due to a high rate of penetrating wound injuries, up to 8% of admissions required massivetransfusions, defined as 10 units of blood or more in the first 24 hours. There is a clear need for a stable and safe source of blood products. However, bloodshortages are common and exacerbated by the finite lifespan of blood. According to the Red Cross, pRBC units have a refrigerated life span of 42 days.However, many medical experts believe there is an increased risk of infection and transfusion reactions once stored blood ages beyond two weeks.Transfusion-related acute lung injury is the leading cause of non-hemolytic transfusion-related morbidity and mortality, with an incidence of 1 in 2,000-5,000 transfusions and a mortality rate of up to 10%. Fatal cases of transfusion-related acute lung injury have been most closely related to anti-HLA or anti-granulocyte antibodies found in a donor’s transfused blood. Other early transfusion reactions such as transfusion-associated dyspnea, fever and allergicreactions occur in 3% to 5% of all transfusions and can vary in severity depending on the patient’s condition. These are caused by cytokines, bioactivelipids, free hemoglobin, toxins, foreign antigens, certain drugs, and a number of other inflammatory mediators that accumulate in transfused blood productsduring storage. Leukoreduction can remove the majority of white cells that can produce new cytokines but cannot eliminate those cytokines already inblood, and cannot otherwise remove other causative agents such as free hemoglobin and antibodies. Automated washing of pRBC is effective but isimpractical due to the time, cost, and logistics of washing each unit of blood. The HemoDefend platform is a potentially superior alternative to purify bloodtransfusion products to these methods. CytoSorbents has also received grant and contract funding to develop the HemoDefend platform to enable bothuniversal plasma and fresh whole blood transfusions through the reduction of anti-A and anti-B blood group antibodies. Today, plasma and whole bloodproducts must be carefully blood-type matched to prevent potentially fatal hemolytic transfusion reactions in the recipient, caused by the accidentaladministration of mismatched blood products. The reduction of anti-A and anti-B antibodies could potentially reduce or eliminate this risk, allowing for abroader range of available donors and simplifying the transfusion process. The total addressable market for HemoDefend is more than $500 million forpRBCs alone. . Radiocontrast Removal ContrastSorb is a development-stage blood purification technology that is being optimized for the removal of IV contrast from blood in order toprevent CIN. Contrast-induced nephropathy is the acute loss of renal function within the first 48 hours following IV contrast administration. IV contrast iswidely administered to patients undergoing CT scans, to enhance the images and make it easier to identify anatomic structures. IV contrast is alsoadministered during vascular interventional radiology procedures and angiography of blood vessels in the brain, heart, limbs, and other parts of the body todiagnose and treat atherosclerosis (narrowing of blood vessels due to cholesterol deposits), vascular injury, aneurysms, etc. For example, an estimated 10million coronary angiograms are performed worldwide each year to diagnose and treat coronary artery disease by placing coronary stents, performing balloonangioplasty, or atherectomy (removal of plaque in arteries). Overall, there are an estimated 80 million doses of IV contrast administered worldwide each year,split between approximately 65 million contrast-enhanced CT scans, 10 million coronary angiograms, and 5 million conventional angiograms. There are anestimated 30 million doses administered each year in the U.S. alone. The reported risk of CIN in patients undergoing contrast enhanced CT scans has beenreported to be 2% to 13%. For coronary intervention, the risk has been estimated to be as high as 20% to 30% in high risk patients with pre-existing renalinsufficiency, long-term diabetes, hypertension, congestive heart failure, and older age. The use of low osmolar IV contrast, hydration of patients pre-procedure, orally administration of N-acetylcysteine, and other agents to prevent CIN have demonstrated modest benefit in some clinical studies, but in manycases, the results across studies have been equivocal and inconsistent. In high risk patients, the direct removal of IV contrast from the blood withContrastSorb to prevent CIN represents a potentially more effective alternative. The worldwide market opportunity for ContrastSorb in this high risk group isapproximately $1 billion to $2 billion. Drug Removal DrugSorb is a development-stage blood purification technology that is capable of removing a wide variety of drugs and chemicals from blood, as apotential treatment for drug overdose, drug toxicity, toxic chemical exposure, use in high-dose regional chemotherapy, and other applications. It hasdemonstrated extremely high single pass removal efficiency of a number of different drugs that exceeds the extraction capability of hemodialysis or otherfiltration technologies. It is similar in action to activated charcoal hemoperfusion cartridges that have been available for many years, but has the advantage ofhaving inherent biocompatibility and hemocompatibility without coatings, and can be easily customized for specific agents. 15 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Chronic Kidney Failure The National Kidney Foundation estimates that more than 20 million Americans have chronic kidney disease. Left untreated, chronic kidney diseasecan ultimately lead to chronic kidney failure, which requires a kidney transplant or chronic dialysis (generally three times per week) to sustain life. There areapproximately 400,000 patients in the U.S. currently receiving chronic dialysis and more than 3.0 million worldwide. Approximately 66% of patients withchronic kidney disease are treated with hemodialysis. One of the problems with standard high-flux dialysis is the limited ability to remove certain mid-molecular weight toxins such as β2 -microglobulin. Over time, β2 -microglobulin can accumulate and cause amyloidosis in joints and elsewhere in themusculoskeletal system, leading to pain and disability. Our BetaSorb device has been designed to remove these mid-molecular weight toxins when used inconjunction with standard dialysis. Standard dialysis care typically involves three sessions per week, averaging approximately 150 sessions per year. Products The polymer adsorbent technology used in our products can remove middle molecular weight toxins, such as cytokines, from blood and physiologicfluids. All of the potential applications described below (i.e., the adjunctive treatment and/or prevention of sepsis; the adjunctive treatment and/or preventionof other critical care conditions such as acute respiratory distress syndrome, burn injury, trauma and pancreatitis; the prevention of damage to organs donatedby brain-dead donors prior to organ harvest; the prevention of post-operative complications of cardiopulmonary bypass surgery; the prevention of kidneyinjury from IV contrast; and the treatment of chronic kidney failure) share in common high concentrations of toxins in the circulating blood. However,because of the limited studies we have conducted to date, we are subject to substantial risk that our technology will have little or no effect on the treatment ofany of these indications. In 2011, we completed our European Sepsis Trial of our CytoSorb device. The study was a randomized, open label, controlledclinical study in 14 sites in Germany of 100 critically ill patients with predominantly septic shock and respiratory failure. The trial successfully demonstratedthe ability of CytoSorb to reduce levels of key cytokines from whole blood in treated patients, and that treatment was safe in these critically-ill patients withmultiple organ failure. We completed the CytoSorb technical file review with our Notified Body and CytoSorb subsequently received EU regulatoryapproval under the CE Mark as an extracorporeal cytokine filter indicated for use in any clinical situation where cytokines are elevated. Given sufficient andtimely financial resources, we intend to continue to commercialize in Europe and conduct additional clinical studies of our products. However, there can beno assurance that we will ever obtain regulatory approval for any other device, or that the CytoSorb device will be able to generate significant sales. We manufacture the CytoSorb device at our facility located in Monmouth Junction, New Jersey. We purchase our raw materials from multiplevendors located primarily in the United States. We believe that our risk of an interruption in the supply of our raw materials is minimal due to the use ofmultiple vendors and the availability of alternate vendors. We do not have contractual minimum finished goods inventory requirements, however ourpractice is to maintain a minimum inventory level sufficient to provide a supply of products for the next two months. The CytoSorb Device (Critical Care) APPLICATION: Adjunctive Therapy in the Treatment of Sepsis Sepsis is a potentially life threatening disease defined as a systemic inflammatory response in the presence of a known or suspected infection. Sepsisis mediated by high levels of inflammatory mediators such as cytokines, which are released into the blood stream as part of the body’s immune response tosevere infection or injury. Excessive concentrations of these mediators cause severe inflammation and damage healthy tissues, which can lead to organdysfunction and failure. Organ failure is the leading cause of death in the ICU. Sepsis is very expensive to treat and has a high mortality rate. Potential Benefits: To the extent our adsorbent blood purification technology is able to prevent or reduce the accumulation of cytokines, toxins, orother inflammatory mediators in the circulating blood, we believe our products may be able to prevent or mitigate severe inflammation, organ dysfunctionand failure in sepsis patients. Therapeutic goals as an adjunctive therapy include improved clinical outcome, reduced ICU and total hospitalization time, andreduced hospital costs. Background and Rationale: We believe that the effective treatment of sepsis is the most valuable potential application for our technology. Severesepsis (sepsis with organ dysfunction) and septic shock (severe sepsis with persistent hypotension despite fluid resuscitation) carries mortality rates ofbetween 20% and 80%. Death can occur within hours or days, depending on many variables, including cause, severity, patient age and co-morbidities. Thereare approximately 1.6 million new cases of sepsis in the U.S. each year; and based on estimates by the Global Sepsis Alliance, the worldwide incidence isestimated to be 30 million cases annually. The incidence of sepsis is also rising due to: 16 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·an aging population; ·increased incidence of antibiotic resistance; ·increase in co-morbid conditions like cancer and diabetes; and ·increased use of indwelling medical devices that are susceptible to infection. In the U.S. alone, treatment of sepsis costs nearly $20 billion annually. According to the CDC, sepsis is a top ten cause of death in the U.S. Theincidence of sepsis is believed to be under-reported as the primary infection (i.e., pneumonia, pyelonephritis, etc.) is often cited as the cause of death. An effective treatment for sepsis has been elusive. Pharmaceutical companies have been trying to develop drug therapies to treat the condition. Withthe exception of Xigris® from Eli Lilly, no other products have been approved in either the U.S. or Europe for the treatment of sepsis. In 2011, aftercompleting a follow up study required by the FDA, it was subsequently determined that Xigris® does not have a statistically significant mortality benefit,and Eli Lilly has withdrawn Xigris® from all markets worldwide. Many medical professionals believe that blood purification for the treatment of sepsis holds tremendous promise. Studies using dialysis andhemofiltration technology have been encouraging, but have only had limited benefit to sepsis patients. The reason for this appears to be rooted in a primarylimitation of dialysis technology itself: the inability of standard dialysis to effectively and efficiently remove significant quantities of larger toxins such ascytokines from circulating blood. CytoSorb has demonstrated the ability to safely reduce key cytokines in the blood of septic patients with multiple organfailure in our European Sepsis Trial. The ability of CytoSorb to interact safely with blood (hemocompatibility) has been demonstrated through ISO 10993 testing, which includes testingfor hemocompatibility, biocompatibility, cytotoxicity, genotoxicity, acute sensitivity and complement activation. CytoSorb use has been considered safeand well-tolerated in more than 35,000 human treatments to date. CytoSorb has been designed to achieve broad-spectrum removal of both pro- and anti-inflammatory cytokines, preventing or reducing theaccumulation of high concentrations in the bloodstream. It also removes a wide range of inflammatory mediators such as activated complement, bacterialtoxins, myoglobin, free hemoglobin, bilirubin, and many others. This approach is intended to modulate the immune response without causing damage to theimmune system. For this reason, researchers have referred to the approach reflected in our technology as “immunomodulatory” therapy. Projected Timeline: In 2011, the CytoSorb filter received EU regulatory approval under the CE Mark as an extracorporeal cytokine filter to be usedin clinical situations where cytokines are elevated. Our manufacturing facility has also achieved ISO 13485:2003 Full Quality Systems certification, aninternationally recognized quality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems inplace to safely design, develop, manufacture and distribute medical devices in the EU. We are currently manufacturing our CytoSorb device for commercialsale in the EU. We are currently selling CytoSorb in Germany, Austria, and Switzerland with a direct sales force. Based on its CE Mark approval, CytoSorbcan also be sold throughout all 28 countries of the EU and countries outside the EU that will accept European regulatory approval with registration. Overall,we have established either direct sales or distribution (via distributors or strategic partners) of CytoSorb in 45 countries worldwide. Registration of CytoSorbis typically required in each of these countries prior to active commercialization. With CE Mark approval, this can be typically achieved within severalmonths in EU countries. Outside of the EU, the process is more variable and can take months to more than a year due to different requirements fordocumentation and clinical data. Variability in the timing of registration affects the initiation of active commercialization in these countries, which affectsthe timing of expected CytoSorb sales. We actively support all of our distributors and strategic partners in the product registration process. Outside of the EU,CytoSorb is actively being commercialized in Turkey, India, Australia, New Zealand, Russia, South Africa, Serbia, Norway, Vietnam, Chile, Iceland, Iran,Panama and Saudi Arabia. We cannot generally predict the timing of these registrations, and there can be no guarantee that we will ultimately achieveregistration in countries where we have established distribution. We also cannot guarantee that we will generate meaningful sales in the countries where wehave established registration, due to other factors such as market adoption and reimbursement. We are currently actively evaluating other potentialdistributor and strategic partner networks in other major countries that accept CE Mark approval. With sufficient resources and continued positive clinicaldata, assuming availability of adequate and timely funding, and continued positive results from our clinical studies, we intend to continue ourcommercialization plans for our product worldwide as well as to pursue U.S. clinical trials to seek FDA regulatory approval for CytoSorb in the U.S. by 2020. APPLICATION: Adjunctive Therapy in Other Critical Care Applications Potential Benefits: Cytokine-mediated organ damage and immune suppression can increase the risk of death and infection in patients withcommonly seen critical care illnesses such as acute respiratory distress syndrome, severe burn injury, trauma and pancreatitis. By reducing both pro- and anti-inflammatory cytokines, CytoSorb has the potential to reduce the systemic inflammatory response and: 17 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·prevent or mitigate multiple organ dysfunction syndrome (“MODS”) and/or multiple organ failure (“MOF”); ·prevent or reduce secondary infections; ·reduce the need for expensive life-sparing supportive care therapies such as mechanical ventilation; and ·reduce the need for ICU care, freeing expensive critical care resources, and reducing hospital costs and costs to the healthcare system. Background and Rationale: A shared feature of many life-threatening conditions seen in the ICU is severe inflammation (either sepsis or systemicinflammatory response syndrome) due to an over-reactive immune system and high levels of cytokines that can cause or contribute to organ dysfunction,organ failure and patient death. Examples of such conditions include severe burn injury, trauma, acute respiratory distress syndrome and severe acutepancreatitis. MODS and MOF are common causes of death in these illnesses and mortality is directly correlated with the number of organs involved. There arecurrently few active therapies to prevent or treat MODS or MOF. If CytoSorb can reduce direct or indirect cytokine injury of organs, it may mitigate MODS orMOF, improve overall patient outcome and reduce costs of treatment. In addition, secondary infection, such as ventilator-acquired pneumonia, urinary tractinfections, or catheter-related line infections, are another major cause of morbidity and mortality in all patients treated in the ICU that increase with longerICU stay. Prolonged illness, malnutrition, age, multiple interventional procedures, and exposure to antibiotic resistant pathogens are just some of the manyrisk factors for functional immune suppression and infection. In sepsis and SIRS, the overexpression of pro-inflammatory cytokines can also cause a depletionof immune effector cells through apoptosis and other means, and anti-inflammatory cytokines can cause profound immune suppression, both major riskfactors for infection. Projected Timeline: The EU CE Mark approval for CytoSorb as an extracorporeal cytokine filter and its broad approved indication to be used in anyclinical situation where cytokines are elevated, allows it to be used “on label” in critical care applications such as acute respiratory distress syndrome, severeburn injury, trauma, liver failure, and pancreatitis, and in other conditions where cytokine storm, sepsis and/or SIRS plays a prominent role in diseasepathology. Our goal is to stimulate investigator-initiated clinical studies with our device for these applications. Currently, we have more than 60 investigatorinitiated or company-sponsored studies being planned, enrolling, or completed. We have been moving forward in parallel with a program to furtherunderstand the potential benefit of CytoSorb hemoperfusion in these conditions through additional investigational animal studies and potential human pilotstudies in the U.S. funded either directly by us, through grants, or through third-parties. Commencement of these and other formal studies is contingent uponadequate funding and, in the case of U.S. human studies, FDA IDE approval of the respective human trial protocols. APPLICATION: Prevention and treatment of post-operative complications of cardiopulmonary bypass surgery Potential Benefits: If CytoSorb is able to prevent or reduce high levels of cytokines, free hemoglobins, and other inflammatory mediators fromaccumulating in the blood system during and following cardiac surgery, we anticipate that post-operative complications of cardiopulmonary bypass surgerymay be able to be prevented or mitigated. The primary goals for this application are to: ·reduce ventilator and oxygen therapy requirements; ·reduce post-operative complications such as ARDS, acute kidney injury, post-perfusion syndrome, and the SIRS; ·reduce length of stay in hospital ICUs; and ·reduce the total cost of patient care. Background and Rationale: Due to the highly invasive nature of cardiopulmonary bypass surgery, high levels of cytokines are produced by thebody, triggering severe inflammation. In addition, hemolysis of red blood cells frequently occurs, resulting in the release of free hemoglobin into thebloodstream. These inflammatory mediators can lead to post-operative complications. CytoSorb is the only cytokine reduction technology approved in theEU that can be used intraoperatively in a bypass circuit in a heart-lung machine during cardiopulmonary bypass without the need for another machine. If ourproducts are able to prevent or reduce the accumulation of cytokines or free hemoglobin in a patient’s blood stream, we may be able to prevent or mitigatepost-operative complications caused by an excessive or protracted inflammatory response to the surgery. Intra-operative use of CytoSorb on high risk cardiacsurgery patients, where the risk of post-operative complications is the highest, is expected to be the main initial target market. The use of CytoSorb in thepost-operative period to treat post-operative SIRS is another application of the technology. Projected Timeline: We commissioned the University of Pittsburgh to conduct a study to characterize the production of cytokines as a function ofthe surgical timeline for cardiopulmonary bypass surgery. An observational study of 32 patients was completed, and information was obtained with respect tothe onset and duration of cytokine release. Cardiac surgeons, cardiac perfusionists, and cardiothoracic ICU intensivists in Germany, Austria, and othercountries have now used CytoSorb successfully intra-operatively and post-operatively in more than 8,000 treatments in cardiac surgery patients. Thisapplication is also the subject of many planned and enrolling investigator-initiated studies in Germany and Austria. 18 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In February 2015, the FDA approved our Investigational Device Exemption (“IDE”) application to commence a planned U.S. cardiac surgeryfeasibility study called REFRESH I (REduction of FREe Hemoglobin) amongst 20 patients and three U.S. clinical sites. The FDA subsequently approved anamendment to the protocol, expanding the trial to be a 40 patient randomized controlled study (20 treatment, 20 control) in eight clinical centers. REFRESHI represents the first part of a larger clinical trial strategy intended to support the approval of CytoSorb in the U.S. for intra-operative use during cardiacsurgery. The REFRESH I study was designed to evaluate the safety and feasibility of CytoSorb when used intra-operatively in a heart-lung machine to reduceplasma free hemoglobin (pfHb) and cytokines in patients undergoing complex cardiac surgery. The study was not powered to measure effect on clinicaloutcomes. The length, complexity and invasiveness of these procedures cause hemolysis and inflammation, leading to high levels of plasma freehemoglobin, cytokines, activated complement, and other substances. These inflammatory mediators are correlated with the incidence of serious post-operative complications such as kidney injury, renal failure and other organ dysfunction. The goal of CytoSorb is to actively remove these inflammatory andtoxic substances as they are being generated during the surgery and reduce complications. Enrollment was completed with 46 patients. A total of 38 patientswere evaluable for pfhB and completed all aspects of the study. The primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma freehemoglobin levels, respectively. On October 5, 2016, we announced positive top-line safety data. In addition, following a detailed review of all reportedadverse events in a total of 46 enrolled patients, the independent DSMB found no serious device related adverse events with the CytoSorb device, achievingthe primary safety endpoint of the trial. In addition, the therapy was well-tolerated and technically feasible, implementing easily into the cardiopulmonarybypass circuit without the need for an additional external blood pump. This study represents the first randomized controlled trial demonstrating the safety ofintra-operative CytoSorb use in patients undergoing high risk cardiac operations. Investigators of the REFRESH I trial submitted an abstract with data, including free hemoglobin data, from the REFRESH I trial which was selectedfor a podium presentation at the American Association of Thoracic Surgery conference on May 1, 2017. On May 5, 2017, we announced additionalREFRESH I data, including data from the study on the reduction of pfHb and activated complement and disclosed that investigators of the study havesubmitted a manuscript of the REFRESH I trial for publication. In December 2017, the FDA approved our IDE application for our REFRESH 2 study. The REFRESH 2 study is a pivotal trial designed to providethe key safety and efficacy data needed to support United States regulatory approval for the use of CytoSorb in cardiac surgery, which we are planning topursue via the premarket approval (PMA) pathway. The IDE approval allows us to aggressively move forward with our clinical trial sites to complete the finalsteps prior to the official start of the study. The REFRESH 2 pivotal study will assess the effectiveness of intraoperative CytoSorb blood treatment onpostoperative acute kidney injury (AKI), the primary endpoint of the study and one of the most common adverse events in patients undergoing complexcardiac surgery. The REFRESH 2 trial is a randomized, controlled, multi-center, clinical trial designed to evaluate intraoperative CytoSorb use as a therapy toreduce the incidence and severity of AKI, as measured by Kidney Disease Improving Global Outcomes (KDIGO) criteria, following complex cardiac surgery. The trial will enroll up to 400 patients at increased risk of cardiovascular surgery associated AKI, undergoing elective, non-emergent open heart surgery foreither valve replacement, or aortic reconstruction with hypothermic cardiac arrest. The Company has initiated discussions with previous trial sites thatparticipated in the REFRESH I study that are familiar with the CytoSorb device and intraoperative use during CPB. The Company believes using sites thatpreviously participated in REFRESH I will accelerate the process of site startup and launch of REFRESH 2. The Company is ramping the trial, and has begunscreening patients at a key site involved in REFRESH 1 and is working to add additional centers experienced in the conduct of clinical trials in complexcardiac surgery. We anticipate that this study will take at least two years to complete, and could take longer if enrollment challenges and other factorscausing delays are encountered. APPLICATION : Prevention and treatment of organ dysfunction in brain-dead organ donors to increase the number and quality of viable organs harvestedfrom donors Potential Benefits: If CytoSorb is able to prevent or reduce high-levels of cytokines from accumulating in the bloodstream of brain-dead organdonors, we believe CytoSorb may be able to mitigate organ dysfunction and failure, which results from severe inflammation following brain-death. Theprimary goals for this application are: ·improving the viability of organs which can be harvested from brain-dead organ donors, and ·increasing the likelihood of organ survival following transplant. Background and Rationale: When brain death occurs, the body responds by generating large quantities of inflammatory cytokines. This process issimilar to the systemic inflammatory response syndrome and sepsis. A high percentage of donated organs are never transplanted due to this response, whichdamages healthy organs and prevents transplant. In addition, inflammation in the donor may damage organs that are harvested and reduce the probability ofgraft survival following transplant. CytoSorb treatment in a porcine animal model of brain death demonstrated a reduction in cytokines as well as apreservation of cardiac function compared to untreated controls. 19 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. There is a shortage of donated organs worldwide, with approximately 100,000 people currently on the waiting list for organ transplants in the U.S.alone. Because there are an insufficient number of organs donated to satisfy demand, it is vital to maximize the number of viable organs donated, andoptimize the probability of organ survival following transplant. Projected Timeline: Studies have been conducted under a $1 million grant from the Health Resources and Services Administration (“HRSA”), anagency of the U.S. Department of Health and Human Services. Researchers at the University of Pittsburgh Medical Center and the University of Texas,Houston Medical Center have completed the observational and dosing phases of the project. The results were published in Critical Care Medicine, January2008. The next phase of this study, the treatment phase, would involve viable donors treated with the CytoSorb device. In this phase of the project, viabledonors will be treated and the survival and function of organs in transplant recipients will be tracked and measured. The treatment phase would be contingentupon further discussion with the FDA and HRSA regarding study design, as well as obtaining additional funding. The VetResQ Device (Animal Health Critical Care) APPLICATION: Adjunctive Therapy in the Treatment of Sepsis, Pancreatitis and Other Critical Illnesses in Animals Potential Benefits and Rationale: In January 2017, the VetResQ device became commercially available for the United States veterinary market.VetResQ is a broad spectrum blood purification adsorber based upon similar underlying technology to CytoSorb and has been configured in 3 sizes (50, 150and 300mL sized cartridges) to accommodate treatment of small, medium, and large animals such as cats, dogs, and high-value animals such as foals andhorses. VetResQ is compatible with standard hemodialysis, continuous renal replacement therapy (“CRRT”), and hemoperfusion blood pumps. LikeCytoSorb, VetResQ is designed to help treat (via hemoadsorption of cytokines, bacterial toxins and other inflammatory mediators) deadly inflammation andtoxic injury in animals with critical illnesses such as septic shock, toxic shock syndrome, toxin-mediated diseases, pancreatitis, trauma, liver failure, drugintoxication, and lung injury. Critical illness in animals is similar to that in humans. Based upon cumulative studies, VetResQ is capable of reducing a broadrange of excessive inflammatory mediators and toxins that could otherwise cause direct tissue injury or serious systemic inflammation that can rapidly lead toinstability, organ failure, and death. VetResQ is available in the U.S. only for veterinary animal usage and is not for human use. Projected Timeline : VetResQ is now available for commercial purchase for animal health applications in the United States. The FDA was notified ofthe launch in 2016 and we have provided the FDA with the related instructions for use and a marketing brochure. The CytoSorb-XL Device (Critical Care) APPLICATION: Adjunctive Therapy in the Treatment of Sepsis and other critical illnesses Potential Benefits and Rationale: The CytoSorb-XL device is a next-generation porous polymer under advanced development and targets the samemarkets as CytoSorb. Through novel patent-pending chemistry, CytoSorb-XL adds the ability to reduce Gram negative bacterial endotoxin(lipopolysaccharide) to broad spectrum cytokine, exotoxin, and other inflammatory mediator removal. CytoSorb-XL removed comparable amounts ofendotoxin when compared in vitro against the leading standalone endotoxin filter, Toraymyxin (Toray, Japan). This could potentially increase theeffectiveness of CytoSorb in sepsis and septic shock caused by Gram negative bacteria. Projected Timeline : CytoSorb-XL is in advanced pre-clinical development as a potential next generation polymer to CytoSorb. It is expected tofollow a similar path to E.U. approval as CytoSorb, expected within 4-5 years. The HemoDefend Blood Purification Technology Platform (Acute and Critical Care) APPLICATION: Reduction of contaminants in the blood supply that can cause transfusion reactions or disease when administering blood and bloodproducts to patients. Potential Benefits: The HemoDefend blood purification technology platform is designed to reduce contaminants in the blood supply that can causetransfusion reactions or disease. It is a development stage technology that is not yet approved in any markets, but is comprised of our highly advanced,biocompatible, polymer bead technology. If this technology is successfully developed and then incorporated into a regulatory approved product, it couldhave a number of important benefits, including: ·reduce the risk of transfusion reactions and improve patient outcome; ·improve the quality, or extend the shelf life of stored blood products; ·improve the availability of blood and reduce blood shortages by reducing the limitations of donors to donate blood; and ·allow easier processing of blood. 20 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Background and Rationale: The HemoDefend technology platform was built upon our successes in designing and manufacturing porous polymerbeads that can remove cytokines. We have expanded the technology to be able to remove substances as small as drugs and bioactive lipids, to proteins aslarge as antibodies from blood that can cause transfusion reactions and disease. Although the frequency of these reactions are relatively low (approximately3% to 5%), the sheer number of blood transfusions is so large, that the number of transfusion reactions, ranging from mild to life-threatening, is substantial,ranging from several hundreds of thousands to millions of reactions each year. In critically-ill patients, the risk of transfusion reactions is significantly higherthan in the general population and can increase the risk of death because their underlying illnesses have depleted protective mechanisms and have primedtheir bodies to respond more vigorously to transfusion-associated insults. A number of retrospective studies have also suggested that administration of older blood leads to increased adverse events and even increasedmortality, compared with blood recently harvested. Biological studies have demonstrated the accumulation of erythrocyte storage lesions that compromisethe function and structural integrity of packed red blood cells and have also demonstrated the accumulation of substances during blood storage that can leadto transfusion reactions. Three adult, prospective, randomized, controlled studies, RECESS (completed), ABLE (completed), and TRANSFUSE (ongoing)were designed to evaluate the morbidity and mortality in cardiovascular surgery patients, critically ill patients, and critically-ill patients, respectively, treatedwith either “new or fresh” or “older” blood. The RECESS Trial was a randomized, controlled trial in a total of 1,098 evaluable patients undergoing complexcardiac surgery given fresh blood (≤10 days old) as compared to older blood (≥21 days old). The overall conclusion was that the age of blood had nostatistically significant impact on the progression to organ dysfunction (as measured by the multiple organ dysfunction syndrome score) or death. However, astatistically significant increase in hepatobiliary-related serious adverse events (5% fresh vs 9% older, p=0.02) was related to hyperbilirubinemia, possiblycaused by hemolysis and release of free hemoglobin in old blood. The serious adverse event rate in both new and old blood groups was approximately 50%,which is considered high for this group of patients. There are many details and subgroup analyses that were not discussed, particularly an analysis of thosepatients receiving more units of blood than average, as the risk of adverse events is cumulative. The ABLE Trial was a randomized, controlled trial in 2,430critically-ill patients receiving either fresh (≤ 7 days) or standard issue blood. There was no difference in 90-day mortality between the two groups. Theoutcomes of the RECESS and ABLE trials do not alter the current pressing need for better solutions to purify transfused blood products in order to reducetransfusion-related adverse events and improve clinical outcome, but suggest that age of blood is not the critical factor. Projected Timeline: The HemoDefend platform is a development stage product based on our advanced polymer technology. The base polymer is ISO10993 biocompatible, meeting standards for biocompatibility, hemocompatibility, cytotoxicity, genotoxicity, acute sensitivity and complement activation.HemoDefend has demonstrated the in vitro removal of many different substances from blood such as antibodies, free hemoglobin, cytokines and bioactivelipids. We have also prototyped a number of different implementations of the HemoDefend technology, including the “Beads in a Bag” blood treatmentblood storage bag, and standard in-line blood filters. The technology has been supported by the NHLBI, a division of the National Institute of Health, under aPhase I and more recently, an awarded $1.5M Phase II SBIR contract. Under the Phase II program, we expect to advance the in-line filter to human testing,expected in the next 12 months. We seek to out-license this technology to a strategic partner in the transfusion medicine space, but may elect to continue ourdevelopment in parallel with out-licensing efforts. ContrastSorb (Radiology and Interventional Radiology) APPLICATION: Removal of IV contrast in blood administered during CT imaging, an angiogram, or during a vascular interventional radiology procedure,in order to reduce the risk of contrast-induced nephropathy. Potential Benefits: IV contrast can lead to CIN, in susceptible patients. Risk factors include chronic kidney disease and renal insufficiency caused byage, diabetes, congestive heart failure, long-standing hypertension, and others co-morbid illnesses. CIN can lead to increased risk of patient morbidity andmortality. Removal of IV contrast by ContrastSorb may: ·reduce the risk of acute kidney injury ·improve the safety of these procedures and reduce the risk of morbidity and mortality Background and Rationale: Contrast-induced nephropathy is the acute loss of renal function within the first 48 hours following IV contrastadministration. IV contrast is widely administered to patients undergoing CT scans, to enhance the images and make it easier to identify anatomic structures.IV contrast is also administered during vascular interventional radiology procedures and angiography of blood vessels in the brain, heart, limbs, and otherparts of the body to diagnose and treat atherosclerosis (narrowing of blood vessels due to cholesterol deposits), vascular injury, aneurysms, etc. The reportedrisk of CIN undergoing contrast enhanced CT scans has been reported to be 2% to 13%. For coronary intervention, the risk has been estimated to be as highas 20% to 30% in high risk patients with pre-existing renal insufficiency, and other risk factors. The use of low osmolar IV contrast, hydration of patients pre-procedure, orally administration of N-acetylcysteine, and other agents to prevent CIN have demonstrated modest benefit in some clinical studies, but in manycases, the results across studies have been equivocal and inconsistent. In high risk patients, the direct removal of IV contrast from the blood withContrastSorb to prevent CIN represents a potentially more effective alternative. 21 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Projected Timeline: ContrastSorb has demonstrated the high efficiency single pass removal of IV contrast and is in the process of optimization. Theunderlying polymer is made of the same ISO 10993 biocompatible polymer as CytoSorb, but with different structural characteristics. The ContrastSorb deviceis a hemoperfusion device similar in construction to CytoSorb and BetaSorb. Assuming successful optimization of the ContrastSorb polymer, safety andefficacy of IV contrast removal will need to be established in human clinical studies. We seek to out-license this technology to a potential strategic partner. The BetaSorb Device (Chronic Care) APPLICATION: Prevention and treatment of health complications caused by the accumulation of metabolic toxins in patients with chronic renal failure Potential Benefits: If BetaSorb is able to prevent or reduce high levels of metabolic waste products from accumulating in the blood and tissues oflong-term dialysis patients, we anticipate that certain health complications characteristic to these patients can be prevented or mitigated. The primary goalsfor this application are to: ·improve and maintain the general health of dialysis patients; ·reduce disability and improve the quality of life of these patients ·reduce the total cost of patient care; and ·increase life expectancy. Background and Rationale: Our BetaSorb device is intended for use on patients suffering from chronic kidney failure who rely on long-term dialysistherapy to sustain life. Due to the widely recognized inability of dialysis to remove larger proteins from blood, metabolic waste products, such as beta2 -microglobulin , accumulate to toxic levels and are deposited in the joints and tissues of patients. Specific toxins known to accumulate in these patients havebeen linked to their severe health complications, increased healthcare costs, and reduced quality of life. Researchers also believe that the accumulation of toxins may play an important role in the significantly reduced life expectancy experienced bydialysis patients. In the U.S., the average life expectancy of a dialysis patient is five years. Industry research has identified links between many of these toxinsand poor patient outcomes. If our BetaSorb device is able to routinely remove these toxins during dialysis and prevent or reduce their accumulation, weexpect our BetaSorb device to maintain or improve patient health in the long-term. We believe that by reducing the incidence of health complications, theannual cost of patient care will be reduced and life expectancy increased. The poor health experienced by beta2 -microglobulin patients is illustrated by the fact that in the U.S. alone, more than $33 billion is spent annuallycaring for this patient population. according to the United States Renal Data System, at a cost of approximately $88,000 per patient annually. Projected Timeline: We have collected a significant amount of empirical data for the development of this application. As the developer of thistechnology, we had to undertake extensive research, as no comparable technology was available for reference purposes. We have completed four human pilotstudies, including a clinical pilot of six patients in California for up to 24 weeks in which our BetaSorb device removed the targeted toxin, beta 2 -microglobulin, as expected. In total, we have sponsored clinical studies utilizing our BetaSorb device on 20 patients involving approximately 345 totaltreatments. Each study was conducted by a clinic or hospital personnel with us providing technical assistance as requested. As discussed above, due to practical and economic considerations, we are focusing our efforts and resources on commercializing our CytoSorbdevice for critical care and cardiac surgery applications. Following commercial introduction of the CytoSorb device, and with sufficient additional resources,we may continue development of the BetaSorb resin and may conduct additional clinical studies using the BetaSorb device in the treatment of end stagerenal disease patients. Commercial and Research Partners Biocon Ltd In September 2013, we entered into a distribution agreement with Biocon Ltd.,(“Biocon”), India’s largest biopharmaceuticals company, under whichBiocon was granted exclusive commercialization rights to the CytoSorb therapy in India and select emerging markets, initially focused on sepsis. Bioconcommitted to annual minimum purchases to maintain exclusivity. In October 2014, the Biocon partnership was expanded to include all critical careapplications and cardiac surgery. In addition, Biocon committed to higher annual minimum purchases of CytoSorb to maintain distribution exclusivity andcommitted to conduct and publish results from multiple investigator initiated studies and patient case studies. In December 2017, the Biocon partnership wasfurther expanded to include exclusive distribution of CytoSorb in Malaysia. Under the terms of the expanded partnership, Biocon has committed to minimumannual purchases in Malaysia to maintain exclusivity this territory and the term of the distribution agreement was extended to December 2022. 22 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Fresenius Medical Care AG In December 2014, we entered into a multi-country strategic partnership with Fresenius Medical Care AG & Co KGaA (“Fresenius”) tocommercialize the CytoSorb therapy. Under the agreement reflecting the terms of the partnership, Fresenius has exclusive rights to distribute CytoSorb forcritical care applications in France, Poland, Sweden, Denmark, Norway, and Finland. The partnership allows Fresenius to offer an innovative and easy way touse blood purification therapy for removing cytokines in patients that are treated in the ICU. To promote the success of CytoSorb, Fresenius agreed to alsoengage in the ongoing clinical development of the product. This includes the support and publication of a number of small case series and patient casereports as well as the potential for future larger, clinical collaborations. In May 2016, Fresenius launched the product in the six countries for which it wasgranted exclusive distribution rights. In January 2017, the Fresenius partnership was expanded pursuant to a revised three year agreement. The terms of therevised three-year agreement extend Fresenius’ exclusive distributorship of CytoSorb for all critical care applications in their existing territories through2019 and include guaranteed minimum quarterly orders and payments, evaluable every one and a half years. At the same time, we entered into a newcomprehensive co-marketing agreement with Fresenius. Under the terms of the co-marketing agreement, CytoSorbents and Fresenius agreed to jointly marketCytoSorb to Fresenius’ critical care customer base in all countries where CytoSorb is being actively commercialized. CytoSorb will continue to be sold byour direct sales force or through our international network of distributors and partners, while Fresenius sells all ancillary products to their customers.Fresenius further agreed to provide written endorsements of CytoSorb for use with their multiFiltrate and multiFiltratePRO acute care dialysis machines thatcan be used by us and our distribution partners to promote CytoSorb worldwide. Training and preparation for this co-marketing program began in five initialcountries in 2017 and is continuing, with implementation of the co-marketing program in additional countries planned for the future. Terumo Cardiovascular Group In September 2016, we entered into a multi-country strategic partnership with Terumo Cardiovascular Group (“Terumo”) to commercialize CytoSorbfor cardiac surgery applications. Under the terms of the agreement, Terumo has exclusive rights to distribute the CytoSorb CPB procedure pack for intra-operative use during cardiac surgery in France, Sweden, Denmark, Norway, Finland and Iceland. Terumo launched CytoSorb in its six exclusive countries inDecember 2016. Dr. Reddy’s In March 2017, we entered into a partnership with Dr. Reddy’s Laboratories Ltd. (“Dr. Reddy’s”) for the South African market. Under the terms of theagreement, Dr. Reddy’s has the exclusive right to distribute CytoSorb for intensive care, cardiac surgery, and other hospital applications in South Africa. Thisis a multi-year agreement and is subject to annual minimum purchases of CytoSorb to maintain exclusivity. University of Pittsburgh Medical Center Two government research grants by the National Institutes of Health (“NIH”) and the U.S. Department of Health and Human Services were awardedto investigators at the University of Pittsburgh to explore the use of adsorbent polymers in the treatment of sepsis and organ transplant preservation. Under“Sub Award Agreements” with the University of Pittsburgh, we developed polymers for use in these studies. A grant of $1 million was awarded to the University of Pittsburgh Medical Center in 2003. The project sought to improve the quantity and viabilityof organs donated for transplant by using CytoSorb to detoxify the donor’s blood. The observational and dosing phases of the study, involving 30 viabledonors and eight non-viable donors, respectively, have been completed. The next phase of this study, the treatment phase, was planned to involve viabledonors. However, we are not currently focusing our efforts on the commercialization of CytoSorb for application in organ donors. In September 2005, the University of Pittsburgh Medical Center was awarded a grant of approximately $7 million from NIH entitled “SystemsEngineering of a Pheresis Intervention for Sepsis (SEPsIS)” to study the use of adsorbent polymer technology in the treatment of severe sepsis. The study,which lasted for a total of five years, commenced in September 2005. Under a SubAward Agreement, we worked with researchers at the University ofPittsburgh - Critical Care Medicine Department. We believe that the only polymers used in this study were polymers we have developed specifically for usein the study, which are similar to the polymers used in our devices. Under the SubAward Agreement, for our efforts in support of the grant during 2006through 2010, we received approximately $402,000. 23 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. These grants represent a substantial research cost savings to us and demonstrate the strong interest of the medical and scientific communities in ourtechnology. Researchers at UPMC have participated in nearly every major clinical study of potential sepsis intervention during the past twenty years. Drs. DerekAngus and John Kellum were investigators for Eli Lilly’s sepsis drug, Xigris®. Dr. Kellum, a member of the UPMC faculty since 1994, is the Chairman of ourSevere Sepsis and Inflammatory Disease Advisory Board. Dr. Kellum’s research interests span various aspects of Critical Care Medicine, but center on criticalcare nephrology (including acid-base, and renal replacement therapy), sepsis and multiple organ failure, and clinical epidemiology. He is Professor and ViceChair for Research in the Critical Care department, and Director of the Center for Critical Care Nephrology(“CRISMA”) at the University of PittsburghMedical Center, and has authored more than 400 publications and has received numerous research grants from foundations and industry. Advisory Boards From time to time our management meets with scientific advisors who sit on our Scientific Advisory Board, our Medical Advisory Board – CriticalCare Medicine, our Medical Advisory Board – Chronic Kidney Failure / Dialysis and our Scientific Advisory Board – Cardiac Surgery. Our Scientific Advisory Board consists of three scientists with expertise in the fields of fundamental chemical research, and polymer research anddevelopment. Our Sepsis Advisory Board consists of four medical doctors, one of whom is affiliated with UPMC, with expertise in critical care medicine, sepsis,multiple organ failure and related clinical study design. Our Trauma Advisory Board consists of four medical doctors with expertise in trauma, burn injury and critical care medicine. Our Cardiac Surgery Advisory Board consists of seven medical doctors with experience in cardiac surgery and complications caused byinflammation generated by the surgery. We compensate members of our Advisory Boards at the rate of $2,000 for each full-day meeting they attend in person; $1,200 if attendance is bytelephone. When we consult with members of our Advisory Board (whether in person or by telephone) for a period of less than one day, we compensate themat the rate of $200 per hour. We also reimburse members of our Advisory Boards for their travel expenses for attending our meetings. Royalty Agreements With Principal Stockholder In August 2003, in order to induce Guillermina Vega Montiel, a principal member of RenalTech International, LLC at the time, to make a $4 millioninvestment in RenalTech International, LLC, we granted Ms. Montiel a perpetual royalty equal to three percent of all gross revenues received by us fromsales of CytoSorb in the applications of sepsis, cardiopulmonary bypass surgery, organ donor, chemotherapy and inflammation control. In addition, for herinvestment, Ms. Montiel received 1,230,770 membership units of RenalTech International, LLC. Such membership units ultimately were converted into andbecame 7,420 shares of our common stock following our June 30, 2006 merger. For the year ended December 31, 2017 we have recorded royalty costs ofapproximately $393,000. With Purolite In 2003, Purolite filed a lawsuit against us asserting, among other things, co-ownership and co-inventorship of certain of our patents. On September1, 2006, the United States District Court for the Eastern District of Pennsylvania approved a Stipulated Order and Settlement Agreement under which we andPurolite agreed to the settlement of the action. The Settlement Agreement provides us with the exclusive right to use our patented technology and proprietaryknow how relating to adsorbent polymers for a period of 18 years. In particular, the Settlement Agreement relates to several of our issued patents and severalof our pending patent applications covering our biocompatible polymeric resins, our methods of producing these polymers, and the methods of using thepolymers to remove impurities from physiological fluids, such as blood. Under the terms of the Settlement Agreement, we have agreed to pay Purolite royalties of 2.5% to 5% on the sale of those of our products, if andwhen those products are sold commercially, that are used in direct contact with blood or, in certain cases, in direct contact with a physiological fluid otherthan blood. The royalty payments provided for under the Settlement Agreement would apply to our currently envisioned CytoSorb, VetResQ, and BetaSorbproducts. For the year ended December 31, 2017 per the terms of the license agreement we have recorded royalty costs of approximately $655,000. 24 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Following the expiration of the 18 year term of the Settlement Agreement, the patents and patent applications that are the subject of the SettlementAgreement should have expired under current patent laws, and the technology claimed in them will be available to the public. However, following such time,we would continue to exclusively own any confidential and proprietary know how. Product Payment & Reimbursement CytoSorb Germany Effective January 1, 2017, we achieved a permanent dedicated reimbursement code in Germany that will provide for specific and enhancedreimbursement for our CytoSorb device. We believe that this dedicated reimbursement code will provide our customers with a path to negotiate higherreimbursement that not only covers the cost of the device, but the procedural costs as well. Reimbursement can also be covered by the standard “diagnosisrelated group” (“DRG”) acute care reimbursement. Under this system, hospitals would purchase CytoSorb and subtract the cost from a pre-determined lump-sum payment made by the payor to the hospital based on the patient’s diagnosis. Europe (excluding Germany) Payment for our CytoSorb device for the removal of cytokines in patients with life-threatening illnesses is country dependent in Europe. We arepursuing reimbursement of CytoSorb in other major territories, with our partners, such as France, England, Italy and Spain, representing the other foureconomic leaders in Europe. There can be no assurances that reimbursement will be granted or that additional clinical data may not be required to establishreimbursement. United States Critical care applications such as those targeted by our CytoSorb device involve a high mortality rate and extended hospitalization, coupled withextremely expensive ICU time. In view of these high costs and high mortality rates, we believe acceptance of our proprietary technology by critical carepractitioners and hospital administrators will primarily depend on safety and efficacy factors rather than solely based on cost. CytoSorb is not yet approved in the U.S., and we have not fully accessed the potential for reimbursement for the device. Payment for our CytoSorbdevice in the U.S. for the treatment and prevention of sepsis and other related acute care applications is anticipated to fall under the DRG prospectiverepayment system, which is currently the predominant inpatient hospital reimbursement methodology in the U.S. Under this system, hospital reimbursementis generally based upon pre-determined amounts payable for specific diagnoses (e.g. septic shock with respiratory failure), regardless of the number ofservices provided during the patient’s stay. If CytoSorb can improve outcomes and reduce the costs of ICU treatment and hospital length of stay, it couldpotentially save hospitals a significant amount of money. Competition General We believe that our products represent a unique approach to disease states and health complications associated with the presence of larger toxins(often referred to as middle molecular weight toxins) in the bloodstream, including sepsis, acute respiratory distress syndrome, trauma, severe burn injury,pancreatitis, post-operative complications of cardiac surgery, damage to organs donated for transplant prior to organ harvest, and renal disease. Researchershave explored the potential of using existing membrane-based dialysis technology to treat patients suffering from sepsis. These techniques are unable toeffectively remove the middle molecular weight toxins. We have demonstrated the ability of CytoSorb to reduce key cytokines in the blood of humanpatients with predominantly septic shock and acute respiratory distress syndrome. In a post-hoc subgroup analysis of our European Sepsis Trial, we have alsodemonstrated statistically significant improvements in mortality in patients at high risk of death, including patients with either very high cytokine levels orpatients older than age 65, both of which have a high predicted mortality. Larger studies are needed to confirm these preliminary data. The CytoSorb, VetResQ, CytoSorb XL, DrugSorb, ContrastSorb, and BetaSorb devices consist of a cartridge containing adsorbent polymer beads.The cartridge incorporates industry standard connectors at either end of the device which connect directly to an extra-corporeal circuit (bloodlines) on astandalone basis. The extra-corporeal circuit consists of plastic tubing through which the blood flows, our cartridge containing our adsorbent polymer beads,pressure monitoring gauges, and a blood pump to maintain blood flow. The patient’s blood is accessed through a catheter inserted into his or her veins. Thecatheter is connected to the extra-corporeal circuit and the blood pump draws blood from the patient, pumps it through the cartridge and returns it back to thepatient in a closed loop system. As blood passes over the polymer beads in the cartridge, toxins are adsorbed from the blood, without removing any fluidsfrom the blood or the need for replacement fluid or dialysate. 25 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. There are three common forms of blood purification, including hemodialysis, hemofiltration, and hemoperfusion. All modes are generally supportedby standard hemodialysis machines. All take blood out of the body to remove toxins and unwanted substances from blood, and utilize extracorporeal circuitsand blood pumps. Dialysis and hemofiltration remove substances from blood by diffusion and ultrafiltration, respectively, through a semi-permeablemembrane, allowing the passage of certain sized molecules across the membrane, but preventing the passage of other, larger molecules. Hemoperfusionutilizes solid or porous sorbents to remove substances based on pore capture and surface adsorption, not filtration. CytoSorb is a hemoperfusion cartridge, using an adsorbent of specified pore size, which controls the size of the molecules which can pass into theadsorbent and vastly increases the area available for surface adsorption. As blood flows over our polymer adsorbent, middle molecules such as cytokines flowinto the polymer adsorbent and are adsorbed. Our devices do not use semipermeable membranes or dialysate. In addition, our devices do not remove fluidsfrom the blood like hemodialysis or hemofiltration. Accordingly, we believe that our technology has significant advantages as compared to traditionaldialysis techniques, including ease of use. Our HemoDefend platform is a development-stage technology utilizing a mixture of proprietary porous polymer beads that target the removal ofcontaminants that can cause transfusion reactions or cause disease in patients receiving transfused blood products. The HemoDefend beads can be used inmultiple configurations, including the common in-line filter between the blood bag and the patient as well as a unique, patent-pending “Beads in a Bag”treatment configuration, where the beads are placed directly into a blood storage bag. Sepsis Researchers have explored the potential of using existing membrane-based dialysis technologies to treat patients suffering from sepsis. Thesetechniques are unable to effectively remove middle molecular weight toxins, which leading researchers have shown to cause and complicate sepsis. The sameexperts believe that a blood purification technique that efficiently removes, or significantly reduces, the circulating concentrations of such toxins mightrepresent a successful therapeutic option. CytoSorb has demonstrated the ability to remove middle molecular weight toxins, such as cytokines, fromcirculating blood in a statistically significant manner. Medical research during the past two decades has focused on drug interventions aimed at chemically blocking or suppressing the function of one ortwo inflammatory agents. In hindsight, some researchers now believe this approach has little chance of significantly improving patient outcomes because ofthe complex pathways and multiple chemical factors at play. Clinical studies of these drug therapies have been largely unsuccessful. An Eli Lilly drug,Xigris®, cleared by the FDA in November 2001, is the first and only drug to be approved for the treatment of severe sepsis. Clinical studies demonstrated thatuse of Xigris® resulted in an average absolute 6% reduction in 28-day mortality, and an absolute 13% reduction in 28-day mortality in the most severe sepsispatients. The drug remains controversial and is considered expensive when compared to the percentage of patients who benefit. In 2011, after completing afollow up study required by the FDA, it was subsequently determined that Xigris® does not have a statistically significant mortality benefit, and in October2011, Eli Lilly withdrew Xigris® from all markets worldwide. Development of most other experimental therapies has been discontinued, including Eritoran from Eisai, CytoFab from BTG/Astra Zeneca,Talactoferrin from Agennix, and others. There are few therapies in current late-stage development. In April 2015, Leading Biosciences began a 260 patientrandomized, controlled Phase 2 clinical SSAIL trial in septic shock patients using its investigational orally administered drug, LB1148, also known astranexemic acid. Tranexemic acid is a serine protease inhibitor, designed to inhibit digestive enzymes and preserve and promote healing of the intestine’smucosal barrier, with the goal of preventing the escape of potent digestive enzymes into the blood, which could exacerbate sepsis. Leading Biosciencesexpected completion of the trial in December 2016, but according to clinicaltrials.gov, discontinued the study due to low enrollment. Currently, there are two late stage trials ongoing. In November 2012, an 800 patient Phase III randomized controlled study began for Recomodulin(ART 123, Artisan/Asahi Kasei), a recombinant human thrombomodulin, for the treatment of septic patients with coagulopathy. In mid-2013, following aninterim analysis of safety data, the DSMB recommended that the trial continue. The primary completion date of the trial was expected to be March 2015,however, based on a January 2018 clinicaltrials.gov update, the trial is still enrolling patients and is expected complete in July 2019. Recomodulin has beenapproved in Japan since 2009 for the treatment of disseminated intravascular coagulation, a late complication of sepsis, at a cost of $5,800 per treatment.Although it has other activity, it works primarily by a similar anticoagulant mechanism to Xigris. Because of this, it has only demonstrated a limitedmortality benefit, in earlier studies (~9%: 34.6% control vs 26% treatment), similar to that seen in Xigris’ initial PROWESS Trial (~6%: 31% control vs 25%treatment) and is unlikely to have greater benefit in larger scale studies. However, if this product is successful, it would represent a competitive, althoughpotentially complementary, therapeutic approach to CytoSorb. 26 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Atox Bio is a development stage company in clinical studies with peptide therapeutics that are designed to prevent superactivation of the immuneresponse by certain toxins such as toxic shock syndrome toxin. It is currently focused on necrotizing soft tissue infections. The investigational peptide,AB103 or Reltecimod, is being evaluated in the ACCUTE Trial, a Phase 3 randomized controlled trial in 40 investigative sites in the U.S in 290 patients withnecrotizing soft tissue infections. Primary outcomes include 28-day survival, amputation, and reduction in the modified sequential organ failure assessmentscore. According to clinicaltrials.gov, the estimated study completion date is March 2019. If this product is successful, it would represent a competitive,although potentially complementary, therapeutic approach to CytoSorb. Using a medical device to treat sepsis remains a relatively novel treatment approach. Toray Industries currently markets an endotoxin removalcartridge called Toraymyxin™ for the treatment of sepsis in Europe, Japan, and 16 other countries, but is not yet approved in the United States. To date, it hasbeen used in more than 100,000 treatments since 1994. Toraymyxin does not directly reduce cytokines. Spectral Medical Inc. has obtained exclusivedevelopment and commercial rights in the U.S. for Toraymyxin, with plans to combine the use of its endotoxin activity assay to create a theranostic product.Spectral is collaborating with Toray on the EUPHRATES trial, combining an endotoxin assay with extracorporeal endotoxin removal by Toraymyxin, apolymyxin-B immobilized polystyrene fiber cartridge. The study began in June 2010 and is still enrolling patients. Endotoxemia is a result of Gram negativesepsis, which only accounts for 45% of cases of sepsis. It is a potent stimulator of cytokine storm. However, all anti-endotoxin strategies have failed pivotalstudies to date, believed to be the result of intervening too late in the sepsis cascade. The original trial was designed as a randomized control trial in 360patients with septic shock and high endotoxin levels (≥ 0.60 EAA units) as confirmed by Spectral’s EAA. In a second interim analysis finalized in April 2014,following the enrollment of 184 patients with 28-day follow-up, the DSMB recommended that the trial continue. However, the expected trial size wasincreased to 650 patients and the exclusion criteria was modified to only accept sicker patients with a multiple organ dysfunction syndrome score greaterthan 9. In September 2015, Spectral reported that the composite mortality in the new subgroup had risen to ~50%, from ~30% previously. New statisticalanalysis on patients in the new subgroup, and comparable patients in a European treatment registry, led to a sample size recalculation of 446 evaluablepatients. Spectral announced in June 2016 that they had completed enrollment for the EUPHRATES trial. In October 2016, Spectral announced top-lineresults that the trial did not meet the main goal of absolute reduction in 28 day all-cause mortality, but reiterated safety of treatment and potential benefit inthe sickest group of patients (multiple organ dysfunction score > 9). There have been now several large scale studies failing to demonstrate a benefit ofToraymyxin on 28-day mortality in sepsis. Toraymyxin represents a competitive, although potentially complementary, therapeutic approach to CytoSorb. Each of the following technologies claims to remove inflammatory mediators such as cytokines, or to treat sepsis, and represents a potentialcompetitive alternative to CytoSorb. Toray markets its Hemofeel CH1.0 polymethylmethacrylate membrane (“PMMA”) in Japan and it has been used inseveral non-controlled, or historically controlled, clinical or case studies treating patients with sepsis, acute respiratory distress syndrome and pancreatitis.We are not aware of any prospective, randomized controlled studies using this PMMA hemofilter in patients with sepsis. Without such studies, it is difficultto assess the true impact of this technology in these conditions. Gambro AB launched its Prismaflex eXeed system in August 2009 and introduced the SepteXhigh molecular weight cutoff hemodialyzer in Europe, intended to treat patients with acute renal failure and the removal of inflammatory mediators fromblood. Gambro also launched the oXiris dialyzer, based upon the AN60 CRRT membrane, to bind endotoxin. To our knowledge, neither are specificallyapproved for the treatment of sepsis. In September 2013, Baxter International, Inc. acquired Gambro AB. In September 2017, Baxter re-launched the oXirismembrane-based hemofilter for use in continuous renal replacement therapy as a strategy to treat acute kidney injury while reducing cytokines andendotoxin. The filter itself has not changed. In addition, Baxter also launched the Theranova mid-molecular weight cutoff or high retention onset (HRO)hemodialysis membrane to improve the efficiency of hemodialysis, claiming improved mid-molecular weight substance removal. Neither oXiris norTheranova are approved in the U.S. Fresenius had launched a high molecular weight cut off filter in response to SepteX called the Ultraflux EMiC2. To ourknowledge, there has been a lack of published data on the treatment of sepsis with these devices. Bellco S.R.L, acquired by Medtronic in February 2016, alsosells the CPFA (coupled plasma filtration and adsorption) system in Europe. This uses a sorbent cartridge to remove cytokines from plasma. However, becausethe sorbent cannot treat blood directly, it requires the cost and complexity of an additional plasma separator to treat blood. This system is similar to theI.M.P.A.C.T. System being currently commercialized outside of the U.S. by Hemolife Medical Inc. that requires a three-cartridge system and a proprietaryblood pump. According to Hemolife, the product is in product registration in 32 countries with initial shipments to the EU and Asia Pacific in process. Webelieve that CytoSorb, which can treat whole blood directly, and which works with standard hemodialysis pumps already found in hospitals worldwide, hassignificant competitive advantages compared to these multi-cartridge sorbent systems. Kaneka Corporation currently markets Lixelle™, a modified porous cellulosic bead, for the removal of beta 2 –microglobulin during hemodialysisin Japan. Lixelle has been used in several small human pilot studies including a 5 patient pilot study in 2002 and a 4 patient pilot study in 2009. Thoughthese studies correlate Lixelle use with cytokine reduction, they are not randomized, controlled studies and so do not control for natural cytokine clearance.To our knowledge, no large, randomized, controlled trials have been conducted with Lixelle as a treatment for sepsis. Kaneka obtained U.S. humanitariandevice exemption for Lixelle in March 2015, but is restricted to treating amyloidosis in chronic dialysis patients. Kaneka has since developed a modifiedcellulosic resin called CTR that can also remove cytokines from experimental pre-clinical systems. In 2009, CTR was used in an 18-patient randomized,controlled trial in patients with septic shock with undisclosed improvements in APACHE II scores and IL-6 and IL-8. To our knowledge, Kaneka has notconducted or published any other study using CTR to treat human sepsis patients since then. Jafron Biomedical is an integrated dialysis public company inChina selling dialysis machines and hemodialysis and hemoperfusion cartridges containing a neutral microporous adsorption resin to purify blood of toxinsin liver failure, critical illness, poisoning, and autoimmune diseases. Ube Industries, Ltd is currently developing an adsorbent resin called CF-X for theremoval of cytokines. To our knowledge, Ube has not published any study using CF-X to treat human sepsis patients. CytoPherx Inc., has developed anextracorporeal system based on selective cytapheresis, or the inactivation or removal of activated leukocytes. It was enrolling a 344 patient pivotal trial thatbegan in August 2011 and was expected to be completed by December 2014 in patients with acute kidney injury with or without severe sepsis, oncontinuous renal replacement therapy with the goal of reducing mortality. This system does not remove cytokines directly, but attempts to reduce thenumbers of activated white blood cells that can produce cytokines or cause cell-mediated injury. The status of the trial and the company is unknown.ExThera Medical Corporation is a privately held company that has developed its Seraph™ (Selective Removal by Apheresis) platform that consists ofheparin coated, solid polyurethane beads. Heparin has the ability to bind some, but not all viruses, bacteria, toxins and cytokines. In in vitro studies using 1mL of human septic blood, there was no statistically different change in IL-6 or Interferon-gamma compared to control, but effected a ~50% reduction inTNF-alpha. This inability to remove a broad range of cytokines will likely limit its efficacy as a treatment in sepsis. It has repositioned Seraph™ as apathogen removal technology, and has started a human trial in Germany in the future. In addition, it has partnered with BioBridge Global to apply itstechnology to pathogen reduction in transfused blood products. Seraph was recently designated by FDA for inclusion into the Expedited Access Pathway(EAP) Program for the specific application of removing drug resistant pathogens from whole blood. Other potential competitors include the now defunctArbios Systems, Inc. and Hemocleanse Technologies, LLC. We believe our CytoSorb cartridge has significant competitive, technological, and/or economicadvantages over systems by these other companies. 27 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Acute Respiratory Distress Syndrome Treatment of ARDS is predominantly supportive care using supplemental oxygen, careful fluid management, multiple modes of ventilationincorporating the concepts of low tidal volume, high frequency oscillation, and prone ventilation, and extracorporeal membrane oxygenation (“ECMO”).Corticosteroids, nitric oxide, statins, non-steroidal anti-inflammatory drugs, and surfactant therapy have been tried, but are not indicated for the treatment ofARDS. We are not aware of any specific products approved to treat ARDS. Severe Burn Injury Modern management of severe burn injury patients involves a combination of therapies. From a burn standpoint, patients undergo activeescharotomy and debridement of burns, the use of skin grafts and substitutes, anti-microbial dressings and negative pressure dressings. Tight fluid control,nutrition, prevention of hypothermia and infection are also priorities. Smoke and chemical inhalation injury in burn victims is also common and increasingas a cause of death in severe burn injury. Carbon monoxide and cyanide poisoning is also an issue. Supplemental oxygen, mechanical ventilation, andECMO are often required and are the mainstay of supportive care treatment. Recently continuous renal replacement therapy has been used to treat patientswith acute kidney injury with an improvement in survival compared to a historical control cohort. We believe CytoSorb therapy may yield improved results.We are not aware of any specific products approved to directly address inhalational lung injury or multiple organ failure in severe burn injury. Trauma Trauma management initially involves respiratory, hemodynamic and physical stabilization of the patient. However, in the days to weeks that ensue,the focus shifts to preventing or treating organ failure and preventing or treating infection. We are not aware of any specific therapies to prevent or treatmultiple organ dysfunction or multiple organ failure in trauma. Rhabdomyolysis, or the breakdown of muscle fibers due to crush injury or other means,occurs in trauma and can lead to acute kidney injury or renal failure. Aggressive hydration, urine alkalinization, and forced diuresis are the main therapies toprevent renal injury. Continuous hemodiafiltration with super-high-flux membranes has demonstrated modest myoglobin clearance but was associated withalbumin loss. In general, however, most extracorporeal therapies are not well-suited to remove myoglobin. CytoSorb reduces myoglobin, and other polymersunder development, reduces myoglobin, some without significant losses of albumin. Severe Acute Pancreatitis Treatment of severe acute pancreatitis is predominantly supportive care focused on aggressive hydration, enteral nutrition and pain control.Mechanical ventilation, hemodialysis and vasopressor use is common in cases of multiple organ failure. In cases where cholelithiasis or other obstruction isthe underlying cause of the pancreatitis, endoscopic retrograde cholangiopancreatography and/or stent placement can be used to relieve the obstruction.Antibiotics are often instituted to prevent or treat infection. Surgery is sometimes indicated to remove or drain necrotic or infected portions of the pancreas.To our knowledge, there are no other specific treatments approved to treat severe acute pancreatitis or multiple organ failure that is caused by systemicinflammation in this disease. Cardiopulmonary Bypass Surgery There is currently a pre-existing market for the use of leukocyte reduction filters sold by Pall Corporation, Terumo Medical Corporation and othersin the cardiopulmonary bypass circuit. The purpose of these devices is to reduce cytokine-producing white blood cells from blood. They do not removecytokines, free hemoglobin, or activated complement directly and are not considered by many to be an effective solution for the reduction of thesesubstances. We are not aware of any practical competitive approaches for removing cytokines, free hemoglobin, activated complement, and a broad range ofother inflammatory mediators in patients undergoing cardiopulmonary bypass during cardiac surgery. To our knowledge, CytoSorb is the only cytokinereduction therapy capable of being placed directly into a bypass circuit in the heart-lung machine and used during cardiopulmonary bypass without the needfor another pump. Modified ultrafiltration is sometimes used after termination of cardiopulmonary bypass in cardiac surgery to remove excess fluid andinflammatory substances, but has had mixed benefit. Cell saver machines that collect and wash pericardial shed blood is one potential alternative, but istypically done in batches and not a real-time filter during surgery. Alternative therapies such as “off-pump” surgeries are available but “post-bypass”syndrome and cytokine production still remain a problem in this less invasive, but more technically challenging procedure. If successful, CytoSorb isexpected to be useful in both on-pump and off-pump procedures. CytoSorb is also being used with a dialysis machine to treat the development of a post-cardiac surgery systemic inflammatory response syndrome, a deadly complication of open heart surgery that if left untreated, can lead to multiple organdysfunction syndrome, multiple organ failure, and potentially death. 28 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Radiocontrast Removal ContrastSorb has demonstrated the rapid, high efficiency single pass removal of IV contrast. The use of low osmolar IV contrast, oral administrationof N-acetylcysteine, and other agents to prevent CIN have demonstrated modest benefit in some clinical studies, but in many cases, the results across studieshave been equivocal and inconsistent. Hydration of high risk patients pre-procedure is standard of care but has limited efficacy. PLC Medical Systems, Inc.,received CE Mark approval for its RenalGuard system in 2007. RenalGuard encourages excretion of IV contrast and a reduction of CIN, by administering IVhydration that matches urine output in patients receiving a loop diuretic. Hemodialysis can remove IV contrast, but is relatively slow (46% at 1 hour, 65% at2 hours, and 75% at 3 hours) in chronic renal failure patients who lack normal renal clearance. In high risk patients, the rapid and direct removal of IVcontrast from the blood with ContrastSorb to prevent CIN represents a potentially more effective alternative. Drug Removal Treatment of patients suffering from drug overdose often involves a number of pharmacological treatments and mechanical interventions to detoxifyand stabilize the patient. Mechanical interventions include procedures such as orogastric lavage, activated charcoal, whole bowel irrigation andextracorporeal blood purification. Each method has its own limitations, many of which are associated with the timing of administration following overdose.Blood purification with high flux dialyzers or with activated charcoal cartridges by Gambro, Fresenius, Nephros and others are typically efficient at removinghydrophilic drugs that are not protein bound. However, they are inefficient at removing drugs that have a large volume of distribution, or drugs that arehydrophobic or lipophilic. Many drugs of overdose fall into this category. Resin based hemoperfusion devices have been used to remove lipophilic drugsthat are protein bound, but have historically had issues of biocompatibility. DrugSorb is a highly biocompatible resin-based hemoperfusion device that canremove a wide range of drugs of overdose in vitro very rapidly, with high single pass removal. Chronic Dialysis Although standard dialysis treatment effectively removes urea and creatinine from the blood stream (which are normally filtered by functioningkidneys), standard dialysis has not been effective in removing beta2 -microglobulin toxins from the blood of patients suffering from chronic kidney failure.High flux dialyzers by Gambro, Fresenius, Nephros and others are capable of removing some beta2 -microglobulin. However, we believe our technologywould significantly improve clearance of this and other toxins. Kaneka markets Lixelle™, a cellulosic resin, outside the US to remove beta2 -microglobulinin dialysis patients. In March 2015, Lixelle received Humanitarian Device Exemption (“HDE”) approval in the U.S. for the treatment of beta-amyloidosis andremoval of beta-microglobulin, a complication of chronic dialysis. HDE approval applies to the treatment of diseases with an incidence of less than 8,000cases a year in the U.S. annually. We know of no other device, medication or therapy considered directly competitive with our technology. Treatment of Organ Dysfunction in Brain-Dead Organ Donors We are not aware of any directly competitive products to address the application of our technology for the mitigation of organ dysfunction andfailure resulting from severe inflammation following brain-death. HemoDefend Purification Technology Platform for Transfused Blood Products There are only a few directly competitive approved products to address the removal of substances from blood and blood products that can causetransfusion reactions. Leukoreduction (Pall Corporation, Terumo-BCT, Hemerus Corporation, others) is widely used in transfusion medicine and can removethe majority of white cells that can produce new cytokines but cannot eliminate those cytokines already in blood, and cannot otherwise remove othercausative agents. Automated washing of pRBC is very effective at cleansing contaminants from blood, but is impractical due to the time, cost, materials, andlogistics of washing each unit of blood and is not widely used. Blood filters that utilize affinity technologies are in development to remove certainsubstances such as antibodies from blood, but have other issues, such as cost and concern about the stability or leachability of the affinity technology. TheHemoDefend platform represents a potentially superior alternative to these methods, as it can provide comprehensive removal of a wide variety ofcontaminants that can trigger transfusion reactions without washing blood, requires no additional equipment, energy source, or manipulation, and can beincorporated directly into the blood storage bag or used as an in-line blood filter. 29 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Clinical Studies Our first clinical studies were conducted in patients with chronic renal failure. The health of these patients is challenged by high levels of toxinscirculating in their blood but, unlike sepsis patients, they are not at imminent risk of death. The toxins involved in chronic renal failure are generallydifferent from those involved in sepsis, eroding health gradually over time. The treatment of patients with chronic renal failure is a significant target marketfor us, although not the current focus of our efforts and resources. Our clinical studies and product development work in this application functioned to obtainsafety and instrument data without the need to put the patient at additional risk (e.g. placing a new temporary dialysis catheter) , with direct benefit to thedevelopment of the critical care applications on which we are now focusing our efforts. We are focusing our research efforts on critical care and cardiac surgery applications of our technology. Sepsis In 2011, the CytoSorb filter received EU regulatory approval under the CE Mark as an extracorporeal cytokine filter to be used in clinical situationswhere cytokines are elevated. As part of the CE Mark process, we completed our randomized, controlled, European Sepsis Trial amongst 14 trial sites inGermany in 2011, with enrollment of 100 patients with sepsis and respiratory failure. The trial established that CytoSorb was sufficiently safe in this criticallyill population to support the CE mark and published in PLOS ONE. In the European Sepsis Trial, the treatment was well-tolerated with no serious devicerelated adverse events reported. The trial also demonstrated the ability of CytoSorb to reduce cytokines from the blood of septic patients such as IL-6. Thetrial was not powered to demonstrate significant reduction in other clinical endpoints such as mortality. Cardiac Surgery In February 2015, the FDA approved our IDE application to commence a planned U.S. cardiac surgery feasibility study called REFRESH I(REduction of FREe Hemoglobin) amongst 20 patients and three U.S. clinical sites. The FDA subsequently approved an amendment to the protocol,expanding the trial to be a 40 patient randomized controlled study (20 treatment, 20 control) in eight clinical centers. REFRESH I represents the first part of alarger clinical trial strategy intended to support the approval of CytoSorb in the U.S. for intra-operative use during cardiac surgery. The REFRESH I study was designed to evaluate the safety and feasibility of CytoSorb when used intra-operatively in a heart-lung machine to reduceplasma free hemoglobin (pfHb) and cytokines in patients undergoing complex cardiac surgery. The study was not powered to measure effect on clinicaloutcomes. The length, complexity and invasiveness of these procedures cause hemolysis and inflammation, leading to high levels of plasma freehemoglobin, cytokines, activated complement, and other substances. These inflammatory mediators are correlated with the incidence of serious post-operative complications such as kidney injury, renal failure and other organ dysfunction. The goal of CytoSorb is to actively remove these inflammatory andtoxic substances as they are being generated during the surgery and reduce complications. Enrollment was completed with 46 patients. A total of 38 patientswere evaluable for pfhB and completed all aspects of the study. The primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma freehemoglobin levels, respectively. On October 5, 2016, we announced positive top-line safety data. In addition, following a detailed review of all reportedadverse events in a total of 46 enrolled patients, the independent DSMB found no serious device related adverse events with the CytoSorb device, achievingthe primary safety endpoint of the trial. In addition, the therapy was well-tolerated and technically feasible, implementing easily into the cardiopulmonarybypass circuit without the need for an additional external blood pump. This study represents the first randomized controlled trial demonstrating the safety ofintra-operative CytoSorb use in patients undergoing high risk cardiac operations. Investigators of the REFRESH I trial submitted an abstract with data, including free hemoglobin data, from the REFRESH I trial which was selectedfor a podium presentation at the American Association of Thoracic Surgery conference on May 1, 2017. On May 5, 2017, we announced additionalREFRESH I data, including data from the study on the reduction of pfHb and activated complement and disclosed that investigators of the study havesubmitted a manuscript of the REFRESH I trial for publication. In December 2017, the FDA approved our IDE application for our REFRESH 2 study. The REFRESH 2 study is a pivotal trial designed to providethe key safety and efficacy data needed to support United States regulatory approval for the use of CytoSorb in cardiac surgery, which we are planning topursue via the premarket approval (PMA) pathway. The IDE approval allows us to aggressively move forward with our clinical trial sites to complete the finalsteps prior to the official start of the study. The REFRESH 2 pivotal study will assess the effectiveness of intraoperative CytoSorb blood treatment onpostoperative acute kidney injury (AKI), the primary endpoint of the study and one of the most common adverse events in patients undergoing complexcardiac surgery. The REFRESH 2 trial is a randomized, controlled, multi-center, clinical trial designed to evaluate intraoperative CytoSorb use as a therapy toreduce the incidence and severity of AKI, as measured by Kidney Disease Improving Global Outcomes (KDIGO) criteria, following complex cardiac surgery. The trial will enroll up to 400 patients at increased risk of cardiovascular surgery associated AKI, undergoing elective, non-emergent open heart surgery foreither valve replacement, or aortic reconstruction with hypothermic cardiac arrest. The Company has initiated discussions with previous trial sites thatparticipated in the REFRESH I study that are familiar with the CytoSorb device and intraoperative use during CPB. The Company believes using sites thatpreviously participated in REFRESH I will accelerate the process of site startup and launch of REFRESH 2. The Company is ramping the trial, and has begunscreening patients at a key site involved in REFRESH I and is working to add additional centers experienced in the conduct of clinical trials in complexcardiac surgery. We anticipate that this study will take at least two years to complete, and could take longer if enrollment challenges and other factorscausing delays are encountered. 30 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Other Critical Care Applications There are currently more than 60 ongoing investigator initiated studies being planned, enrolling or completed our commercialized territories. Thesetrials, which are funded and supported by renowned university hospitals and key opinion leaders, will provide invaluable information regarding the successof the device in the treatment of sepsis, cardiac surgery, trauma, burn injury, pancreatitis, liver failure, acute kidney injury, acute respiratory distresssyndrome, and many other indications, and will be integral to helping us determine the ultimate course of our U.S. clinical trial pathway in critical care. Even though we have obtained CE Mark approval, no assurance can be given that our CytoSorb product will work as intended in these studies orthat we will be able to obtain FDA approval to sell CytoSorb in the U.S. Even though we have obtained CE Mark approval, there is no guarantee or assurancethat we will be successful in obtaining FDA approval in the United States or approval in any other country or jurisdiction. Because of the limited studies wehave conducted, we are subject to substantial risk that our technology will have little or no effect on the treatment of any indications that we have targeted. Government Research Grants Two government research grants by the NIH and the U.S. Department of Health and Human Services were awarded to investigators at the Universityof Pittsburgh to explore the use of adsorbent polymers in the treatment of sepsis and organ transplant preservation. Under “SubAward Agreements” with theUniversity of Pittsburgh, we developed polymers for use in these studies. A grant of $1 million was awarded to the University of Pittsburgh Medical Center in 2003. The project sought to improve the quantity and viabilityof organs donated for transplant by using CytoSorb to detoxify the donor’s blood. The observational and dosing phases of the study, involving 30 viabledonors and eight non-viable donors, respectively, was completed. Although the next phase of this study, the treatment phase, would have involved viabledonors, we are not currently focusing our efforts on the commercialization of CytoSorb for application in organ donors. The treatment phase would becontingent upon further discussion with the FDA and HRSA regarding study design, as well as obtaining additional funding. In addition, in September 2005, the University of Pittsburgh Medical Center was awarded a grant of approximately $7 million from NIH entitled“Systems Engineering of a Pheresis Intervention for Sepsis (SEPsIS)” to study the use of adsorbent polymer technology in the treatment of severe sepsis. Thestudy, which lasted for a total of five years, commenced in September 2005. Under a SubAward Agreement, we worked with researchers at the University ofPittsburgh - Critical Care Medicine Department. We believe that the only polymers used in this study were polymers we have developed specifically for usein the study, which are similar to the polymers used in our devices. Under the SubAward Agreement, for our efforts in support of the grant during 2006through 2010, we received approximately $402,000. In October 2010, we were awarded a grant of approximately $489,000 from the federal Qualifying Therapeutic Discovery Project (“QTDP”) programfor two products in our pipeline including the development of CytoSorb for the treatment of sepsis and other critical care illnesses. We received half of thegrant in November 2010 and the second half in February 2011. In August 2012, we were awarded a $3.8 million, five-year contract by DARPA for our “Dialysis-Like Therapeutics” (“DLT”) program to treat sepsis.DARPA has been instrumental in funding many of the major technological and medical advances since its inception in 1958, including development of theInternet, development of GPS, and robotic surgery. The DLT program in sepsis seeks to develop a therapeutic blood purification device that is capable ofidentifying the cause of sepsis (e.g., cytokines, toxins, pathogens, activated cells) and remove these substances in an intelligent, automated, and efficientmanner. Our contract was for advanced technology development of our hemocompatible porous polymer technologies to remove cytokines and a number ofpathogen and biowarfare toxins from blood. We have completed our work under the contract with DARPA and SSC Pacific under Contract No. N66001-12-C-4199, that provided for maximum funding of approximately $3,825,000. As of December 31, 2017, we received approximately $3,825,000 in funding underthis contract and no funding remains. 31 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In September 2012, we were awarded a Phase II SBIR contract by the U.S. Army Medical Research and Material Command to evaluate ourtechnology for the treatment of trauma and burn injury in large animal models. In 2013, we finalized the Phase II SBIR contract which provided for amaximum funding of approximately $803,000 with the granting agency. This work is supported by the U.S. Army Medical Research and Material Commandunder an amendment to Contract W81XWH-12-C-0038. In June 2016, this contract was further amended to increase the maximum funding by $443,000 toapproximately $1,246,000. As of December 31, 2017, we received approximately $1,246,000 in funding under this contract. Our performance under thiscontract has been completed. In September 2013, the NHLBI awarded us a Phase I SBIR contract, (contract number HHSN-268201-300044C), valued at $203,351, to furtheradvance our HemoDefend blood purification technology for pRBC transfusions. The University of Dartmouth collaborated with us as a subcontractor on theproject, entitled “Elimination of blood contaminants from pRBCs using HemoDefend hemocompatible porous polymer beads.” The overall goal of thisprogram is to reduce the risk of potential side effects of blood transfusions, and help to extend the useful life of pRBCs. Our performance under this contracthas been completed. In October 2015, we were awarded a Phase II SBIR contract by the NHLBI to help advance our HemoDefend blood purification technology towardscommercialization for the purification of pRBC transfusions. The contract, entitled “pRBCs Contaminant Removal with Porous Polymer Beads” (contractnumber HHSN-268201-600006C), provides for maximum funding of approximately $1,522,000 over a two year period. As of December 31, 2017, wereceived approximately $1,153,000 and have approximately $369,000 remaining under this contract. In March 2016, we were awarded a Phase I SBIR contract for its development program entitled “Mycotoxin Absorption with HemocompatiblePorous Polymer Beads.” The purpose of this contract is to develop effective blood purification countermeasures for weaponized mycotoxins that can beeasily disseminated in water, food and air. This work is being funded by the U.S. Joint Program Executive Office for Chemical and Biological Defense, orJPEO-CBD, under contract number W911QY-16-P-0048 and provides for maximum funding of $150,000. As of December 31, 2017, we receivedapproximately $150,000 and no funding remains under this contract. In June 2016, we were awarded a Phase I Small Business Technology Transfer (“STTR”) contract for its development program entitled “Use ofHighly Porous Polymer Beads to Remove Anti-A and Anti-B antibodies from Plasma for Transfusion”. The purpose of this contract is to develop ourHemoDefend blood purification technology to potentially enable universal plasma. This work is being funded by the USAMRAA under contract W81XWH-16-C-0025 and provides for maximum funding of $150,000. As of December 31, 2017, we received approximately $150,000 and no funding remaining underthis contract. In July 2016, we were awarded a Phase I Small Business Innovation Research (“SBIR”) contract for its development program entitled “Investigationof a sorbent-based potassium adsorber for the treatment of hyperkalemia induced by traumatic injury and acute kidney injury in austere conditions”. Theobjective of this Phase I project is to develop two novel and distinct treatment options for life-threatening hyperkalemia. This work is being funded by theU.S. Army Medical Research Acquisition Activity (“USAMRAA”) under contract W81XWH-16-C-0080 and provides for maximum funding of approximately$150,000. As of December 31, 2017, we received approximately $150,000 and no funding remains under this contract. In January 2017, the Company was awarded a Phase II contract to continue development of CytoSorb for fungal mycotoxin blood purification. Thisprogram will focus on demonstrating the ability of CytoSorb to absorb mycotoxins in vivo and improve survival in animals. This contract, W911QY-17-C-0007, provides for maximum funding of $999,996 over two years. This program is funded by the Chemical and Biological Defense (“CBD”) SBIR program.As of December 31, 2017, we received approximately $360,000 in funding under this contract and have approximately $640,000 remaining under thiscontract. In May 2017, the Company was awarded a Phase II STTR contract Titled “Use of Highly Porous Polymer Beads to Remove Anti-A and Anti-BAntibiotics from Plasma Transfusion”. The purpose of this contract is to continue development of our HemoDefend blood purification technology topotentially enable universal plasma. We will collaborate with researchers at Penn State University on this project. This contract provides for maximumfunding of $999,070 over two years. This work is being funded by the USAMRAA under contract number W81XWH-17-C-0053. As of December 31, 2017,we received approximately $280,000 and have approximately $719,000 remaining under this contract. In May 2017, the Company was awarded a Congressionally Directed Medical Research Program (“CDMRP”) Phase I contract to improve delayedevacuation and prolonged field care for severe burn injury via novel hemoadsorptive and hydration therapies. This work is being funded by the USAMRAAunder contract number W81WH-17-2-0013. This contract provides for maximum funding of $719,000 over four years. As of December 31, 2017, we receivedapproximately $71,000 and have approximately $648,000 remaining under this contract. In September 2017, the Company was awarded a Phase II SBIR contract for its development program entitled “Investigation of a sorbent-basedpotassium adsorber for the treatment of hyperkalemia induced by traumatic injury and acute kidney injury”. The purpose of this contract is to continuedevelopment of two novel and distinct treatment options for life-threatening hyperkalemia. This work is being funded by the USAMRAA under contractW81XWH-17-C-0142 and provides for maximum funding of $999,871. As of December 31, 2017, no funding had been received under this contract. 32 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our business could be adversely impacted by automatic cuts in Federal spending. The American Taxpayer Relief Act (“ATRA”) of 2012, referred togenerally as the fiscal cliff deal, that went into effect on March 1, 2013, enacted automatic spending cuts of nearly $1 trillion over the next 10 years(commonly known as sequestration) that were included under the Budget Control Act of 2011. Sequestration may delay payments under the DARPA andSBIR grant agreements, although no material delays have occurred to date. The short term and long term economic impact of the sequestration will not beknown until the actual spending cuts are implemented and the economic impact of the changes in the budget and taxes are known. It will take an extendednumber of years to understand the impact of any changes brought about from the sequester. These grants represent a substantial research cost savings to us and we believe demonstrate the strong interest of the medical and scientificcommunities in our technology. We are also exploring potential eligibility in several other government-sponsored grant programs which could, if approved,represent a substantial future source of non-dilutive funds for our research programs. Regulation The medical devices that we manufacture are subject to regulation by numerous regulatory bodies, including the FDA and comparable internationalregulatory agencies. These agencies require manufacturers of medical devices to comply with applicable laws and regulations governing the development,testing, manufacturing, labeling, marketing and distribution of medical devices. Devices are generally subject to varying levels of regulatory control, themost comprehensive of which requires that a clinical evaluation program be conducted before a device receives approval for commercial distribution. In the EU, medical devices are required to comply with the Medical Devices Directive and obtain CE Mark certification in order to market medicaldevices. The CE Mark certification, granted following approval from an independent Notified Body, is an international symbol of adherence to qualityassurance standards and compliance with applicable European Medical Devices Directives. Distributors of medical devices may also be required to complywith other foreign regulations such as Ministry of Health Labor and Welfare approval in Japan. The time required to obtain these foreign approvals to marketour products may be longer or shorter than that required in the U.S., and requirements for those approvals may differ from those required by the FDA. InEurope, our devices are classified as Class IIb, and will need to conform to the Medical Devices Directive. In March 2011, we successfully completed our technical file review with our Notified Body, and received approval to apply the CE Mark to theCytoSorb device as an extracorporeal cytokine filter. We also achieved ISO 13485:2003 Full Quality Systems certification, an internationally recognizedquality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design,develop, manufacture and distribute medical devices in the EU. In February 2015, we extended the coverage of our ISO 13485 Certificate with the inclusionof Canadian Quality Systems requirements. This additional level of certification will allow us to apply for product approvals in Canada in the future. In June 2016, we successfully completed an ISO 13485:2003 annual surveillance audit maintaining our good standing with our Notified Body. InSeptember 2016, we were granted a two-year renewal for the CytoSorb CE Mark. In the U.S., specific permission from FDA to distribute a new device is usually required (that is, other than in the case of very low risk devices), andwe expect that some form of marketing authorization will be necessary for our devices. Marketing authorization is generally sought and obtained in one oftwo ways. The first process requires that a pre-market notification (510(k) Submission) be made to the FDA to demonstrate that the device is as safe andeffective as, or “substantially equivalent” to, a legally marketed device that is not subject to pre-market approval (“PMA”). A legally marketed device is adevice that (i) was legally marketed prior to May 28, 1976, (ii) has been reclassified from Class III to Class II or I, or (iii) has been found to be substantiallyequivalent to another legally marketed device following a 510(k) Submission. The legally marketed device to which equivalence is drawn is known as the“predicate” device. Applicants must submit descriptive data and, when necessary, performance data to establish that the device is substantially equivalent toa predicate device. In some instances, data from human clinical studies must also be submitted in support of a 510(k) Submission. If so, these data must becollected in a manner that conforms with specific requirements in accordance with federal regulations including the Investigational Device Exemption (IDE)and human subjects protections or “Good Clinical Practice” regulations. After the 510(k) application is submitted, the applicant cannot market the deviceunless FDA issues “510(k) clearance” deeming the device substantially equivalent. After an applicant has obtained clearance, the changes to existing devicescovered by a 510(k) Submission which do not significantly affect safety or effectiveness can generally be made without additional 510(k) Submissions, butevaluation of whether a new 510(k) is needed is a complex regulatory issue, and changes must be evaluated on an ongoing basis to determine whether aproposed change triggers the need for a new 510(k), or even PMA. The 510(k) clearance pathway is not available for all devices: whether it is a suitable pathto market depends on several factors, including regulatory classifications, the intended use of the device, and technical and risk-related issues for the device. 33 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The second, more rigorous, process requires that an application for PMA be made to the FDA to demonstrate that the device is safe and effective forits intended use as manufactured. This approval process applies to most Class III devices. A PMA submission includes data regarding design, materials, benchand animal testing, and human clinical data for the medical device. Again, clinical trials are subject to extensive FDA regulation. Following completion ofclinical trials and submission of a PMA, the FDA will authorize commercial distribution if it determines there is reasonable assurance that the medical deviceis safe and effective for its intended purpose. This determination is based on the benefit outweighing the risk for the population intended to be treated withthe device. This process is much more detailed, time-consuming, and expensive than the 510(k) process. Also, FDA may impose a variety of conditions on theapproval of a PMA. In the U.S., we believe that our potential devices, if we were to pursue marketing authorization, would likely fall under the classification for “SorbentHemoperfusion Systems” (21 C.F.R. § 876.5870). This category of device is Class II (subject to a 510(k) and special controls) when the device is intended forthe treatment of poisoning and drug overdose, and Class III (subject to premarket approval) when the device is intended for the treatment of sepsis, hepaticcoma and metabolic disturbances or other life-threatening illnesses. Both before and after a device for the U.S. market is commercially released, we would have ongoing responsibilities under FDA regulations. TheFDA reviews design and manufacturing practices, labeling and record keeping, and manufacturers’ required reports of adverse experiences and otherinformation to identify potential problems with marketed medical devices. We would also be subject to periodic inspection by the FDA for compliance withthe FDA’s quality system regulations, which govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, andservicing of all finished medical devices intended for human use. In addition, the FDA and other U.S. regulatory bodies (including the Federal TradeCommission, the Office of the Inspector General of the Department of Health and Human Services, the Department of Justice (DOJ), and various stateAttorneys General) monitor the manner in which we promote and advertise our products. Although physicians are permitted to use their medical judgment toemploy medical devices for indications other than those cleared or approved by the FDA, we are prohibited from promoting products for such “off-label”uses, and can only market our products for cleared or approved uses. If the FDA were to conclude that we are not in compliance with applicable laws orregulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could require us to notify health professionals andothers that the devices present unreasonable risks of substantial harm to the public health, order a recall, repair, replacement, or refund of such devices, detainor seize adulterated or misbranded medical devices, or ban such medical devices. The FDA may also impose operating restrictions, enjoin and/or restraincertain conduct resulting in violations of applicable law pertaining to medical devices, including a hold on approving new devices until issues are resolvedto its satisfaction, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the DOJ. Conductgiving rise to civil or criminal penalties may also form the basis for private civil litigation by third-party payers or other persons allegedly harmed by ourconduct. The delivery of our devices in the U.S. market would be subject to regulation by the U.S. Department of Health and Human Services and comparablestate agencies responsible for reimbursement and regulation of health care items and services. U.S. laws and regulations are imposed primarily in connectionwith the Medicare and Medicaid programs, as well as the government’s interest in regulating the quality and cost of health care. Federal health care laws apply when we or customers submit claims for items or services that are reimbursed under Medicare, Medicaid, or otherfederally-funded health care programs. The principal federal laws include: (1) the False Claims Act which prohibits the submission of false or otherwiseimproper claims for payment to a federally-funded health care program; (2) the Anti-Kickback Statute which prohibits offers to pay or receive remuneration ofany kind for the purpose of inducing or rewarding referrals of items or services reimbursable by a Federal health care program; (3) the Stark law whichprohibits physicians from referring Medicare or Medicaid patients to a provider that bills these programs for the provision of certain designated healthservices if the physician (or a member of the physician’s immediate family) has a financial relationship with that provider; and (4) health care fraud statutesthat prohibit false statements and improper claims to any third-party payer. There are often similar state false claims, anti-kickback, and anti-self referral andinsurance laws that apply to state-funded Medicaid and other health care programs and private third-party payers. In addition, the U.S. Foreign CorruptPractices Act can be used to prosecute companies in the U.S. for arrangements with physicians, or other parties outside the U.S. if the physician or party is agovernment official of another country and the arrangement violates the law of that country. The laws applicable to us are subject to change, and subject to evolving interpretations. If a governmental authority were to conclude that we are notin compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and civil penalties includingsubstantial fines and damages, and exclusion from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid. The process of obtaining clearance to market products is costly and time-consuming in virtually all of the major markets in which we expect to sellproducts and may delay the marketing and sale of our products. Countries around the world have recently adopted more stringent regulatory requirements,which are expected to add to the delays and uncertainties associated with new product releases, as well as the clinical and regulatory costs of supportingthose releases. No assurance can be given that any of our other medical devices will be approved on a timely basis, if at all, or that our CytoSorb® device willbe approved for CE Mark labeling in other potential medical applications or that it will be approved for cytokine filtration in markets not covered by the CEMark on a timely basis, or at all. In addition, regulations regarding the development, manufacture and sale of medical devices are subject to future change.We cannot predict what impact, if any, those changes might have on our business. Failure to comply with regulatory requirements could have a materialadverse effect on our business, financial condition and results of operations. 34 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Pertaining to our VetResQ™ device (offered for veterinary use only), in the U.S., the FDA does not require submission of a 510(k), PMA, or any pre-market approval for devices used in veterinary medicine. Device manufacturers who exclusively manufacture or distribute veterinary devices are not requiredto register their establishments and list veterinary devices and are exempt from post-marketing reporting. FDA does have regulatory oversight over veterinarydevices and can take appropriate regulatory action if a veterinary device is misbranded or adulterated. It is the responsibility of the manufacturer and/ordistributor of these articles to assure that these animal devices are safe, effective, and properly labeled. Exported devices are subject to the regulatory requirements of each country to which the device is exported. Some countries do not have medicaldevice regulations, but in most foreign countries medical devices are regulated. Frequently, device companies may choose to seek and obtain regulatoryapproval of a device in a foreign country prior to application in the U.S., as we have done, given the differing regulatory requirements. However, this does notensure approval of a device in the U.S. Sales and Marketing In 2012, we established our European subsidiary, CytoSorbents Europe GmbH, a wholly-owned subsidiary of CytoSorbents Corporation. Followingthe completion of a controlled market release in late June 2012, CytoSorb was formally launched in Germany with reimbursement established at more than$500 per cartridge. We recruited Dr. Christian Steiner, MD as our Vice President of Sales and Marketing and hired three additional sales representatives. Thefourth quarter of 2012 was the first full quarter of direct CytoSorb sales with our sales force in place. We began expansion into Austria, where reimbursementfor CytoSorb is now available, and Switzerland. In March 2016, we established CytoSorbents Switzerland GmbH, a wholly-owned subsidiary of CytoSorbentsEurope GmbH, to conduct marketing and direct sales in Switzerland. This subsidiary began operations during the second quarter of 2016. In 2017 we begandirect sales in Belgium and Luxembourg. From the beginning of the controlled market release in the fourth quarter of 2011 through the end of December 31,2017, we achieved cumulative sales of CytoSorb of approximately $29,777,000. During this time period, the CytoSorb device represented substantially all ofour product sales. At the end of 2017, we had hundreds of KOLs worldwide who are either using CytoSorb or supporting its use in clinical practice and/or inclinical studies. These relationships with KOLs were an essential step in our initial goal of driving usage, adoption and reorders of CytoSorb as they facilitateordering and reimbursement within the hospital, have a strong influential role within their department and amongst their peers and colleagues outside thehospital, and have the ability to conduct studies and generate data, papers and conference presentations that could drive awareness and demand. We are approved to sell CytoSorb in all 28 countries in the EU, including Germany, United Kingdom, Italy, France and Spain, and currently haveeither direct sales or distributor or strategic partnership in 45 countries worldwide. We plan to expand to other countries in the EU, and with registration,other countries outside the EU that will accept CE Mark approval with a mixed direct and independent distributor strategy, that can be augmented throughstrategic partnerships. In 2013, we reached agreements with distributors in the United Kingdom, Ireland, Turkey, Russia, and the Netherlands. In April 2014, we announceddistribution of CytoSorb in the Middle East, including Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain, and Oman (the GCC) and Yemen,Iraq, and Jordan through an exclusive agreement with Techno Orbits. In August 2014, we announced exclusive distribution of CytoSorb in Taiwan withHemoscien Corporation, which was subsequently terminated by us in March 2015 due to the complexity of Taiwanese FDA product registration. In December2014, we entered into an exclusive agreement with Smart Medical Solutions S.R.L., to distribute CytoSorb for critical care applications in Romania and theneighboring Republic of Moldova. In 2015, we announced exclusive distribution agreements with Aferetica SRL to distribute CytoSorb in Italy,AlphaMedix Ltd. to distribute CytoSorb in Israel, TekMed Pty Ltd. to distribute CytoSorb in Australia and New Zealand, and Hoang Long Pharma todistribute CytoSorb in Vietnam. In June 2016, we announced an exclusive distribution agreement with Palex Medical SA to distribute CytoSorb in Spain andPortugal. In September 2016, we announced an exclusive agreement with Armaghan Salamat Kish Group (Arsak) to distribute CytoSorb in Iran. In October2016, we announced an exclusive agreement with Foxx Medical Chile SpA to distribute CytoSorb in Chile. In July 2017, we announced an exclusiveagreement with Droguería, Ramón, González, Revilla (DRGR) S.A. to distribute CytoSorb in Panama. We have been expanding our strategic partnerships by number and scope. In September 2013, we entered into a strategic partnership with BioconLtd., India’s largest biopharmaceuticals company, with an initial distribution agreement for India and select emerging markets, under which Biocon has theexclusive commercialization rights for CytoSorb initially focused on sepsis. In October 2014, the Biocon partnership was expanded to include all criticalcare applications and cardiac surgery. In addition, Biocon committed to higher annual minimum purchases of CytoSorb to maintain distribution exclusivityand committed to conduct and publish results from multiple investigator initiated studies and patient case studies. In December 2017, the Biocon partnershipwas further expanded to include exclusive distribution of CytoSorb in Malaysia. Under the terms of the agreement, Biocon has committed to minimumannual purchases in Malaysia to maintain exclusivity this territory. In addition, the term of the original agreement was extended to December 2022. 35 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In December 2014, we entered into a multi-country strategic partnership with Fresenius Medical Care AG & Co KGaA (“Fresenius”) tocommercialize the CytoSorb therapy. Under the terms of this agreement, Fresenius has exclusive rights to distribute CytoSorb for critical care applications inFrance, Poland, Sweden, Denmark, Norway, and Finland. The partnership allows Fresenius to offer an innovative and easy way to use blood purificationtherapy for removing cytokines in patients that are treated in the ICU. To promote the success of CytoSorb, Fresenius agreed to also engage in the ongoingclinical development of the product. This includes the support and publication of a number of small case series and patient case reports as well as thepotential for future larger, clinical collaborations. Fresenius launched the product in these six countries in May 2016. In January 2017, the Freseniuspartnership was expanded. The terms of the revised three-year agreement extend Fresenius’ exclusive distributorship of CytoSorb for all critical careapplications in their existing territories through 2019 and include guaranteed minimum quarterly orders and payments, evaluable every one and a half years.In addition, we have entered into a new comprehensive co-marketing agreement with Fresenius. Under the terms of the agreement, CytoSorbents andFresenius will jointly market CytoSorb to Fresenius’ critical care customer base in all countries where CytoSorb is being actively commercialized. CytoSorbwill continue to be sold by our direct sales force or through our international network of distributors and partners, while Fresenius will sell all ancillaryproducts to their customers. Fresenius will also provide a written endorsement of CytoSorb for use with their multiFiltrate and multiFiltratePRO acute caredialysis machines that can be used by us and our distribution partners to promote CytoSorb worldwide. Training and preparation for this co-marketingprogram began in five initial countries in 2017 and is continuing, with implementation of the co-marketing program in additional countries planned for thefuture. In September 2016, we entered into a multi-country strategic partnership with Terumo Cardiovascular Group to commercialize CytoSorb for cardiacsurgery applications. Under the terms of the agreement, Terumo has exclusive rights to distribute the CytoSorb cardiopulmonary bypass (“CPB”) procedurepack for intra-operative use during cardiac surgery in France, Sweden, Denmark, Norway, Finland and Iceland. Terumo launched the product in these sixcountries in December 2016. In March 2017, we entered into a partnership with Dr. Reddy’s Laboratories Ltd. for the South African market. Under the terms of the agreement, Dr.Reddy’s has the exclusive right to distribute CytoSorb for intensive care, cardiac surgery, and other hospital applications in South Africa. This is a multi-yearagreement and is subject to annual minimum purchases of CytoSorb to maintain exclusivity. A significant portion of our revenues are from product sales in Germany. Substantially all of our grant and other income are from grant agencies inthe United States. The following table provides a geographic summary of revenues: 2017 2016 2015 Product Sales: United States $- $- $- Germany 7,993,954 4,985,049 2,353,998 All other countries 5,387,899 3,220,987 1,689,821 Grant and other income: United States 1,768,901 1,321,807 735,863 Germany – – 11,934 Total Revenue $15,150,754 $9,527,843 $4,791,616 In 2017, no agency, distributor or direct customer represented more than 10 percent of the Company’s total revenue. In 2016, one direct customer,HDZ Herz and Diabeteszentrum NRW, accounted for approximately 11 percent of total revenue. In 2015, one grant agency, DARPA, accounted forapproximately 14 percent of revenue. Orders received for product from both direct customers and distributors are fulfilled upon receipt. Accordingly, we have no significant sales backlog. We maintain a small amount of property and equipment in Germany. These assets were approximately one percent of total assets for the years endingDecember 31, 2017, 2016 and 2015, respectively. Intellectual Property and Patent Litigation The medical device market in which we primarily participate is in large part technology driven. As a result, intellectual property rights, particularlypatents and trade secrets, play a significant role in product development and differentiation. However, intellectual property litigation to defend or createmarket advantage is inherently complex, unpredictable and is expensive to pursue. Litigation often is not ultimately resolved until an appeal process iscompleted and appellate courts frequently overturn lower court patent decisions. 36 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Moreover, competing parties frequently file multiple suits to leverage patent portfolios across product lines, technologies and geographies and tobalance risk and exposure between the parties. In some cases, several competitors are parties in the same proceeding, or in a series of related proceedings, orlitigate multiple features of a single class of devices. These forces frequently drive settlement not only of individual cases, but also of a series of pending andpotentially related and unrelated cases. In addition, although monetary and injunctive relief is typically sought, remedies are generally not determined untilthe conclusion of the proceedings, and are frequently modified on appeal. Accordingly, the outcomes of individual cases are difficult to time, predict orquantify and are often dependent upon the outcomes of other cases in other forums, both domestic and international. We rely on a combination of patents, trademarks, trade secrets and non-disclosure agreements to protect our intellectual property. As of February 28,2018, our patent portfolio includes 15 issued United States patents as well as multiple issued foreign patents and pending patent applications both in the U.S.and internationally, directed to various compositions and methods of use related to our blood purification technologies, which are expected to expirebetween 2020 and 2033, absent any patent term extensions. Management believes that any expiring patents will not have a significant impact on ourongoing business. The following table provides a brief description of our patents that have been issued in the U.S.: Product Patent Patent PatentGroup Description/Indications Term Expiration Type CytoSorb Perfusion Device Combining Adsorbing Material and Hollow Fibers to Filter andRecombine Plasma 20 Years 4/17/2020 StandardCytoSorb Method of Peritoneal Dialysis 20 Years 4/27/2020 StandardCytoSorb Material and Method of Producing: Biocompatible Polymeric Adsorbents Using a One-Pot Process 20 Years 10/10/2020 StandardCytoSorb Protective clothing 20 Years 1/15/2021 StandardCytoSorb Method of Introducing Fluids into a Patient’s Body 20 Years 2/17/2021 StandardCytoSorb Devices, systems, and methods for reducing levels of pro-inflammatory or anti-inflammatory stimulators or mediators in the blood 20 Years 4/10/2021 StandardCytoSorb Method of Producing Devices 20 Years 4/25/2021 StandardCytoSorb Hemocompatible Coated Polymer and Related One-Step Methods 20 Years 10/18/2022 StandardCytoSorb Hemocompatible Coated Polymer and Related Methods 20 Years 10/18/2022 StandardCytoSorb Hemocompatible Coated Polymer and Related One-Step Methods 20 Years 10/18/2022 StandardCytoSorb Hemocompatible Polymer Systems And Related Devices 20 Years 7/6/2023 StandardCytoSorb Size-Selective Hemoperfusion Polymeric Adsorbents 20 Years 11/20/2026 StandardCytoSorb Size-Selective Hemoperfusion Polymeric Adsorbents 20 Years 11/20/2026 StandardCytoSorb Size-Selective Hemoperfusion Polymeric Adsorbents 20 Years 11/20/2026 StandardCytoSorb Method of Treating Inflammation 20 Years 4/30/2031 Standard In addition to the above, we have received notice from the U.S. Patent Office that two of our patent applications have been allowed and we areawaiting the issuance of the formal patent number. There can be no assurance that pending patent applications will result in issued patents, that patents issued to us will not be challenged orcircumvented by competitors, or that such patents will be found to be valid or sufficiently broad to protect our technology or to provide us with acompetitive advantage. Certain of these patents also have foreign counterparts. We also rely on non-disclosure and non-competition agreements with employees, consultants and other parties to protect, in part, trade secrets andother proprietary technology. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, thatothers will not independently develop equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets andproprietary knowledge. Prior to the year 2000, we engaged in discussions with the Dow Chemical Company, (“Dow”), which had indicated a strong interest in being ourpolymer manufacturer. After a Dow representative on our Advisory Board resigned, Dow filed and received five patents naming our former Advisory Boardmember as an inventor. These patents, two of which subsequently lapsed for failure to pay maintenance fees, concern the area of coating highdivinylbenzene-content polymers to render them hemocompatible, and using such coated polymers to treat blood or plasma. In management’s view the Dowpatents improperly incorporate our technology, are based on our proprietary technology, and should not have been granted to Dow. While we believe thatour own patents would prevent Dow from producing our products as they are currently envisioned, Dow could attempt to assert its patents against us. To date,to our knowledge, Dow has not utilized their patents for the commercial manufacture of products that would be competitive with us, and we currently have noplans to challenge Dow’s patents. However, the existence of these Dow patents could result in a potential dispute with Dow in the future and additionalexpenses for us. 37 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We may find it necessary to initiate litigation to enforce our patent rights, to protect our trade secrets or know-how and to determine the scope andvalidity of the proprietary rights of others. Patent litigation can be costly and time-consuming, and there can be no assurance that our litigation expenses willnot be significant in the future or that the outcome of litigation will be favorable to us. Accordingly, we may seek to settle some or all of our pendinglitigation described below. Settlement may include cross-licensing of the patents which are the subject of the litigation as well as our other intellectualproperty and may involve monetary payments to or from third parties. We currently hold multiple trademarks including CytoSorb®, HemoDefend™, BetaSorb™, and VetResQ™. We have spent considerable resourcesregistering the trademark and building brand awareness and equity of the CytoSorb® tradename, which has been used in commerce since 2006. We expect tomaintain and defend our various trademarks to the fullest extent possible. Environmental Matters We believe that there are no compliance issues associated with applicable environmental laws and regulations that would have a material adverseeffect on us or our business. We incur waste removal costs in connection with both our solid and liquid wastes which are byproducts of our manufacturingprocess. We utilize the services of various qualified contractors to dispose of these waste products. These waste removal costs amounted to approximately$125,000 for the year ended December 31, 2017. Employees As of February 1, 2018, we had 84 full-time employees. We also utilize consultants and temporary service providers who are not our employees, asnecessary. None of our employees are represented by a labor union or are subject to collective-bargaining agreements. Financial Information Our Financial Statements and notes thereto are included elsewhere in this Annual Report on Form 10-K and incorporated herein by reference. SeeItem 15 of Part IV. Item 1A.Risk Factors Risks Related to our Business and our Industry We have a history of losses and expect to incur substantial future losses, and the report of our auditor on our consolidated financial statements expressessubstantial doubt about our ability to continue as a going concern. We have experienced substantial operating losses since inception. As of December 31, 2017, we had an accumulated deficit of approximately$152,313,000, which included net losses of approximately $8,461,000, $11,763,000, and $9,477,000 for the years ended December 31, 2017, 2016 and2015, respectively. Due in part to these losses, our audited consolidated financial statements have been prepared assuming we will continue as a goingconcern, and the auditors’ report on those financial statements express substantial doubt about our ability to continue as a going concern. Our losses haveresulted principally from costs incurred in the research and development of our polymer technology and general and administrative expenses. We intend toconduct significant additional research, development, and clinical study activities which, together with expenses incurred for the establishment ofmanufacturing arrangements and a marketing and distribution presence and other general and administrative expenses, are expected to result in continuingoperating losses for the foreseeable future. The amount of future losses and when, if ever, we will achieve profitability are uncertain. Our ability to achieveprofitability will depend, among other things, on continued adoption and usage of our products in the market, obtaining additional regulatory approvals inmarkets not covered by the CE Mark, establishing sales and marketing arrangements with third parties, satisfactory reimbursement in key territories, andraising sufficient funds to finance our activities. No assurance can be given that our product development efforts will be successful, that our current CE Markwill enable us to achieve profitability, that additional regulatory approvals in other countries will be obtained, that any of our products will be manufacturedat a competitive cost and will be of acceptable quality, that reimbursement will be available or satisfactory, that we will be able to achieve profitability orthat profitability, if achieved, can be sustained, or our ability to raise additional capital when needed or on terms acceptable to us. Our failure with respect toany or all of these matters would have a material adverse effect on our business, operating results, financial condition and prospects. We will require additional capital in the future to fund our operations. As of December 31, 2017, we had current assets of approximately $20,739,000, including cash on hand of approximately $17,322,000 and currentliabilities of approximately $7,848,000. For the year ended December 31, 2017, our cash burn was approximately $6.6 million. Our current and historicalcash burn is not necessarily indicative of our future use of cash and cash equivalents. 38 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We will require additional financing in the future in order to complete additional clinical studies and to support the commercialization of ourproposed products. There can be no assurance that we will be successful in our capital raising efforts. The amount of long-term capital needed is expected todepend on many factors, including: ·rate of sales growth and adoption of our products in the marketplace; ·product gross margin; ·continued progress and cost of our research and development programs; ·progress with pre-clinical studies and clinical studies; ·the time and costs involved in obtaining regulatory clearance in other countries and/or for other indications; ·costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; ·costs of developing sales, marketing and distribution channels; ·market acceptance and reimbursement of our products; and ·cost for training physicians and other health care personnel. We have an effective shelf registration statement with the SEC which enables us to raise up to $100 million in equity financing. We entered into aControlled Equity Offering SM Sales Agreement with Cantor Fitzgerald & Co. in November 2015 for the offer and sale of up to an aggregate of $25,000,000of shares of our common stock. During 2017, we sold a total of 550,000 shares of our common stock at an average price of $6.31 per share, under the terms ofthe Sales Agreement, generating net proceeds of approximately $3.4 million. From January 1, 2018 through March 7, 2018 we sold an additional 465,112shares of our common stock at an average price of $7.91 per share, generating net proceeds of approximately $3.57 million. On June 30, 2016, we entered into a Loan and Security Agreement with Bridge Bank, a division of Western Alliance Bank (the “Bank”), pursuant towhich the Bank agreed to loan us up to an aggregate of $10,000,000, to be disbursed in two equal tranches of $5,000,000. We received the proceeds from thefirst tranche on June 30, 2016 and from the second tranche on June 30, 2017. In addition, in April 2017, we raised net proceeds of approximately $10.3million from the sale of 2,555,555 shares of our common stock. Despite the foregoing, we expect we will require additional financing in the future. Shouldthe financing we require be unavailable to us, or on terms unacceptable to us when we require it, the consequences could have a material adverse effect on ourbusiness, operating results, financial condition and prospects. In addition, in the event that additional funds are obtained through arrangements with collaborative partners or other non-dilutive sources, we mayhave to relinquish economic and/or proprietary rights to some of our technologies or products under development that we would otherwise seek to develop orcommercialize by ourselves. Such events may have a material adverse effect on our business, operating results, financial condition and prospects. Although historically we have been a research and development company, we are in the process of commercializing our products. There can be noassurance that we will be successful in developing and expanding commercial operations or balancing our research and development activities with ourcommercialization activities. We have historically been engaged primarily in research and development activities and have generated limited revenues to date. With the launch ofour CytoSorb product in the EU and abroad, there can be no assurance that we will be able to successfully manage the balance of our research anddevelopment operations with our planned commercial enterprise. Potential investors should be aware of the problems, delays, expenses and difficultiesfrequently encountered by an enterprise in balancing development, which include unanticipated problems relating to testing, product registration, regulatorycompliance and manufacturing, with commercialization, which includes problems with market adoption, reimbursement, marketing problems and additionalcosts. Our products and product candidates will require significant additional research and testing, and we will need to overcome significant regulatoryburdens prior to commercialization in other countries, such as the U.S., and for ongoing compliance for our CE Mark. We will also need to raise additionalfunds to complete additional clinical studies and obtain regulatory approvals in other countries before we can begin selling our products in markets notcovered by our CE Mark. In addition, we may be required to spend significant funds on building out our commercial operations. There can be no assurancethat after the expenditure of substantial funds and efforts, we will successfully develop and commercialize any products, generate any significant revenues orever achieve and maintain a substantial level of sales of our products. If users of our products are unable to obtain adequate reimbursement from third-party payers, or if reimbursement is not available in specific countries, orif new restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve anticipated revenues. The continuing efforts of government and insurance companies, health maintenance organizations and other payers of healthcare costs to contain orreduce costs of health care may affect our future revenues and profitability, the future revenues and profitability of our potential customers, suppliers andcollaborative partners, and the availability of capital. For example, in certain foreign markets, pricing or profitability of medical devices is subject togovernment control. In the United States, given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S.Congress and state legislatures will likely continue to focus on health care reform, the cost of medical devices and on the reform of the Medicare andMedicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of theseproposals could materially harm our business, financial condition and results of operations. 39 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our ability to commercialize our products will depend in part on the extent to which appropriate reimbursement levels for the cost of our productsand related treatment are obtained by governmental authorities, private health insurers and other organizations, such as health maintenance organizations(“HMOs”). Third-party payers are increasingly challenging the prices charged for medical care. Also, the trend toward managed health care in the UnitedStates and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services andmedical devices, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for ourproducts. The cost containment measures that health care payers and providers are instituting and the effect of any health care reform could materially harmour ability to operate profitably. Outside of the United States, reimbursement systems vary significantly by country. Many foreign markets often have a combination of government-managed and privately-managed healthcare systems that govern reimbursement for medical devices and related procedures. Socialized medicine is commonin the EU, and reimbursement and the pricing of medical devices is often subject to governmental control. Application for reimbursement, subsequentapprovals, if any, and pricing negotiations with governmental authorities can take considerable time after a device has been CE marked. Private insurance hassimilar challenges. CytoSorb is currently reimbursed in Germany under government-funded insurance, and in other countries may be covered under the DRG,or “lump sum payment” reimbursement, or other generalized reimbursement for acute care medical products. We are continuously working to obtain orimprove upon the type and amount of reimbursement available to us in countries where CytoSorb is available, and as we attempt to move from an existingreimbursement platform to a new reimbursement platform, we may experience interruptions and/or reductions in the amount available for reimbursement.Because of this, there can be no assurance that new reimbursement will be obtained or that existing reimbursement will continue or that such reimbursementwill be sufficient to adequately cover the cost of the device or treatment. As a result, our future revenues, profitability and access to capital may be negativelyaffected by any interruption or reduction in amounts of reimbursement. We plan to seek reimbursement for our product in other EU and non-EU countries tohelp further adoption. There can be no assurance when, or if, this additional reimbursement might be approved. We depend upon key personnel who may terminate their employment with us at any time. As of February 12, 2018, we have 84 full-time employees and several temporary employees. Our success will depend to a significant degree upon thecontinued services of our key management team and advisors, including, Dr. Phillip Chan, our Chief Executive Officer; Kathleen P. Bloch, our ChiefFinancial Officer; Vincent Capponi, our Chief Operating Officer, and Dr. Eric R. Mortensen, our Chief Medical Officer. Although these individuals havelong-term employment and consulting agreements, there can be no assurance that key management personnel or other members of our management team andadvisors will continue to provide services to us. In addition, our success will depend on our ability to attract and retain other highly skilled personnel. Wemay be unable to recruit such personnel on a timely basis, if at all. Management and other employees may voluntarily terminate their employment with us atany time. The loss of services of key personnel, or the inability to attract and retain additional qualified personnel, could result in delays in development orapproval of our products, loss of sales and diversion of management resources. Acceptance of our medical devices in the marketplace is uncertain, and failure to achieve market acceptance will prevent or delay our ability to generaterevenues. Our future financial performance will depend, at least in part, upon the introduction and customer acceptance of our products. Even with CE Markapproval for our CytoSorb device as a cytokine filter, our products and product candidates may not achieve market acceptance in the countries that recognizeand accept the CE Mark. Additional approvals from other regulatory authorities (such as the FDA) will be required before we can market our device incountries not covered by the CE Mark. There is no guarantee that we will be able to achieve additional regulatory approvals, and even if we do, our productsmay not achieve market acceptance in the countries covered by such approvals. The degree of market acceptance will depend upon a number of factors,including: ·the receipt of regulatory clearance of marketing claims for the uses that we are developing; ·the establishment and demonstration of the advantages, safety and efficacy of our polymer technology; ·pricing and reimbursement policies of government and third-party payers such as insurance companies, health maintenanceorganizations and other health plan administrators; ·competition; ·our ability to attract corporate partners, including medical device companies, to assist in commercializing our products; and ·our ability to effectively market our products. 40 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Physicians, patients, payers or the medical community in general may be unwilling to accept, utilize or recommend any of our products. Approval ofour CytoSorb device as a cytokine filter as well as the data we have gathered in our clinical studies to support device usage in this indication may not besufficient for market acceptance in the medical community. We may also need to conduct additional clinical studies to gather additional data for marketingpurposes. If we are unable to obtain regulatory approval or commercialize and market our products when planned, we may not achieve any market acceptanceor generate revenue. If we are unable to obtain and maintain patent protection for our products and product candidates, or if the scope of the patent protection obtained is notsufficiently broad, our competitors could develop and commercialize products and product candidates similar or identical to ours, and our ability tosuccessfully commercialize our products and product candidates may be adversely affected. Our commercial success will depend, in part, on our ability to obtain and maintain patent protection in the United States and other countries withrespect to our products and product candidates. We seek to protect our proprietary position by filing patent applications in the United States and abroadrelated to our products and product candidates that are important to our business. We cannot be certain that patents will be issued or granted with respect toapplications that are currently pending or that we apply for in the future with respect to one or more of our products and product candidates, or that issued orgranted patents will not later be found to be invalid and/or unenforceable. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patentapplications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and developmentoutput before it is too late to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access topatentable aspects of our research and development output, such as our employees, distribution partners, consultants, advisors and other third parties, any ofthese parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patentprotection. The patent position of medical device companies generally is highly uncertain, involves complex legal and factual questions and has in recent yearsbeen the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.Our pending and future patent applications may not result in patents being issued, and even if issued, the patents may not meaningfully protect our productsor product candidates, effectively prevent competitors and third parties from commercializing competitive products or otherwise provide us with anycompetitive advantage. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative products in a non-infringing manner. Changes in the patent laws, implementing regulations or interpretation of the patent laws in the United States and other countries may also diminishthe value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the lawsof the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. We cannot be certain that our patents and patent rights will be effective in protecting our products, product candidates and technologies. Inaddition, certain of our existing patents expire between 2020 and 2033. Failure to protect such assets may have a material adverse effect on our business,operations, financial condition and prospects. We may face litigation from third parties claiming that our products infringe on their intellectual property rights, or seek to challenge the validity of ourpatents. Our future success is also dependent in part on the strength of our intellectual property, trade secrets and know-how, which have been developedfrom years of research and development. In addition to the “Purolite” litigation discussed below, we may be exposed to additional future litigation by thirdparties seeking to challenge the validity of our rights based on claims that our technologies, products or activities infringe the intellectual property rights ofothers or are invalid, or that we have misappropriated the trade secrets of others. Since our inception, we have sought to contract with large, established manufacturers to supply commercial quantities of our adsorbent polymers. Asa result, we have disclosed, under confidentiality agreements, various aspects of our technology with potential manufacturers. We believe that thesedisclosures, while necessary for our business, have resulted in the attempt by potential suppliers to improperly assert ownership claims to our technology inan attempt to gain an advantage in negotiating manufacturing rights. We previously engaged in discussions with the Brotech Corporation and its affiliate, Purolite International, Inc. (collectively referred to as“Purolite”), which had demonstrated a strong interest in being our polymer manufacturer. For a period of time beginning in December 1998, Purolite engagedin efforts to develop and optimize the manufacturing process needed to produce our polymer products on a commercial scale. However, the parties eventuallydecided not to proceed. In 2003, Purolite filed a lawsuit against us asserting, among other things, co-ownership and co-inventorship of certain of our patents.On September 1, 2006, the United States District Court for the Eastern District of Pennsylvania approved a Stipulated Order and Settlement Agreement underwhich we and Purolite agreed to the settlement of the action. The Settlement Agreement provides us with the exclusive right to use our patented technologyand proprietary know how relating to adsorbent polymers for a period of 18 years. Under the terms of the Settlement Agreement, we have agreed to payPurolite royalties of 2.5% to 5% on the sale of certain of our products if and when those products are sold commercially. 41 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Several years ago we engaged in discussions with the Dow Chemical Company, which had indicated a strong interest in being our polymermanufacturer. After a Dow representative on our Advisory Board resigned, Dow filed and received several patents naming our former Advisory Board memberas an inventor. In management’s view, the Dow patents improperly incorporate our technology and should not have been granted to Dow. The existence ofthese Dow patents could result in a potential dispute with Dow in the future. In the event such a dispute arises, we may be forced to spend significant time andresources to defending our position. There can be no assurances that such efforts will be successful and not have a material adverse effect on our business,operating results, financial condition and prospects. The expiration or loss of patent protection may adversely affect our future revenues and operating earnings. We rely on patent, trademark, trade secret and other intellectual property protection in the discovery, development, manufacturing, and sale of ourproducts and product candidates. In particular, patent protection is important in the development and eventual commercialization of our products andproduct candidates. Patents covering our products and product candidates normally provide market exclusivity, which is important in order for our productsand product candidates to become profitable. Certain of our patents expire between 2020 to 2033. While we are seeking additional patent coverage which may protect the technology underlyingthese patents, there can be no assurances that such additional patent protection will be granted, or if granted, that these patents will not be infringed upon orotherwise held enforceable. Even if we are successful in obtaining a patent, patents have a limited lifespan. In the United States, the natural expiration of autility patent typically is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, islimited. Without patent protection for our products and product candidates, we may be open to competition from generic versions of such methods anddevices. We have commenced the process of seeking regulatory approvals of our products and product candidates, but the approval process involves lengthy andcostly clinical studies and is, in large part, not in our control. The failure to obtain government approvals, internationally or domestically, for our productsand product candidates, or to comply with ongoing governmental regulations could prevent, delay or limit introduction or sale of our products and resultin the failure to achieve revenues or maintain our operations. CytoSorb has already achieved marketing authorization in the EU under the CE marking process and the Medical Devices Directive. It ismanufactured at our manufacturing facility in New Jersey under ISO 13485 Full Quality Systems certification. The manufacturing and marketing of ourproducts will be subject to extensive and rigorous government regulation in the EU, as well as in the U.S. and in other countries. In the U.S. and othercountries, the process of obtaining and maintaining required regulatory approvals is lengthy, expensive, and uncertain. There can be no assurance that wewill ever obtain the necessary additional approvals to sell our products in the United States or other non-EU countries. Even if we do ultimately receive FDAapproval for any of our products, we will be subject to extensive ongoing regulation. While we have received approval from our Notified Body to apply theCE Mark to our CytoSorb device, we will be subject to extensive ongoing regulation and auditing requirements to maintain the CE Mark. Our products will be subject to international regulation as medical devices under the Medical Devices Directive. In Europe, which we expect toprovide the initial market for our products, the Notified Body and Competent Authority govern, where applicable, development, clinical studies, labeling,manufacturing, registration, notification, clearance or approval, marketing, distribution, record keeping, and reporting requirements for medical devices.Different regulatory requirements may apply to our products depending on how they are categorized by the Notified Body under these laws. Currentinternational regulations classify our CytoSorb device as a Class IIb device. Even though we have received CE Mark certification of the CytoSorb device,there can be no assurance that we will be able to continue to comply with the required annual auditing requirements or other international regulatoryrequirements that may be applicable. In addition, there can be no assurance that government regulations applicable to our products or the interpretation ofthose regulations will not change. The extent of potentially adverse government regulation that might arise from future legislation or administrative actioncannot be predicted. There can be no assurances that reimbursement will be granted or that additional clinical data will be required to establishreimbursement. We have conducted limited clinical studies of our CytoSorb device. Clinical and pre-clinical data is susceptible to varying interpretations, which coulddelay, limit or prevent additional regulatory clearances. To date, we have conducted limited clinical studies on our CytoSorb product. There can be no assurance that we will successfully completeadditional clinical studies necessary to receive additional regulatory approvals in markets not covered by the CE Mark. While studies conducted by us andothers have produced results we believe to be encouraging and indicative of the potential efficacy of our products and technology, data already obtained, orin the future obtained, from pre-clinical studies and clinical studies do not necessarily predict the results that will be obtained from later pre-clinical studiesand clinical studies. Moreover, pre-clinical and clinical data are susceptible to varying interpretations, which could delay, limit or prevent additionalregulatory approvals. A number of companies in the medical device and pharmaceutical industries have suffered significant setbacks in advanced clinicalstudies, even after promising results in earlier studies. The failure to adequately demonstrate the safety and effectiveness of an intended product underdevelopment could delay or prevent regulatory clearance of the device, resulting in delays to commercialization, and could materially harm our business.Even though we have received approval to apply the CE Mark to our CytoSorb device as a cytokine filter, there can be no assurance that we will be able toreceive approval for other potential applications of CytoSorb, or that we will receive regulatory clearance from other targeted regions or countries. 42 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We rely extensively on research and testing facilities at various universities and institutions, which could adversely affect us should we lose access to thosefacilities. At the same time, relationships with these individuals and entities are the subject of heightened scrutiny and may present the potential for futurehealthcare enforcement risk. Although we have our own research laboratories and clinical facilities, we collaborate with numerous institutions, universities and commercialentities to conduct research and studies of our products. We currently maintain a good working relationship with these parties. However, should the situationchange, the cost and time to establish or locate alternative research and development facilities could be substantial and delay gaining CE Mark for otherpotential applications of our products, our other product candidates or technologies, and/or FDA approval and commercializing our products. In addition, ourinteractions, communications, and financial relationships with these individuals and entities present future healthcare enforcement risks. We are and will be exposed to product liability risks, and clinical and preclinical liability risks, which could place a substantial financial burden upon usshould we be sued. Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing ofmedical devices. We cannot be sure that claims will not be asserted against us. A successful liability claim or series of claims brought against us could have amaterial adverse effect on our business, financial condition and results of operations. We cannot give assurances that we will be able to continue to obtain or maintain adequate product liability insurance on acceptable terms, if at all,or that such insurance will provide adequate coverage against potential liabilities. Claims or losses in excess of any product liability insurance coverage thatwe may obtain could have a material adverse effect on our business, financial condition and results of operations. Certain university and other relationships are important to our business and may potentially result in conflicts of interests. Dr. John Kellum and others are critical care advisors and consultants of ours and are associated with institutions such as the University of PittsburghMedical Center. Their association with these institutions may currently or in the future involve conflicting interests in the event they or these institutionsenter into consulting or other arrangements with competitors of ours. We have limited manufacturing experience, and once our products are approved, we may not be able to manufacture sufficient quantities at an acceptablecost, or without shut-downs or delays. In March 2011, we received approval from our Notified Body to apply the CE Mark to our CytoSorb device for commercial sale as a cytokine filter.We also achieved ISO 13485:2003 Full Quality Systems certification, an internationally recognized quality standard designed to ensure that medical devicemanufacturers have the necessary comprehensive management systems in place to safely design, develop, manufacture and distribute medical devices in theEU. We manufacture CytoSorb at our manufacturing facilities in New Jersey for sale in the EU and for additional clinical studies. Manufacturers andmanufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing proceduresconform to current Good Manufacturing Practices (“cGMP”). As such, we are subject to continual review and periodic inspections to assess compliance withcGMP as required by our International notified body and those FDA regulations governing companies that export medical products for sale outside theUnited States. Accordingly, we must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, productionand quality control. We have limited experience in establishing, supervising and conducting commercial manufacturing. If we or the third-partymanufacturers of our products fail to adequately establish, supervise and conduct all aspects of the manufacturing processes, we may not be able tocommercialize our products. While we currently believe we have established sufficient production capacity to supply potential near term demand for the CytoSorb device, wewill need to scale up and increase our manufacturing capabilities in the future. No assurance can be given that we will be able to successfully scale up ourmanufacturing capabilities or that we will have sufficient financial or technical resources to do so on a timely basis or at all. 43 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Due to our limited marketing, sales and distribution experience, we may be unsuccessful in our efforts to sell our products. We expect to enter into agreements with third parties for the commercial marketing, and distribution of our products. There can be no assurance thatparties we may engage to market and distribute our products will: ·satisfy their financial or contractual obligations to us; ·adequately market our products; or ·not offer, design, manufacture or promote competing products. If for any reason any party we engage is unable or chooses not to perform its obligations under our marketing and distribution agreement, we wouldexperience delays in product sales and incur increased costs, which would harm our business and financial results. Our results of operations can be significantly affected by foreign currency fluctuations and regulations. A significant portion of our revenues is currently derived in the local currencies of the foreign jurisdictions in which our products are sold.Accordingly, we are subject to risks relating to fluctuations in currency exchange rates. In the future, and especially as we further expand our sales efforts ininternational markets, our customers will increasingly make payments in non-U.S. currencies. Fluctuations in foreign currency exchange rates could affect ourrevenues, operating costs and operating margins. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency. We cannotpredict the effect of future exchange rate fluctuations on our operating results. If we are unable to convince physicians and other health care providers as to the benefits of our products, we may incur delays or additional expense in ourattempt to establish market acceptance. Broad use of our products may require physicians and other health care providers to be informed about our products and their intended benefits. Thetime and cost of such an educational process may be substantial. Inability to successfully carry out this education process may adversely affect marketacceptance of our products. We may be unable to educate physicians regarding our products in sufficient numbers or in a timely manner to achieve ourmarketing plans or to achieve product acceptance. Any delay in physician education may materially delay or reduce demand for our products. In addition, wemay expend significant funds towards physician education before any acceptance or demand for our products is created, if at all. The market for our products is rapidly changing and competitive, and new devices and drugs, which may be developed by others, could impair our abilityto maintain and grow our business and remain competitive. The medical device and pharmaceutical industries are subject to rapid and substantial technological change. Developments by others may renderour technologies and products noncompetitive or obsolete. We also may be unable to keep pace with technological developments and other market factors.Technological competition from medical device, pharmaceutical and biotechnology companies, universities, governmental entities and others diversifyinginto the field is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities and budgets thanwe do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. Our business could be harmed by adverse economic conditions in Germany, our primary geographical market, or by economic and/or political instabilityin the EU caused by Brexit, or other factors. For the year ended December 31, 2017, we derived a majority of our net product sales from sales in Germany. Despite modest European and globalgrowth, there are many economic and political issues that could negatively impact the health of Germany’s economy, the broader EU economy, and the worldeconomy overall. Examples include the uncertainty over the United Kingdom’s intended exit from the EU, also known as “Brexit,” economic instability in anumber of EU member countries, and changes in the political leadership in the EU and United States. Germany and other European countries face additionalrisks to their local economies, some of which include the impact of foreign exchange fluctuations, unemployment, tightening of monetary policy, theeconomic burden of immigration, diminished liquidity and reliance on debt, the rising cost of healthcare, and other factors. In addition, the Germangovernment, insurance companies, health maintenance organizations and other payers of healthcare costs continue to focus on healthcare reform andcontainment of healthcare costs. We cannot predict whether Germany’s economy will continue to grow or decline consistent with the overall globaleconomy, which decline would negatively impact the demand for medical devices and healthcare technologies generally and lead to reduced spending onthe products we provide. In addition, continued healthcare cost containment efforts may result in lower prices and a reduction or elimination ofreimbursement for our products. Due to the concentration of our product sales in this country, any of the foregoing may have a negative impact on ourrevenues, business operations and financial condition. 44 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our business may be negatively affected if the United States and/or the countries in which we sell our products participate in wars, military actions or areotherwise the target of international terrorism. Involvement in a war or other military action or international acts of terrorism may cause significant disruption to commerce throughout the world.To the extent that such disruptions result in (i) delays or cancellations of customer orders, (ii) a general decrease in consumer spending on healthcaretechnology, (iii) our inability to effectively market and distribute our products globally or (iv) our inability to access capital markets, our business and resultsof operations could be materially and adversely affected. We are unable to predict whether acts of international terrorism or the involvement in a war or othermilitary actions by the United States and/or the countries in which we sell our products will result in any long-term commercial disruptions or if suchinvolvement or responses will have any long-term material adverse effect on our business, results of operations, or financial condition. We could be adversely affected by violations of the Foreign Corrupt Practices Act and similar worldwide anti-bribery laws. We are subject to the Foreign Corrupt Practices Act (the “FCPA”), which generally prohibits companies and their intermediaries from makingpayments to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage. We are also subjectto anti-bribery laws in the jurisdictions in which we operate. Although we have policies and procedures designed to ensure that we, our employees and ouragents comply with the FCPA and other anti-bribery laws, there is no assurance that such policies or procedures will protect us against liability under theFCPA or other laws for actions taken by our agents, employees and intermediaries with respect to our business or any businesses that we acquire. We dobusiness in a number of countries in which FCPA violations have recently been enforced. Failure to comply with the FCPA, other anti-bribery laws or otherlaws governing the conduct of business with foreign government entities, including local laws, could disrupt our business and lead to severe criminal andcivil penalties, including imprisonment, criminal and civil fines, loss of our export licenses, suspension of our ability to do business with the federalgovernment, denial of government reimbursement for our products and/or exclusion from participation in government healthcare programs. Other remedialmeasures could include further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinaryactions, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity. We could also beadversely affected by any allegation that we violated such laws. We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirementsand subject us to liability if we are not in compliance with applicable laws. Our products are subject to export control and import laws, tariffs, and regulations, including the U.S. Export Administration Regulations, U.S.Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign AssetsControls. Exports of our products must be made in compliance with these laws, tariffs, and regulations. If we fail to comply with these laws, tariffs, andregulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or importprivileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees ormanagers. In addition, changes in our products or changes in applicable export or import laws, tariffs, and regulations may create delays in the introduction andsale of our products in international markets or, in some cases, prevent the export or import of our products to certain countries, governments or personsaltogether. Any change in export or import laws and regulations, shift in the enforcement or scope of existing laws, tariffs, and regulations, or change in thecountries, governments, persons, products, or technologies targeted by such laws, tariffs, and regulations, could also result in decreased use of our products, orin our decreased ability to export or sell our products to existing or potential customers. Any decreased use of our products or limitation on our ability toexport or sell our products would likely adversely affect our business, financial condition and results of operations. Cyberattacks and other security breaches could compromise our proprietary and confidential information which could harm our business and reputation. In the ordinary course of our business, we generate, collect and store proprietary information, including intellectual property and businessinformation. The secure storage, maintenance, and transmission of and access to this information is important to our operations and reputation. Computerhackers may attempt to penetrate our computer systems and, if successful, misappropriate our proprietary and confidential information including e-mails andother electronic communications. In addition, an employee, contractor, or other third-party with whom we do business may attempt to obtain suchinformation, and may purposefully or inadvertently cause a breach involving such information. While we have certain safeguards in place to reduce the riskof and detect cyber-attacks, our information technology networks and infrastructure may be vulnerable to unpermitted access by hackers or other breaches, oremployee error or malfeasance. Any such compromise of our data security and access to, or public disclosure or loss of, confidential business or proprietaryinformation could disrupt our operations, damage our reputation, provide our competitors with valuable information, and subject us to additional costs whichcould adversely affect our business. 45 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Risks Connected to Our Securities The price of our Common Stock has been highly volatile due to factors that will continue to affect the price of our stock. On December 3, 2014, we effected a twenty-five-for-one (25:1) reverse split of our common stock. Immediately after the reverse stock split, wechanged our state of incorporation from the State of Nevada to the State of Delaware pursuant to an Agreement and Plan of Merger, dated December 3, 2014,whereby we merged with and into our recently formed, wholly-owned Delaware subsidiary. On December 17, 2014, we received approval for up-listing toNasdaq and our common stock began trading on Nasdaq on December 23, 2014 under the symbol “CTSO.” Our common stock closed as high as $7.05 and aslow as $3.30 per share between January 1, 2017 and December 31, 2017 on Nasdaq. On February 28, 2018, the closing price of our common stock, as reportedon Nasdaq, was $7.85. Historically, medical device company securities such as our common stock have experienced extreme price fluctuations. Some of thefactors leading to this volatility include, but are not limited to: ·fluctuations in our operating results; ·announcements of product releases by us or our competitors; ·announcements of acquisitions and/or partnerships by us and our competitors; and ·general market conditions. There is no assurance that the price of our common stock will not continue to be volatile. Directors, executive officers and principal stockholders own a significant percentage of the shares of common stock, which will limit your ability toinfluence corporate matters. Our directors, executive officers and principal stockholders together beneficially own a significant percentage of the voting control of the commonstock on a fully diluted basis. Accordingly, these stockholders could have a significant influence over the outcome of any corporate transaction or othermatter submitted to stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets and also could prevent orcause a change in control. The interests of these stockholders may differ from the interests of our other stockholders. Third parties may be discouraged frommaking a tender offer or bid to acquire us because of this concentration of ownership. Our Board of Directors may, without stockholder approval, issue and fix the terms of shares of preferred stock and issue additional shares of CommonStock adversely affecting the rights of holders of our common stock. On December 3, 2014, we effected a twenty-five-for-one (25:1) reverse split of our common stock. Immediately after the reverse stock split, wechanged our state of incorporation from the State of Nevada to the State of Delaware pursuant to an Agreement and Plan of Merger, dated December 3, 2014,whereby we merged with and into our recently formed, wholly-owned Delaware subsidiary. Pursuant to the Agreement and Plan of Merger effecting themerger, we adopted the certificate of incorporation, as amended and restated, and bylaws of our Delaware subsidiary as our certificate of incorporation andbylaws at effective time of the merger. As a result, our certificate of incorporation, as amended and restated, authorizes the issuance of up to 5,000,000 sharesof “blank check” preferred stock, with such designation rights and preferences as may be determined from time to time by the Board of Directors. Currently,our certificate of incorporation, as amended and restated, which was effective December 3, 2014, authorizes the issuance of up to 50,000,000 shares ofcommon stock, of which approximately 21,026,000 shares remain available for issuance as of December 31, 2017 and may be issued by us withoutstockholder approval. Anti-takeover provisions in our charter documents and under Delaware law could prevent or delay transactions that our stockholders may favor and mayprevent stockholders from changing the direction of our business or our management. After giving effect to our merger into our wholly-owned Delaware subsidiary, provisions of our certificate of incorporation, as amended and restated,and bylaws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable, including transactions in which youmight otherwise receive a premium for your shares, and may also frustrate or prevent any attempt by stockholders to change the direction or management ofus. For example, these provisions: ·authorize the issuance of “blank check” preferred stock without any need for action by stockholders; ·eliminate the ability of stockholders to call special meetings of stockholders; ·prohibit stockholder action by written consent; and ·establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be actedon by stockholders at stockholder meetings. 46 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Compliance with changing corporate governance and public disclosure regulations may result in additional expense. Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure,including the Sarbanes-Oxley Act of 2002, new SEC regulations will require an increased amount of management attention and external resources. Inaddition, prior to the merger, our current management team was not subject to these laws and regulations, as we were a private corporation. We intend tocontinue to invest all reasonably necessary resources to comply with evolving standards, which may result in increased general and administrative expenseand a diversion of management time and attention from revenue-generating activities to compliance activities. Our common stock is thinly traded on The Nasdaq Capital Market exchange and no assurances can be made about stock performance, liquidity, ormaintenance of our Nasdaq listing. Prior to December 23, 2014, our common stock was quoted on the OTCQB, which provided significantly less liquidity than a securities exchange(such as the New York Stock Exchange or the Nasdaq Stock Market). On December 17, 2014, our common stock was approved for trading on Nasdaq.Beginning on December 23, 2014, our common stock began trading on Nasdaq under the symbol “CTSO.” Although currently listed on Nasdaq, there can beno assurance that we will continue to meet Nasdaq’s minimum listing requirements or that of any other national exchange. In addition, there can be noassurances that a liquid market will be created for our common stock. If we are unable to maintain listing on Nasdaq or if a liquid market for our commonstock does not develop, our common stock may remain thinly traded. Future sales of our common stock may cause our share price to fall. In November 2015, we entered into a Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. to offer shares of our commonstock from time to time through “at-the-market” offerings, pursuant to which we offer and sell shares of our common stock for an aggregate offering price ofup to $25 million. We are not obligated to make or continue to make any sale of shares of our common stock under the “at-the-market” offerings. Althoughany sale of securities pursuant to the “at-the-market” offerings will result in a concomitant increase in cash for each share sold, it may result in shareholderdilution and may cause our share price to fall. Item 1B.Unresolved Staff Comments. None. Item 2.Properties. We currently operate a facility near Princeton, New Jersey with approximately 15,745 sq. ft., housing research laboratories, clinical manufacturingoperations and administrative offices, under a lease agreement which expires in May 2019. We expect to secure new, expanded facilities upon expiration ofthis lease. In the opinion of management, the leased properties are adequately insured, are in good condition and suitable for the conduct of our business. Wealso collaborate with numerous institutions, universities and commercial entities who conduct research and testing of our products at their facilities. Ourmonthly base rent as of September 2017 is approximately $28,200 and additionally we reimburse the landlord for monthly operating expenses ofapproximately $21,000. We also operate a facility in Berlin, Germany housing our sales and administrative offices and warehouse space. We entered into a lease for thisoffice on September 1, 2016. The lease expires on August 31, 2021. We rent this space for $7,139 per month. Item 3.Legal Proceedings. We are from time to time subject to claims and litigation arising in the ordinary course of business. We intend to defend vigorously against anyfuture claims and litigation. We are not currently a party to any legal proceedings. Item 4.Mine Safety Disclosures. Not applicable. 47 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Beginning on December 23, 2014, our common stock began trading on Nasdaq under the symbol “CTSO.” Previously, the Company’s commonstock traded in the over-the counter-market on the OTC Bulletin Board. Price Range of Common Stock The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by Nasdaq. High Low 2016 First quarter $5.87 $3.11 Second quarter $4.99 $3.87 Third quarter $6.66 $4.49 Fourth quarter $6.90 $4.45 2017 First quarter $6.70 $4.35 Second quarter $5.29 $3.30 Third quarter $6.30 $4.25 Fourth quarter $7.05 $5.80 Approximate Number of Equity Security Holders As of February 15, 2018, there were approximately 6,600 stockholders of record. Because shares of our Common Stock are held by depositaries,brokers and other nominees, the number of beneficial holders of our shares is larger than the number of stockholders of record. Dividends We have not declared or paid any cash dividends on our common stock, and we do not anticipate declaring or paying cash dividends for theforeseeable future. We are not subject to any legal restrictions respecting the payment of dividends, except that we may not pay dividends if the paymentwould render us insolvent. Any future determination as to the payment of cash dividends on our common stock will be at the discretion of our board ofdirectors and will depend on our financial condition, operating results, capital requirements and other factors that our board of directors considers to berelevant. Equity Compensation Plan Plan category Number of securities tobe issued upon exercise ofoutstanding options,warrants and rights Weighted-averageexercise price ofoutstanding options,warrants and rights Number of securities remainingavailable for future issuance underequity compensation plans (excluding securities reflected incolumn (a)) (a) (b) (c) Equity compensation plans approved by security holders 1,956,710 $5.260 3,458,381 Equity compensation plans not approved by security holders 1,621,828 $3.895 162,892 Total 3,578,538 $4.641 3,621,273 48 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Stock Performance Graph The following graph shows the value of an investment of $100 on December 31, 2012 in each of CytoSorbents Corporation common stock, theRussell 2000 Index and the Nasdaq Biotech Index. All values assume reinvestment of the pretax value of dividends and are calculated as of December 31 st ofeach year. The historical stock price performance of the Company’s common stock shown in the performance graph is not necessarily indicative of futurestock price performance. CytoSorbents Corporation vs. Russell 2000 Index and Nasdaq Biotech IndexComparison of 5 Year Total Cumulative ReturnValue of a $100 Investment on December 31, 2012 Issuer Purchases of Securities There were no repurchases of the Company’s securities during the year ended December 31, 2017. 49 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Item 6.Selected Financial Data. The following table summarizes our selected financial data for the periods and as of the dates indicated, which have been derived from our auditedfinancial statements and related notes and should be read together with the section titled “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and with our consolidated financial statements and related notes, which are included elsewhere in this Annual Report. Year Ended December 31, 2017 2016(As Adjusted) 2015(As Adjusted) 2014(As Adjusted) 2013 Revenue: Sales $13,381,853 $8,206,036 $4,043,819 $3,135,387 $821,787 Grant income 1,768,901 1,321,807 735,863 978,271 1,600,880 Other revenue - - 11,934 9,167 - Total revenue 15,150,754 9,527,843 4,791,616 4,122,825 2,422,667 Cost of revenue 5,518,360 3,953,725 2,212,546 2,133,888 1,911,565 Gross margin 9,632,394 5,574,118 2,579,070 1,988,937 511,102 Operating expenses: Research and development 4,049,436 4,783,491 3,871,069 2,431,759 1,738,938 Legal, financial and other consulting 1,339,493 1,184,788 1,089,145 896,847 908,644 Selling general and administrative 14,086,063 11,097,964 6,922,515 5,553,167 2,576,751 Total operating expenses 19,474,992 17,066,243 11,882,729 8,881,773 5,224,333 Loss from Operations (9,842,598) (11,492,125) (9,303,659) (6,892,836) (4,713,231)Other income (expense): Interest income/(expense), net (749,076) (231,804) (9,301) (310,024) (422,843)Foreign currency transaction gain (loss) 1,454,136 (358,077) (507,276) (385,956 - Total other income (expense), net 705,060 (589,881) (497,975) (695,980) (422,843)Loss before benefit from income taxes (9,137,538) (12,082,006) (9,801,634) (7,588,816) (5,136,074)Benefit from income taxes 676,739 318,550 324,606 385,642 458,279 Net loss (8,460,799) (11,763,456) (9,477,028) (7,203,174) (4,677,795)Dividends 335,731 - - 9,266,673 2,395,520 Net loss available to common stockholders, basic anddiluted (8,796,530) (11,763,456) (9,477,208) (16,469,847) (7,073,315)Weighted average common shares outstanding, basicand diluted 27,613,911 25,433,719 24,885,809 14,382,813 9,440,763 Net loss per share, basic and diluted $(0.32) $(0.46) $(0.38) $(1.15) $(0.75) As of December 31, 2017 2016 (As Adjusted) 2015 (As Adjusted) 2014(As Adjusted) 2013 Consolidated Balance Sheet Data: Cash and cash equivalents $17,321,862 $5,245,178 $5,316,851 $3,605,280 $2,183,030 Short term investments - - 2,192,000 1,944,547 - Working capital 12,281,009 3,550,353 8,452,677 6,082,982 422,035 Total assets 24,103,307 9,693,844 11,254,366 8,468,625 4,045,735 Preferred stock - - - - 15,246,350 Accumulated deficit (152,312,636) (143,516,106) (131,752,650) (122,275,622) (105,805,775)Total stockholders' equity(deficit) 10,262,835 1,337,459 9,846,715 6,944,601 (14,265,547) 50 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of the results of operations and financial condition for the fiscal years ended December 31, 2017, 2016 and2015 should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this Report. Overview We are a leader in critical care immunotherapy using blood purification technology to treat deadly inflammation in hospitalized patients around theworld. The technology is based upon biocompatible, highly porous polymer sorbent beads that are capable of extracting unwanted substances from bloodand other bodily fluids. The technology is protected by 15 issued and 2 allowed but not yet issued U.S. patents, multiple issued foreign patents and multipleapplications pending both in the U.S. and internationally. Our intellectual property consist of composition of matter, materials, methods of production,systems incorporating the technology and multiple medical uses with expiration dates ranging from two to 15 years. In March 2011, we received EU regulatory approval under the CE Mark and Medical Devices Directive for our flagship product, CytoSorb, as anextracorporeal cytokine filter indicated for use in clinical situations where cytokines are elevated. The goal of CytoSorb is to prevent or treat organ failure byreducing cytokine storm and the potentially deadly systemic inflammatory response syndrome in diseases such as sepsis, trauma, burn injury, acuterespiratory distress syndrome, pancreatitis, liver failure, and many others. Organ failure is the leading cause of death in the ICU, and remains a major unmetmedical need, with little more than supportive care therapy (e.g., mechanical ventilation, dialysis, vasopressors, fluid support, ECMO, etc.) as treatmentoptions. By potentially preventing or treating organ failure, CytoSorb may improve clinical outcome, including survival, while reducing the need for costlyICU treatment, thereby potentially saving significant healthcare costs. CytoSorb is also being used during and after cardiac surgery to remove inflammatorymediators, such as cytokines and free hemoglobin, which can lead to post-operative complications including multiple organ failure. Our CE Mark enables CytoSorb to be sold throughout all 28 countries of the EU. In addition, many countries outside the EU accept CE Markapproval for medical devices, but may also require registration with or without additional clinical studies. The broad approved indication enables CytoSorbto be used “on-label” in diseases where cytokines are elevated including, but not limited to, critical illnesses such as those mentioned above, autoimmunedisease flares, cancer cachexia, and many other conditions where cytokine-induced inflammation plays a detrimental role. As part of the CE Mark approval process, we completed our randomized, controlled, European Sepsis Trial amongst fourteen trial sites in Germany in2011, with enrollment of 100 patients with sepsis and respiratory failure. The trial established that CytoSorb was safe in this critically-ill population, and thatit was able to broadly reduce key cytokines in the blood of these patients. We plan to conduct larger, prospective studies in septic patients in the future toconfirm the European Sepsis Trial findings. In addition to CE Mark approval, we also achieved ISO 13485:2003 Full Quality Systems certification, an internationally recognized qualitystandard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design, develop,manufacture and distribute medical devices in the EU. We manufacture CytoSorb at our manufacturing facilities in New Jersey for sale and for additionalclinical studies. We also established a dedicated reimbursement path for CytoSorb in Germany and a reimbursement for CytoSorb in Austria. From September 2011 through June 2012, we began a controlled market release of CytoSorb in select geographic territories in Germany with theprimary goal of preparing for commercialization of CytoSorb in Germany in terms of manufacturing, reimbursement, logistics, infrastructure, marketing,contacts, and other key issues. In late June 2012, following the establishment of our European subsidiary, CytoSorbents Europe GmbH, we began the commercial launch ofCytoSorb in Germany with the hiring of Dr. Christian Steiner as Vice President of Sales and Marketing and three additional sales representatives. The fourthquarter of 2012 represented the first full quarter of direct sales with the full sales team in place. During this period, we expanded our direct sales efforts toinclude both Austria and Switzerland. At the end of 2017, we had hundreds of KOLs in our commercialized territories worldwide in critical care, cardiacsurgery, and blood purification who were either using CytoSorb or supporting its use in clinical practice or clinical trials. In March 2016, we established CytoSorbents Switzerland GmbH, a wholly-owned subsidiary of CytoSorbents Europe GmbH, to conduct marketingand direct sales in Switzerland. This subsidiary began operations during the second quarter of 2016. In 2017, we further expanded our direct sales efforts intoBelgium and Luxemburg. As of February 15, 2018, our European sales, marketing and clinical support team includes 18 direct sales people, one contract sales person and 13sales support staff. 51 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We have complemented our direct sales efforts with sales to distributors and/or corporate partners. In 2013, we reached agreements with distributorsin the United Kingdom, Ireland, Turkey, Russia, and the Netherlands. In 2014, we announced distribution of CytoSorb in the Middle East, including SaudiArabia, the United Arab Emirates, Kuwait, Qatar, Bahrain, and Oman (the GCC) and Yemen, Iraq, and Jordan through an exclusive agreement with TechnoOrbits, we entered into an exclusive agreement with Smart Medical Solutions S.R.L., to distribute CytoSorb for critical care applications in Romania and theneighboring Republic of Moldova. In 2015, we announced exclusive distribution agreements with Aferetica SRL to distribute CytoSorb in Italy,AlphaMedix Ltd. to distribute CytoSorb in Israel, TekMed Pty Ltd. to distribute CytoSorb in Australia and New Zealand, and Hoang Long Pharma todistribute CytoSorb in Vietnam. In June 2016, we announced an exclusive distribution agreement with Palex Medical SA to distribute CytoSorb in Spain andPortugal. In September 2016, we announced an exclusive agreement with Armaghan Salamat Kish Group (Arsak) to distribute CytoSorb in Iran. In October2016, we announced an exclusive agreement with Foxx Medical Chile SpA to distribute CytoSorb in Chile. In July 2017, we announced an exclusiveagreement with Droguería, Ramón, González, Revilla (DRGR) S.A. to distribute CytoSorb in Panama. We have been working to expand the number and scope of our strategic partnerships. In September 2013, we entered into a strategic partnership withBiocon Ltd., India’s largest biopharmaceuticals company, with an initial distribution agreement for India and select emerging markets, under which Bioconhas the exclusive commercialization rights for CytoSorb initially focused on sepsis. In October 2014, the Biocon partnership was expanded to include allcritical care applications and cardiac surgery. In addition, Biocon committed to higher annual minimum purchases of CytoSorb to maintain distributionexclusivity and committed to conduct and publish results from multiple investigator initiated studies and patient case studies. In December 2017, the Bioconpartnership was further expanded to include exclusive distribution of CytoSorb in Malaysia. Under the terms of the agreement, Biocon has committed tominimum annual purchases in Malaysia to maintain exclusivity this territory. In addition, the term of the original agreement was extended to December 2022. In December 2014, we entered into a multi-country strategic partnership with Fresenius Medical Care AG & Co KGaA (“Fresenius”) tocommercialize the CytoSorb therapy. Under the terms of this agreement, Fresenius has exclusive rights to distribute CytoSorb for critical care applications inFrance, Poland, Sweden, Denmark, Norway, and Finland. The partnership allows Fresenius to offer an innovative and easy way to use blood purificationtherapy for removing cytokines in patients that are treated in the ICU. To promote the success of CytoSorb, Fresenius agreed to also engage in the ongoingclinical development of the product. This includes the support and publication of a number of small case series and patient case reports as well as thepotential for future larger, clinical collaborations. Fresenius launched the product in these six countries in May 2016. In January 2017, the Freseniuspartnership was expanded. The terms of the revised three-year agreement extend Fresenius’ exclusive distributorship of CytoSorb for all critical careapplications in their existing territories through 2019 and include guaranteed minimum quarterly orders and payments, evaluable every one and a half years.In addition, we have entered into a new comprehensive co-marketing agreement with Fresenius. Under the terms of the agreement, CytoSorbents andFresenius will jointly market CytoSorb to Fresenius’ critical care customer base in all countries where CytoSorb is being actively commercialized. CytoSorbwill continue to be sold by our direct sales force or through our international network of distributors and partners, while Fresenius will sell all ancillaryproducts to their customers. Fresenius will also provide a written endorsement of CytoSorb for use with their multiFiltrate and multiFiltratePRO acute caredialysis machines that can be used by us and our distribution partners to promote CytoSorb worldwide. Training and preparation for this co-marketingprogram began in five initial countries in 2017 and is continuing, with implementation of the co-marketing program in additional countries planned for thefuture. In September 2016, we entered into a multi-country strategic partnership with Terumo Cardiovascular Group to commercialize CytoSorb for cardiacsurgery applications. Under the terms of the agreement, Terumo has exclusive rights to distribute the CytoSorb cardiopulmonary bypass (“CPB”) procedurepack for intra-operative use during cardiac surgery in France, Sweden, Denmark, Norway, Finland and Iceland. Terumo launched the product in these sixcountries in December 2016. In March 2017, we entered into a partnership with Dr. Reddy’s Laboratories Ltd. for the South African market. Under the terms of the agreement, Dr.Reddy’s has the exclusive right to distribute CytoSorb for intensive care, cardiac surgery, and other hospital applications in South Africa. This is a multi-yearagreement and is subject to annual minimum purchases of CytoSorb to maintain exclusivity. We are currently evaluating other potential distributor and strategic partner networks in other major countries where we are approved to market thedevice. Concurrent with our commercialization plans, we intend to conduct or support additional clinical studies in sepsis, cardiac surgery, and other criticalcare diseases to generate additional clinical data to expend the scope of clinical experience for marketing purposes, to increase the number of treated patients,and to support potential future publications. We have completed a single arm, dose ranging trial in Germany amongst several clinical trial sites to evaluatethe safety and efficacy of CytoSorb when used 24 hours per day for seven days, each day with a new device, and are conducting final statistical analysis ofthe data. Patients are being stratified for age, cytokine levels, and co-morbid illnesses in this matched pairs analysis. 52 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In addition, we now have more than 60 investigator-initiated studies planned, enrolling or completed in Germany, Austria, Switzerland, theNetherlands, Hungary, the United Kingdom, India, and the U.S. Approximately 20 of these studies are currently enrolling patients. Others have beencompleted. These trials, which are funded and supported by well-known university hospitals and KOLs, are the equivalent of Phase II clinical studies. Theyhave provided and will continue to provide invaluable information regarding the success of the device in the treatment of sepsis, cardiac surgery, trauma, andmany other indications, and if successful, will be integral in helping to drive additional usage and adoption of CytoSorb. In February 2015, the FDA approved our Investigational Device Exemption (“IDE”) application to commence a planned U.S. cardiac surgeryfeasibility study called REFRESH I (REduction of FREe Hemoglobin) amongst 20 patients and three U.S. clinical sites. The FDA subsequently approved anamendment to the protocol, expanding the trial to be a 40 patient randomized controlled study (20 treatment, 20 control) in eight clinical centers. REFRESHI represented the first part of a larger clinical trial strategy intended to support the approval of CytoSorb in the U.S. for intra-operative use during cardiacsurgery. The REFRESH I study was designed to evaluate the safety and feasibility of CytoSorb when used intra-operatively in a heart-lung machine to reduceplasma free hemoglobin (pfHb) and cytokines in patients undergoing complex cardiac surgery. The study was not powered to measure effect on clinicaloutcomes. The length, complexity and invasiveness of these procedures cause hemolysis and inflammation, leading to high levels of plasma freehemoglobin, cytokines, activated complement, and other substances. These inflammatory mediators are correlated with the incidence of serious post-operative complications such as kidney injury, renal failure and other organ dysfunction. The goal of CytoSorb is to actively remove these inflammatory andtoxic substances as they are being generated during the surgery and reduce complications. Enrollment was completed with 46 patients. A total of 38 patientswere evaluable for pfHb and completed all aspects of the study. The primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma freehemoglobin levels, respectively. On October 5, 2016, we announced positive top-line safety data. In addition, following a detailed review of all reportedadverse events in a total of 46 enrolled patients, the DSMB found no serious device related adverse events with the CytoSorb device, achieving the primarysafety endpoint of the trial. In addition, the therapy was well-tolerated and technically feasible, implementing easily into the cardiopulmonary bypass circuitwithout the need for an additional external blood pump. This study represents the first randomized controlled trial demonstrating the safety of intra-operative CytoSorb use in patients undergoing high risk cardiac operations. Investigators of the REFRESH I trial submitted an abstract with data, including free hemoglobin data, from the REFRESH I trial which was selectedfor a podium presentation at the American Association of Thoracic Surgery conference on May 1, 2017. On May 5, 2017, we announced additionalREFRESH I data, including data from the study on the reduction of pfHb and activated complement , and disclosed that investigators of the study havesubmitted a manuscript of the REFRESH I trial for publication. In December 2017, the FDA approved our IDE application for our REFRESH 2 study. The REFRESH 2 study is a pivotal trial designed to providethe key safety and efficacy data needed to support United States regulatory approval for the use of CytoSorb in cardiac surgery, which we are planning topursue via the premarket approval (PMA) pathway. The IDE approval allows us to aggressively move forward with our clinical trial sites to complete the finalsteps prior to the official start of the study. The REFRESH 2 pivotal study will assess the effectiveness of intraoperative CytoSorb blood treatment onpostoperative acute kidney injury (AKI), the primary endpoint of the study and one of the most common adverse events in patients undergoing complexcardiac surgery. The REFRESH 2 trial is a randomized, controlled, multi-center, clinical trial designed to evaluate intraoperative CytoSorb use as a therapy toreduce the incidence and severity of AKI, as measured by Kidney Disease Improving Global Outcomes (KDIGO) criteria, following complex cardiac surgery. The trial will enroll up to 400 patients at increased risk of cardiovascular surgery associated AKI, undergoing elective, non-emergent open heart surgery foreither valve replacement, or aortic reconstruction with hypothermic cardiac arrest. The Company has initiated discussions with previous trial sites thatparticipated in the REFRESH I study that are familiar with the CytoSorb device and intraoperative use during CPB. The Company believes using sites thatpreviously participated in REFRESH I will accelerate the process of site startup and launch of REFRESH 2. The Company is ramping the trial, and has begunscreening patients at a key site involved in REFRESH I and is working to add additional centers experienced in the conduct of clinical trials in complexcardiac surgery. We anticipate that this study will take at least two years to complete, and could take longer if enrollment challenges and other factorscausing delays are encountered. The market focus of CytoSorb is prevention or treatment of organ failure in life-threatening conditions, including commonly seen illnesses in theICU such as infection and sepsis, trauma, burn injury, ARDS, and others. Severe sepsis and septic shock, a potentially life-threatening systemic inflammatoryresponse to a serious infection, accounts for approximately 10% to 20% of all ICU admissions and is one of the largest target markets for CytoSorb. Sepsis is amajor unmet medical need with no approved products in the U.S. or Europe to treat it. As with other critical care illnesses, multiple organ failure is theprimary cause of death in sepsis. When used with standard of care therapy, that includes antibiotics, the goal of CytoSorb in sepsis is to reduce the excessivelevels of cytokines and other inflammatory toxins, to help reduce the SIRS response and either prevent or treat organ failure. In addition to the sepsis indication, we intend to conduct or support additional clinical studies in sepsis, cardiac surgery, and other critical carediseases where CytoSorb could be used, such as ARDS, trauma, severe burn injury, acute pancreatitis, and other acute conditions that may benefit by thereductions of cytokines in the bloodstream. Some examples include the prevention of post-operative complications of cardiac surgery (cardiopulmonarybypass surgery) and damage to organs for transplant prior to organ harvest. We intend to generate additional clinical data to expand the scope of clinicalexperience for marketing purposes, to increase the number of treated patients, and to support potential future publications. 53 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our proprietary hemocompatible porous polymer bead technology forms the basis of a broad technology portfolio. Some of our products include: ·CytoSorb - an extracorporeal hemoperfusion cartridge approved in the EU for cytokine removal, with the goal of reducing SIRS andpreventing or treating organ failure. ·CytoSorb XL – an intended next generation successor to CytoSorb currently in advanced pre-clinical testing designed to reduce abroad range of cytokines and inflammatory mediators, including lipopolysaccharide (LPS) endotoxin, from blood. ·VetResQ - a broad spectrum blood purification adsorber designed to help treat deadly inflammation and toxic injury in animals withcritical illnesses such as septic shock, toxic shock syndrome, severe systemic inflammation, toxin-mediated diseases, pancreatitis,trauma, liver failure, and drug intoxication. ·HemoDefend – a development-stage blood purification technology designed to remove contaminants in blood transfusion products.The goal of HemoDefend is to reduce transfusion reactions and improve the safety of older blood. ·ContrastSorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove IV contrast from the blood of highrisk patients undergoing CT imaging with contrast, or interventional radiology procedures such as cardiac catheterization. The goal ofContrastSorb is to prevent contrast-induced nephropathy. ·DrugSorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove toxic chemicals from the blood (e.g., drugoverdose, high dose regional chemotherapy). ·BetaSorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove mid-molecular weight toxins, such as ¨2-microglobulin, that standard high-flux dialysis cannot remove effectively. The goal of BetaSorb is to improve the efficacy of dialysisor hemofiltration. We have been successful in obtaining technology development contracts from governmental agencies such as the National Institutes of Health andthe U.S. Department of Defense, including the Defense Advanced Research Projects Agency, or DARPA, the U.S. Army, U.S. Special Operations Command,and others. In August 2012, we were awarded a $3.8 million, five-year contract by DARPA for our “Dialysis-Like Therapeutics” (“DLT”) program to treat sepsis.DARPA has been instrumental in funding many of the major technological and medical advances since its inception in 1958, including development of theInternet, development of GPS, and robotic surgery. The DLT program in sepsis seeks to develop a therapeutic blood purification device that is capable ofidentifying the cause of sepsis (e.g., cytokines, toxins, pathogens, activated cells) and remove these substances in an intelligent, automated, and efficientmanner. Our contract was for advanced technology development of our hemocompatible porous polymer technologies to remove cytokines and a number ofpathogen and biowarfare toxins from blood. We have completed our work under the contract with DARPA and SSC Pacific under Contract No. N66001-12-C-4199, that provided for maximum funding of approximately $3,825,000. As of December 31, 2017, we have received approximately $3,825,000 in fundingunder this contract and no funding remains. In September 2013, the NHLBI awarded us a Phase I SBIR contract, (contract number HHSN-268201-300044C), valued at $203,351, to furtheradvance our HemoDefend blood purification technology for pRBC transfusions. The University of Dartmouth collaborated with us as a subcontractor on theproject, entitled “Elimination of blood contaminants from pRBCs using HemoDefend hemocompatible porous polymer beads.” The overall goal of thisprogram is to reduce the risk of potential side effects of blood transfusions, and help to extend the useful life of pRBCs. Our performance under this contracthas been completed. In October 2015, we were awarded a Phase II SBIR contract by the NHLBI to help advance our HemoDefend blood purification technology towardscommercialization for the purification of pRBC transfusions. The contract, entitled “pRBCs Contaminant Removal with Porous Polymer Beads” (contractnumber HHSN-268201-600006C), provides for maximum funding of approximately $1,522,000 over a two year period. As of December 31, 2017, wereceived approximately $1,153,000 and have approximately $369,000 remaining under this contract. In March 2016, we were awarded a Phase I SBIR contract for its development program entitled “Mycotoxin Absorption with HemocompatiblePorous Polymer Beads.” The purpose of this contract is to develop effective blood purification countermeasures for weaponized mycotoxins that can beeasily disseminated in water, food and air. This work is being funded by the U.S. Joint Program Executive Office for Chemical and Biological Defense, orJPEO-CBD, under contract number W911QY-16-P-0048 and provides for maximum funding of $150,000. As of December 31, 2017, we receivedapproximately $150,000 and no funding remains under this contract. 54 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In June 2016, we were awarded a Phase I Small Business Technology Transfer (“STTR”) contract for its development program entitled “Use ofHighly Porous Polymer Beads to Remove Anti-A and Anti-B antibodies from Plasma for Transfusion”. The purpose of this contract is to develop ourHemoDefend blood purification technology to potentially enable universal plasma. This work is being funded by the USAMRAA under contract W81XWH-16-C-0025 and provides for maximum funding of $150,000. As of December 31, 2017, we received approximately $150,000 and no funding remaining underthis contract. In July 2016, we were awarded a Phase I Small Business Innovation Research (“SBIR”) contract for its development program entitled “Investigationof a sorbent-based potassium adsorber for the treatment of hyperkalemia induced by traumatic injury and acute kidney injury in austere conditions”. Theobjective of this Phase I project is to develop two novel and distinct treatment options for life-threatening hyperkalemia. This work is being funded by theU.S. Army Medical Research Acquisition Activity (“USAMRAA”) under contract W81XWH-16-C-0080 and provides for maximum funding of approximately$150,000. As of December 31, 2017, we received approximately $150,000 and no funding remains under this contract. In January 2017, the Company was awarded a Phase II contract to continue development of CytoSorb for fungal mycotoxin blood purification. Thisprogram will focus on demonstrating the ability of CytoSorb to absorb mycotoxins in vivo and improve survival in animals. This contract, W911QY-17-C-0007, provides for maximum funding of $999,996 over two years. This program is funded by the Joint Program Executive Office - Chemical and BiologicalDefense (“CBD”) SBIR program. As of December 31, 2017, we received approximately $360,000 in funding under this contract and have approximately$640,000 remaining under this contract. In May 2017, the Company was awarded a Phase II STTR contract Titled “Use of Highly Porous Polymer Beads to Remove Anti-A and Anti-BAntibiotics from Plasma Transfusion”. The purpose of this contract is to continue development of our HemoDefend blood purification technology topotentially enable universal plasma. CytoSorbents will collaborate with researchers at Penn State University on this project. This contract provides formaximum funding of $999,070 over two years. This work is being funded by the USAMRAA under contract number W81XWH-17-C-0053. As of December31, 2017, we received approximately $280,000 and have approximately $719,000 remaining under this contract. In May 2017, the Company was awarded a Congressionally Directed Medical Research Program (“CDMRP”) Phase I contract to improve delayedevacuation and prolonged field care for severe burn injury via novel hemoadsorptive and hydration therapies. This work is being funded by the USAMRAAunder contract number W81WH-17-2-0013. This contract provides for maximum funding of $719,000 over four years. As of December 31, 2017, we receivedapproximately $71,000 and have approximately $648,000 remaining under this contract. In September 2017, the Company was awarded a Phase II SBIR contract for its development program entitled “Investigation of a sorbent-basedpotassium adsorber for the treatment of hyperkalemia induced by traumatic injury and acute kidney injury”. The purpose of this contract is to continuedevelopment of two novel and distinct treatment options for life-threatening hyperkalemia. This work is being funded by the USAMRAA under contractW81XWH-17-C-0142 and provides for maximum funding of $999,871. As of December 31, 2017, no funding has yet been received under this contract. Results of Operations Our financial statements have been presented on the basis that it is a going concern, which contemplates the realization of revenues and thesatisfaction of liabilities in the normal course of business. We have incurred losses from inception of operations. These factors raise substantial doubt aboutour ability to continue as a going concern. Comparison of the year ended December 31, 2017 and 2016 Revenues: For the year ended December 31, 2017, we generated total revenue, which includes product revenue and grant income, of approximately$15,151,000 as compared to revenues of approximately $9,528,000 for the year ended December 31, 2016, an increase of approximately $5,623,000, or 59%.Revenue from product sales was approximately $13,382,000 for the year ended December 31, 2017, as compared to approximately $8,206,000 in the yearended December 31, 2016, an increase of approximately $5,176,000 or 63%. This increase was largely driven by an increase in direct sales from both newcustomers and repeat orders from existing customers, along with an increase in distributor sales. Grant income increased by approximately $447,000, or 34%, to approximately $1,769,000 in 2017 from $1,322,000 in 2016 as a result of revenuereceived from new grants awarded during 2017. 55 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cost of Revenue: For the years ended December 31, 2017 and 2016, cost of revenue was approximately $5,518,000 and $3,954,000, respectively, an increase ofapproximately $1,564,000, or 40%. This increase is related to an increase in product cost of revenue of approximately $1,117,000 attributable to increasedsales in 2017. Product gross margins were approximately 71% for the year ended December 31, 2017, as compared to approximately 67% for the year endedDecember 31, 2016 due to a reduction in our product costs and a change the mix of direct and distributor sales. Grant income related expenses increased byapproximately $447,000 during the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to an increase in direct labor andother costs being deployed toward grant-funded activities during the year ended December 31, 2017 as compared to the year ended December 31, 2016. Gross Profit: Gross profit was approximately $9,632,000 for the year ended 2017, an increase of approximately $4,058,000 or 73%, over gross profit of$5,574,000 in 2016. This increase is entirely attributed to an increase in CytoSorb product sales during 2017. Research and Development Expenses: Our research and development costs were approximately $4,049,000 and $4,783,000 for the years ended December 31, 2017 and 2016, respectively,a decrease of approximately $734,000, or 15%. This decrease in research and development expenditures is related to an increase in direct labor and othercosts being deployed toward grant-funded activities of approximately $447,000, which had the effect of decreasing the amount of our non-reimbursableresearch and development costs, and a decrease in costs related to our various clinical studies and trials of approximately $580,000. These decreases wereoffset by an increase in stock-based compensation of approximately $117,000, an increase in salaries related to non-clinical research and developmentactivities of approximately $36,000 and an increase in supplies and other research and development expenses of approximately $140,000. Legal, Financial and Other Consulting Expenses: Our legal, financial and other consulting costs were approximately $1,339,000 and $1,185,000 for the years ended December 31, 2017 and 2016,respectively, an increase of approximately $154,000, or 13%. This increase was due to an increase in employment agency fees of approximately $123,000related to the hiring of senior level personnel in 2017, an increase in legal fees of approximately $17,000 related to various corporate initiatives and anincrease in accounting and consulting fees of approximately $14,000. Selling, General and Administrative Expenses: Our selling, general and administrative expenses were approximately $14,086,000 and $11,098,000 for the years ended December 31, 2017 and2016, respectively, an increase of approximately $2,988,000, or 27%. The increase in selling, general, and administrative expenses was due to an increase innon-cash stock compensation expense of approximately $825,000 primarily based upon achievement of the 2017 operating milestones, increases in salaries,commissions and related costs of approximately $834,000 due to headcount additions, an increase in royalty expenses of approximately $480,000 due to theincrease in product sales, additional sales and marketing costs, which include advertising and conferences of approximately $299,000, an increase in traveland entertainment costs and other expenses of approximately $213,000, an increase in occupancy cost of approximately $90,000 related to facilityexpansion, an increase in public relations expense of approximately $105,000, an increase in office supplies and related expenses of approximately $148,000and other general and administrative cost increases of approximately $60,000. These increases were offset by a decrease in bad debt expense ofapproximately $66,000. Interest Income (Expense), Net: For the year ended December 31 2017, interest expense, net was approximately $749,000, as compared to interest expense, net of approximately$232,000 for the year ended December 31, 2016. This increase in net interest expense of approximately $517,000 is directly related to interest expenseincurred and amortization of loan acquisition costs related to the Company’s financing facility with Bridge Bank on which $5,000,000 was drawn on June30, 2016 and outstanding for the year ended December 31, 2017 and $5,000,000 was drawn on June 30, 2017 and was outstanding during the six monthsended December 31, 2017. Gain (Loss) on Foreign Currency Transactions: For the year ended December 31, 2017, the gain on foreign currency transactions was approximately $1,454,000, as compared to a loss on foreigncurrency transactions of approximately $358,000 for the year ended December 31, 2016. The 2017 gain is directly related to the increase in the exchange rateof the Euro at December 31, 2017, as compared to December 31, 2016. The exchange rate of the Euro to the U.S. dollar was $1.20 per Euro at December 31,2017 as compared to $1.05 per Euro at December 31, 2016. The 2016 loss is directly related to the decrease in the exchange rate of the Euro at December 31,2016, as compared to December 31, 2015. The exchange rate of the Euro to the U.S. dollar was $1.05 per Euro at December 31, 2016 as compared to $1.08 perEuro at December 31, 2015. 56 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Benefit from Income Taxes: Our benefit from income taxes was approximately $677,000 and $319,000 for the years ended December 31, 2017 and 2016, respectively. Thesebenefits were realized by utilizing the New Jersey Technology Business Tax Certificate Transfer Program whereby the State of New Jersey allows us to sell aportion of our state net operating losses to a third party. Comparison of the year ended December 31, 2016 and 2015 Revenues: For the year ended December 31, 2016, we generated total revenue, which includes product revenue and grant income, of approximately $9,528,000as compared to revenues of approximately $4,792,000 for the year ended December 31, 2015, an increase of approximately $4,736,000, or 99%. Revenuefrom product sales was approximately $8,206,000 for the year ended December 31, 2016, as compared to approximately $4,044,000 in the year endedDecember 31, 2015, an increase of approximately $4,162,000 or 103%. This increase was largely driven by an increase in direct sales from both newcustomers and repeat orders from existing customers, along with an increase in distributor sales. Grant income increased by approximately $586,000 to approximately $1,322,000 in 2016 from $736,000 in 2015 as a result of revenue receivedfrom existing grants as well as revenue received from several new grants awarded during 2016. Cost of Revenue: For the years ended December 31, 2016 and 2015, cost of revenue was approximately $3,954,000 and $2,213,000, respectively, an increase ofapproximately $1,741,000, or 79%. This increase is related to an increase in product cost of revenue of approximately $1,198,000 attributable to increasedsales in 2016. Product gross margins were approximately 67% for the year ended December 31, 2016, as compared to approximately 62% for the year endedDecember 31, 2015 due to a favorable mix of sales prices and, to a lesser extent, a reduction in our product costs. Grant income related expenses increased byapproximately $544,000 during the year ended December 31, 2016 as compared to the year ended December 31, 2015 due to progress made in meeting grantmilestones on both existing and new grants. Research and Development Expenses: Our research and development costs were approximately $4,783,000 and $3,871,000 for the years ended December 31, 2016 and 2015, respectively,an increase of approximately $912,000, or 24%. This increase in research and development expenditures is related to an increase in costs related to ourvarious clinical studies and trials of approximately $833,000, an increase in stock-based compensation of approximately $584,000 due to milestone optionsawarded to the Company’s research and development employees during the year ended December 31, 2016, an increase in salaries related to non-clinicalresearch and development activities of approximately $14,000 and an increase in supplies and other research and development expenses of approximately$25,000. These increases were offset by an increase in direct labor and other costs being deployed toward grant-funded activities of approximately $544,000,which had the effect of decreasing the amount of our non-reimbursable research and development costs. Legal, Financial and Other Consulting Expenses: Our legal, financial and other consulting costs were approximately $1,185,000 and $1,089,000 for the years ended December 31, 2016 and 2015,respectively, an increase of approximately $96,000, or 9%. The increase of approximately $51,000 was due to an increase in accounting and auditing fees ofapproximately $65,000 due to fees incurred which were related to the audit of our internal controls as required by The Sarbanes-Oxley Act of 2002 andincreases in consulting fees of approximately $151,000. These increases were offset by a decrease in employment agency fees of approximately $81,000related to fees incurred in 2015 related to the hiring of senior level personnel that did not recur in 2016 and a reduction in legal fees of approximately$40,000 as a result of fees related to certain corporate initiatives in 2015 that did not recur in 2016. Selling, General and Administrative Expenses: Our selling, general and administrative expenses were approximately $11,098,000 and $6,923,000 for the years ended December 31, 2016 and 2015,respectively, an increase of approximately $4,175,000, or 60%. The increase in selling, general, and administrative expenses was due to an increase insalaries, commissions and related costs of approximately $1,468,000 due to headcount additions and personnel related costs, an increase in royalty expensesof approximately $291,000 due to the increase in product sales, additional sales and marketing costs, which include advertising, and conferences ofapproximately $114,000, an increase in travel and entertainment and other costs of approximately $71,000 due to the increased headcount, an increase instock-based compensation of approximately $2,096,000 due to milestone options awarded to the Company’s employees and restricted stock units awarded tothe Company’s executive staff during the year ended December 31, 2016, an increase in rent expense of approximately $17,000 related to the new expandedoffice facility in Germany, an increase in bad debt expense of approximately $65,000, an increase in sales consulting fees of approximately $33,000 and anincrease in postage and delivery costs and other general and administrative costs of approximately $62,000. These increases were offset by a decrease inpublic relations fees of approximately $42,000. 57 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Interest Income (Expense): For the year ended December 31, 2016, interest expense was approximately $232,000, as compared to interest income of approximately $9,000 forthe year ended December 31, 2015. This increase in interest expense of approximately $241,000 is directly related to interest expense incurred andamortization of loan acquisition costs related to the Company’s financing facility with Bridge Bank on which $5,000,000 was drawn on June 30, 2016. Gain (Loss) on Foreign Currency Transactions: For the year ended December 31, 2016, the loss on foreign currency transactions was approximately $358,000, as compared to $507,000 for the yearended December 31, 2015, a decrease of approximately $149,000. This decrease is attributable to the rate of the decline in the exchange rate of the Euro forthe year ended December 31, 2016 as compared to the year ended December 31, 2015. During the year ended December 31, 2016, the exchange rate of theEuro declined from $1.09 at the beginning of the year to $1.05 at December 31, 2016. During the year ended December 31, 2015, the exchange rate of theEuro declined from $1.22 at the beginning of the year to $1.09 at December 31, 2015. Benefit from Income Taxes: Our benefit from income taxes was approximately $319,000 and $325,000 for the years ended December 31, 2016 and 2015, respectively. Thesebenefits were realized by utilizing the New Jersey Technology Business Tax Certificate Transfer Program whereby the State of New Jersey allows us to sell aportion of our state net operating losses to a third party. History of Operating Losses We have experienced substantial operating losses since inception. As of December 31, 2017, we had an accumulated deficit of approximately$152,313,000, which included losses of approximately $8,461,000, $11,763,000 and $9,477,000 for years ended December 31, 2017, 2016 and 2015,respectively. Historically, our losses have resulted principally from costs incurred in the research and development of our polymer technology, our legal,financial and consulting expenses, and selling, general and administrative expenses, which together were approximately $19,475,000, $17,066,000 and$11,883,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Liquidity and Capital Resources Since inception, our operations have been primarily financed through the private and public placement of our debt and equity securities. AtDecember 31, 2017, we had current assets of approximately $20,739,000 including cash on hand of approximately $17,322,000 and had current liabilities ofapproximately $7,848,000. In December 2017, we received approximately $677,000 in cash from the sale of our net operating losses to the State of NewJersey. We believe that we have sufficient cash to fund our operations into 2019. We will need to raise additional capital to support our ongoing operationsin the future. In addition, we will need to raise additional funds to support clinical trials in the U.S. and in Europe. Loan and Security Agreement: On June 30, 2016 (the “Closing Date”), the Company and its wholly-owned subsidiary CytoSorbents Medical, Inc. (together, the “Borrower”),entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Bridge Bank, a division of Western Alliance Bank, (the “Bank”),pursuant to which the Bank agreed to loan up to an aggregate of $10 million to the Company, to be disbursed in two equal tranches of $5 million (the firsttranche, the “Term A Loan”, the second tranche, the “Term B Loan”, and the Term A Loan and Term B Loan together, the “Term Loans”). The Companyreceived the proceeds of the Term A Loan on June 30, 2016 and the proceeds from Term Loan B on June 30, 2017. The proceeds from the Term Loans will beused for working capital purposes and to fund general business requirements in accordance with the terms of the Loan and Security Agreement. The TermLoans are secured by substantially all of the assets of the Company, with the exception of any intellectual property. Outstanding balances on the Term Loansbear interest at the thirty (30) day US dollar LIBOR rate reported in the Wall Street Journal plus 7.75%, adjusted monthly. This rate was 9.12% at December31, 2017. 58 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. On the Closing Date, the Company was required to pay a non-refundable closing fee of $50,000 and expenses incurred by the Bank related to theLoan and Security Agreement of $24,000. On June 30, 2017, in connection with the closing of Term Loan B, the Company was required to pay expensesincurred by the Bank of $1,560. In addition, the Company incurred legal expenses related to the Loan and Security Agreement of $44,833. These costs,which total $120,393, have been presented as a direct deduction from the proceeds of the loan on the consolidated balance sheet in accordance with theprovisions of ASC 850. These costs are being amortized over the loan period as a charge to interest expense. For the years ended December 31, 2017 and2016, the Company recorded interest expense amounting to $29,971 and $14,855, respectively, related to these costs. After accounting for the various costsoutlined above, the effective interest rate on the Term A Loan was 10.0% as of June 30, 2016. Commencing on the first calendar day of the calendar monthafter a Term Loan is made; the Company is required to make monthly payments of interest only during the term of each Term Loan. Commencing onFebruary 1, 2018, subject to certain conditions as outlined in the Loan and Security Agreement, the Company is required to make equal monthly payments ofprincipal of $333,333, together with accrued and unpaid interest. All unpaid principal and accrued and unpaid interest shall be due and payable in full onJuly 1, 2020. In addition, the Loan and Security Agreement requires the Company to pay a non-refundable final fee equal to 2.5% of the principal amount ofeach Term Loan funded upon the earlier of the (i) July 1, 2020 maturity date or (ii) termination of the Term Loan via acceleration or prepayment. This finalfee is being accrued and charged to interest expense over the term of the loan. For the years ended December 31, 2017 and 2016, the Company recordedinterest expense of $52,083 and $15,625, respectively, related to the final fee. The Term Loans shall be evidenced by one or more secured promissory notesissued to the Bank by the Company. If the Company elects to prepay the Term Loan(s) pursuant to the terms of the Loan and Security Agreement, it will owea prepayment fee to the Bank, as follows: (1) for a prepayment made on or after the funding date of a Term Loan through and including the first anniversary ofsuch funding date, an amount equal to 2.0% of the principal amount of such Term Loan prepaid; (2) for a prepayment made after the first anniversary of thefunding date of a Term Loan through and including the second anniversary of such funding date, an amount equal to 1.5% of the principal amount of suchTerm Loan prepaid; and (3) for a prepayment made after the second anniversary of the funding date of a Term Loan through June 30, 2020, an amount equalto 1.0% of the principal amount of such Term Loan prepaid. Events of default which may cause repayment of the Term Loans to be accelerated include, among other customary events of default, (1) non-payment of any obligation when due, (2) the failure to perform any obligation required under the Loan and Security Agreement and to cure such defaultwithin a reasonable time frame, (3) the occurrence of a Material Adverse Event (as defined in the Loan and Security Agreement), (4) the attachment or seizureof 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 Borrowerbecomes insolvent or starts an insolvency proceeding or if an insolvency proceeding is brought by a third party against the Borrower and such proceeding isnot dismissed or stayed within 30 days. The Loan and Security Agreement includes customary loan conditions, Borrower representations and warranties,Borrower affirmative covenants and Borrower negative covenants for secured transactions of this type. Effective with the issuance of Term Loan B on June 30, 2017, the Company is required to meet a financial covenant which requires the Company toachieve consolidated trailing six month revenue from product sales equal to at least 75% of the projected revenue for such period in accordance withfinancial projections supplied to the Bank by the Company. The Company maintained compliance with the covenant during 2017. The Borrower’s obligations under the Loan and Security Agreement are joint and severable, and are secured by a first priority security interest infavor of the Bank with respect to the Shares (as defined in the Loan and Security Agreement) and the Collateral (as defined in the Loan and SecurityAgreement, which definition excludes the Borrower’s intellectual property and other customary exceptions). Success Fee Letter: In connection with the Loan and Security Agreement, the Borrower simultaneously entered into a Success Fee Letter (the “Letter”) with the Bank.Pursuant to the Letter, the Borrower shall pay to the Bank a success fee in the amount equal to 6.37% of the funded amount of the Term Loans (the “SuccessFee”) upon the first occurrence of any of the following events (each a “Liquidity Event”): (a) a sale or other disposition by the Borrower of all or substantiallyall of its assets; (b) a merger or consolidation of the Borrower into or with another person or entity, where the holders of the Borrower’s outstanding votingequity securities as of immediately prior to such merger or consolidation hold less than a majority of the issued and outstanding voting equity securities ofthe successor or surviving person or entity as of immediately following the consummation of such merger or consolidation; (c) a transaction or a series ofrelated transactions in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended(the “Exchange Act”) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a sufficient number ofshares of all classes of stock then outstanding of the Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” toelect a majority of the Board of Directors of the Borrower, who did not have such power before such transaction; or (d) the closing price per share for theCompany’s common stock on the Nasdaq Capital Market being $8.00 (after giving effect to any stock splits or consolidations effected after the date hereof)or more for five successive business days. To date, no events have occurred that could cause the Success Fee to be paid. 59 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. If the Success Fee is due pursuant to a Liquidity Event described in clause (d) of the definition thereof, the Company may elect, in lieu of paying theSuccess Fee in cash, to issue and sell to the Bank, in exchange for the Success Fee, such number of shares of the Company’s common stock as would be equalto the quotient (calculated by rounding up the nearest whole number) obtained by dividing (a) the Success Fee by (b) the volume weighted average price pershare of the Company’s common stock for the same five successive business days on which the closing price per share of the Company’s common stockcaused the Success Fee to become payable. The Bank’s right to receive the Success Fee and the Borrower’s obligation to pay such Success Fee terminate onJune 30, 2021, and shall survive the termination of the Loan and Security Agreement and any prepayment of the Term Loans. Contractual Obligations The following table summarizes our obligations with regard to our contractual obligations as of December 31, 2017, and the expected timing ofmaturities of those contractual obligations. This table should be read in conjunction with the notes to financial statements included elsewhere in this AnnualReport on Form 10-K. Less than1 Year 1-3 Years 3-5 Years More than5 Years Operating Lease Obligations $424,190 $312,390 $57,113 $– Long-term debt $4,000,000 $4,000,000 $2,000,000 $– Effects of Recent Accounting Pronouncements In May 2014, the FASB issued ASU 2014-09, “Revenue with Contracts from Customers.” ASU 2014-09 supersedes the current revenue recognitionguidance, including industry-specific guidance. The ASU introduces a five-step model to achieve its core principal of the entity recognizing revenue todepict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange forthose goods and services. In August 2014, the FASB issued ASU 2015-14 which deferred the effective date by one year. Accordingly, the updated guidance iseffective for public entities for interim and annual periods beginning after December 15, 2017 and early adoption is permitted as of the beginning of aninterim or annual reporting period beginning after December 31, 2016. In 2016, the FASB issued ASU’s 2016-08, 2016-10 and 2016-12, all of which relate tothis same topic and have the same effective date. The Company has evaluated the impact of these ASU’s and has determined that the adoption of this updatedguidance will result in the deferral of revenue for certain distributors and strategic partners due to volume pricing discounts in the contracts. Also, revenueswill be deferred on certain grant contracts with government agencies in certain circumstances. The Company will also be required to capitalize costs incurredto obtain certain grant contracts and amortize these costs over the term of the related contract. Adoption of these ASU’s will require enhanced disclosuresregarding contracts with customers including disaggregation of F-12 revenue, information about contract balances and performance obligations, significantjudgments used in determining transaction price and assets recognized from costs to obtain a contract. These ASU’s were adopted effective January 1, 2018. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 outlines reporting requirements for Lessees to recognize aright-of-use asset and corresponding liability on the balance sheet for all leases covering a period of greater than 12 months. The liability is to be measured asthe present value of the future minimum lease payments, plus any initial direct costs. The minimum payments are discounted using the rate implicit in thelease, or, if not known, the lessee’s incremental borrowing rate. The updated guidance is effective for public entities for fiscal years beginning after December31, 2018. The Company is evaluating the impact of the updated guidance and has determined that the adoption of ASU 2016-02 may impact certain financialstatement disclosures, particularly with regard to leases of premises. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments (a consensusof the Emerging Issues Task Force).” The amendments in this Update relate to eight specific types of cash receipts and cash payments which current GAAPeither is unclear or does not include specific guidance on the cash flow classification issues. The amendments in this Update are effective for public businessentities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption inan interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal yearthat includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company will adopt theprovisions of this ASU for its fiscal year beginning January 1, 2018. The adoption of ASU 2016-15 is not expected to have a significant impact on itsconsolidated financial statements. 60 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718). The amendments in this Update provide guidanceabout which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Theamendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15,2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financialstatements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available forissuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company is evaluating theimpact of the revised guidance and believes that this will not have a significant impact on its consolidated financial statements. In July 2017, the FASB issued ASU 2017-11, “Earning Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives andHedging (Topic 815). Part I of this Update addresses the complexity of accounting for certain financial instruments with down round features. Theamendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down roundfeatures. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longerprecludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosurerequirements for equity-classified instruments. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interimperiods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscalyears beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for allentities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of thebeginning of the fiscal year that includes that interim period. The Company has elected to adopt the provisions of this ASU as of September 30, 2017 and hasrestated its current and comparative financial statements within this filing accordingly. (See Note 3). Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Webelieve the following critical accounting policies have significant effect in the preparation of our consolidated financial statements. Patents Legal costs incurred to establish patents are capitalized. When patents are issued, capitalized costs are amortized on the straight-line method overthe related patent term. In the event a patent is abandoned, the net book value of the patent is written off. Revenue Recognition Product Sales: Revenues from sales of products are recognized at the time when title and risk of loss passes to the customer. Recognition of revenuealso requires reasonable assurance of collection of sales proceeds and completion of all performance obligations. Grant Revenue: Revenue from grant income is based on contractual agreements. Certain agreements provide for reimbursement of costs, while otheragreements provide for reimbursement of costs and an overhead margin. Revenues are recognized when milestones have been achieved and revenues havebeen earned. Costs are recorded as incurred. Costs subject to reimbursement by these grants have been reflected as costs of revenue. Research and Development All research and development costs, payments to laboratories, research consultants and costs related to clinical trials and studies are expensed whenincurred. Stock Based-Compensation The Company accounts for its stock-based compensation under the recognition requirements of accounting standards for accounting for stock-basedcompensation for employees and directors whereby each option granted is valued at fair market value on the date of grant. Under these accounting standards,the fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. The Company also follows the guidance of accounting standards for accounting for equity instruments that are issued to other than employees foracquiring, or in conjunction with selling, goods or services for equity instruments issued to consultants. 61 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Off-Balance Sheet Arrangements We currently operate a facility near Princeton, New Jersey with approximately 15,745 sq. ft., housing research laboratories, clinical manufacturingoperations and administrative offices, under a lease agreement which expires in May 2019. We expect to secure additional square footage to supportincreased manufacturing capacity in the future. Our monthly base rent as of September 2017 is approximately $28,200 and additionally we reimburse thelandlord for monthly operating expenses of approximately $21,000. We also operate a facility in Berlin, Germany housing our sales and administrative offices and warehouse space. We entered into a lease for thisoffice on September 1, 2016. The lease expires on August 31, 2021. We rent this space for $7,139 per month. Item 7A.Quantitative and Qualitative Disclosures About Market Risk. We are exposed to certain market risks in the ordinary course of business. These risks result primarily from changes in foreign currency exchangerates and interest rates. In addition, international operations are subject to risks related to differing economic conditions, changes in political climate,differing tax structures and other regulations and restrictions. To date we have not utilized derivative financial instruments or derivative commodity instruments. We do not expect to employ these or otherstrategies to hedge market risk in the foreseeable future. Cash is held in checking, savings, and money market funds, which are subject to minimal credit andmarket risk. We generate sales in both dollars and euros most significantly, the majority of our sales are in Euros and changes in the exchange rate of the Euroto the U.S. dollar may positively or negatively impact our revenue. On the other hand, should sales decline due to a devaluation of the Euro relative to theU.S. dollar, expenses related to our European subsidiary would also decline. This produces a natural currency hedge. We believe that the market risksassociated with these financial instruments are immaterial, although there can be no guarantee that these market risks will be immaterial to us in the future. Item 8.Financial Statements and Supplementary Data. Our Financial Statements and notes thereto are included elsewhere in this Annual Report on Form 10-K and incorporated herein by reference. SeeItem 15 of Part IV. Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 9A.Controls and Procedures Evaluation of Disclosure Controls and Procedures In accordance with Rules 13a-15 and 15d-15, under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out anevaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017, to ensure that informationrequired to be disclosed in our reports filed or submitted under the Exchange Act is (1) recorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting Our management’s report on internal control over financial reporting procedures (as defined in Rule 13a-15(f) under the Exchange Act) is includedwith the financial statements reflected in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. Attestation Report of the Registered Public Accounting Firm WithumSmith+Brown, PC, the independent registered public accounting firm that audited the financial statements of included in Item 8 of thisAnnual Report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2017.This report is included with the financial statements included in Item 8 of this Annual Report on Form 10-K and incorporated herein by reference. 62 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Changes in Internal Control over Financial Reporting No change in our internal control over financial reporting occurred during the fiscal quarter ended December 31, 2017 that has materially affected,or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B.Other Information. None. PART III Item 10.Directors, Executive Officers and Control Persons. Information required to be disclosed by this Item with respect to our executive officers is incorporated in this Annual Report on Form 10-K byreference from the section entitled “Officers and Key Employees” contained in our definitive proxy statement for our 2018 annual meeting of stockholdersscheduled to be held on June 5, 2018, which we intend to file within 120 days of the end of our fiscal year. Information required to be disclosed by this Item about our board of directors is incorporated in this Annual Report on Form 10-K by reference fromthe section entitled “Nomination and Election of Directors” contained in our definitive proxy statement for our 2018 annual meeting of stockholdersscheduled to be held on June 5, 2018, which we intend to file within 120 days of the end of our fiscal year. Information required to be disclosed by this Item about the Section 16(a) compliance of our directors and executive officers is incorporated in thisAnnual Report on Form 10-K by reference from the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” contained in our definitiveproxy statement for our 2018 annual meeting of stockholders scheduled to be held on June 5, 2018, which we intend to file within 120 days of the end of ourfiscal year. Information required to be disclosed by this Item about our board of directors, the audit committee of our board of directors, our audit committeefinancial expert, our Code of Business Conduct and Ethics, and other corporate governance matters is incorporated in this Annual Report on Form 10-K byreference from the section entitled “Board of Directors and Corporate Governance Matters” contained in our definitive proxy statement for our 2018 annualmeeting of stockholders scheduled to be held on June 5, 2018, which we intend to file within 120 days of the end of our fiscal year. The text of our Code of Business Conduct and Ethics, which applies to our directors and employees (including our principal executive officer,principal financial officer, and principal accounting officer or controller, and persons performing similar functions), is posted in the “Corporate Governance”section of our website, www.cytosorbents.com. A copy of the Code of Business Conduct and Ethics can be obtained free of charge on our website. We intendto disclose on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics that are required to be disclosed pursuant to therules of the Securities and Exchange Commission and The Nasdaq Stock Market. The information presented on our website is not a part of this Annual Report on Form 10-K and the reference to our website is intended to be aninactive textual reference only. Item 11.Executive Compensation. Information required to be disclosed by this Item is incorporated in this Annual Report on Form 10-K by reference from the sections entitled“Executive Compensation,” “Director Compensation” and “Board of Directors and Corporate Governance Matters” contained in our definitive proxystatement for our 2018 annual meeting of stockholders scheduled to be held on June 5, 2018, which we intend to file within 120 days of the end of our fiscalyear. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information required to be disclosed by this Item is incorporated in this Annual Report on Form 10-K by reference from the sections entitled“Principal Stockholders,” “Stock Ownership of Directors, Nominees for Director, and Executive Officers” and “Equity Compensation Plan Information”contained in our definitive proxy statement for our 2018 annual meeting of stockholders scheduled to be held on June 5, 2018, which we intend to file within120 days of the end of our fiscal year. 63 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Item 13.Certain Relationships and Related Transactions and Director Independence. Information required to be disclosed by this Item is incorporated in this Annual Report on Form 10-K by reference from the section(s) entitled“Certain Relationships and Related Party Transactions” and “Board of Directors and Corporate Governance Matters,” “Compensation for Executive Officersand Directors, “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” contained in our definitive proxystatement for our 2018 annual meeting of stockholders scheduled to be held on June 5, 2018, which we intend to file within 120 days of the end of our fiscalyear. Item 14.Principal Accounting Fees and Services. This information required to be disclosed by this Item is incorporated in this Annual Report on Form 10-K by reference from the section entitled“Audit and Other Fees” contained in our definitive proxy statement for our 2018 annual meeting of stockholders scheduled to be held on June 5, 2018, whichwe intend to file within 120 days of the end of our fiscal year. 64 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IV Item 15.Exhibits, Financial Statement Schedules. (a)Financial Statements and Schedules: 1.Financial Statements The following financial statements and reports of independent registered public accounting firm are included herein: Reports of Independent Registered Public Accounting FirmF-3Balance SheetsF-5Statements of Comprehensive Income (Loss)F-6Statements of Stockholders’ Equity/(Deficit)F-7Statements of Cash FlowsF-9Notes to Financial StatementsF-10 2.Financial Statement Schedules Not applicable. 3.List of Exhibits Exhibit No. Description3.1 First Amended and Restated Certificate of Incorporation, dated December 3, 2014 (incorporated by reference to Exhibit 3(i).4 to theRegistrant’s Current Report on Form 8-K filed on December 4, 2014). 3.2 Bylaws of CytoSorbents Corporation (incorporated by reference to Exhibit 3(ii).1 to the Registrant’s Current Report on Form 8-K filed onDecember 4, 2014). 4.1 Form of Convertible Note for sale of stock that occurred June 21, 2013 (incorporated by reference to Exhibit 4.1 to the Registrant’s CurrentReport on Form 8-K filed on June 27, 2013). 4.2 Form of Warrant for sale of stock that occurred June 21, 2013 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report onForm 8-K filed on June 27, 2013). 4.3 Form of Convertible Note for sale of stock that occurred September 30, 2013 (incorporated by reference to Exhibit 4.1 to the Registrant’sCurrent Report on Form 8-K filed on October 10, 2013). 4.4 Form of Warrant for sale of stock that occurred September 30, 2013 (incorporated by reference to Exhibit 4.2 to the Registrant’s CurrentReport on Form 8-K filed on October 10, 2013). 4.5 Form of Underwriter Warrant (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-1/A (CommissionFile Number 333-199762) filed on December 30, 2014). 10.1 Employment Agreement with Dr. Phillip P. Chan Effective as of January 1, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’sCurrent Report on Form 8-K filed on July 15, 2015).+ 10.2 Employment Agreement with Vincent Capponi Effective as of January 1, 2015 (incorporated by reference to Exhibit 10.2 to the Registrant’sCurrent Report on Form 8-K filed on July 15, 2015).+ 10.3 Employment Agreement with Kathleen P. Bloch Effective as of January 1, 2015 (incorporated by reference to Exhibit 10.3 to the Registrant’sCurrent Report on Form 8-K filed on July 15, 2015).+ 10.4 Consulting Agreement with Dr. Robert Bartlett Effective as of January 1, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’sCurrent Report on Form 8-K filed on February 9, 2016).+ 10.5 Lease Agreement between Princeton Corporate Plaza LLC and the Registrant dated as of March 9, 2000 (incorporated by reference to Exhibit10.4 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015). 65 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.6 Third Amendment to Lease Agreement between Princeton Corporate Plaza LLC and the Registrant dated as of December 12, 2014(incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015). 10.7 Fourteenth Amendment to Lease Agreement by and between the Registrant and Princeton Corporate Plaza, LLC, dated April 1, 2016(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 9, 2016). 10.8 Amended and Restated Fourteenth Amendment to Lease Agreement by and between the Registrant and Princeton Corporate Plaza LLC, datedAugust 5, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 9, 2016). 10.9 Royalty Agreement between Guillermina Vega Montiel and the Registrant dated as of August 11, 2003 (incorporated by reference to Exhibit10.6 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015). 10.10 Stipulated Order and Settlement Agreement between Bro-Tech Corporation, Purolite International Ltd. And the Registrant, dated August 7,2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed on September 8, 2006). 10.11 Distribution Agreement between Biocon Limited and the Registrant dated as of September 20, 2013 (incorporated by reference to Exhibit10.8 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015).† 10.12 First Amendment to the Distribution Agreement between Biocon Limited and the Registrant, dated October 30, 2014 (incorporated byreference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2015).† 10.13 Controlled Equity Offering Sales Agreement, dated November 4, 2015, by and among the Registrant and Cantor Fitzgerald & Co.(incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed on November 5, 2015). 10.14 CytoSorbents Corporation 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report onForm 8-K filed on July 6, 2006).+ 10.15 Amendment No. 1 to the CytoSorbents Corporation 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to theRegistrant’s registration statement on Form S-8, filed on November 4, 2014).+ 10.16 Amendment No. 1 to the CytoSorbents Corporation 2006 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to theRegistrant’s registration statement on Form S-8, filed on November 4, 2014).+ 10.17 Loan and Security Agreement, dated as of June 30, 2016, by and among CytoSorbents Corporation, CytoSorbents Medical, Inc. and WesternAlliance Bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 1, 2016). 10.18 Success Fee Letter, dated as of June 30, 2016, by and among CytoSorbents Corporation, CytoSorbents Medical, Inc. and Western AllianceBank (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 1, 2016). 10.19 Underwriting Agreement, dated as of March 30, 2017, by and among CytoSorbents Corporation and Cowen and Company, LLC, asrepresentative of the several underwriters (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed onApril 3, 2017). 21.1 List of Subsidiaries.* 23.1 Consent of WithumSmith+Brown, PC.* 31.1 Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 66 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002.* 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002.* 101 The following materials from CytoSorbents Form 10-K for the fiscal year ended December 31, 2017, formatted in Extensible BusinessReporting Language (XBRL): (1) Consolidated Balance Sheets at December 31, 2017 and December 31, 2016, (iii) Consolidated Statementsof Operations and Comprehensive Loss for the years ended December 31, 2017, 2016 and 2015, (iii) Consolidated Statements of Changes inRedeemable Convertible Preferred Stock and Stockholders’ Equity/(Deficit) for the years ended December 31, 2017, 2016 and 2015, (iv)Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015, and (v) Notes to the Consolidated FinancialStatements. *Filed or furnished herewith. +Management contract or compensatory plan or arrangement of the Registrant required to be filed as an exhibit to this Annual Report. †Confidential treatment has been requested for certain portions of this exhibit. The confidential portions of this exhibit have been omitted and filedseparately with Securities and Exchange Commission. In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed. Item 16.Form 10-K Summary. None. 67 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, CytoSorbents Corporation has caused this report to be signed on its behalf by the undersigned,thereunto duly authorized, on this 8th day of March, 2018. CYTOSORBENTS CORPORATION By:/s/ Dr. Phillip P. Chan Dr. Phillip P. Chan President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. Signature Title Date /s/ Dr. Phillip P. Chan President and Chief Executive Officer (Principal March 8, 2018Dr. Phillip P. Chan Executive Officer) and Director /s/ Kathleen P. Bloch Chief Financial Officer March 8, 2018Kathleen P. Bloch (Principal Financial and Accounting Officer) /s/ Al Kraus Chairman of the Board March 8, 2018Al Kraus /s/ Alan D. Sobel Director March 8, 2018Alan D. Sobel /s/ Edward R. Jones Director March 8, 2018Edward R. Jones /s/Michael G. Bator Director March 8, 2018Michael G. Bator 68 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FINANCIAL STATEMENTS Page Management’s Report on Internal Control Over Financial ReportingF-2 Reports of Independent Registered Public Accounting FirmF-3 Consolidated Balance Sheets at December 31, 2017 and 2016F-5 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017, 2016 and 2015F-6 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2017, 2016 and 2015F-7 Consolidated Statements of Cash Flows for the for the years ended December 31, 2017, 2016 and 2015F-9 Notes to Consolidated Financial StatementsF-10 F-1 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management anddirectors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, because of changes inconditions, effectiveness of internal control over financial reporting may vary over time. Management, with the participation of the Chief Executive Officerand the Chief Financial Officer, working with an external consultant, conducted an evaluation of the effectiveness of internal control over financial reportingbased on the framework in Internal-Control –Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the TreadwayCommission. Based on this evaluation, management concluded that internal control over financial reporting was effective as of December 31, 2017. WithumSmith+Brown, PC, the independent registered public accounting firm that audited the Company’s financial statements included in thisAnnual Report on Form 10-K, was engaged to audit our Internal Control. Their report appears on page F-3. /s/ Dr. Phillip P. Chan /s/ Kathleen P. BlochDr. Phillip P. Chan Kathleen P. BlochPresident and Chief Executive Officer Chief Financial Officer(Principal Executive Officer) (Principal Financial Officer) March 8, 2018 F-2 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Report of Independent Registered Public Accounting Firm Board of Directors and StockholdersCytosorbents Corporation: Opinion on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Cytosorbents Corporation (the "Company") as of December 31, 2017 and 2016,and the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows, for each of the three years inthe period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’sinternal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control—Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Companyas of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework(2013) issued by the COSO. Substantial Doubt Regarding Going Concern As disclosed in Note 1 to the consolidated financial statements, the Company sustained net losses for the years ended December 31, 2017, 2016 and2015 of approximately $8.5 million, $11.8 million and $9.5 million, respectively. Further, the Company believes it will have to raise additional capital tofund its planned operations for the twelve month period through March 2019. These matters raise substantial doubt regarding the Company’s ability tocontinue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. Theconsolidated financial statements do not include any adjustments related to the outcome of this uncertainty. Change in Accounting Principle – Early Adoption of Provisions in ASU 2017-11 As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for the classification of certainliability-classified financial instruments with down round features in 2017, 2016 and 2015, due to the adoption of Accounting Standards Update (“ASU”)2017-11, “Earning Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815). Basis for Opinion The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report oninternal control over financial reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion onthe Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public CompanyAccounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federalsecurities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whethereffective internal control over financial reporting was maintained in all material respects. F-3 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a testbasis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit ofinternal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also includedperforming such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financialstatements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate. /s/ WithumSmith+Brown, PC WithumSmith+Brown, PC We have served as the Company's auditor since 2004. East Brunswick, New JerseyMarch 8, 2018 F-4 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CYTOSORBENTS CORPORATIONCONSOLIDATED BALANCE SHEETS December 31, 2017 2016 (As Adjusted Note 3) ASSETS Current Assets: Cash and cash equivalents $17,321,862 $5,245,178 Grants and accounts receivable, net of allowance for doubtful accounts of accounts of $72,698 and $65,414 atDecember 31, 2017 and 2016, respectively 2,205,859 1,433,468 Inventories 795,657 833,976 Prepaid expenses and other current assets 415,962 315,802 Total current assets 20,739,340 7,828,424 Property and equipment – net 1,402,782 569,409 Other assets 1,961,185 1,296,011 Total Assets $24,103,307 $9,693,844 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $1,244,411 $1,330,072 Accrued expenses and other current liabilities 2,603,920 2,114,666 Current maturities of long-term debt 4,000,000 833,333 Total current liabilities 7,848,331 4,278,071 Long-term debt, net of current maturities and debt issuance costs 5,992,141 4,078,314 Total liabilities 13,840,472 8,356,385 Commitments and contingencies (Note 9) Stockholders’ Equity: Common Stock, Par Value $0.001, 50,000,000 shares authorized; 28,973,679 and25,483,966 shares issued and outstanding at December 31, 2017 and 2016, respectively 28,974 25,484 Additional paid-in capital 162,907,482 143,929,397 Accumulated other comprehensive income (360,985) 898,684 Accumulated deficit (152,312,636) (143,516,106)Total stockholders’ equity 10,262,835 1,337,459 Total Liabilities and Stockholders' Equity $24,103,307 $9,693,844 The Notes to Consolidated Financial Statements are an integral part of these statements. F-5 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CYTOSORBENTS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Year ended Year ended December 31, December 31, Year ended 2016 2015 December 31, (As Adjusted (As Adjusted 2017 Note 3) Note 3) Revenue: Sales $13,381,853 $8,206,036 $4,043,819 Grant income 1,768,901 1,321,807 735,863 Other revenue — — 11,934 Total revenue 15,150,754 9,527,843 4,791,616 Cost of revenue 5,518,360 3,953,725 2,212,546 Gross profit 9,632,394 5,574,118 2,579,070 Operating expenses: Research and development 4,049,436 4,783,491 3,871,069 Legal, financial and other consulting 1,339,493 1,184,788 1,089,145 Selling, general and administrative 14,086,063 11,097,964 6,922,515 Total operating expenses 19,474,992 17,066,243 11,882,729 Loss from operations (9,842,598) (11,492,125) (9,303,659) Other income (expense): Interest income (expense), net (749,076) (231,804) 9,301 Gain/(loss) on foreign currency transactions 1,454,136 (358,077) (507,276)Total other income (expense), net 705,060 (589,881) (497,975) Loss before benefit from income taxes (9,137,538) (12,082,006) (9,801,634)Benefit from income taxes 676,739 318,550 324,606 Net loss (8,460,799) (11,763,456) (9,477,028) Dividend, warrant exercise price adjustment 335,731 — — Net loss attributable to common shareholders $(8,796,530) $(11,763,456) $(9,477,028) Basic and diluted net loss per common share $(0.32) $(0.46) $(0.38) Weighted average number of shares of common stock outstanding 27,613,911 25,433,719 24,885,809 Comprehensive loss: Net loss $(8,460,799) $(11,763,456) $(9,477,028) Other comprehensive income (loss): Currency translation adjustment (1,259,669) 314,367 356,616 Comprehensive loss $(9,720,468) $(11,449,089) $(9,120,412) The Notes to Consolidated Financial Statements are an integral part of these statements. F-6 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CYTOSORBENTS CORPORATIONCONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 2017, 2016 and 2015 Accumulated Other Stockholders’ Common Stock Paid-In Comprehensive Accumulated Equity Shares Par value Capital Income Deficit (Deficit) Balance at December 31, 2014, as originally reported 23,304,640 $23,305 $128,106,297 $227,701 $(124,394,120) $3,963,183 Adjustment (See Note 3) — — 862,920 — 2,118,498 2,981,418 Balance at December 31, 2014 (As Adjusted) 23,304,640 23,305 128,969,217 227,701 (122,275,622) 6,944,601 Stock based compensation -employees, consultants and director — — 382,284 — — 382,284 Issuance of common stock -offerings, net of fees incurred 1,278,880 1,279 9,522,804 — — 9,524,083 Proceeds from exercise of warrants 447,178 447 1,704,986 — — 1,705,433 Cashless exercise of warrants 51,810 52 (52) — — — Cashless exercise of stock options 22,736 23 (23) — — — Proceeds from exercise of stock options 291,812 291 410,435 — — 410,726 Other comprehensive incomeforeign translation adjustment — — — 356,616 — 356,616 Net loss (As Adjusted Note 3) — — — — (9,477,028) (9,477,028) Balance at December 31, 2015 25,397,056 25,397 140,989,651 584,317 (131,752,650) 9,846,715 Stock based compensation -employees, consultants and directors — — 2,631,734 — — 2,631,734 Issuance of restricted stock units 26,665 27 125,032 — — 125,059 Proceeds from exercise of warrants 20,000 20 64,980 — — 65,000 Cashless exercise of warrants 4,045 4 (4) — — — Proceeds from exercise of stock options 36,200 36 118,004 — — 118,040 Other comprehensive incomeforeign translation adjustment — — — 314,367 — 314,367 Net loss (As Adjusted Note 3) — — — — (11,763,456) (11,763,456)Balance at December 31, 2016 25,483,966 25,484 143,929,397 898,684 (143,516,106) 1,337,459 F-7 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Accumulated Other Stockholders’ Common Stock Paid-In Comprehensive Accumulated Equity Shares Par value Capital Income Deficit (Deficit) Balance at December 31, 2016 25,483,966 25,484 143,929,397 898,684 (143,516,106) 1,337,459 Stock based compensation - employees, consultantsand directors — — 3,313,603 — — 3,313,603 Issuance of common stock - offerings, net of feesincurred 3,105,555 3,106 13,676,624 — — 13,679,730 Issuance of restricted stock options 41,390 41 207,567 — — 207,608 Proceeds from exercise of warrants 192,001 192 852,812 — — 853,004 Cashless exercise of warrants 1,516 2 (2) — — — Proceeds from exercise of stock options 145,848 146 591,753 — — 591,899 Cashless exercise of stock options 3,403 3 (3) — — — Dividend, warrant exercise price adjustment — — 335,731 — (335,731) — Other comprehensive income foreign translationadjustment — — — (1,259,669) — (1,259,669)Net loss — — — — (8,460,799) (8,460,799)Balance at December 31, 2017 28,973,679 $28,974 $162,907,482 $(360,985) $(152,312,636) $10,262,835 The Notes to Consolidated Financial Statements are an integral part of these statements. F-8 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CYTOSORBENTS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS Year ended Year ended December 31, December 31, Year ended 2016 2015 December 31, (As Adjusted (As Adjusted 2017 Note 3) Note 3) Cash flows from operating activities: Net loss $(8,460,799) $(11,763,456) $(9,477,028)Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 218,271 161,613 112,969 Bad debt expense 904 65,378 – Foreign currency transaction losses (1,454,136) 358,077 386,435 Stock-based compensation 3,313,603 2,756,793 382,284 Amortization of loan acquisition costs 82,054 30,480 – Changes in operating assets and liabilities: Grants and accounts receivable (649,318) (889,715) 131,970 Inventories 57,320 340,392 (671,348)Prepaid expenses and other current assets (76,981) 187,099 178,107 Other assets (15,000) (41,112) (7,134)Accounts payable and accrued expenses 523,377 2,063,484 (83,169)Deferred revenue – – (833)Net cash used by operating activities (6,460,705) (6,730,967) (9,047,747) Cash flows from investing activities: Purchases of property and equipment (990,673) (140,724) (403,608)Patent costs (687,446) (454,807) (239,839)Proceeds from sale of short-term investments – 2,192,000 5,430,547 Purchases of short-term investments – – (5,678,000)Net cash provided/(used) by investing activities (1,678,119) 1,596,469 (890,900) Cash flows from financing activities: Proceeds from long-term debt 5,000,000 5,000,000 – Payment of loan acquisition costs (1,560) (118,833) – Equity contributions - net of fees incurred 13,679,730 – 9,524,083 Proceeds from exercise of stock options 591,899 118,040 410,726 Proceeds from exercise of warrants 853,004 65,000 1,705,433 Net cash provided by financing activities 20,123,073 5,064,207 11,640,242 Effect of exchange rates on cash 92,435 (1,382) 9,976 Net change in cash and cash equivalents 12,076,684 (71,673) 1,711,571 Cash and cash equivalents at beginning of year 5,245,178 5,316,851 3,605,280 Cash and cash equivalents at end of year $17,321,862 $5,245,178 $5,316,851 Supplemental disclosure of cash flow information: Cash paid during the year for interest $634,608 $175,897 $– Supplemental disclosure of non-cash financing activities: Settlement of accrued bonuses with restricted stock units $207,608 $– $– Costs paid from proceeds in conjunction with issuance of common stock $– $– $1,019,207 Dividend, warrant exercise price adjustment $335,731 $– $– The Notes to Consolidated Financial Statements are an integral part of these statements F-9 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CYTOSORBENTS CORPORATIONNotes to Consolidated Financial Statements 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include the results of CytoSorbents Corporation (the “Parent”), CytoSorbents Medical Inc., itswholly-owned operating subsidiary (the “Subsidiary”), and CytoSorbents Europe GmbH, its wholly-owned European subsidiary (the “European Subsidiary”).In addition, the financial statements include CytoSorbents Switzerland GmbH, a wholly-owned subsidiary of CytoSorbents Europe GmbH. These entities arecollectively referred to as “the Company.” The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets andsatisfaction of liabilities in the normal course of business. Based on its projections, the Company believes it will have to raise additional capital to fund itsplanned operations over the next twelve month period. As of December 31, 2017, the Company had an accumulated deficit of $152,312,636, which included net losses of $8,460,799 for the year endedDecember 31, 2017, $11,763,456 for the year ended December 31, 2016 and $9,477,028 for the year ended December 31, 2015. The Company’s losses haveresulted principally from costs incurred in the research and development of the Company’s polymer technology and selling, general and administrativeexpenses. The Company intends to continue to conduct significant additional research, development, and clinical study activities which, together withexpenses incurred for the establishment of manufacturing arrangements and a marketing and distribution presence and other selling, general andadministrative expenses, are expected to result in continuing operating losses for the foreseeable future. The amount of future losses and when, if ever, theCompany will achieve profitability are uncertain. CytoSorbents’ ability to achieve profitability will depend, among other things, on successfully completingthe development of its technology and commercial products, obtaining additional requisite regulatory approvals in markets not covered by the CE Markpreviously received and for potential label extensions of the Company’s current CE Mark, establishing manufacturing and sales and marketing arrangementswith third parties, and raising sufficient funds to finance our activities. No assurance can be given that the Company’s product development efforts will besuccessful, that the Company’s current CE Mark will enable it to achieve profitability, that additional regulatory approvals in other countries will beobtained, that any of the Company’s products will be manufactured at a competitive cost and will be of acceptable quality, or that the Company will be ableto achieve profitability or that profitability, if achieved, can be sustained. These matters raise substantial doubt about the Company’s ability to continue as agoing concern. These consolidated financial statements do not include any adjustments related to the outcome of this uncertainty. 2. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of Business The Company is a leader in critical care immunotherapy using blood purification technology to treat deadly inflammation in critically-ill andcardiac surgery patients around the world. The Company, through its subsidiary CytoSorbents Medical Inc. (formerly known as CytoSorbents, Inc.), isengaged in the research, development and commercialization of medical devices with its blood purification technology platform which incorporates aproprietary adsorbent, porous polymer technology. The Company, through its European Subsidiary, Cytosorbents Europe GmbH, conducts sales andmarketing related operations for the CytoSorb device. In March 2016, the Company formed CytoSorbents Switzerland GmbH, a wholly-owned subsidiary ofCytoSorbents Europe GmbH. This subsidiary, which began operations during the second quarter of 2016, provides marketing and direct sales services inSwitzerland. CytoSorb, the Company’s flagship product, is approved in the EU and marketed in and distributed in forty-five countries around the world, as asafe and effective extracorporeal cytokine absorber, designed to reduce the “cytokine storm” that could otherwise cause massive inflammation, organ failureand death in common critical illnesses such as sepsis, burn injury, trauma, lung injury, and pancreatitis. CytoSorb is also being used during and after cardiacsurgery to remove inflammatory mediators, such as cytokines and free hemoglobin, which can lead to post-operative complications, including multiple organfailure. In March 2011, CytoSorb was “CE Marked” in the European Union (“EU”) allowing for commercial marketing. The technology is based upon biocompatible, highly porous polymer sorbent beads that can actively remove toxic substances from blood and otherbodily fluids by pore capture and surface absorption. The Company has numerous products under development based upon this unique blood purificationtechnology, which is protected by 15 issued and 2 allowed but not yet issued U.S. patents and multiple applications pending both in the United States andinternationally, including HemoDefend, ContrastSorb, DrugSorb, and others. Our patent portfolio includes 15 issued and 2 allowed but not yet issued UnitedStates patents as well as multiple issued foreign patents and pending patent applications both in the U.S. and internationally, directed to variouscompositions and methods of use related to our blood purification technologies, which are expected to expire between 2020 and 2033, absent any patentterm extensions. Management believes that any expiring patents will not have a significant impact on our ongoing business. F-10 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Stock Market Listing On December 17, 2014 the Company’s common stock was approved for listing on The Nasdaq Capital Market (“Nasdaq”), and it began trading onNasdaq on December 23, 2014 under the symbol “CTSO”. Previously, the Company’s common stock traded in the over-the-counter-market on the OTCBulletin Board. Basis of Consolidation and Foreign Currency Translation The consolidated financial statements include the accounts of the Parent, CytoSorbents Corporation, and its wholly-owned subsidiaries,CytoSorbents Medical, Inc. and CytoSorbents Europe GmbH. In addition, the financial statements include CytoSorbents Switzerland GmbH, a wholly ownedsubsidiary of CytoSorbents Europe GmbH. All significant intercompany transactions and balances have been eliminated in consolidation. Translation gains and losses resulting from the process of remeasuring into the United States of America dollar, the foreign currency financialstatements of the European subsidiary, for which the United States of America dollar is the functional currency, are included in operations. Foreign currencytransaction gain (loss) included in net loss amounted to approximately $1,454,000, ($358,000) and ($507,000) for the years ended December 31, 2017, 2016and 2015, respectively. The Company translates assets and liabilities of the European subsidiary, whose functional currency is their local currency, at theexchange rate in effect at the balance sheet date. The Company translates revenue and expenses at the daily average exchange rates. The Company includesaccumulated net translation adjustments in accumulated other comprehensive income (loss) as a component of stockholder’s equity. Cash and Cash Equivalents The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Grants and Accounts Receivable Grants receivable represent amounts due from U.S. government agencies and are included in Grants and Accounts Receivable. Accounts receivable are unsecured, non-interest bearing customer obligations due under normal trade terms. The Company sells its devices tovarious hospitals and distributors. The Company performs ongoing credit evaluations of customers’ financial condition. Management reviews accountsreceivable periodically to determine collectability. Balances that are determined to be uncollectible are written off to the allowance for doubtful accounts.The allowance for doubtful accounts contains both specific, where applicable, and general accruals for estimated bad debts which amounted toapproximately $73,000 and $65,000 at December 31, 2017 and December 31, 2016, respectively. Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined using a first-in first-out (“FIFO”) basis. At December 31, 2017and December 31, 2016 the Company’s inventory was comprised of finished goods, which amounted to $151,872 and $307,483, respectively, work inprocess which amounted to $528,039 and $467,663, respectively and raw materials which amounted to $115,746 and $58,830, respectively. Devices used inclinical trials or for research and development purposes are removed from inventory and charged to research and development expenses at the time of theiruse. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Depreciation of property and equipment is provided for by the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of their economic useful lives or theterm of the related leases. Gains and losses on depreciable assets retired or sold are recognized in the statements of operations in the year of disposal. Repairsand maintenance expenditures are expensed as incurred. Patents Legal costs incurred to establish patents are capitalized. When patents are issued, capitalized costs are amortized on the straight-line method overthe related patent term. In the event a patent is abandoned, the net book value of the patent is written off. F-11 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Impairment or Disposal of Long-Lived Assets The Company assesses the impairment of patents and other long-lived assets under accounting standards for the impairment or disposal of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For long-lived assets to be held and used,the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairmentloss based on the difference between the carrying amount and fair value. Revenue Recognition Product Sales: Revenues from sales of products are recognized when title and risk of loss passes to the customer. Recognition of revenue alsorequires reasonable assurance of collection of sales proceeds and completion of all performance obligations. In the ordinary course of business, the Companyis under no obligation to accept returns from its customers. Grant Revenue: Revenue from grant income is based on contractual agreements. Certain agreements provide for reimbursement of costs, while otheragreements provide for reimbursement of costs and an overhead margin. Revenues are recognized when milestones have been achieved and revenues havebeen earned. Costs are recorded as incurred. Costs subject to reimbursement by these grants have been reflected as costs of revenue. Research and Development All research and development costs, payments to laboratories, research consultants and costs related to clinical trials and studies are expensed whenincurred. Advertising Expenses Advertising costs are charged to activities when incurred. Advertising expense amounted to approximately $162,000, $173,000 and $282,000 in2017, 2016 and 2015, respectively, and is included in selling, general, and administrative expenses on the consolidated statement of operations. Income Taxes Income taxes are accounted for under the asset and liability method prescribed by accounting standards for accounting for income taxes. Deferredincome taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred taxassets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance isprovided if it is more likely than not that some or all of the deferred tax asset will not be realized. Under Section 382 of the Internal Revenue Code the netoperating losses generated prior to the previously completed reverse merger may be limited due to the change in ownership. Additionally, net operatinglosses generated subsequent to the reverse merger may be limited in the event of changes in ownership. The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%. SeeNote 8 for the impact of the tax rate change on deferred tax assets and liabilities. The Company follows the accounting standards associated with uncertain tax provisions. The Company had no unrecognized tax benefits atDecember 31, 2017 or 2016. The Company files tax returns in the U.S. federal and state jurisdictions. The Company utilizes the Technology Business Tax Certificate Transfer Program to sell a portion of its New Jersey Net Operating Loss taxcarryforwards to an industrial company. CytoSorbents Europe GmbH and CytoSorbents Switzerland GmbH files an annual corporate tax return, a VAT return and a trade tax return inGermany and Switzerland, respectively. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities.Actual results could differ from these estimates. Significant estimates in these financials are the valuation of options granted, the valuation of preferred sharesissued as stock dividends, valuation methods used to determine the fair value of the warrant liability (in the event a re-measurement is required) andvaluation methods used in determining any debt discount associated with the convertible securities. F-12 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Concentration of Credit Risk The Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Federal Deposit InsuranceCorporation. Management monitors the soundness of these institutions in an effort to minimize its collection risk of these balances. A significant portion of our revenues are from product sales in Germany. Substantially all of our grant and other income are from grant agencies inthe United States. The following table provides a geographic summary of revenues: 2017 2016 2015 Product Sales: Germany $7,993,954 $4,985,049 $2,353,998 All other countries 5,387,899 3,220,987 1,689,821 Grant and other income: United States 1,768,901 1,321,807 735,863 Germany – – 11,934 Total Revenue $15,150,754 $9,527,843 $4,791,616 As of December 31, 2017, two distributors accounted for 28 percent of outstanding grants and accounts receivables. As of December 31, 2016, onedistributor and one government agency accounted for approximately 22 percent of grants and accounts receivable. As of December 31, 2015, threedistributors accounted for approximately 48 percent of outstanding grants and accounts receivable. For the year ended December 31, 2017, no agency,distributor or direct customer represented more than 10% of the Company’s total revenue. For the year ended December 31, 2016, one direct customeraccounted for approximately 11 percent of total revenue. For the year ended December 31, 2015, approximately 14 percent of total revenue was from one U.S.government grant agency. Financial Instruments The carrying values of cash and cash equivalents, accounts receivable, accounts payable and other debt obligations approximate their fair valuesdue to their short-term nature. Net Loss per Common Share Basic earnings per share is computed by dividing loss attributable to common stockholders by the weighted average number of common sharesoutstanding during the period. Diluted earnings per common share is computed using the treasury stock method on the basis of the weighted-average numberof shares of common stock plus the dilutive effect of potential common shares outstanding during the period. Dilutive potential common shares includeoutstanding warrants, stock options and restricted shares. The computation of diluted earnings per share does not assume conversion, exercise or contingentexercise of securities that would have an anti-dilutive effect on earnings (See Note 11). Stock-Based Compensation The Company accounts for its stock-based compensation under the recognition requirements of accounting standards for accounting for stock-basedcompensation for employees and directors whereby each option granted is valued at fair market value on the date of grant. Under these accounting standards,the fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. The Company also follows the guidance of accounting standards for accounting for equity instruments that are issued to other than employees foracquiring, or in conjunction with selling, goods or services for equity instruments issued to consultants. Effects of Recent Accounting Pronouncements In May 2014, the FASB issued ASU 2014-09, “Revenue with Contracts from Customers.” ASU 2014-09 supersedes the current revenue recognitionguidance, including industry-specific guidance. The ASU introduces a five-step model to achieve its core principal of the entity recognizing revenue todepict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange forthose goods and services. In August 2014, the FASB issued ASU 2015-14 which deferred the effective date by one year. Accordingly, the updated guidance iseffective for public entities for interim and annual periods beginning after December 15, 2017 and early adoption is permitted as of the beginning of aninterim or annual reporting period beginning after December 31, 2016. In 2016, the FASB issued ASU’s 2016-08, 2016-10 and 2016-12, all of which relate tothis same topic and have the same effective date. The Company has evaluated the impact of these ASU’s and has determined that the adoption of this updatedguidance will result in the deferral of revenue for certain distributors and strategic partners due to volume pricing discounts in the contracts. Also, revenueswill be deferred on certain grant contracts with government agencies in certain circumstances. The Company will also be required to capitalize costs incurredto obtain certain grant contracts and amortize these costs over the term of the related contract. Adoption of these ASU’s will require enhanced disclosuresregarding contracts with customers including disaggregation of revenue, information about contract balances and performance obligations, significantjudgments used in determining transaction price and assets recognized from costs to obtain a contract. These ASU’s were adopted effective January 1, 2018. F-13 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 outlines reporting requirements for Lessees to recognize aright-of-use asset and corresponding liability on the balance sheet for all leases covering a period of greater than 12 months. The liability is to be measured asthe present value of the future minimum lease payments, plus any initial direct costs. The minimum payments are discounted using the rate implicit in thelease, or, if not known, the lessee’s incremental borrowing rate. The updated guidance is effective for public entities for fiscal years beginning after December31, 2018. The Company is evaluating the impact of the updated guidance and has determined that the adoption of ASU 2016-02 may impact certain financialstatement disclosures, particularly with regard to leases of premises. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments (a consensusof the Emerging Issues Task Force).” The amendments in this Update relate to eight specific types of cash receipts and cash payments which current GAAPeither is unclear or does not include specific guidance on the cash flow classification issues. The amendments in this Update are effective for public businessentities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption inan interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal yearthat includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company will adopt theprovisions of this ASU for its fiscal year beginning January 1, 2018. The adoption of ASU 2016-15 is not expected to have a significant impact on itsconsolidated financial statements. In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718). The amendments in this Update provide guidanceabout which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Theamendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15,2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financialstatements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available forissuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company is evaluating theimpact of the revised guidance and believes that this will not have a significant impact on its consolidated financial statements. In July 2017, the FASB issued ASU 2017-11, “Earning Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives andHedging (Topic 815). Part I of this Update addresses the complexity of accounting for certain financial instruments with down round features. Theamendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down roundfeatures. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longerprecludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosurerequirements for equity-classified instruments. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interimperiods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscalyears beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for allentities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of thebeginning of the fiscal year that includes that interim period. The Company has elected to adopt the provisions of this ASU as of September 30, 2017 and hasrestated its current and comparative financial statements within this filing accordingly. (See Note 3). Shipping and Handling Costs The cost of shipping product to customers and distributors is typically borne by the customer or distributor. The Company records shipping andhandling costs in Cost of Revenue. Total freight costs amounted to approximately $257,000, $167,000 and $145,000 for the years ended December 31, 2017,2016 and 2015, respectively. 3. ADOPTION OF NEW ACCOUNTING STANDARD AND ADJUSTMENT Effective September 30, 2017, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2017-11, “Earning Per Share (Topic260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815). The provisions of this ASU change the classificationanalysis of certain equity-linked financial instruments (or embedded features) with down round features. The fair value of a financial instrument with a downround feature is now required to be classified as a component of stockholders equity, as opposed to a liability as it was previously required to be reported. Inaddition, this recorded fair value of the financial instrument is no longer to be subsequently remeasured. When the down round feature of the financialinstrument is triggered due to a change in the underlying strike price, the change in the fair value is now required to be treated as a dividend and as areduction of income available to common stockholders in accordance with the guidance of ASC-260. Accordingly, the Company has adjusted its current andhistorical financial statements to properly reflect the provisions of this ASU as discussed below. F-14 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Prior accounting treatment In connection with its March 11, 2014 offering, the Company issued warrants to purchase 816,000 shares of commonstock. These warrants contain certain pricing provisions which apply if the Company sells or issues common stock or common stock equivalents at a pricethat is less than the exercise price of the warrants, over the life of the warrants, excluding certain exempt issuances. In addition, these warrants may only beexercised with cash. Accordingly, the Company recognized a liability for these warrants based on their fair value as of the date of grant. The initial warrantliability recognized on the related warrants totaled $862,920. At each subsequent quarter end, the Company then remeasured the fair value of the warrants,and recorded the change in the warrant liability as a component of net income. In April 2017, the Company closed on an underwritten public offering. Theprice of this offering was $4.50 per share of common stock which is less than the exercise price of the warrants. Accordingly, the exercise price of the warrantshas been reduced to $4.50 per warrant, and the warrant liability was adjusted based upon the change in the underlying exercise price. There was no change inthe number of warrants which were repriced. (see Note 10). Current accounting treatment. The warrant liability has been eliminated from the Company’s balance sheets for the years 2014, 2015, 2016, and2017. As of January 1, 2015, the fair value of the warrant liability amounted to $2,981,418. Accordingly, the Company has adjusted its retained earnings andadditional paid in capital as of January 1, 2015 by $2,118,498 and $862,920, respectively, in accordance with the provisions of this ASU. In addition, theCompany has adjusted its net loss to (increase) decrease the net loss by $(175,418) and $1,345,290 for the years ended December 31, 2016 and 2015,respectively, for the effect of the change in the fair value of the warrant liability. As a result of the repricing of the warrants which occurred in connection with the April 2017 equity offering, the Company additionally recorded adividend of $335,731 during the year ended December 31, 2017. 4. PROPERTY AND EQUIPMENT, NET: Property and equipment - net, consists of the following: Depreciation/ AmortizationDecember 31, 2017 2016 Period Furniture and fixtures $469,329 $264,793 7 yearsEquipment and computers 2,938,137 2,396,811 3 to 7 yearsLeasehold improvements 850,744 570,678 Lesser of term of lease or estimateduseful life 4,258,210 3,232,282 Less accumulated depreciation and amortization 2,855,428 2,662,873 Property and Equipment, Net $1,402,782 $569,409 Depreciation expense for the years ended December 31, 2017, 2016 and 2015 amounted to $177,776, $126,112 and $87,396 respectively. 5. OTHER ASSETS: Other assets consist of the following: December 31, 2017 2016 Intangible assets, net $1,838,052 $1,191,101 Security deposits 123,133 104,910 Total $1,961,185 $1,296,011 F-15 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Intangible assets, which are included as a component of other assets, consist of the following: 2017 2016 Gross Accumulated Gross Accumulated December 31, Amount Amortization Net Amount Amortization Net Patents $2,081,222 243,170 1,838,052 $1,393,776 $202,675 $1,191,101 Amortization expense amounted to $40,495, $35,501 and $25,573 for the years ended December 31, 2017, 2016 and 2015, respectively. Amortization expense for the next five years will be approximately $43,400 for the year ended December 31, 2018; approximately $43,400 for theyear ended December 31, 2019; approximately $42,500 for the year ended December 31, 2020; approximately $40,890 for the year ended December 31,2021; and approximately $37,600 for the year ended December 31, 2022. 6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: Accrued expenses and other current liabilities consist of the following: 2017 2016 Sales, payroll and income taxes payable $452,362 $96,159 Accrued royalties 334,335 183,047 Accrued accounts payable 322,404 44,876 Accrued salaries and commissions 723,966 700,917 Professional fees 300,351 249,945 Travel and entertainment 164,985 224,621 Clinical Studies 111,394 556,170 Interest 78,585 35,681 Congresses 72,291 — Board of Director fees 28,500 23,250 Customer Deposits 14,747 — $2,603,920 $2,114,666 7. LONG-TERM DEBT, NET On June 30, 2016 (the “Closing Date”), the Company and its wholly-owned subsidiary CytoSorbents Medical, Inc. (together, the “Borrower”), enteredinto a Loan and Security Agreement (the “Loan and Security Agreement”) with Bridge Bank, a division of Western Alliance Bank, (the “Bank”), pursuant towhich the Bank agreed to loan up to an aggregate of $10 million to the Company, to be disbursed in two equal tranches of $5 million (the first tranche, the“Term A Loan”, the second tranche, the “Term B Loan”, and the Term A Loan and Term B Loan together, the “Term Loans”). The Company received theproceeds of the Term A Loan on June 30, 2016 and the proceeds from Term Loan B on June 30, 2017. The proceeds from the Term Loans will be used forworking capital purposes and to fund general business requirements in accordance with the terms of the Loan and Security Agreement. The Term Loans aresecured by substantially all of the assets of the Company, with the exception of any intellectual property. Outstanding balances on the Term Loans bearinterest at the thirty (30) day US dollar LIBOR rate reported in the Wall Street Journal plus 7.75%, adjusted monthly. This rate was 9.12% at December 31,2017. On the Closing Date, the Company was required to pay a non-refundable closing fee of $50,000 and expenses incurred by the Bank related to theLoan and Security Agreement of $24,000. On June 30, 2017, in connection with the closing of Term Loan B, the Company was required to pay expensesincurred by the Bank of $1,560. In addition, the Company incurred legal expenses related to the Loan and Security Agreement of $44,833. These costs,which total $120,393, have been presented as a direct deduction from the proceeds of the loan on the consolidated balance sheet in accordance with theprovisions of ASC 850. These costs are being amortized over the loan period as a charge to interest expense. For the years ended December 31, 2017 and2016, the Company recorded interest expense amounting to $29,971 and $14,855, respectively, related to these costs. After accounting for the various costsoutlined above, the effective interest rate on the Term A Loan was 10.0% as of June 30, 2016. Commencing on the first calendar day of the calendar monthafter a Term Loan is made; the Company is required to make monthly payments of interest only during the term of each Term Loan. Commencing onFebruary 1, 2018, subject to certain conditions as outlined in the Loan and Security Agreement, the Company is required to make equal monthly payments ofprincipal of $333,333, together with accrued and unpaid interest. All unpaid principal and accrued and unpaid interest shall be due and payable in full onJuly 1, 2020. In addition, the Loan and Security Agreement requires the Company to pay a non-refundable final fee equal to 2.5% of the principal amount ofeach Term Loan funded upon the earlier of the (i) July 1, 2020 maturity date or (ii) termination of the Term Loan via acceleration or prepayment. This finalfee is being accrued and charged to interest expense over the term of the loan. For the years ended December 31, 2017 and 2016, the Company recordedinterest expense of $52,083 and $15,625, respectively, related to the final fee. The Term Loans shall be evidenced by one or more secured promissory notesissued to the Bank by the Company. If the Company elects to prepay the Term Loan(s) pursuant to the terms of the Loan and Security Agreement, it will owea prepayment fee to the Bank, as follows: (1) for a prepayment made on or after the funding date of a Term Loan through and including the first anniversary ofsuch funding date, an amount equal to 2.0% of the principal amount of such Term Loan prepaid; (2) for a prepayment made after the first anniversary of thefunding date of a Term Loan through and including the second anniversary of such funding date, an amount equal to 1.5% of the principal amount of suchTerm Loan prepaid; and (3) for a prepayment made after the second anniversary of the funding date of a Term Loan through June 30, 2020, an amount equalto 1.0% of the principal amount of such Term Loan prepaid. F-16 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Events of default which may cause repayment of the Term Loans to be accelerated include, among other customary events of default, (1) non-paymentof any obligation when due, (2) the failure to perform any obligation required under the Loan and Security Agreement and to cure such default within areasonable time frame, (3) the occurrence of a Material Adverse Event (as defined in the Loan and Security Agreement), (4) the attachment or seizure of amaterial 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 becomesinsolvent or starts an insolvency proceeding or if an insolvency proceeding is brought by a third party against the Borrower and such proceeding is notdismissed or stayed within 30 days. The Loan and Security Agreement includes customary loan conditions, Borrower representations and warranties,Borrower affirmative covenants and Borrower negative covenants for secured transactions of this type. Effective with the issuance of Term Loan B on June 30, 2017, the Company is required to meet a financial covenant which requires the Company toachieve consolidated trailing six-month revenue from product sales equal to at least 75% of the projected revenue for such period in accordance withfinancial projections supplied to the Bank by the Company. The Company has maintained compliance with the covenant during 2017. The Borrower’s obligations under the Loan and Security Agreement are joint and severable, and are secured by a first priority security interest in favorof the Bank with respect to the Shares (as defined in the Loan and Security Agreement) and the Collateral (as defined in the Loan and Security Agreement,which definition excludes the Borrower’s intellectual property and other customary exceptions). Success Fee Letter: In connection with the Loan and Security Agreement, the Borrower simultaneously entered into a Success Fee Letter (the “Letter”) with the Bank.Pursuant to the Letter, the Borrower shall pay to the Bank a success fee in the amount equal to 6.37% of the funded amount of the Term Loans (the “SuccessFee”) upon the first occurrence of any of the following events (each a “Liquidity Event”): (a) a sale or other disposition by the Borrower of all or substantiallyall of its assets; (b) a merger or consolidation of the Borrower into or with another person or entity, where the holders of the Borrower’s outstanding votingequity securities as of immediately prior to such merger or consolidation hold less than a majority of the issued and outstanding voting equity securities ofthe successor or surviving person or entity as of immediately following the consummation of such merger or consolidation; (c) a transaction or a series ofrelated transactions in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended(the “Exchange Act”) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a sufficient number ofshares of all classes of stock then outstanding of the Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” toelect a majority of the Board of Directors of the Borrower, who did not have such power before such transaction; or (d) the closing price per share for theCompany’s common stock on the Nasdaq Capital Market being $8.00 (after giving effect to any stock splits or consolidations effected after the date hereof)or more for five successive business days. To date, no events have occurred that would cause the Success Fee to be paid. If the Success Fee is due pursuant to a Liquidity Event described in clause (d) of the definition thereof, the Company may elect, in lieu of paying theSuccess Fee in cash, to issue and sell to the Bank, in exchange for the Success Fee, such number of shares of the Company’s common stock as would be equalto the quotient (calculated by rounding up the nearest whole number) obtained by dividing (a) the Success Fee by (b) the volume weighted average price pershare of the Company’s common stock for the same five successive business days on which the closing price per share of the Company’s common stockcaused the Success Fee to become payable. The Bank’s right to receive the Success Fee and the Borrower’s obligation to pay such Success Fee terminate onJune 30, 2021, and shall survive the termination of the Loan and Security Agreement and any prepayment of the Term Loans. F-17 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Long-term debt consists of the following at December 31, 2017: Principal amount $10,000,000 Less unamortized debt acquisition costs (75,567)Plus accrued final fee 67,708 Subtotal 9,992,141 Less Current maturities 4,000,000 Long-term debt net of current maturities $5,992,141 Principal payments of long-term debt are due as follows at December 31, 2107: 2018 $4,000,000 2019 4,000,000 2020 2,000,000 Total $10,000,000 8. INCOME TAXES: The Company accounts for income taxes under FASB ASC 740 ("ASC 740"). Deferred income tax assets and liabilities are determined based upondifferences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effectwhen the differences are expected to reverse. The Company's consolidated loss before income taxes for the years ended December 31, 2017, 2016 and 2015 is as follows: Year Ended December 31, 2017 2016 2015 Domestic $(6,071,009) $(9,300,042) $(6,853,093)Foreign (3,066,529) (2,781,964) (2,948,541)Total $(9,137,538) $(12,082,006) $(9,801,634) The benefit from income taxes consists of the following: Year Ended December 31, 2017 2016 2015 State Tax, including sale of New Jersey losses & credits $676,739 $318,550 $324,606 Foreign tax provision — — — $676,739 $318,550 $324,606 As of December 31, 2017, the Company had federal net operating loss ("NOL") carry forwards of approximately $41,010,000, state NOL carryforwards of approximately $4,746,000, and foreign NOL carry forwards of approximately $11,977,000, which are available to reduce future taxable income.The NOL carry forwards, if not utilized, will begin to expire at various dates starting in 2036 and some may be carried indefinitely. As of December 31, 2017,the Company had Federal and state research and development tax credit carryforwards of approximately $1,096,000 and $60,000, respectively, available toreduce future tax liabilities, which will begin to expire at various dates starting in 2022. The NOL carry forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. The NOLs maybecome subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-yearperiod in excess of 50%, as defined under Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. In additionto the new provisions enacted under the Tax Cuts and Jobs Act, this could limit the amount of NOLs that the Company can utilize annually to offset futuretaxable income or tax liabilities. The amount of the annual limitation, if any, will generally be determined based on the value of the Company immediatelyprior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. F-18 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. U.S. Tax Reform On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act ("Tax Reform Legislation"), which made significant changes to U.S.federal income tax law. The Company expects that certain aspects of the Tax Reform Legislation will positively impact the Company’s future after-taxearnings in the U.S., primarily due to the lower federal statutory tax rate. Set forth below is a discussion of certain provisions of the Tax Reform Legislationand our preliminary assessment of the effect of such provisions on the Company’s results of operations, cash flows and consolidated financial statements. Beginning January 1, 2018, the Company’s U.S. income, if any, will be taxed at a 21 percent federal corporate rate. Further, the Company is requiredto recognize the effect of this rate change on our deferred tax assets and liabilities, and deferred tax asset valuation allowances in the period the tax ratechange is enacted. The Company does not expect any material non-cash impact from this rate change, with adjustments to deferred tax balances offset byadjustments to deferred tax valuation allowances. Further, the Tax Reform Legislation provides for a one-time “deemed repatriation” of accumulated foreign earnings for the year ended December 31,2017. The Company does not expect to pay U.S. federal cash taxes on the deemed repatriation due to an accumulated deficit in foreign earnings for taxpurposes. The Company does not expect that our future foreign earnings will be subject to U.S. federal income tax. In addition, the Tax Reform Legislation provides for 100 percent bonus depreciation on tangible property expenditures through 2022. The bonusdepreciation percentage is phased down from 100 percent beginning in 2023 through 2026. We do not expect this to have a material impact to the Company. Sale of Net Operating Losses (NOLs) The Company may be eligible, from time to time, to receive cash from the sale of its New Jersey Net Operating Losses and R&D tax credits under theState of New Jersey Technology Business Tax Certificate Transfer Program. In December 2017, the Company received a net cash amount of $676,739 from the sale of the 2016 state NOL and research and development credits. The principal components of the Company's deferred tax assets and liabilities are as follows: Year Ended December 31, 2017 2016 2015 Current and long term deferred tax assets: Net operating loss carry forward $12,517,356 $15,227,562 $13,041,156 Stock Options 479,033 498,287 486,726 Warrants — 108,594 120,329 Research and development credit carryforward 1,096,308 1,121,722 1,113,151 Accruals and others 74,477 213,791 (12,065)Gross deferred tax assets 14,167,174 17,169,956 14,749,297 Less valuation allowance (14,147,354) (17,152,066) (14,746,091) 19,820 17,890 3,206 Deferred tax liability: Fixed Assets (19,820) (17,890) (3,206)Net deferred tax assets $— $— $— In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred taxassets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in whichthose temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income andtax planning strategies in making this assessment. Based on this assessment, management has established a full valuation allowance against all of thedeferred tax assets for each period because it is more likely than not that all of the deferred tax assets will not be realized. The increases in valuation allowance for the years ended December 31, 2017, 2016 and 2015 were $(3,004,712), $2,405,975 and 3,673,088respectively. F-19 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. A reconciliation of income tax (expense) benefit at the statutory federal income tax rate and income taxes as reflected in the financial statements isas follows: Year Ended December 31, 2017 2016 2015 Federal statutory rate 34.0% 34.0% 34.0%State taxes, net of federal benefit (2.6) (4.1) 3.1 Foreign rate differential (1.4) (1.0) (1.5)Permanent items (5.1) (8.4) 2.9 Rate change and true-up (62.7) (6.0) 5.1 Timing differences — — — Change in valuation allowance 44.3 (13.7) (43.4)R&D credit 0.8 1.8 3.6 Effective income tax rate 7.3% 2.6% 3.8% 9. COMMITMENTS AND CONTINGENCIES: The Company is obligated under non-cancelable operating leases for office space expiring at various dates through August 2021. The aggregateminimum future payments under these leases are approximately as follows: Year ending December 31, 2018 $424,190 2019 226,720 2020 85,670 2021 57,113 Total $793,693 The preceding data reflects existing leases through the date of this report and does not include replacements upon their expiration. In the normalcourse of business, operating leases are normally renewed or replaced by other leases. Rent expense for the years ended December 31, 2017, 2016 and 2015 amounted to approximately $676,000, $473,000 and $411,000, respectively. Employment Agreements On July 14, 2015, CytoSorbents Corporation entered into executive employment agreements with its principal executives, Dr. Phillip P. Chan,President and Chief Executive Officer, Vincent Capponi, Chief Operating Officer, and Kathleen P. Bloch, Chief Financial Officer. Each of these agreementshas an initial term of three years, and is retroactively effective as of January 1, 2015. After 2017, these employment agreements automatically renew for oneyear, unless terminated by the Company or the employee. On May 30, 2017, CytoSorbents Corporation announced the appointment of Dr. Eric R. Mortensenas the Company’s Chief Medical Officer, pursuant to the terms of an employment agreement dated May 23, 2017. Dr. Mortensen’s employment agreementprovides for an initial term commencing on June 1, 2017 and ending on December 31, 2019. These employment agreements each provide for base salary andother customary benefits which include participation in group insurance plans, paid time off and reimbursement of certain business related expenses,including travel and continuing educational expenses, as well as bonus and/or equity awards at the discretion of the Board of Directors. In addition, theagreements provide for certain termination benefits in the event of termination without Cause or voluntary termination of employment for “Good Reason”, asdefined in each agreement. The agreements also provide for certain benefits in the event of a Change in Control of the Company, as defined in eachagreement. Litigation The Company is, from time to time, subject to claims and litigation arising in the ordinary course of business. The Company intends to defendvigorously against any future claims and litigation. The Company is not currently a party to any legal proceedings. Royalty Agreements Pursuant to an agreement dated August 11, 2003, an existing investor agreed to make a $4 million equity investment in the Company. Theseamounts were received by the Company in 2003. In connection with this agreement the Company granted the investor a future royalty of 3% on all grossrevenues received by the Company from the sale of its CytoSorb device. For the years ended December 31, 2017, 2016 and 2015, the Company recordedroyalty expenses of approximately $393,000, $243,000 and $118,000 respectively. These expenses are included in selling, general and administrativeexpenses in the consolidated statement of operations. F-20 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. License Agreements In an agreement dated September 1, 2006, the Company entered into a license agreement which provides the Company the exclusive right to use itspatented technology and proprietary know how relating to adsorbent polymers for a period of 18 years. Under the terms of the agreement, the Company hasagreed to pay license fees of 2.5% to 5% on the sale of certain of its products if and when those products are sold commercially for a term not greater than 18years commencing with the first sale of such product. For the years ended December 31, 2017, 2016 and 2015 per the terms of the license agreement, theCompany recorded licensing expenses of approximately $655,000, $324,000 and $158,000 respectively. These expenses are included in selling, general andadministrative expenses in the consolidated statement of operations. 10. STOCKHOLDERS' EQUITY Preferred Stock In December 2014, the Company amended and restated its articles of incorporation to reduce the total number of authorized shares of preferredstock. The amended and restated articles of incorporation authorize the issuance of up to 5,000,000 shares of “blank check” preferred stock, with suchdesignation rights and preferences as may be determined from time to time by the Board of Directors. Common Stock Shelf Registration On July 29, 2015, the Company’s registration statement on Form S-3, as filed with the SEC on July 23, 2015, was declared effective using a “shelf”registration process. Under this shelf registration statement, the Company may issue, in one or more offerings, any combination of common stock, preferredstock, senior or subordinated debt securities, warrants, or units, up to a total dollar amount of $100 million. April 5, 2017 Equity Offering On April 5, 2017, the Company closed on the sale of an aggregate of 2,222,222 shares of common stock pursuant to the Company's existing shelfregistration statement (Registration No. 333-205806) on Form S-3. The Company received gross proceeds of approximately $10,000,000, based on a publicoffering price of $4.50 per share. On April 11, 2017, the Company closed the sale of an additional 333,333 shares of the Company’s common stock, pursuantto the underwriters’ full exercise of an over-allotment option. The Company received gross proceeds of approximately $1,500,000 as a result of the exerciseof the option. As a result, the company received total gross proceeds of $11,500,000, and, after deducting the underwriting discounts and commissions andexpenses related to the offering, the Company received total net proceeds of approximately $10,300,000. As a result of this offering, the exercise price of thewarrants issued in connection with the Company’s March 11, 2014 public offering was reduced to $4.50 in accordance with the pricing provisions of thosewarrants. There was no change in the number of warrants which were repriced. These warrants remain exercisable on a cash-only basis. November 4, 2015 Controlled Equity Offering On November 4, 2015, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgeraldand Co., as agent (“Cantor”), pursuant to which the Company may offer to sell, from time to time through Cantor, shares of the Company’s common stock,having an aggregate offering price of up to $25,000,000 (the “Shares”) Any Shares offered and sold will be issued pursuant to the Company’s shelfregistration statement on Form S-3 (Registration No. 333-205806), and the related prospectus previously declared effective by the Securities and ExchangeCommission (the SEC) on July 29, 2015 (the “Registration Statement”), as supplemented by a prospectus supplement, dated November 4, 2015, which theCompany filed with the SEC pursuant to Rule 424(b)(5) under the Securities Act. Under the Sales Agreement, Cantor may sell Shares by any method permitted by law and deemed to be an “at the market offering” as defined in Rule415 promulgated under the Securities Act of 1933, as amended, including sales made directly on Nasdaq, on any existing trading market for the CommonStock or to or through a market maker. In addition, under the Sales Agreement, Cantor may sell the Shares by any other method permitted by law, includingin privately negotiated transactions. The Company may instruct Cantor not to sell Shares if the sales cannot be effected at or above the price designated bythe Company from time to time. F-21 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company is not obligated to make any sales of Shares under the Sales Agreement, and if it elects to make any sales, the Company can set aminimum sales price for the Shares. The offering of Shares pursuant to the Sales Agreement will terminate upon the earlier of (a) the sale of all the sharessubject to the Sales Agreement and (b) the termination of the Sales Agreement by Cantor or the Company, as permitted therein. From November 4, 2015through December 31, 2015, the Company sold 28,880 shares, generating net proceeds of approximately $225,000 under the Sales Agreement. There were nosales during the year ended December 31, 2016. During the year ended December 31, 2017, the Company sold 550,000 shares at an average price of $6.31 pershare, generating net proceeds of approximately $3,367,000. From January 1, 2018 through March 7, 2018, the Company sold 465,112 shares at an averagecost of $7.91 per share, generating net proceeds of approximately $3,568,000. In the aggregate, the Company has sold 1,043,992 shares at an average sellingprice of $7.07 per share, generating net proceeds of approximately $7,159,000 under the terms of the Sales Agreement. The Company pays a commission rate of 3.0% of the aggregate gross proceeds from each sale of Shares and has agreed to provide Cantor withcustomary indemnification and contribution rights. In 2015, the Company reimbursed Cantor $50,000 for certainspecified expenses in connection with the execution of the Sales Agreement. The Company intends to use the net proceeds raised through “at the market” sales for research and development activities, which include thefunding of additional clinical studies and costs of obtaining regulatory approvals in countries not covered by the CE Mark, capital expenditures and othercosts necessary to expand production capacity, support of various sales and marketing efforts, product development and general working capital purposes. As a result of the repricing of the warrants which occurred in connection with the April 2017 equity offering, the Company recorded a dividend of$335,731 during the year ended December 31, 2017. January 14, 2015 Public Offering On January 14, 2015, the Company closed an underwritten public offering (the “Offering”) consisting of 1,250,000 shares of common stock at aprice of $8.25 per share for an aggregate price of $10,312,500. The Company received net proceeds from the Offering of approximately $9,409,000. The netproceeds received by the Company from the Offering are being used to fund clinical studies, expand production capacity, support various sales andmarketing efforts, product development and general working capital purposes. The Company conducted the Offering pursuant to a registration statement on Form S-1 (File No. 333-199762), which was declared effective by theU.S. Securities and Exchange Commission (the “SEC”) on January 8, 2015. The Company filed a final prospectus on January 9, 2015, disclosing the finalterms of the Offering. In connection with the Offering, on January 8, 2015, the Company entered into underwriting agreements with Brean Capital, LLC and H.C.Wainwright & Co., LLC (the “Representatives”), who acted as book-running managers and as representatives of the underwriters in the Offering. In connection with the successful completion of the Offering, the underwriters received aggregate discounts and commissions of 6% of the grossproceeds of the sale of the shares in the Offering. In addition, the Company agreed to issue warrants to the Representatives (the “Representatives’ warrants”)that allow for the purchase of 30,000 shares of the Company’s common stock. These warrants had a fair value of approximately $30,000 on the date of theclosing. The Representatives’ warrants are exercisable at any time for a period of five years, commencing on the date of the effectiveness of the registrationstatement, at a price per share equal to 120% of the public offering price per share of the common stock in the Offering. The Company also agreed toreimburse the underwriters for actual out-of-pocket expenses related to the Offering, which amounted to approximately $85,000. The Company also grantedthe Representatives a right of first refusal to participate in any subsequent offering or placement of the Company’s securities that takes place within ninemonths following the effective date of the registration statement. Stock Option Plans As of December 31, 2017, the Company had two Long Term Incentive Plans (the “2014 Plan” and the “2006 Plan”) to attract, retain, and provideincentives to employees, officers, directors, and consultants. The Plans generally provide for the granting of stock, stock options, stock appreciation rights,restricted shares, or any combination of the foregoing to eligible participants. A total of 7,400,000 and 2,400,000 shares of common stock are reserved for issuance under the 2014 Plan and the 2006 Plan, respectively. As ofDecember 31, 2017, there were outstanding options to purchase approximately 1,957,000 and 1,622,000 shares of common stock reserved under the 2014Plan and the 2006 Plan, respectively. F-22 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The 2014 and 2006 Plans as well as grants issued outside of the Plan are administered by the Compensation Committee of the Board of Directors(the “Compensation Committee”). The Compensation Committee is authorized to select from among eligible employees, directors, advisors and consultantsthose individuals to whom incentives are to be granted and to determine the number of shares to be subject to, and the terms and conditions of the options.The Compensation Committee is also authorized to prescribe, amend and rescind terms relating to options granted under the Plans. Generally, theinterpretation and construction of any provision of the Plans or any options granted hereunder is within the discretion of the Compensation Committee. The 2014 Plan provide that options may or may not be Incentive Stock Options (ISOs) within the meaning of Section 422 of the Internal RevenueCode. Only employees of the Company are eligible to receive ISOs, while employees and non-employee directors, advisors and consultants are eligible toreceive options, which are not ISOs, i.e. “Non-Qualified Options.” Because the Company has not yet obtained shareholder approval of the 2006 Plan, alloptions granted thereunder to date are “Non-Qualified Options” and until such shareholder approval is obtained, all future options issued under the 2006Plan will also be “Non-Qualified Options.” In December 2014, the Company’s received shareholder approval authorizing the Board of Directors to implement the form, terms and provisions ofthe 2014 Plan. Accordingly, any options issued to employees under the 2014 Plan will be ISOs within the meaning of Section 422 of the Internal RevenueCode. Stock-based Compensation Total share-based employee, director, and consultant compensation for the years ended December 31, 2017, 2016 and 2015 amounted toapproximately $3,314,000, $2,757,000 and $382,000, respectively. These amounts are included in the statement of operations under the captions researchand development ($829,000, $2,046,000 and $126,000) and general and administrative ($2,485,000, $1,921,000 and $256,000), respectively. The summary of the stock option activity for the years ended December 31, 2017, 2016 and 2015 is as follows: Weighted Weighted Average Average Remaining Exercise Contractual Shares per Share Life (Years) Outstanding January 1, 2015 2,302,187 $5.37 6.1 Granted 681,000 $7.88 - Forfeited (166,287) $5.19 - Expired - $- - Exercised (339,621) $1.74 3.2 Outstanding, December 31, 2015 2,477,279 $6.56 6.2 Granted 1,044,219 $4.68 - Forfeited (695,770) $7.12 - Expired (27,351) $114.33 - Exercised (36,200) $3.26 2.5 Outstanding, December 31, 2016 2,762,177 $4.69 6.0 Granted 1,204,950 $5.46 9.2 Forfeited (165,720) $5.50 - Expired (34,020) $34.61 - Exercised (188,849) $4.40 - Outstanding, December 31, 2017 3,578,538 $4.64 6.3 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 exerciseprice (ranging from $3.45 to $6.90 per share in 2017) and expected life of the stock option (10 years in 2017), the current price of the underlying stock and itsexpected volatility (ranging from 64.3 to 80.8 percent in 2017), expected dividends (-0- percent) on the stock and the risk free interest rate (1.24 to 2.21percent) for the term of the stock option. The intrinsic value is calculated at the difference between the market value as of December 31, 2017 of $6.50 and the exercise price of the shares. F-23 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Options Outstanding Number Weighted Weighted Range of Outstanding at Average Average Aggregate Exercise December 31, Exercise Remaining Intrinsic Price 2017 Price Life (Years) Value $0.88 - $11.48 3,578,538 $4.64 6.3 $6,827,905 Options ExercisableNumber Weighted Exercisable at Average Aggregate December 31, Exercise Intrinsic 2017 Price Value 2,507,579 $4.30 $5,701,744 The summary of the status of the Company’s non-vested options for the year ended December 31, 2017 is as follows: Weighted Average Grant Date Shares Fair Value Non-vested, January 1, 2017 912,547 $2.55 Granted 1,204,950 0.64 Forfeited (144,980) 0.03 Vested (901,558) 2.38 Non-vested, December 31, 2017 1,070,959 $0.70 As of December 31, 2017, the Company had approximately $411,000 of total unrecognized compensation cost related to stock options which will,on average, be amortized over seven months. In 2018, the Board of Directors intends to grant a pool of options to purchase shares of common stock to the Company’s employees which will vestupon the achievement of certain specific, predetermined milestones related to the Company’s 2018 operations. Since these options relate exclusively to theachievement of 2018 milestones, no charge for these options has been recorded in the consolidated statements of operations for the year ended December 31,2017. The Company will assess the likelihood of meeting these milestones throughout 2018 and will record stock option expense as appropriate. On February 24, 2017, the Board of Directors granted options to purchase 953,200 shares of common stock to the Company’s employees which willvest upon the achievement of certain specific, predetermined milestones related to the Company’s 2017 operations. The grant date fair value of theseunvested options amounted to approximately $3,284,000. On February 15, 2018, based upon the finalization of its review of the Company’s progress tomeeting the predetermined milestones for 2017, the Board of Directors determined that 810,220 of these options would immediately vest. Accordingly, acharge of approximately $2,791,000 related to these options has been recorded in the consolidated statements of operations for the year ended December 31,2017. On June 7, 2016, the Board of Directors granted options to purchase 900,100 shares of common stock to the Company’s employees which will vestupon the achievement of certain specific, predetermined milestones related to the Company’s 2016 operations. The grant date fair value of these unvestedoptions amounted to approximately $2,437,000. On January 30, 2017, based upon the finalization of its review of the Company’s progress to meeting thepredetermined milestones for 2016, the Board of Directors determined that 716,480 of these options would immediately vest. Accordingly, a $1,940,000charge related to these options has been recorded in the consolidated statements of operations for the year ended December 31, 2016. F-24 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In April 2015, the Board of Directors granted options to purchase 566,000 shares of common stock to the Company’s employees which optionswould only vest upon achievement of certain specific, predetermined milestones related to 2015 operating performance. The grant date fair value of theseunvested options amounted to approximately $1,388,000. On June 7, 2016, based upon the finalization of its review of the Company’s progress to meetingthe predetermined milestones, the Board of Directors determined that 72,400 of these options would immediately vest. Accordingly, a $241,000 chargerelated to these options has been recorded in the consolidated statements of operations for the year ended December 31, 2016. In April 2015, the Board of Directors also granted 960,000 restricted stock units, valued at $7,747,200, to Company employees and 240,000restricted stock units, valued at $1,936,000, to the members of the Board of Directors, which will only vest upon a Change in Control of the Company, asdefined in the Company’s 2014 Long-Term Incentive Plan (a “Change in Control”). Of these restricted stock units granted to Company employees in April2015, 75,000 have been forfeited. In June 2016, the Board of Directors granted an additional 414,000 restricted stock units to Company employees, valued at$1,941,660 at the time of issuance, which will only vest upon a Change in Control, bringing the total amount of change of control restricted stock unitsoutstanding to 1,539,000. In February 2017, the Board of Directors granted an additional 129,500 restricted stock options to Company employees, Directors,and consultants valued at approximately $725,200 at the time of issuance, which will only vest upon a Change in Control, bringing the total amount ofChange of Control restricted stock units outstanding to 1,668,500. Due to the uncertainty over whether these restricted stock units will vest, which onlyhappens upon a Change in Control, no charge for these restricted stock units has been recorded in the consolidated statement of operations for the year endedDecember 31, 2017. Performance Based Stock Awards: Pursuant to a review of the compensation of the senior management of the Company, on June 7, 2016, the Board of Directors granted 80,000restricted stock units to certain senior managers of the Company. These awards were valued at $375,200 at the date of issuance, based upon the market priceof 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. These awards are charged to expense over the period which they vest. For the year endedDecember 31, 2017, the Company recorded a charge of approximately $108,000 related to these restricted stock unit awards. Pursuant to a review of the compensation of the senior management of the Company and managements’ performance in 2016, on February 24, 2017,the Board of Directors granted 125,000 restricted stock units to certain senior managers of the Company in order to settle bonuses accrued as of December 31,2016. These awards were valued at approximately $700,000 on the date of issuance, based upon the market price of the Company’s common stock at the dateof the grant, and vest one third on the date of the grant, one third on the first anniversary of the grant, and one third on the second anniversary of the date ofthe grant. For the year ended December 31, 2017, the Company recorded a charge of approximately $201,000 related to these restricted stock unit awards. The following table outlines the restricted stock unit activity for the year ended December 31, 2017: Weighted Average Grant Date Shares Fair Value Non-vested, January 1, 2017 53,335 $4.69 Granted 125,000 5.60 Vested (68,332) 5.24 Non-vested, December 31, 2017 110,003 $5.38 Warrants: As of December 31, 2017, the Company has the following warrants to purchase common stock outstanding: Number of Shares Warrant Exercise WarrantTo be Purchased Price per Share Expiration Date 101,600 $3.750 June 21, 2018 110,000 $3.125 September 30, 2018 48,960 $7.500 March 11, 2019 592,000 $4.500 March 11, 2019 30,000 $9.900 January 14, 2020 882,560 F-25 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In connection with its March 11, 2014 offering, the Company issued warrants to purchase 816,000 shares of common stock. As of December 31,2017, 592,000 of these warrants remain outstanding. These warrants have certain pricing provisions which apply if the Company sells or issues commonstock or common stock equivalents at a price that is less than the exercise price of the warrants, which is currently $4.50, over the life of the warrants,excluding certain exempt issuances. These warrants are exercisable on a cash-only basis. 11. NET LOSS PER SHARE Basic earnings per share and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 have been computed by dividing thenet loss attributable to common shareholders for each respective period by the weighted average number of shares outstanding during that period. Alloutstanding warrants and options and restricted stock awards representing approximately 4,571,000, 5,433,000, and 3,592,000 incremental shares atDecember 31, 2017, 2016 and 2015, respectively, have been excluded from the computation of diluted loss per share as they are anti-dilutive. 12. RETIREMENT PLAN In June 2014, the Company formed the CytoSorbents 401(k) Plan. The plan is a defined contribution plan as described in section 401(k) of theInternal Revenue Code (“IRC”) covering substantially all full-time employees. Employees are eligible to participate in the plan on the first day of thecalendar quarter following three full months of employment. Participants may defer up to 100% of their eligible compensation subject to certain IRClimitations. In addition, the Company provides for a matching contribution of twenty percent of the participants’ contribution on a maximum of a fivepercent compensation contribution. Matching contributions amounted to approximately $41,700, $35,900 and $26,400 for the years ended December 31,2017, 2016 and 2015, respectively. 13. SUBSEQUENT EVENT From January 1, 2018 through March 7, 2018, the Company sold 465,112 shares of its common stock at an average cost of $7.91 per share, under theterms of its Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald and Co. The sale of these shares generated net proceeds of approximately$3,568,000, bringing the total net proceeds generated under the agreement to approximately $7,159,000. (See Note 10). Pursuant to a review of the compensation of the senior management of the Company and managements’ performance in 2017, on February 28, 2018,the Board of Directors granted 146,200 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 $1,148,000 on the date of issuance, based upon the market price of the Company’s common stock at thedate of the grant, and vest one third on the date of the grant, one third on the first anniversary of the grant, and one third on the second anniversary of the dateof the grant. For the year ended December 31, 2017, the Company recorded a charge of approximately $383,000 related to these restricted stock unit awards. 14. QUARTERLY FINANCIAL RESULTS (UNAUDITED): Summarized quarterly data for 2017, 2016 and 2015 are as follows: For the Quarters Ended March 31 June 30 September 30 December 31 2017: Total revenue $3,113,518 3,566,226 3,824,299 4,646,711 Gross margin 1,859,035 2,084,216 2,307,435 3,381,708 Loss from operations (1,557,478) (2,330,908) (2,149,045) (3,805,167)Net loss attributable to common stockholders (1,524,873) (2,070,359) (2,054,279) (3,147,019)Net loss per share, basic and diluted $(0.06) (0.07) (0.07) (0.12) 2016: Total revenue $1,810,182 $2,222,338 $2,411,708 $3,083,615 Gross margin 990,683 1,349,072 1,447,827 1,786,536 Loss from operations (2,090,094) (2,687,371) (2,144,212) (4,570,448)Net income ( loss) attributable to common stockholders (1,854,596) (2,814,730) (2,188,119) (4,906,011)Net loss per share, basic and diluted (0.07) (0.11) (0.09) (0.19) 2015: Total revenue $723,074 $963,939 $1,343,625 $1,760,978 Gross margin 418,593 498,508 704,795 957,174 Loss from operations (2,711,629) (2,227,459) (2,150,296) (2,214,275)Net loss attributable to common stockholders (2,709,016) (2,162,514) (2,076,113) (2,529,385)Net loss per share, basic and diluted (0.11) (0.09) (0.08) (0.10) F-26 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 21.1 CytoSorbents Corporation List of Subsidiaries Name JurisdictionCytoSorbents Medical Inc.* DelawareCytoSorbents Europe GmbH* GermanyCytoSorbents Switzerland** Switzerland *Wholly-owned subsidiary of CytoSorbents Corporation **Wholly-owned subsidiary of CytoSorbents Europe GmbH Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 23.1 CONSENT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference of our reports dated March 8, 2018 relating to the consolidated financial statements ofCytoSorbents Corporation (the “Company”) as of and for the years ended December 31, 2017, 2016 and 2015 and the effectiveness of the Company’sinternal control over financial reporting which appears in this annual report on Form 10-K into the Company’s previously filed Registration Statements onForms S-3 (Registration Nos. 333-194394, 333-193053, and 333-205806) and Forms S-8 (Registration Nos. 333-199852 and 333-203244) and to thereference to our Firm under the caption “Experts”. /s/ WithumSmith+Brown, PC East Brunswick, New Jersey March 8, 2018 Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002 I, Phillip Chan, certify that: 1. I have reviewed this annual report on Form 10-K of CytoSorbents Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the registrant’s board of directors (or persons performing the equivalent function): a)all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal controls over financial reporting. Dated: March 8, 2018By:/s/ Dr. Phillip P. Chan Dr. Phillip P. Chan President and Chief Executive Officer (Principal Executive Officer) Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICERPURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002 I, Kathleen P. Bloch, certify that: 1. I have reviewed this annual report on Form 10-K of CytoSorbents Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the registrant’s board of directors (or persons performing the equivalent function): a)all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrols over financial reporting. Dated: March 8, 2018By:/s/ Kathleen P. Bloch Kathleen P. Bloch Chief Financial Officer (Principal Financial and Accounting Officer Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CytoSorbents Corporation (the “Company”) on Form 10-K for the year ended December 31, 2017 as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), Dr. Phillip Chan, President and Chief Executive Officer of the Company,certifies, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: March 8, 2018By:/s/ Dr. Phillip P. Chan Dr. Phillip P. Chan President and Chief Executive Officer (Principal Executive Officer) A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signaturethat appears in typed form with the electronic version of this written statement has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request. Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CytoSorbents Corporation (the “Company”) on Form 10-K for the year ended December 31, 2017 as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), Kathleen P. Bloch, Chief Financial Officer of the Company, certifies,pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: March 8, 2018By:/s/ Kathleen P. Bloch Kathleen P. Bloch Chief Financial Officer (Principal Financial and Accounting Officer) A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signaturethat appears in typed form with the electronic version of this written statement has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request. Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: Cytosorbents Corp, 10-K, March 08, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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