Cytosorbents Corporation — FY2013 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2013; it does not present a standalone Q4 income statement. CytoSorbents is a development-stage medical-device company commercializing its CytoSorb blood-purification filter in Europe and developing additional products. CytoSorb had EU CE Mark approval and was being sold primarily in Germany, Austria and Switzerland.
Financial results and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Total revenue | $2.423 million | $1.343 million |
| Product sales | $822,000 | $152,000 |
| Grant income | $1.601 million | $1.191 million |
| Gross profit | $511,000 | $1.024 million |
| Operating loss | $4.713 million | $3.491 million |
| Net loss | $4.678 million | $3.664 million |
| Net loss available to common shareholders | $7.073 million | $6.175 million |
| Net interest expense | $423,000 | $564,000 |
| Net cash used in operating activities | $3.489 million | $3.616 million |
- Revenue increased 80%; product sales rose 441%. Q4 2013 CytoSorb product sales were approximately $314,000, up 54% from Q3 2013. The filing reports a 61% product gross margin for FY2013; overall gross profit fell as the mix and costs of revenue differed.
- R&D expense was $1.739 million, down from $2.532 million, partly because more labor and other costs were charged to grant-funded work. General and administrative expense rose to $2.577 million from $1.355 million, mainly with European sales staffing, marketing and stock-option expense.
- Cash and cash equivalents were $2.183 million at year-end, versus $1.729 million in 2012. Current assets were $3.487 million and current liabilities $3.065 million, for working capital of approximately $422,000.
- FY2013 investing cash use was $216,000; financing provided $4.203 million. The company reported a $105.806 million accumulated deficit and a $14.266 million stockholders’ deficit. Current convertible notes, net of discount, were $1.644 million; redeemable Series B preferred stock was reported separately at $15.246 million.
Material changes and developments
- 2013 was the first full year of commercialization. Cumulative CytoSorb sales from the controlled market release through year-end were approximately $1.009 million.
- The company reported more than 100 European key opinion leaders using or considering the product and more than 30 investigator-initiated studies planned or enrolling. Its direct European sales team had four representatives at year-end; by March 1, 2014 it had seven salespeople and two support staff.
- CytoSorb’s CE Mark was renewed for two years in September 2013. The company also entered a distribution partnership with Biocon for India and selected emerging markets and established additional distributor relationships.
- Product sales remained a minority of total revenue: grant income was approximately 66% of FY2013 revenue, and two U.S. government agencies accounted for approximately 62% of revenue.
Outlook, risks and unusual items
- Management planned to expand European commercialization, build sales and marketing capacity, and pursue additional clinical studies, including a dose-ranging study in Germany and a U.S. Air Force-funded trauma pilot. Larger prospective studies are needed to confirm the European Sepsis Trial’s clinical findings. No formal revenue or earnings guidance is provided.
- The 100-patient European Sepsis Trial demonstrated safety and a 30–50% reduction in key cytokines in the electronically randomized cohort. Reported mortality benefits were post-hoc subgroup findings in small samples; the filing emphasizes the need for confirmation. Preliminary dosing-study results did not establish statistically significant mortality differences versus the earlier trial data.
- Management said year-end cash, together with subsequent financing, was expected to fund operations into 2016, but noted additional capital may be needed for pivotal trials. The independent auditor highlighted recurring losses and negative operating cash flows and expressed substantial doubt about the company’s ability to continue as a going concern.
- After year-end, the company raised $10.2 million gross, approximately $9.451 million net, in a March 2014 registered offering of 40.8 million shares and warrants for up to 20.4 million additional shares. It also reported approximately $300,000 of 2014 proceeds from sales to Lincoln Park Capital. These financings provide liquidity but are potentially dilutive.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2013, citing material weaknesses including no independent audit committee or audit committee financial expert and inadequate oversight and reporting of the German subsidiary.
- Series A and Series B preferred stock carry 10% dividends, with rates that may rise to 20% upon specified defaults. Series B has priority over common stock in liquidation and possible redemption provisions. Substantial outstanding options, warrants and convertible securities create additional potential dilution.
- Other risks include dependence on CE Mark-compliant sales and reimbursement, no U.S. marketing approval, early-stage commercial adoption, clinical and regulatory uncertainty, manufacturing scale-up, reliance on government grants, and intellectual-property exposure. The filing reports no current legal proceedings.
Investor facts to verify
- Confirm the March 2014 offering’s net proceeds, use of funds, and fully diluted share count, including warrants and equity-linked securities.
- Track recurring CytoSorb product sales, reorder rates, product margins and the proportion of revenue derived from grants and major government customers.
- Review results of the dosing study and larger prospective trials; distinguish exploratory subgroup findings from prespecified, adequately powered clinical outcomes.
- Assess cash burn and trial funding needs against management’s runway estimate and the auditor’s going-concern warning.
- Monitor remediation of the disclosed material weaknesses and establishment of independent audit oversight.
- Review preferred-stock dividend, default, conversion and potential redemption terms, along with outstanding options, warrants and convertible notes.