REVENUE

9 Months Ended

Sep. 30, 2020

REVENUE

REVENUE

4.    REVENUE

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

					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	222,300	$	39,200	$	—	$	261,500
Germany		4,818,029		—		—		4,818,029
All other countries		1,293,829		3,872,284		—		5,166,113
Total product revenue		6,334,158		3,911,484		—		10,245,642
Grant and other income:
United States		—		—		300,970		300,970
Total revenue	$	6,334,158	$	3,911,484	$	300,970	$	10,546,612

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

					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	80,000	$	—	$	—	$	80,000
Germany		3,445,632		—		—		3,445,632
All other countries		745,888		1,456,943		—		2,202,831
Total product revenue		4,271,520		1,456,943		—		5,728,463
Grant and other income:
United States		—		—		366,544		366,544
Total revenue	$	4,271,520	$	1,456,943	$	366,544	$	6,095,007

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

					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	957,800	$	39,200	$	—	$	997,000
Germany		14,271,239		—		—		14,271,239
All other countries		3,767,521		8,886,180		—		12,653,701
Total product revenue		18,996,560		8,925,380		—		27,921,940
Grant and other income:
United States		—		—		1,126,885		1,126,885
Total revenue	$	18,996,560	$	8,925,380	$	1,126,885	$	29,048,825

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

					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	146,800	$	—	$	—	$	146,800
Germany		10,242,943		—		—		10,242,943
All other countries		2,403,139		3,362,577		—		5,765,716
Total product revenue		12,792,882		3,362,577		—		16,155,459
Grant and other income:
United States		—		—		1,363,703		1,363,703
Total revenue	$	12,792,882	$	3,362,577	$	1,363,703	$	17,519,162

The Company has two primary revenue streams: (1) sales of the CytoSorb device and related device accessories and (2) grant income from contracts with various agencies of the United States government. The following is a brief description of each revenue stream.

CytoSorb Sales

The Company sells its CytoSorb device using both its own sales force (direct sales) and through the use of distributors and/or strategic partners.  All sales of the device are outside the United States, as CytoSorb is not yet approved in the United States, other than in respect of the EUA.  Direct sales are fulfilled from the Company’s office in Berlin, Germany.  Direct sales relate to sales to hospitals located in Germany, Switzerland, Austria, Belgium, Luxembourg, Poland, the Netherlands, Sweden, Denmark and Norway.  There are no formal sales contracts with any direct customers relating to product price or minimum purchase requirements.  However, there are agreements in place with certain direct customers that provide for either free of charge product or rebate credits based upon achieving minimum purchase levels.  The Company records the value of these items earned as a reduction of revenue.  These customers submit purchase orders and the order is fulfilled and shipped directly to the customer.  Prices to all direct customers are based on a standard price list based on the packaged quantity (6 packs vs 12 packs).

Distributor and strategic partner sales make up the remaining product sales.  These distributors are located in various countries throughout the world.  The Company has a formal written contract with each distributor/strategic partner.  These contracts have terms ranging from 1-5 years in length, with three years being the typical term.  In addition, certain distributors are eligible for volume discount pricing if their unit sales are in excess of the base requirement per the contract.

Each distributor's/strategic partner's contract has minimum annual purchase requirements in order to maintain exclusivity in their respective territories.

There is no additional consideration or monetary penalty that would be required to be paid to the Company if a distributor does not meet the minimum purchase commitments included in the contract, however, at the discretion of the Company, the distributor may lose its exclusive rights in the territory if such commitments are not met.

Government Grants

The Company has been the recipient of various grant contracts from various agencies of the United States government, primarily the Department of Defense, to perform various research and development activities.  These contracts fall into one of the following categories:

1. Fixed price – the Company invoices the contract amount in equal installments over the term of the contract without regard to the timing of the costs incurred related to this contract.

2. Cost reimbursement – the Company submits monthly invoices during the term of the contract for the amount of direct costs incurred during that month plus an agreed percentage that relates to allowable overhead and general and administrative expenses.  Cumulative amounts invoiced may not exceed the maximum amount of funding stipulated in the contract.

3. Cost plus – this type of contract is similar to a cost reimbursement contract but this type also allows for the Company to additionally invoice for a fee amount that is included in the contract.

4. Performance based – the Company submits invoices only upon the achievement of the milestones listed in the contract.  The amount to be invoiced for each milestone is documented in the contract.

In summary, the contracts the Company has with customers are the distributor/strategic partner contracts related to CytoSorb product sales, agreements with direct customers related to free-of-charge product and credit rebates based upon achieving minimum purchase levels, and contracts with various government agencies related to the Company’s grants.  The Company does not currently incur any outside/third party incremental costs to obtain any of these contracts.  The Company does incur internal costs, primarily salary related costs, to obtain the contracts related to the grants.  Company employees spend time reviewing the program requirements and developing the budget and related proposal to submit to the grantor agency.  There may additionally be travel expenditures involved with meeting with government agency officials during the negotiation of the contract.  These internal costs are expensed as incurred.

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

	September 30, 2020		December 31, 2019
Receivables, which are included in grants and accounts receivable	$	3,175,385	$	2,246,821
Contract liabilities	$	163,241	$	171,842

Contract liabilities represent the value of free of charge goods and credit rebates earned in accordance with the terms of certain direct customer agreements during the periods ended September 30, 2020 and December 31, 2019, and deferred revenue on distributor/strategic partner contracts.  Deferred revenue is the difference between the average selling price anticipated for the year ended 2020 and the actual price invoiced during the nine months ended September 30, 2020.  There was no deferred revenue liability as of December 31, 2019.