BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2025

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Foreign Currency Translation

The accompanying consolidated financial statements include the results of CytoSorbents Corporation (the “Parent”), CytoSorbents Medical Inc., its wholly owned operating subsidiary (the “Subsidiary”), and CytoSorbents Europe GmbH, its wholly owned European subsidiary (the “European Subsidiary”). In addition, the consolidated financial statements include CytoSorbents Switzerland, CytoSorbents Poland Sp. z.o.o., CytoSorbents Medical UK Limited, and CytoSorbents France SAS, the wholly owned subsidiaries of CytoSorbents Europe GmbH, and CytoSorbents UK Limited, CytoSorbents India Private Limited, CytoSorbents Medical Canada, Inc., and CytoSorbents MEA FZCO, wholly-owned subsidiaries of CytoSorbents Medical, Inc. These entities are collectively referred to as the “Company”. All significant intercompany transactions and balances have been eliminated in consolidation.

Sales and expenses denominated in foreign currencies are translated at average exchange rates in effect throughout the year. Assets and liabilities of foreign operations are translated at period-end exchange rates with the impacts of foreign currency translation recorded in cumulative translation adjustment, a component of accumulated other comprehensive income. Foreign currency transaction gains and losses are included in other income (loss), net in the consolidated statements of operations and comprehensive loss.

Segment Information

The Company operates and manages its business as one reportable segment and one operating segment, which is the business of developing, testing and selling blood purification medical devices. The Company’s chief operating decision maker (“CODM”) is the Company’s Chief Executive Officer (“CEO”). The CODM assesses performance of the segment and decides how to allocate resources based on revenue growth, gross margin, operating expenses, adjusted net loss, adjusted EBITDA (as defined in Note 11, Segment Information) and cash burn (cash used in operating and investing activities) derived from the Company’s consolidated results of operations and cash flows and total assets of the segment.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company’s restricted includes amounts held as collateral for a letter of credit with Bridge Bank, securing the College Road facility lease.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash to amounts shown in the consolidated balance sheets and consolidated statements of cash flows:

	December 31,
	2025		2024
	(amounts, in thousands)
Cash and cash equivalents	$	6,249	$	3,280
Restricted cash, current		—		5,000
Restricted cash		1,522		1,484
Total cash, cash equivalents and restricted cash	$	7,771	$	9,764

Accounts Receivable (Net of Allowance for Credit Losses)

Trade accounts receivable consist of amounts due from direct customers, distributors and agencies of the U.S. government and are presented at net realizable value. At each balance sheet date, the Company estimates an expected allowance for credit losses inherent in the Company’s accounts receivable portfolio based on historical experience, specific allowances for known troubled accounts, and other available evidence. In addition, also at each reporting date, this estimate is updated to reflect any changes in credit risk since the receivable was initially recorded. This estimate is calculated on a pooled basis where similar risk characteristics exist. The Company has identified the following portfolio segments: direct customers, distributors/strategic partners and the U.S. government.

A fixed reserve percentage for each pool is derived from a review of the Company’s historical losses in relation to the total pool. This estimate is adjusted quarterly for management’s assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the Company. The Company believes historical loss information is a reasonable starting point in which to calculate the expected allowance for credit losses as the Company’s portfolio segments have remained constant over the Company’s historical evaluation period.

The Company writes off receivables when there is information that indicates the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they are recognized as an offset to credit loss expense in the year of recovery. The total amount of write-offs was immaterial to the financial statements as a whole for the years ended December 31, 2025 and 2024.

The allowance for credit losses reflects accounts receivable balances that are written off when management determines they are uncollectible.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist, and measures the allowance for credit losses using the following methods:

Direct Customers—The Company measures expected credit losses on direct customer receivables using an aging methodology. The risk of loss for direct customer receivables is low based on the Company’s historical experience. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and supportable forecasts.

Distributors/Strategic Partners—The Company measures expected credit losses on distributor receivables using an individual reserve methodology. The risk of loss in this portfolio is low based on the Company’s historical experience. The estimate of expected credit losses considers the past payment history of each distributor.

U.S. Government- These receivables are related to the Company’s government grants. The Company measures expected credit losses on these receivables using an individual reserve methodology. The risk of loss in this portfolio is very low based on the Company’s historical experience, as these receivables are supported by approved grant award contracts.

Inventories

Inventories are valued at the lower of cost or net realizable value. Cost is determined based upon standard cost, which approximates actual cost, using a first-in first-out (“FIFO”) basis. Devices used in clinical trials or for research and development purposes are removed from inventory and charged to research and development expenses at the time of their use. Donated devices are removed from inventory and charged to selling, general and administrative expenses. The Company regularly reviews inventory quantities on hand and records inventory reserves for excess, obsolete, expired, and slow moving inventory based upon historical usage, product shelf life, forecasted demand, regulatory considerations, and other relevant factors. Inventory that is determined to be obsolete or expired is written off in the period such determination is made.

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 the term 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. Repairs and 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 over the related patent term. In the event a patent is abandoned, the net book value of the patent is written off.

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 impairment loss based on the difference between the carrying amount and fair value.

Leases

The Company accounts for leases in accordance with FASB Accounting Standards Update (“ASU”) 2016-02, Leases, Topic 842 (“ASC 842”). Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The Company determines if a contract contains a lease at the inception date and determines the lease classification, recognition, and measurement at commencement date. ROU assets also include adjustments related to prepaid or deferred lease payments. As the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. Options to extend a lease are included in the lease term when it is reasonably certain that the Company will exercise such options. Certain of the Company’s lease agreements include provisions for the Company to pay the lessor for common area maintenance, real estate taxes, and insurance, which the Company accounts for as variable lease costs.

Revenue Recognition

The Company recognizes revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services transferred to its customers. To do this, the Company applies the following five-step model, to determine this amount: (i) identify the contract with a customer: (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when, or as, the Company satisfies the performance obligation.

Revenue is typically recognized when the Company ships its products to its direct customers and distributors/strategic partners. The amount of revenue recognized reflects the consideration the Company expects to be entitled to receive in exchange for the products shipped or the services provided under their grant contracts.

The Company’s contracts with its direct customers are generally in the form of a purchase order. The Company has formal written contracts with each of its distributors/strategic partners that define their respective territories and minimum purchase commitments which must be met in order to maintain exclusivity in their territory. Distributors/strategic partner customers also submit purchase orders with each order that define the terms of shipment and transaction price.

The performance obligations in contracts with direct customers and distributors/strategic partners are for the shipment of the CytoSorb device and related accessory parts.

The price charged is based on the Company’s price list for the CytoSorb device and related accessory parts for both direct customers and distributor/strategic partners. The Company does not permit returns for product sales. The Company also provides for certain rebates and discounts to direct customers for sales of its product that are earned based upon sales volume. These amounts, which are earned based on calendar year sales volume, are recorded as a reduction of sales as earned.

The transaction price for the performance obligation is based on the purchase orders received for both direct customers and on the type of contract and are outlined in each contract.

The Company satisfies its performance obligation to direct customers and distributors/strategic partners generally upon shipment of the products.

Research and Development, Net of Grant Income

All research and development costs, payments to laboratories, research consultants and costs related to clinical trials and studies are expensed when incurred.

Currently, accounting for grants does not fall under ASC 606, as the grantor will not benefit directly from the Company’s expansion or product development, and no products or services are transferred to the grantor. The Company records grant income, net of expenses, as a reduction of research and development expenses. Refer to the “Effect of Recent Accounting Pronouncements” section below for additional information.

Advertising Expenses

Advertising costs are charged to activities when incurred. Advertising expense amounted to approximately $0.3 million, in both 2025 and 2024, and is included in selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss.

Income Taxes

Income taxes are accounted for under the asset and liability method prescribed by accounting standards for accounting for income taxes. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets 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 is provided 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 net operating losses generated prior to the previously completed reverse merger may be limited due to the change in ownership. Additionally, net operating losses generated subsequent to the reverse merger may be limited in the event of changes in ownership.

The Company follows the accounting standards associated with uncertain tax provisions. The Company had unrecognized tax benefits of $2.1 million and $2.2 million as of December 31, 2025 and 2024, respectively. 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 tax carryforwards and Research and Development credits to an industrial company.

CytoSorbents Europe GmbH, CytoSorbents Switzerland GmbH, CytoSorbents Poland Sp. z.o.o., CytoSorbents UK Limited, CytoSorbents Medical UK Limited, CytoSorbents France SAS, CytoSorbents India Private Limited, and CytoSorbents MEA FZCO file an annual corporate tax return, a VAT return and a trade tax return in Germany, Switzerland, Poland, the United Kingdom, France, India, and Dubai, respectively.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the balance sheet, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The valuation of options and warrants granted, allowance for credit losses and recoverability of patents are significant estimates in these consolidated financial statements.

Concentration of Credit Risk

The Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a $250,000 limit. At times, cash balances may exceed the maximum coverage provided by the FDIC on insured depositor accounts. Through the IntraFi Network, the Company maintains an Insured Cash Sweep account whereby all cash held in the Company’s money market account is swept daily in increments of less than the FDIC insurance limit and deposited in a number of IntraFi’s network of 3,000 financial institutions. This arrangement provides FDIC insurance coverage for all of the cash balances held in money market accounts. This arrangement excludes the restricted cash balances. Management monitors the soundness of these institutions in an effort to minimize its collection risk of these balances.

A significant portion of the Company’s revenues are from product sales in Germany. See Note 3, “Revenue” for further information relating to the Company’s revenue.

The Company does not have any significant concentration of risk with respect to any one particular supplier.

As of December 31, 2025, one distributor accounted for approximately 17% of the Company’s outstanding accounts receivable. As of December 31, 2024, one distributor accounted for approximately 19% of the Company’s outstanding accounts receivable. For the year ended December 31, 2025, no distributor or direct customer accounted for more than 10% of the Company’s revenue. For the year ended December 31, 2024, one distributor accounted for approximately 11% of the Company’s revenue.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, prepaid expense and other current assets, right-of-use assets, accounts payable and accrued expenses, lease liability – current portion, other current liabilities, and lease liability, net of current portion approximate their fair values due to their short-term nature.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815 “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. The Company estimates the fair value of warrants using the Black-Scholes option pricing model or the Monte Carlo pricing model. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.

The warrants issued upon the closing of the Company’s December 13, 2023, offering, the closing of the Company’s June 2024 debt financing, the rights offering on January 10, 2025, and the execution of the debt amendment on November 13, 2025 all met the criteria for equity classification under ASC 815. Accordingly, these warrants have been classified as equity as of December 31, 2025 and December 31, 2024.

Stock-Based Compensation

The Company measures and recognizes compensation expense for all stock-based payment awards made to employees, including stock options, restricted shares (“RSUs”), based on estimated fair values at the award grant date. The fair value of stock-based awards is amortized over the vesting period of the award using a straight-line method.

Stock-based compensation expense for awards with performance conditions is recognized when it is probable that the performance condition will be achieved and is then recognized over the requisite service period. Any changes in the probability assessment are accounted for as a cumulative adjustment to the current period compensation cost.

To estimate the fair value of an award, the Company uses the Black-Scholes option pricing model. This model requires inputs such as expected life, expected volatility, expected dividend yield of stock and risk-free interest rate. These inputs are subjective and generally require significant analysis and judgment to develop. While estimates of expected life and volatility are derived primarily from the Company’s historical data, the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected life assumption. The Company accounts for forfeitures in the period they occur.

The Company also follows the guidance of accounting standards for accounting for equity instruments that are issued to non-employees for acquiring, or in conjunction with selling, goods or services for equity instruments issued to consultants.

Net Loss per Common Share

Net income or loss per common share is calculated as basic net income or loss per share and diluted net income per share, in the case of recognizing net income. Basic net income per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed in the same manner as basic net income after assuming issuance of common stock for all potentially dilutive equivalent shares, which includes the potential dilution that could occur: (i) if the RSUs with service conditions were fully vested (using the treasury stock method); (ii) if all of the Company’s outstanding stock options that are in-the-money were exercised (using the treasury stock method); (iii) if the RSUs with service and market conditions were considered contingently issuable; (iv) if the RSUs with service and performance conditions were considered contingently issuable; (v) if outstanding warrants were exercised; and (vi) if convertible debt was converted to common stock. The computation of diluted net loss per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings.

The following table presents the calculation of net loss per share:

	Years Ended December 31,
	2025		2024
Basic and Diluted:	(amounts, in thousands, except share and per share data)
Numerator:
Net loss	$	(8,198)	$	(20,719)
Denominator:
Basic and diluted weighted average common shares outstanding		62,231,771		54,434,609
Basic and diluted earnings per common share	$	(0.13)	$	(0.38)

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net loss per share of common stock attributable to common stockholders, because their effect was anti-dilutive:

	As of December 31,
	2025	2024
Stock options outstanding	10,988,604	12,341,914
Warrants for common stock	5,780,701	4,352,130
RSUs*	3,529,301	3,450,836
Convertible securities	2,105,263	2,105,263

*  Total number of RSUs include 2,754,000 units with a Change in Control-Based performance condition.

Shipping and Handling Costs

The cost of shipping products to customers and distributors is typically borne by the customer or distributor. The Company records shipping and handling costs in cost of goods sold. Total freight costs amounted to approximately $0.5 and $0.4 million for the years ended December 31, 2025 and 2024, respectively.

Effect of Recent Accounting Pronouncements

In December 2023, the FASB issued ASU No. 2023-09 entitled “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This ASU provides guidance related to additional disclosures related to income taxes. The updated guidance is effective for public entities for fiscal years beginning after December 15, 2024. The Company implemented the updated guidance as of January 1, 2025 using a prospective method. This ASU resulted in additional disclosures in the Company’s consolidated financial statements related to income taxes in 2025. Refer to Note 7, Income Taxes, for additional information.

In December 2025, the FASB issued ASU No. 2025-10 entitled “Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities.” This ASU provides guidance related to business entities that receive a government grant. The updated guidance requires grants related to income presented separately under a general heading such as other income or as a deduction from the related expense and is effective for annual reporting periods beginning after December 15, 2028. The Company has early adopted this guidance and records grant income, net of expenses, as a reduction of research and development expenses for the years ended December 31, 2025 and 2024.

Recent Accounting Pronouncements Not Yet Effective

In November 2024, the FASB issued ASU 2024-03 entitled, “Income Statement- Reporting Comprehensive Income- Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU requires public business entities (“PBEs”) to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to the financial statements, including disclosing the amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization in each relevant expense caption. It also requires PBEs to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively and to disclose the total amount of selling expenses, and in the annual reporting periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The Company is currently evaluating the disclosure requirements of this standard and the impact on its consolidated financial statements.

In July 2025, the FASB issued ASU 2025-05 entitled, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets.” This ASU provides all entities with a practical expedient when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. In developing reasonable and supportable forecasts as part of estimating expected credit losses, all entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. The amendments are effective for annual reporting periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods. The Company is currently evaluating this standard and its impact on its consolidated financial statements.

Reclassifications

Certain amounts included in prior year financial statements have been reclassified to conform to the current year presentation. These reclassifications did not have a material impact on the Company’s previously reported financial statements.