REVENUE

9 Months Ended

Sep. 30, 2018

Revenue from Contract with Customer [Abstract]

On January 1, 2018, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all related amendments (the “new revenue standard”) to all contracts with customers using the modified retrospective method. The adoption of the new revenue standard had no impact on retained earnings as of December 31, 2017 and, accordingly, no cumulative adjustment was required. We do not expect the new revenue standard to have a significant impact on our net income on an ongoing basis.

The following table disaggregates the Company’s revenue by customer type and geographic area for the three months ended September 30, 2018:

					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	–	$	–	$	–	$	–
Germany		2,766,922		–		–		2,766,922
All other countries		613,491		1,722,335		–		2,335,826
Total product revenue		3,380,413		1,722,335		–		5,102,748
Grant and other income:
United States		–		–		640,225		640,225
Total revenue	$	3,380,413	$	1,722,335	$	640,225	$	5,742,973

The following table disaggregates the Company’s revenue by customer type and geographic area for the three months ended September 30, 2017:

					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	32,200	$	–	$	–	$	32,200
Germany		2,093,792		–		–		2,093,792
All other countries		485,677		836,992		–		1,322,669
Total product revenue		2,611,669		836,992		–		3,448,661
Grant and other income:
United States		–		–		375,638		375,638
Total revenue	$	2,611,669	$	836,992	$	375,638	$	3,824,299

The following table disaggregates the Company’s revenue by customer type and geographic area for the nine months ended September 30, 2018:

					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	18,900	$	–	$	–	$	18,900
Germany		8,686,596		–		–		8,686,596
All other countries		2,034,080		4,042,023		–		6,076,103
Total product revenue		10,739,576		4,042,023		–		14,781,599
Grant and other income:
United States		–		–		1,641,464		1,641,464
Total revenue	$	10,739,576	$	4,042,023	$	1,641,464	$	16,423,063

The following table disaggregates the Company’s revenue by customer type and geographic area for the nine months ended September 30, 2017:

					United States
			Distributors/		Government
	Direct		Strategic Partners		Agencies		Total
Product sales:
United States	$	56,200	$	–	$	–	$	56,200
Germany		5,433,209		–		–		5,433,209
All other countries		1,175,001		2,421,396		–		3,596,397
Total product revenue		6,664,410		2,421,396		–		9,085,806
Grant and other income:
United States		–		–		1,418,237		1,418,237
Total revenue	$	6,664,410	$	2,421,396	$	1,418,237	$	10,504,043

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. Both of these revenue streams are within the scope of this accounting pronouncement. 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. 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 and Luxembourg. 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 as 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. Each distributor’s/strategic partner’s contract has minimum annual purchase requirements in order to maintain exclusivity in their respective territories. Except for Fresenius Medical Care (“FMC”), there is no additional consideration or monetary penalty that would be required to be paid to CytoSorbents 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

. The FMC agreement provides that FMC must make specific minimum quarterly purchases. In the event that FMC does not meet the minimum quarterly purchase amounts as stipulated in their agreement, FMC would be required to make minimum quarterly payments. If this situation should occur, which is not anticipated, the Company would record these minimum payments as other income in the financial statements. In addition, certain distributors are eligible for volume discount pricing if their unit sales are in excess of the base amount in the contract.

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 contacts fall into one of the following categories:

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.

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.

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.

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, 2018		December 31, 2017
Receivables, which are included in grants and accounts receivable	$	2,381,031	$	1,267,459
Contract liabilities	$	35,113	$	30,380

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, 2018 and December 31, 2017, and deferred revenue on distributor/strategic partner contracts. Deferred revenue is the difference between the average selling price anticipated for the year ended 2018 and the actual price invoiced during the nine months ended September 30, 2018. There was no deferred revenue liability as of December 31, 2017.