UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission file number
SEASTAR MEDICAL HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware | 85-3681132 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Identification No.) | |
3513 Brighton Blvd.,Suite 410 Denver, CO | 80216 | |
| ||
(Address of principal executive offices) | (Zip |
Registrant’s telephone number, including area code:(844) (844) 427-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of each | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.0001 par value | ICU | The Nasdaq Stock Market LLC | ||
Warrants, each whole warrant exercisable for one share of Common Stock | ICUCW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrantRegistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrantRegistrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||
Non-accelerated filer | ☒ | 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 or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrantRegistrant is a shell company (as defined in RuleAct).Act ). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of November11, 2022, there were 12,699,668
SEASTAR MEDICAL HOLDING CORPORATION
(f/k/a LMF Acquisition Opportunities, Inc.)
TABLE OF CONTENTS
Table of Contents
Page | ||||||
PART I. | 1 | |||||
Item 1. | 1 | |||||
Consolidated Balance Sheets | 1 | |||||
2 | ||||||
Consolidated Statements of Changes in Stockholders' Deficit (Unaudited) | 3 | |||||
4 | ||||||
| Notes to Unaudited Consolidated Financial Statements | 5 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||||
Item 3. | 20 | |||||
Item 4. | 21 | |||||
PART II. | 22 | |||||
Item 1. | 22 | |||||
Item 1A. | 22 | |||||
Item 2. | 24 | |||||
Item 3. | 25 | |||||
Item 4. | 25 | |||||
Item 5. | 25 | |||||
Item | 26 | |||||
27 | ||||||
2
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
SeaStar Medical Holding Corporation a Delaware corporation (f/k/a LMF Acquisition Opportunities, Inc. (“LMAO”))(the “Company”), consummated the previously announced business combination pursuant to that certain Agreement
Consolidated Balance Sheets
As of March 31, 2023 and Plan of Merger, dated April 21,December 31, 2022 (the “Merger Agreement”) by
(in thousands, except for share and among LMAO, LMF Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of LMAO (“Merger Sub”), and SeaStar Medical, Inc., a Delaware corporation (“Old SeaStar Medical”).
September 30, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash | $ | 116,840 | $ | 51,567 | ||||
Prepaid insurance and other fees | 41,361 | 286,237 | ||||||
Prepaid expenses | 132,875 | 14,817 | ||||||
Cash and marketable securities held in trust | 107,048,750 | 105,581,820 | ||||||
Current Assets | 107,339,826 | 105,934,441 | ||||||
Total assets | $ | 107,339,826 | $ | 105,934,441 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Accrued expenses | 1,866,028 | 376,702 | ||||||
Notes and advances payable - related parties | 2,768,405 | — | ||||||
Deferred underwriting commissions in connection with the initial public offering | 3,622,500 | 3,622,500 | ||||||
Warrant liability (Note 9) | 1,129,378 | 6,930,740 | ||||||
Total current liabilities | 9,386,311 | 10,929,942 | ||||||
Total liabilities | 9,386,311 | 10,929,942 | ||||||
Commitments | ||||||||
Class A common stock subject to possible redemption 10,350,000 shares at redemption value of $10.32 and $10.20per share at September 30, 2022 and December 31, 2021, respectively | 106,848,750 | 105,570,000 | ||||||
Stockholders’ deficit: | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 103,500 issued and outstanding at September 30, 2022 and December 31, 2021 excluding 10,350,000 shares subject to possible redemption | 10 | 10 | ||||||
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 2,587,500 shares issued and outstanding at September 30, 2022 and December 31, 2021 (See Note 11 ) | 259 | 259 | ||||||
Additional paid-in capital | — | — | ||||||
Accumulated deficit | (8,895,504 | ) | (10,565,770 | ) | ||||
Total stockholders’ deficit | (8,895,235 | ) | (10,565,501 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 107,339,826 | $ | 105,934,441 | ||||
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
ASSETS |
| |||||||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 725 |
|
| $ | 47 |
|
Other receivables |
|
| — |
|
|
| 12 |
|
Prepaid expenses |
|
| 2,659 |
|
|
| 2,977 |
|
Total current assets |
|
| 3,384 |
|
|
| 3,036 |
|
Forward option-prepaid forward contracts, net |
|
| - |
|
|
| 1,729 |
|
Other assets |
|
| 2 |
|
|
| 2 |
|
Total assets |
| $ | 3,386 |
|
| $ | 4,767 |
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
| |||||||
Current liabilities |
|
|
|
|
|
| ||
Accounts payable |
| $ | 3,022 |
|
| $ | 1,927 |
|
Accrued expenses |
|
| 1,531 |
|
|
| 2,245 |
|
Contingent upfront payment for license agreement |
|
| 100 |
|
|
| — |
|
Notes payable |
|
| 493 |
|
|
| 1,178 |
|
Convertible note |
|
| 2,390 |
|
|
| — |
|
Warrants liability |
|
| 500 |
|
|
| — |
|
Total current liabilities |
|
| 8,036 |
|
|
| 5,350 |
|
Forward option-prepaid forward contracts, net |
|
| 489 |
|
|
| - |
|
Notes payable, net of deferred financing costs |
|
| 5,745 |
|
|
| 7,652 |
|
Total liabilities |
|
| 14,270 |
|
|
| 13,002 |
|
Commitments and contingencies (see Note 10) |
|
|
|
|
|
| ||
Stockholders' deficit (1) |
|
|
|
|
|
| ||
Common stock - $0.0001 par value per share; 100,000,000 shares authorized; |
|
| 1 |
|
|
| 1 |
|
Additional paid-in capital |
|
| 93,702 |
|
|
| 91,089 |
|
Accumulated deficit |
|
| (104,587 | ) |
|
| (99,325 | ) |
Total stockholders' deficit |
|
| (10,884 | ) |
|
| (8,235 | ) |
Total liabilities and stockholders' deficit |
| $ | 3,386 |
|
| $ | 4,767 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1
SeaStar Medical Holding Corporation
Consolidated Statements of Operations (unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Expenses: | ||||||||||||||||
Formation and Administrative costs | $ | 270,265 | $ | 411,398 | $ | 830,707 | $ | 747,073 | ||||||||
Merger costs | 1,391,601 | — | 2,453,569 | — | ||||||||||||
Loss from operations | (1,661,866 | ) | (411,398 | ) | (3,284,276 | ) | (747,073 | ) | ||||||||
Gain on warrant liability revaluation | 680,522 | 644,720 | 5,801,362 | 702,400 | ||||||||||||
Other income | ||||||||||||||||
Investment income earned on marketable securities held in Trust Account | 361,717 | 2,661 | 431,930 | 4,415 | ||||||||||||
Net income (loss) | $ | (619,627 | ) | $ | 235,983 | $ | 2,949,016 | $ | (40,258 | ) | ||||||
Net income (loss) per share: | ||||||||||||||||
Weighted average shares outstanding, basic and dilutive | ||||||||||||||||
Class A - Common stock | 10,453,500 | 10,453,500 | 10,453,500 | 9,381,347 | ||||||||||||
Class B - Common stock | 2,587,500 | 2,587,500 | 2,587,500 | 2,543,269 | ||||||||||||
Basic and diluted net income (loss) per share | ||||||||||||||||
Class A - Common stock | $ | (0.05 | ) | $ | 0.02 | $ | 0.23 | $ | (0.00 | ) | ||||||
Class B - Common stock | $ | (0.05 | ) | $ | 0.02 | $ | 0.23 | $ | (0.00 | ) | ||||||
For the Three Months Ended March 31, 2023 and 2022
(in thousands, except for share and per-share amounts)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating expenses |
|
|
|
|
|
| ||
Research and development |
| $ | 1,784 |
|
| $ | 355 |
|
General and administrative |
|
| 2,797 |
|
|
| 457 |
|
Total operating expenses |
|
| 4,581 |
|
|
| 812 |
|
|
|
|
|
|
|
| ||
Loss from operations |
|
| (4,581 | ) |
|
| (812 | ) |
|
|
|
|
|
|
| ||
Other income (expense), net |
|
|
|
|
|
| ||
Interest expense |
|
| (433 | ) |
|
| (169 | ) |
Change in fair value of convertible note |
|
| 100 |
|
|
| — |
|
Change in fair value of notes payable |
|
| — |
|
|
| (23 | ) |
Change in fair value of forward option-prepaid forward contracts |
|
| (1,654 | ) |
|
| — |
|
Gain on sale of recycled shares |
|
| 1,306 |
|
|
| — |
|
Total other expense, net |
|
| (681 | ) |
|
| (192 | ) |
|
|
|
|
|
|
| ||
Loss before income tax provision (benefit) |
|
| (5,262 | ) |
|
| (1,004 | ) |
|
|
|
|
|
|
| ||
Income tax provision (benefit) |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
| ||
Net loss |
| $ | (5,262 | ) |
| $ | (1,004 | ) |
Net loss per share of common stock, basic and diluted |
| $ | (0.40 | ) |
| $ | (0.14 | ) |
Weighted-average shares outstanding, basic and diluted (1) |
|
| 13,025,852 |
|
|
| 7,238,767 |
|
(1) Retrospectively restated to give effect to the reverse recapitalization
The accompanying notes are an integral part of these consolidated financial statements.
2
SeaStar Medical Holding Corporation
Consolidated Statements of Changes in Stockholders' Deficit
For the Three Months Ended March 31, 2023 and 2022
(in thousands, except for share and per-share amounts)
|
| Stockholders' Deficit |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| |||||
|
| Common Shares |
|
| Additional |
|
| Accumulated |
|
| Stockholders' |
| ||||||||
|
| Shares (1) |
|
| Amount |
|
| Paid-In Capital |
|
| Deficit |
|
| Deficit |
| |||||
Balance, January 1, 2022 |
|
| 7,238,767 |
|
| $ | 1 |
|
| $ | 73,495 |
|
| $ | (76,312 | ) |
| $ | (2,816 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,004 | ) |
|
| (1,004 | ) |
Balance, March 31, 2022 |
|
| 7,238,767 |
|
| $ | 1 |
|
| $ | 73,499 |
|
| $ | (77,316 | ) |
| $ | (3,816 | ) |
Balance, January 1, 2023 |
|
| 12,699,668 |
|
| $ | 1 |
|
| $ | 91,089 |
|
| $ | (99,325 | ) |
| $ | (8,235 | ) |
Issuance of shares - equity line of credit |
|
| 378,006 |
|
|
| — |
|
|
| 1,108 |
|
|
| — |
|
|
| 1,108 |
|
Issuance of shares - commitment |
|
| 218,842 |
|
|
| — |
|
|
| 1,000 |
|
|
| — |
|
|
| 1,000 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 505 |
|
|
| — |
|
|
| 505 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,262 | ) |
|
| (5,262 | ) |
Balance, March 31, 2023 |
|
| 13,296,516 |
|
| $ | 1 |
|
| $ | 93,702 |
|
| $ | (104,587 | ) |
| $ | (10,884 | ) |
(1) Retroactively restated to give effect to the reverse recapitalization
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
SeaStar Medical Holding Corporation
Consolidated Statements of Cash Flows (unaudited)
For the Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | 2,949,016 | $ | (40,258 | ) | |||
Adjustments to reconcile net income (loss) to cash used in operating activities | ||||||||
Formation costs paid by related parties | — | (126,413 | ) | |||||
Gain on warrant liability revaluation | (5,801,362 | ) | (702,400 | ) | ||||
Interest earned on marketable securities in trust | (431,930 | ) | — | |||||
Change in assets and liabilities | ||||||||
Prepaid costs | 126,818 | 342,091 | ||||||
Accrued expenses | 1,489,326 | 154,275 | ||||||
Net cash used in operating activities | (1,668,132 | ) | (372,705 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Investment in Trust account | (1,035,000 | ) | (105,578,132 | ) | ||||
Net cash used in investing activities | (1,035,000 | ) | (105,578,132 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Insurance financing payments | — | (753,994 | ) | |||||
Proceeds from issuance of private placement warrants | — | 5,738,000 | ||||||
Proceeds from issuance of units | — | 103,500,000 | ||||||
Issue costs from issuance of units | — | (2,405,717 | ) | |||||
Proceeds from notes and advances payable - related party | 2,818,205 | — | ||||||
Repayment from notes and advances payable - related party | (49,800 | ) | — | |||||
Net cash provided by financing activities | 2,768,405 | 106,078,289 | ||||||
NET INCREASE IN CASH | 65,273 | 127,452 | ||||||
CASH - BEGINNING OF YEAR | 51,567 | 38,388 | ||||||
CASH - END OF PERIOD | $ | 116,840 | $ | 165,840 | ||||
SUPPLEMENTAL DISCLOSURES OF NON-CASHFLOW INFORMATION | ||||||||
Reclassification of warrants to liability | $ | — | $ | 8,116,680 | ||||
Deferred underwriting commissions in connection with the initial public offering | $ | — | $ | 3,806,185 | ||||
Remeasurement of Class A common stock subject to redemption | $ | 1,278,750 | $ | — | ||||
For the Three Months Ended March 31, 2023 and 2022
(in thousands, except for shares and per-share amounts)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (5,262 | ) |
| $ | (1,004 | ) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
| ||
Amortization of discount on notes payable |
|
| — |
|
|
| 109 |
|
Amortization of deferred financing costs |
|
| 4 |
|
|
| — |
|
Non-cash accrued interest related to notes payable |
|
| — |
|
|
| 61 |
|
Non-cash conversion of accrued expenses into notes payable |
|
| — |
|
|
| 96 |
|
Non-cash fair value of discount on issuance of notes payable |
|
| — |
|
|
| (52 | ) |
Non-cash fair value of derivative liability on issuance of notes payable |
|
| — |
|
|
| 52 |
|
Change in fair value of notes payable |
|
| — |
|
|
| 23 |
|
Change in fair value of convertible note |
|
| (100 | ) |
|
| — |
|
Change in fair value of forward option - prepaid forward contracts |
|
| 1,654 |
|
|
| — |
|
Gain on sale of recycled shares |
|
| (1,306 | ) |
|
| — |
|
Stock-based compensation |
|
| 505 |
|
|
| 4 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Other receivables |
|
| 12 |
|
|
| — |
|
Prepaid expenses |
|
| 318 |
|
|
| (185 | ) |
Accounts payable |
|
| 1,095 |
|
|
| 114 |
|
Accrued expenses |
|
| 786 |
|
|
| 195 |
|
Net cash used in operating activities |
|
| (2,294 | ) |
|
| (587 | ) |
|
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
|
|
|
| ||
Proceeds from issuance of convertible note |
|
| 3,000 |
|
|
| — |
|
Payment of convertible note |
|
| (10 | ) |
|
| — |
|
Proceeds from issuance of shares |
|
| 1,108 |
|
|
| — |
|
Payment of commitment fee - equity line of credit |
|
| (500 | ) |
|
| — |
|
Proceeds from sale of recycled shares |
|
| 1,870 |
|
|
| — |
|
Proceeds from notes payable |
|
| 100 |
|
|
| 284 |
|
Payment of notes payable |
|
| (2,596 | ) |
|
| — |
|
Net cash provided by financing activities |
|
| 2,972 |
|
|
| 284 |
|
|
|
|
|
|
|
| ||
Net increase (decrease) in cash |
|
| 678 |
|
|
| (303 | ) |
|
|
|
|
|
|
| ||
Cash, beginning of period |
|
| 47 |
|
|
| 510 |
|
|
|
|
|
|
|
| ||
Cash, end of period |
| $ | 725 |
|
| $ | 207 |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 508 |
|
| $ | — |
|
|
|
|
|
|
|
| ||
Supplemental disclosure of noncash financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Issuance of convertible note warrants |
| $ | 500 |
|
| $ | — |
|
|
|
|
|
|
|
| ||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Notes to the Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
Organization and description of business
SeaStar Medical, Holding Corporation
Class A Common Stock | Class B Common Stock | Additional paid in capital | Accumulated Deficit | Total Deficit | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance as of December 31, 2020 | — | $ | — | 2,156,250 | $ | 215 | $ | 24,785 | $ | (5,236 | ) | $ | 19,764 | |||||||||||||||
Class A Units issued for cash | 10,350,000 | 1,035 | — | — | 103,498,965 | — | 103,500,000 | |||||||||||||||||||||
Representative shares issued for no cash | 103,500 | 10 | — | — | (10 | ) | — | — | ||||||||||||||||||||
Class A Units reclassified to Commitments subject to possible redemption | (10,350,000 | ) | (1,035 | ) | — | — | (105,568,965 | ) | (105,570,000 | ) | ||||||||||||||||||
Underwriter fee & offering costs | — | — | — | — | (6,211,902 | ) | — | (6,211,902 | ) | |||||||||||||||||||
Private placement warrants issued for cash | — | — | — | — | 5,738,000 | — | 5,738,000 | |||||||||||||||||||||
Class B shares issued to Sponsor | — | — | 431,250 | 44 | (44 | ) | — | — | ||||||||||||||||||||
Warrants classified as liabilities | — | — | — | — | (8,116,680 | ) | — | (8,116,680 | ) | |||||||||||||||||||
Reclass APIC to retained earnings | — | — | — | — | 10,635,851 | (10,635,851 | ) | — | ||||||||||||||||||||
Net income | — | — | — | — | — | 1,706,457 | 1,706,457 | |||||||||||||||||||||
Balance - March 31, 2021 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (8,934,630 | ) | $ | (8,934,361 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (1,982,698 | ) | (1,982,698 | ) | |||||||||||||||||||
Balance - June 30, 2021 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (10,917,328 | ) | $ | (10,917,059 | ) | ||||||||||||||
Net income | — | — | — | — | — | 235,983 | 235,983 | |||||||||||||||||||||
Balance as of September 30, 2021 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (10,681,345 | ) | $ | (10,681,076 | ) | ||||||||||||||
Balance as of December 31, 2021 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (10,565,770 | ) | $ | (10,565,501 | ) | ||||||||||||||
Net income | — | — | — | — | — | 3,386,081 | 3,386,081 | |||||||||||||||||||||
Balance - March 31, 2022 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (7,179,689 | ) | $ | (7,179,420 | ) | ||||||||||||||
Net income | — | — | — | — | — | 182,562 | 182,562 | |||||||||||||||||||||
Balance - June 30, 2022 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (6,997,127 | ) | $ | (6,996,858 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (619,627 | ) | (619,627 | ) | |||||||||||||||||||
Remeasurement of Class A common stock | — | — | — | — | — | (1,278,750 | ) | (1,278,750 | ) | |||||||||||||||||||
Balance - September 30, 2022 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (8,895,504 | ) | $ | (8,895,235 | ) | ||||||||||||||
SeaStar Medical, Holding Corporation
On April 21,October 28, 2022, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with LMF Merger Sub, Inc., a Delaware corporation and direct, wholly owned subsidiary of the Company (“Merger Sub”), and SeaStar Medical,LMF Acquisition Opportunities, Inc., a Delaware corporation (“Old SeaStar Medical”LMAO”).
Basis of presentation
The accompanying unaudited consolidated financial advisor and/or placement agent, an amount equal to $4,182,353statements have been prepared in cash as professional fees. Uponconformity with accounting principles generally accepted in the closingUnited States of America ("U.S. GAAP") and the rules and regulations of the Business Combination,Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules and regulations, certain notes or other financial information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The interim unaudited consolidated financial statements have been prepared on the parties agreed that $4,182,353 of such amount would be paidsame basis as the annual consolidated financial statements and, in the formopinion of a promissory note. Accordingly,management, reflect all adjustments, which include only normal, recurring adjustments that are necessary to present fairly the Company’s results for the interim periods presented. The results from operations for the three months ended March 31, 2023, are not necessarily indicative of the results to be expected for the year ended December 31, 2023, or for any future annual or interim period.
The accompanying interim unaudited consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the related notes for the year ended December 31, 2022. There have been no material changes in our significant accounting policies as described in our Annual Report on October 28, 2022,Form 10-K for the year ended December 31, 2022.
The interim unaudited consolidated financial statements include the consolidated accounts of the Company's wholly owned subsidiary, SeaStar Medical, Inc. All significant intercompany transactions have been eliminated in consolidation.
Segment information
The Company operates in one operating segment and, accordingly, no segment disclosures have been presented herein.
Liquidity and Going Concern
As of March 31, 2023, the Company entered into a Promissory Note with Maxim as the lender, forhas an aggregate principal amountaccumulated deficit of $4,182,353 (the “Maxim Note”). The Maxim Note has a maturity date of October 30, 2023 and outstanding amount may be prepaid without premium or penalty. If the Company receives any cash proceeds from a debt or equity financing transaction prior to the maturity date, then the Company is required to prepay the indebtedness equal to 25.0% of the gross amount of the cash proceeds, provided that such repayment obligation shall not apply to the first $500,000 of the cash proceeds received by the Company. Interest on the Maxim Note is due at 7.0% per annum. The Maxim Note contains customary representations and warranties, and affirmative and negative covenants. The Maxim Note is also subject to customary events of default, the occurrence of which may result in the Maxim Promissory Note then outstanding becoming immediately due and payable, with interest being increased to 15.0% per annum.
Our need for additional capital will depend in part on the company has agreements underscope and costs of our development activities. To date, we have not generated any revenue from the above-described PIPE Investment, Prepaid Forward Agreements, and equity line under the Common Stock Purchase Agreement in placesales of commercialized products. Our ability to generate sufficientproduct revenue will depend on the successful development and eventual commercialization of our product. Until such time, if ever, we expect to finance our operations through the sale of equity or debt, borrowing under credit facilities, or through potential collaborations, other strategic transactions or government and other grants. Adequate capital may not be available to fund operations overus when needed or on acceptable terms.
5
Notes to the next 12 months, the uncertainty related to market conditions may hinder the companies abilityConsolidated Financial Statements
(in thousands, except for shares and per-share amounts)
If we are unable to raise capital.capital, we could be forced to delay, reduce, suspend, or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. The accompanying financial statement has been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern.
Risks and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The interim financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 and September 30, 2021, respectively, are unaudited. In the opinion of management, the interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair statement of the results for the interim periods. Operating results for the Three and Nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any future period. The accompanying balance sheet as of December 31, 2021, is derived from the audited financial statements presented in the Company’s Annual Report on Form10-Kfor fiscal the year ended December 31, 2021.
The Company is an “emerging growth company,” as definedsubject to risks common to early-stage companies in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companiesmedical technology industry including, but not limited to, not being required to complynew medical and technological innovations, regulatory approval requirement, lack of funding and capital resources, protection of proprietary technology, and product liability. There can be no assurance that the Company's products or services will be accepted in the marketplace, nor can there be any assurance that any future products or services can be developed or deployed at an acceptable cost and with appropriate performance characteristics, or that such products or services will be successfully marketed, if at all. These factors could have a materially adverse effect on the auditor attestation requirementsCompany's future financial results, financial position, and cash flows.
Note 2. Summary of Section 404Significant Accounting Policies
Use of the
The preparation of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply tonon-emerginggrowth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Concentrations of credit risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash. Periodically, the Company may maintain deposits in financial institutions in excess of government insured limits. The Company considers all short-term investments with an original maturityhas not experienced any losses on deposits since inception.
Fair value option of three months or lessaccounting
Generally, when purchasedfinancial instruments are first acquired and are not required to be cash equivalents.recorded at fair value, ASC 825, Financial Instruments (“ASC 825”), allows an entity to elect the fair value option (“FVO”). The Company did not have any cash equivalents asFVO may be elected on an instrument-by-instrument basis only at the time of September 30, 2022acquisition and December 31, 2021.
Based on the Trust Accounteligibility assessment discussed above, the Company concluded that its convertible notes (see Note 7) were heldeligible for the FVO and accordingly elected the FVO for those debt instruments. This election was made because of operational efficiencies in U.S. Treasury Securities Money Market Funds. When the Company’s investments heldvaluing and reporting for these debt instruments at fair value in the Trust Account are comprised of money market funds, the investments are recognizedtheir entirety at each reporting date. The convertible notes contain certain embedded derivatives that otherwise would require bifurcation and separate accounting at fair value. Trading securities and investments in money market funds are presented
The convertible notes, inclusive of their respective accrued interest at the stated interest rates (collectively referred to as the “FVO debt instruments”) were initially recorded at fair value as liabilities on the condensed consolidated balance sheets and subsequently re-measured at fair value at the end of each reporting period. Gains and losses resulting fromperiod presented within the changeconsolidated financial statements. The changes in fair value of these securities isthe FVO debt instruments are recorded in changes in fair value of convertible notes, included in interest earned on investments held in Trust Accountas a component of other income (expense), net, in the accompanying condensed consolidated statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information. The Company had $107,048,750 and $105,581,820 in investments held in the Trust Account as of September 30, 2022 and December 31, 2021, respectively.
6
Notes to the issuance of the derivative warrant liabilities have been allocated based on their relative fairConsolidated Financial Statements
(in thousands, except for shares and per-share amounts)
Fair value of total proceeds and are recognized in the statement of operations as incurred.
Fair value is defined as the price that would be received for sale ofto sell an asset or paid forto transfer of a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tierdate (exit price). Inputs used to measure fair value hierarchy, which prioritizesare classified into the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjustedfollowing hierarchy:
Level 1 – quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
Level 1, defined as2 – other significant observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
Level 3 – significant unobservable inputs (including the Company’s own assumptions in active marketsdetermining the fair value of assets and liabilities).
The fair value of the forward option on prepaid forward contracts, convertible notes, and the warrants liability, are classified as Level 3 in the fair value hierarchy.
The followingtable presents the changes in the forward option-prepaid forward contracts, convertible notes measured at fair value, warrants liability, and the notes derivative liability for the three months ended March 31, 2023 and 2022 (in thousands):
|
| Forward Option- |
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Prepaid |
|
|
|
|
|
|
|
|
| Notes Payable |
| ||||
Level 3 Rollforward |
| Forward Contracts |
|
| Convertible Notes (1) |
|
| Warrants Liability |
|
|
| Derivative Liability |
| ||||
Balance January 1, 2022 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| $ | (526 | ) |
Additions |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| (52 | ) |
Changes in fair value |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| (23 | ) |
Balance March 31, 2022 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| $ | (601 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance January 1, 2023 |
| $ | 1,729 |
|
| $ | — |
|
| $ | — |
|
|
| $ | — |
|
Additions |
|
| — |
|
|
| 2,500 |
|
|
| 500 |
|
|
|
| — |
|
Sale of recycled shares |
|
| (564 | ) |
|
| — |
|
|
| — |
|
|
|
| — |
|
Principal payments |
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
|
| — |
|
Changes in fair value |
|
| (1,654 | ) |
|
| (100 | ) |
|
| — |
|
|
|
| — |
|
Balance March 31, 2023 |
| $ | (489 | ) |
| $ | 2,390 |
|
| $ | 500 |
|
|
| $ | — |
|
(1) Elected the fair value option of accounting as discussed in Note 2.
The convertible notes are recorded as liabilities and are recorded at fair value based on Level 3 measurements. The estimated fair values of the convertible notes are each determined based on the aggregated, probability-weighted average of the outcomes of certain possible scenarios. The combined value of the probability-weighted average of those outcomes is then discounted back to each reporting period in which the convertible notes are outstanding, in each case, based on a risk-adjusted discount rate estimated based on the implied interest rate using the changes in observed interest rates of corporate rate debt that the Company believes is appropriate for those probability-adjusted cash flows.
The estimated fair value of prepaid expenses, accounts payable and accrued expenses approximate their fair value because of the short-term nature of these instruments.
Emerging growth company status
The Company is an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). Under the JOBS Act, emerging growth companies can take advantage of an extended transition period for complying with new or quoted pricesrevised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. The Company has elected to use this extended transition period for identicalcomplying with certain new or similar instruments revised accounting standards that have different effective dates for public and private companies
7
Notes to the Consolidated Financial Statements
(in marketsthousands, except for shares and per-share amounts)
until the earlier of the date that it is (1) no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
Note 3. Forward Purchase Agreements
During the three months ended March 31, 2023, 374,005 recycled shares were sold by Forward Purchase Agreement Sellers ("FPA Sellers"). The Company received $1,870 for the shares sold and recognized a gain of $1,306 on the sale. There were 773,400 recycled shares remaining on March 31, 2023. A loss on remeasurement of $1,654 was recorded in Change in fair value of forward option on the unaudited consolidated statements of operations. On March 31, 2023, the value of the forward option within the Forward Purchase Agreements ("FPA") was a liability of $489 and was recorded as Forward option-prepaid forward contracts on the unaudited consolidated balance sheets on March 31, 2023.
In March 2023, a Volume Weighted Average Price ("VWAP") trigger event occurred, and the FPAs could mature on the date specified by the FPA Sellers at the FPA Sellers’ discretion. The FPA Sellers have not specified the Maturity Date of the Forward Purchase Agreements as of the issuance of these unaudited consolidated financial statements.
Note 4. Accrued Expenses
Accrued expenses consisted of the following:
($ in thousands) |
| March 31, |
|
| December 31, |
| ||
Accrued commitment fee, equity line of credit |
| $ | — |
|
| $ | 1,500 |
|
Accrued bonus |
|
| 621 |
|
|
| 450 |
|
Accrued research and development |
|
| 212 |
|
|
| 18 |
|
Accrued settlement |
|
| 200 |
|
|
| — |
|
Accrued director remuneration |
|
| 157 |
|
|
| 61 |
|
Accrued legal |
|
| 137 |
|
|
| 80 |
|
Accrued extension consideration to notes payable |
|
| 100 |
|
|
| — |
|
Accrued interest |
|
| 33 |
|
|
| 112 |
|
Accrued other |
|
| 71 |
|
|
| 24 |
|
Total accrued expenses |
| $ | 1,531 |
|
| $ | 2,245 |
|
Note 5. Equity Line of Credit
The Company paid previously accrued commitment fees of $1,500 during the three months ended March 31, 2023, of which $1,000 was paid in 218,842 shares of common stock and $500 was paid in cash.
During the three months ended March 31, 2023, the Company sold 378,006 shares of common stock to Tumim Stone Capital LLC for proceeds of $1,108 as part of the equity line financing arrangement. As of March 31, 2023, $98,892 was available to draw.
8
Notes to the Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
Note 6. Notes Payable
Notes payable consisted of the following:
($ in thousands) |
| March 31, |
|
| December 31, |
| ||
LMFA notes payable |
| $ | 443 |
|
| $ | 968 |
|
LMFAO note payable |
|
| 1,758 |
|
|
| 2,785 |
|
Maxim note payable |
|
| 3,640 |
|
|
| 4,167 |
|
Insurance financing |
|
| 493 |
|
|
| 910 |
|
Unamortized deferred financing costs |
|
| (96 | ) |
|
| — |
|
|
|
| 6,238 |
|
|
| 8,830 |
|
Less current portion |
|
| (493 | ) |
|
| (1,178 | ) |
|
| $ | 5,745 |
|
| $ | 7,652 |
|
Future maturities of principal repayment of the notes payable as of March 31, 2023 are as follows:
($ in thousands) |
|
|
|
|
|
|
| |
Years ended December 31: |
|
|
|
|
|
|
| |
2023 (remaining) |
|
|
|
|
| $ | 493 |
|
2024 |
|
|
|
|
|
| 5,841 |
|
|
|
|
|
|
| $ | 6,334 |
|
On March 15, 2023, the Company amended its LMFA notes, LMFAO note, and Maxim note, extending their maturity dates to June 15, 2024. Inconsideration for such extension, the Company agreed to pay the noteholders an aggregate amount of $100 in cash upon receipt of proceeds from the issuance of the note at the second closing under the securities purchase agreement (see Note 7). The $100 consideration for the modification was capitalized as deferred financing costs. The Company amortized $4 of the deferred financing costs during the three months ended March 31, 2023.
LMFA Notes Payable
During the three months ended March 31, 2023, the maturity date was extended to June 15, 2024. The balance due was $443 and $968 as of March 31, 2023 and December 31, 2022, respectively. The balance at December 31, 2022 consisted of a $700 interest bearing note and a $268 noninterest bearing note. The Company recorded interest expense of $12 for the three months ended March 31, 2023 on the interest bearing note. The noninterest bearing note was paid in full in January 2023.
On March 13, 2023, the Company entered into a $100 promissory note with LMFA with an interest rate of 7.0% per annum. The promissory note was payable on demand at any time after April 13, 2023, and had no prepayment penalty. The Company repaid the loan on March 24, 2023.
LMFAO Note Payable
During the three months ended March 31, 2023, the maturity date was extended to June 15, 2024. The mandatory repayment provisions of the LMFAO note were waived for the first senior unsecured convertible note drawn on March 15, 2023 (Note 7) but are not active;waived for subsequent draws.
The balance due was $1,758 and
Maxim Note Payable
During the three months ended March 31, 2023, the maturity date was extended to June 15, 2024. The mandatory repayment provisions of the Maxim note were waived for the first senior unsecured convertible note drawn on March 15, 2023 (Note 7) but are not waived for subsequent draws.
9
Notes to the Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
The balance of the Maxim note was $3,640 and $4,167 as of March 31, 2023 and December 31, 2022, respectively. The Company recorded interest expense of $67 for the three months ended March 31, 2023.
Insurance Financing
The balance due was $493 and $910 on March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023, five monthly installments of $101, consisting of principal and interest remain. The Company recorded interest expense of $11 for the three months ended March 31, 2023.
Notes Payable
Amortization of the debt discounts related to the Dow, Union Carbide, IBT and investor notes for the three months ended March 31, 2022 was $109.
Note 7. Convertible Notes
3i Notes
On March 15, 2023, the Company entered into a securities purchase agreement with 3i LP ("3i") a related party institutional investor, whereby the accountingCompany has the ability to issue a series of four senior unsecured convertible notes (collectively the "Convertible Notes"), with principal amounts totaling up to $9,000, and reportingwarrants to purchase shares of the Company’s common stock. On March 15, 2023, the Company issued a note (the "First Convertible Note"), convertible into 1,207,729 shares of common stock at an initial conversion price of $2.70, in a principal amount of $3,261, and a warrant to purchase up to 328,352 shares of common stock. The First Convertible Note was issued at an 8.0% discount, bears interest at 7.0% per annum, matures on June 15, 2024, and requires monthly installments of principal and interest.
The Company concluded that the transaction includes two legally detachable and separately exercisable freestanding financial instruments: the Convertible Notes and the warrants. The Company concluded that the warrants should be recorded as a liability (see Note 8). The Company determined the Convertible Notes are liability instruments under ASC 480, Distinguishing Liabilities from Equity. The Convertible Notes were then evaluated in accordance with the requirements of ASC Topic 740 “Income Taxes”,825, and it was concluded that the Company was not precluded from electing the FVO for the Convertible Notes. As such, the Convertible Notes are carried at fair value in the consolidated balance sheets. The Convertible Notes are measured at fair value each reporting date with changes in fair value recognized in the consolidated statements of operations, unless the change is concluded to be related to the changes in the Company’s credit rating, in which requires an asset and liability approach to financial accounting and reporting forcase the change will be recognized as a component of accumulated other comprehensive income taxes. Deferred income tax assets and liabilities are computed for differencesin the consolidated balance sheets.
There is a difference of $861 between the financial statementfair value of the First Convertible Note of $2,390 and tax basesthe unpaid principal balance of assets$3,251 at March 31, 2023.
Future maturities of principal repayment of the First Convertible Note as of March 31, 2023 are as follows:
($ in thousands) |
|
|
|
|
|
|
| |
Years ended December 31: |
|
|
|
|
|
|
| |
2023 (remaining) |
|
|
|
|
| $ | 1,947 |
|
2024 |
|
|
|
|
|
| 1,304 |
|
|
|
|
|
|
| $ | 3,251 |
|
The fair value of the First Convertible Note is recorded in current liabilities on the consolidated balance sheets as the anticipated cash settlements during the twelve-month period following March 31, 2023, exceeds the recorded fair value of the First Convertible Note.
10
Notes to the Consolidated Financial Statements
(in thousands, except for shares and liabilitiesper-share amounts)
Note 8. Warrants
On March 15, 2023, as part of the issuance of the First Convertible Note (see Note 7) 328,352 warrants (“Convertible Note Warrants”) were issued with an exercise price of $2.97 per share. The Convertible Note Warrants expire five years from their issuance date and contain cashless exercise provisions. The Company does not have the ability to redeem the Convertible Note Warrants. The Convertible Note Warrants were valued at $500 at issuance.
In accordance with ASC 815-40, Derivatives and Hedging-Contracts in and Entity’s own Equity, the Company has determined that will resultthe Convertible Note Warrants do not meet the conditions for equity classification, due to potential cash settlement under the exchange cap provision of the securities purchase agreement, and should be carried on the consolidated balance sheets as a liability measured at fair value, with subsequent changes in future taxable or deductible amounts,fair value recorded in the consolidated statements of operations as change in fair value of warrants liability. The fair value of the Convertible Note Warrants was determined using a Black-Scholes option pricing model, which considers variables such as estimated volatility, time to maturity, and the risk-free interest rate. The risk-free interest rate is the U.S. Treasury rate at the date of issuance, and the time to maturity is based on enacted tax laws and rates applicable to the periods incontractual life at the date of issuance, which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company adjustshas the valuation allowancefollowing warrants outstanding:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Public Stockholders' Warrants |
|
| 10,350,000 |
|
|
| 10,350,000 |
|
Private Placement Warrants |
|
| 5,738,000 |
|
|
| 5,738,000 |
|
PIPE Investor Warrants |
|
| 700,000 |
|
|
| 700,000 |
|
Convertible Note Warrants |
|
| 328,352 |
|
|
| — |
|
SeaStar Warrants |
| 69,714 |
|
|
| 69,714 |
| |
|
| 17,186,066 |
|
|
| 16,857,714 |
| |
Note 9. Common Stock
The following represents stock-based compensation expense in the period management determines it is more likely than not that net deferred tax assets will or will not be realized. Ascompany’s unaudited consolidated statements of September 30,operations for the three months ended March 31:
($ in thousands) |
| 2023 |
|
| 2022 |
| ||
Research and development |
| $ | 39 |
|
| $ | — |
|
General and administrative |
|
| 466 |
|
|
| 4 |
|
Total |
| $ | 505 |
|
| $ | 4 |
|
Note 10. Commitments and Contingencies
License and distribution agreement
On December 27, 2022, the Company determinedentered into a license and distribution agreement with a distributor, appointing the distributor as the exclusive distributor to promote, advertise, market, distribute and sell the Selective Cytopheretic Device (“SCD”) in the United States. The Company received an upfront payment of $100 on January 3, 2023. If the Company does not receive written authorization to market the SCD, prior to the first anniversary of the effective date, the Company will repay the $100. The Company has recorded the $100 upfront payment as a liability in the consolidated balance sheets as of March 31, 2023. The Company shall also receive milestone payments in the amounts of $450 and $350 for obtaining approval from the Food and Drug Administration ("FDA") and for selling the first sixty units to any third parties. The term of the agreement is three years.
11
Notes to the Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
Lease agreements
The Company is part of a membership agreement for shared office space and can cancel at any time. Rent expense was $8 for the three months ended March 31, 2023 and 2022.
Litigation
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company recorded $200 for a legal settlement in accrued expenses as of March 31, 2023. The settlement will be paid in four installments of $50 in May 2023, July 2023, September 2023, and November 2023. The Company was not subject to any other material legal proceedings during the three months ended March 31, 2023, and no material legal proceedings are currently pending or threatened.
Note 11. Income Taxes
In accordance with U.S. GAAP, a valuation allowance should be established.
Note 12. Net Income (Loss)Loss Per Share of Common Stock
Basic net loss per common share of common stock is computedcalculated by dividing the net income (loss)loss by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common stockshares and potentially dilutive securities outstanding for the period. TheFor purposes of the diluted net loss per share calculation, the warrants, common stock options, and restricted stock units are considered to be potentially dilutive securities. As the Company applies thetwo-classmethod in calculating thehas reported net income (loss)loss for all periods presented, diluted net loss per common share. Sharesshare is the same as basic net loss per common share for all periods.
The following weighted-average outstanding shares of Class A common stock subject to possible redemption as of the three and nine month periods ended September 30, 2022 and 2021 have beenpotentially dilutive securities were excluded from the calculationcomputation of the basicdiluted net incomeloss per share since suchattributable to common stockholders for the periods presented because including them would have been anti-dilutive:
Three Months Ended March 31: |
| 2023 |
|
| 2022 |
| ||
Public Stockholders' warrants |
|
| 10,350,000 |
|
|
| — |
|
Private Placement warrants |
|
| 5,738,000 |
|
|
| — |
|
PIPE Investor warrants |
|
| 700,000 |
|
|
| — |
|
Convertible Note warrants |
|
| 328,352 |
|
|
|
| |
SeaStar warrants |
|
| 69,714 |
|
|
| 69,714 |
|
Options to purchase common stock |
|
| 244,792 |
|
|
| 332,544 |
|
Restricted stock units |
|
| 298,389 |
|
|
| — |
|
Total |
|
| 17,729,247 |
|
|
| 402,258 |
|
12
Notes to the Consolidated Financial Statements
(in thousands, except for shares if redeemed, only participate in their pro rata share of the Trust Account earnings. When calculating its diluted net incomeand per-share amounts)
Net loss per share the Company has not considered the effect of the incremental number of shares of common stock to settle Warrants sold in the Initial Public Offering and Private Placement, asis calculated using the treasury stock method. The calculation
As of September 30, 2022 | As of December 31, 2021 | |||||||
Public Warrants | $ | 726,570 | $ | 4,450,500 | ||||
Private Placement Warrants | 402,808 | 2,480,240 | ||||||
| $ | 1,129,378 | $ | 6,930,740 | |||||
Level | September 30, 2022 | December 31, 2021 | ||||||||||
Assets: | ||||||||||||
Government securities held in Trust Account | 1 | $ | 107,048,750 | $ | 105,581,820 | |||||||
Liabilities: | ||||||||||||
Private Placement Warrants | 3 | 402,808 | 2,480,240 | |||||||||
Public Warrants | 3 | 726,570 | 4,450,500 | |||||||||
|
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to LMF Acquisition Opportunities, Inc. prior to the Business Combination (as defined below), except where the context requires otherwise. References to our “management” or our “management team” refer to officers and directors of LMF Acquisition Opportunities, Inc. prior to the Business Combination (as defined below), and references to the “Sponsor” refer to LMFAO Sponsor LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” or the negative thereof or any variation thereon or similar terminology or expressions.
We have based these forward-looking statements on our current expectations and beliefs concerning future developments and their potential effects on us. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties, and assumptions about us that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Important factors which could materially affect our results and our future performance include, without limitation:
the Company’s future capital requirements and sources and uses of cash;
the Company’s ability to obtain funding or raise capital for its operations and future growth;
any delays or challenges in obtaining FDA approval of the Company’s SCD product candidates;
economic downturns and the possibility of rapid change in the highly competitive industry in which the Company operates;
the ability to develop and commercialize its products or services following regulatory approval of the Company’s product candidates;
the failure of third-party suppliers and manufacturers to fully and timely meet their obligations;
product liability or regulatory lawsuits or proceedings relating to the Company’s products and services;
inability to secure or protect its intellectual property;
dispute or deterioration of relationship with the Company’s major partners and collaborators;
the outcome of any legal proceedings that may be instituted against the Company following completion of the Business Combination and transactions contemplated thereby;
the ability to maintain the listing of its Common Stock on Nasdaq;
the risk that the Business Combination disrupts current plans and operations;
the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, and the ability of the Company to grow and manage growth profitably;
costs related to the Business Combination; and
|
Should one or more of these risks or uncertainties materialize or should any of the assumptions made by the management of the Company prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
Except as required by law, we assume no duty to update or revise any forward-looking statements.
Overview
As of September 30, 2022, we were a former blank check company incorporated in Delawarebeen outstanding for the purposeentire period presented. The calculation of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses (a “Business Combination”). We completed our initial public offering (the “IPO”) on January 28, 2021. For additional detail regarding the IPO and related transactions, see “Note 1 - Organization and Business Operations - Prior to the Business Combination.” We are an emerging growth company and, as such, are subject to all of the risks associated with emerging growth companies. On October 28, 2022, we consummated our Business Combination with Old SeaStar Medical (as defined below) as further described in Note 1 – Organization and Business Operations.
19
Business Combination
On April 21, 2022, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with LMF Merger Sub, Inc., a Delaware corporation and direct, wholly owned subsidiary of the Company (“Merger Sub”), and SeaStar Medical, Inc., a Delaware corporation (“Old SeaStar Medical”).
On October 28, 2022 (the “Closing Date”), LMAO consummated the merger transaction contemplated by the Merger Agreement, whereby Merger Sub merged with and into Old SeaStar Medical, with Old SeaStar Medical surviving the merger in accordance with the Delaware General Corporation Law as a wholly owned subsidiary of the Company (the “Merger” and, collectively with the transactions contemplated by the Merger Agreement and the related ancillary agreements, the “Proposed Business Combination”).
The aggregate consideration payable to the stockholders of SeaStar Medical at the closing of the Proposed Business Combination (the “Closing”) was $85,408,328, which consisted of an aggregate equity value of Old SeaStar Medical of $85,000,000, minus deductions for indebtedness of Old SeaStar Medical and Old SeaStar Medical transaction expenses in excess of $800,000, plus the aggregate exercise price of (1) Old SeaStar Medical warrants issued and outstanding immediately prior to the Closing and (2) Old SeaStar Medical options issued and outstanding immediately prior to the Closing, less the value of the shares of Common Stock (as defined below) underlying the assumed equity (the “Closing Merger Consideration”). The Closing Merger Consideration was payable solely in shares of LMAO common stock, par value $0.0001 per share (“Common Stock”), valued at $10.00 per share, resulting in the issuance of 7,837,628 shares of common stock, par value $0.0001 per share, of Common Stock to holders of stock of Old SeaStar Medical immediately prior to the Closing. At the Closing, shares of class B common stock, par value $0.0001 per share, of LMAO (“Class B Common Stock”) automatically converted into shares of class A common stock, par value $0.0001 per share, of LMAO (“Class A Common Stock”) on a one-to-one basis, and pursuant to the charter of LMAO after the Business Combination, Class A Common Stock and Class B Common Stock was reclassified as Common Stock.
At the Closing, each of SeaStar Medical’s issued and outstanding convertible notes automatically converted into shares of Old SeaStar Medical common stock (the “Note Conversion”). Immediately prior to the effectiveness of the Business Combination, each share of Old SeaStar Medical’s issued and outstanding preferred stock automatically converted into shares of Old SeaStar Medical common stock (the “Preferred Conversion”) and those Old SeaStar Medical warrants that would be automatically exercised or exchanged in connection with the Business Combination pursuant to the terms thereof were exercised for shares of Old SeaStar Medical common stock. At Closing, the (i) Old SeaStar Medical warrants that would not be exercised or exchanged in connection with the Business Combination were assumed by the Company and converted into warrants to purchase Common Stock, (ii) outstanding options for shares of Old SeaStar Medical common stock under Old SeaStar Medical’s equity plan were assumed by the Company and converted into options to purchase Common Stock, and (iii) outstanding restricted stock unit awards under Old SeaStar Medical’s equity plan will be assumed by the Company and converted into restricted stock units of the Company.
In connection with the Business Combination, holders of 8,878,960 shares of Common Stock, par value $0.0001 per share, exercised their right to redeem their shares after giving effect to any redemption reversals requested by stockholders to reverse their election to have their shares redeemed.
20
Prepaid Forward Agreements
On October 17 and October 26, 2022, LMAO and Old SeaStar Medical entered into certain prepaid forward agreements with two institutional investors, and the material terms of such agreements are described in more detail in the Forms 8-K filed on October 17, 2022 and October 27, 2022.
PIPE Financing
In connection with the Business Combination, LMAO has entered into subscription agreements, each dated August 23, 2022 (collectively, the “Subscription Agreements”) with certain third-party investors (the “PIPE Investors”) pursuant to which LMAO agreed to issue and sell to the PIPE Investors in private placements to close immediately prior to Closing, an aggregate of 700,000 shares of Common Stock at $10.00 per share, and warrants to purchase up to 700,000 shares of Common Stock (the “PIPE Warrants”) for an aggregate purchase price of $7,000,000 (the “PIPE Investment”). The PIPE Warrants are exercisable starting on the Closing at an exercise price of $11.50 per share of Common Stock, subject to adjustment in certain circumstances, and expire five years after the Closing. At the Closing, the PIPE Investors and LMAO consummated the PIPE Investment pursuant to and in accordance with the terms of the Subscription Agreements.
Common Stock Purchase Agreement and Letter Agreement
On August 23, 2022, LMAO entered into an equity line financing arrangement through a Common Stock Purchase Agreement (the “Common Stock Purchase Agreement”) with Tumim Stone Capital LLC (“Tumim”), pursuant to which, after the Closing, subject to the conditions set forth in the Common Stock Purchase Agreement, LMAO has the right to sell to Tumim up to $100,000,000 worth of shares of Common Stock, subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement (the “Common Stock Investment”). The Common Stock Purchase Agreement provides for a commitment fee (the “Commitment Fee”) in the amount of $2.5 million payable to Tumim, and such Commitment Fee shall be paid in shares of the Common Stock based on the weighted average trading price of the Common Stock prior to the filing of a registration statement pursuant to the registration rights agreement (the “Commitment Shares”).
21
On October 28, 2022, LMAO, Old SeaStar Medical,shares outstanding for basic and Tumim entered into a letter agreement (the “Tumim Letter Agreement”) to amend certain terms of the Common Stock Purchase Agreement, following the consummation of the Business Combination. Pursuant to the Tumim Letter Agreement, among other things, the parties agreed to the following amendments with respect to the Commitment Fee and Commitment Shares: (a) LMAO, or the Company from and after the Closing Date, was required to pay to Tumim $1,000,000 of the Commitment Fee in cash on the Closing Date; (b) the Company is required to pay to Tumim $500,000 of the Commitment Fee in cash no later than the earliest of (i) the 30th calendar day immediately following the Effective Date of the Initial Registration Statement (each as defined in the Purchase Agreement), (ii) the 30th calendar day immediately following the Effectiveness Deadline (as defined in the Purchase Agreement) of the Initial Registration Statement, and (iii) not later than the second trading date immediately after the date on which written notice of termination is delivered by the Company or Tumim pursuant to the terms of the Purchase Agreement; and (c) the Company shall pay to Tumim the balance of the Commitment Fee, or $1,000,000, as Commitment Shares as set forth under the terms in the Purchase Agreement.
Amendment to Credit Agreement with LM Funding America, Inc. (“LMFA”) and Amended Promissory Note
On October 28, 2022, Old SeaStar Medical and LMFA entered into the First Amendment to Credit Agreement, dated September 9, 2022 between LMFA and Old SeaStar Medical (the “First Amendment to Credit Agreement”), pursuant to which the parties amended the Credit Agreement and entered into an Amended and Restated Promissory Note (the “LMFA Note”) to (i) extend the maturity date of the loan under the Credit Agreement to October 30, 2022; (ii) permit the LMFA Note be prepaid without premium or penalty; (iii) require the Company to use 5.0% of the gross cash proceeds received by the Company from any future debt and equity financing to pay outstanding balance of LMFA Note, provided that such repayment is not required for the first $500,000 of cash proceeds; (iv) reduce the interest rate of the LMFA Note from 15% to 7%diluted net loss per annum; and (iv) reduce the default interest rate from 18% to 15%. The LMFA Note contains customary representations and warranties, affirmative and negative covenants and events of default. In addition, on October 28, 2022, the parties entered into a Security Agreement (the “LMFA Security Agreement”), pursuant to which the Company and Old SeaStar Medical granted LMFA a security interest in substantially all of the assets and property of the Company and Old SeaStar Medical, subject to certain exceptions, as collateral to secure the Company’s obligations under the amended Credit Agreement. In addition, the Company entered into a Guaranty, dated October 28, 2022 (the “LMFA Guaranty”), pursuant to which the Company unconditionally guarantees and promises to pay to LMFA the outstanding principal amount under the LMFA Note.
LMFAO Sponsor LLC (“Sponsor”) Promissory Note
On October 28, 2022, the Company entered into a Consolidated Amended and Restated Promissory Note with Sponsor as the lender, for an aggregate principal amount of $2,785,000 (the “Sponsor Note”) to amend and restate in its entirety (i) the Promissory Note, dated July 29, 2022, for $1,035,000 in aggregate principal amount issued by LMAO to the Sponsor and (ii) the Amended and Restated Promissory Note, dated July 28, 2022, for $1,750,000 in aggregate principal amount, issued by LMAO to the Sponsor (collectively, the “Original Notes”). The Sponsor Note amended and consolidated the Original Notes to: (i) extend maturity dates of the Original Notes to October 30, 2023; (ii) permit outstanding amounts due under the Sponsor Notes to be prepaid without premium or penalty; and (iii) require the Company to use 5.0% of the gross cash proceeds received from any future debt and equity financing to pay outstanding balance of Sponsor Note, provided that such repayment is not required for the first $500,000 of cash proceeds. The Sponsor Note carries an interest rate of 7% per annum and contains customary representations and warranties and affirmative and negative covenants. The Sponsor Note is also subject to customary events of default, the occurrence of which may result in the Sponsor Promissory Note then outstanding becoming immediately due and payable, with interest being increased to 15.0% per annum. In addition, on October 28, 2022, the parties entered into a Security Agreement (the “Sponsor Security Agreement”), pursuant to which the Company and Old SeaStar Medical granted Sponsor a security interest in substantially all of the assets and property of the Company and Old SeaStar Medical, subject to certain exceptions, as collateral to secure the Company’s obligations under the Sponsor Note. In addition, Old SeaStar Medical entered into a Guaranty, dated October 28, 2022 (the “Sponsor Guaranty”), pursuant to which Old SeaStar Medical unconditionally guarantees and promises to pay to Sponsor the outstanding principal amount under the LMFA Note.
Maxim Group LLC (“Maxim”) Promissory Note
Pursuant to an engagement letter between Old SeaStar Medical and Maxim dated October 28, 2022, Old SeaStar Medical or the Company following the consummation of the Business Combination, was required to pay Maxim, as its financial advisor and/or placement agent, an amount equal to $4,182,353 in cash as professional fees. Upon the closing of the Business Combination, the parties agreed that $4,182,353 of such amount would be paid in the form of a promissory note. Accordingly, on October 28, 2022, the Company entered into a Promissory Note with Maxim as the lender, for an aggregate principal amount of $4,182,353 (the “Maxim Note”). The Maxim Note has a maturity date of October 30, 2023 and outstanding amount may be prepaid without premium or penalty. If the Company receives any cash proceeds from a debt or equity financing transaction prior to the maturity date, then the Company is required to prepay the indebtedness equal to 25.0% of the gross amount of the cash proceeds, provided that such repayment obligation shall not apply to the first $500,000 of the cash proceeds received by the Company. Interest on the Maxim Note is due at 7.0% per annum. The Maxim Note contains customary representations and warranties, and affirmative and negative covenants. The Maxim Note is also subject to customary events of default, the occurrence of which may result in the Maxim Promissory Note then outstanding becoming immediately due and payable, with interest being increased to 15.0% per annum.
Intercreditor Agreement
On October 28, 2022, Maxim, LMFA, Sponsor (collectively, the “Creditors”), SeaStar Medical and the Company entered into an Intercreditor Agreement (the “Intercreditor Agreement”) in order to set forth their relative rights under the LMFA Note, Sponsor Note and Maxim Note, including the payments of amounts by the Company upon an event of default under such notes. Pursuant to the Intercreditor Agreement, each Creditor agrees and acknowledges that LMFA and Sponsor have been granted liens on the collateral as set forth in the applicable LMFA Security Agreement and Sponsor Security Agreement. Each Creditor also agrees and acknowledges that Maxim’s indebtedness under the Maxim Promissory Note is unsecured.
Except as otherwise expressly provided herein, the information in this Report does not reflect the consummation of the Business Combination, which, as discussed above, occurred subsequent to the period covered hereunder
Results of Operations
Results of Operations for the Three Months Ended September 30, 2022
The Company’s only activities since inception in October 28, 2020 through September 30, 2022 were organizational activities and those necessary to consummate the IPO. The Company does not expect to generate any operating revenues until after the completion of the initial Business Combination.
Revenues
The Company had no revenues during the three months ended September 30, 2022.
Expenses
During the three months ended September 30, 2022 and 2021, expenses were approximately $1,662 thousand and $411 thousand, respectively. The three months ended September 30, 2022 and 2021 included $1,392 thousand and nill merger expenses and $270 thousand and $411 thousand of formation and administrative expenses, respectively.
Gain (Loss) on Revaluation of Warrants
The Company recognized a gain of $681 thousand and $645 thousand upon the revaluation of the warrants as of September 30, 2022 and 2021, respectively.
Income Tax Expense
For the three months ended September 30, 2022 and 2021, the Company did not incur any income tax expense due to the Company being in a loss situation since inception. As such, any benefits from the Company’s operating loss is deferred as it recognizes a taxation valuation allowance for the full amount. The Company did not recognize any income tax expenseshare for the three months ended September 30,March 31, 2022 or 2021.
Net Income (Loss)
During the three months ended September 30, 2022 and 2021, net income (loss) was ($620) thousand and $236 thousand, respectively. The net loss for the three months ended September 30, 2022, was primarily driven by an increase in merger expenses of $1,392 offset by a reduction in formation and administrative expense of as $141 thousand as comparedhas been retroactively restated to give effect to the three months ended September 30, 2021.Business Combination.
22
Three Months Ended March 31: |
| 2023 |
|
| 2022 |
| ||
Net loss |
| $ | (5,262 | ) |
| $ | (1,004 | ) |
Weighted average shares outstanding - basic and diluted |
|
| 13,025,852 |
|
|
| 7,238,767 |
|
Basic and diluted net loss per share |
| $ | (0.40 | ) |
| $ | (0.14 | ) |
ResultsNote 13. Subsequent Events
On April 3, 2023, the Company made the first principal payment of Operations for$217 and interest payment of $19 on the Nine Months Ended September 30, 2022First Convertible Note.
In May 2023, the Company made three principal and interest payments on the First Convertible Note. In accordance with and pursuant to the First Convertible Note, 3i elected to convert the conversion amount (as defined in the First Convertible Note) into shares of common stock of the Company. Principal of $140 and interest of $10 was converted into 123,104 shares of common stock.
The Company’s only activities since inception in October 28, 2020 through September 30, 2022 were organizational activities and those necessary to consummate the IPO. The Company does not expect to generate any operating revenues until after the completion of the initial Business Combination.
Revenues
The Company had no revenues during the nine months ended September 30, 2022.
Expenses
During the nine months ended September 30, 2022 and 2021, expenses were approximately $3,284 thousand and $747 thousand, respectively. The nine months ended September 30, 2022 and 2021 included $2,454 thousand and nill merger expenses and $831 thousand and $747 thousand of formation and administrative expenses, respectively.
Gain on Revaluation of Warrants
The Company recognized a $5.8 million gain and $702 thousand gain upon the revaluation of the warrants as of September 30, 2022 and 2021, respectively.
Income Tax Expense
During the nine months ended September 30, 2022 and 2021, the Company did not incur any income tax expense due to the Company being in a loss situation since inception. As such, any benefits from the Company’s operating loss is deferred as it recognizes a taxation valuation allowance for the full amount. The Company did not recognize any income tax expense for the nine months ended September 30, 2022 or 2021.
Net Income (Loss)
During the nine months ended September 30, 2022 and 2021, net income (loss) was $2,949 thousand and ($40) thousand, respectively. Such net income resulted from a revaluation of the Company’s warrants.
Liquidity and Capital Resources
General
As of September 30, 2022 and 2021, we had cash of $117 thousand and $166 thousand, respectively. Our liquidity needs through September 30, 2022 have been satisfied through a payment of $25,000 from our sale of our founder shares to our Sponsor, a loan from our Sponsor for $151,413, which we repaid in full on January 28, 2021, a working capital loan from our Sponsor of approximately $1,750,000, an extension loan from our Sponsor of $1,035,000, the net proceeds from the consummation of the IPO of $103,500,000, and net proceeds of a sale of private placement warrants to our Sponsor of $5,738,000.
We continue to evaluate the impact of the COVID-19 pandemic and have concluded that the specific impact is not readily determinable as of the date of the balance sheet. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Cash from Operations
Net cash used in operations was $1,668 thousand and $373 thousand during the nine months ended September 30, 2022 and 2021, respectively, due to cash used for merger expenses, operating and formation costs.
Cash from Investing Activities
For the nine months ended September 30, 2022 and 2021, net cash used in investing activities was $1.0 million and $105.6 million, respectively as the Company invested $105.6 million into its Trust account during the period ended September 30, 2021 and invested an additional $1.0 million during the nine months ended September 30, 2022.
Cash from Financing Activities
Net cash provided by financing activities was $2.8 million and $106.1 million for the nine months ended September 30, 2022 and 2021. During the nine months ended September 30, 2022 the Company received $2.8 million, net of repayments, under a related party loan. During the nine months ended September 30, 2021, $106.8 million was generated by the Company’s IPO and the Company paid $754 thousand for director and officer insurance premiums.
Shareholders’ Equity
During the nine months ended September 30, 2021,On May 12, 2023, the Company issued 10.3 million units, 0.1 million Class Athe second unsecured convertible note (the “Second Convertible Note”) under the securities purchase agreement (see Note 7). The Second Convertible Note is convertible into 805,153 shares of common stock at an initial conversion price of $2.70, in a principal amount of $2,174, and a warrant to our underwriter, 0.4 million in Class Bpurchase up to 218,901 shares of common stock. The Second Convertible Note was issued at an 8.0% discount, bears interest at 7.0% per annum, matures on August 12, 2024, and 5.7 million Private Placement Warrants. There were norequires monthly installments of principal and interest. The warrants have an initial exercise price of $2.97 per share of common stock, expire five years from their issuance of either shares or warrants during the nine months ended September 30, 2022.date, and contain cashless exercise provisions.
Contractual Obligations13
We did not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities as of September 30, 2022,
The underwriter of our IPO is entitled to underwriting discounts and commissions of 5.5%, of which 2.0% ($2,070,000) was paid at the closing of our IPO, and 3.5% ($3,622,500) was deferred. The deferred underwriting discount will become payable to the underwriter from the amounts held in the Trust Account solely in the event that we complete a business combination, subject to the terms of the underwriting agreement. The underwriter is not entitled to any interest accrued on the deferred underwriting discount.
Critical Accounting Policies
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies is included in Note 2 to our unaudited condensed financial statements in Part I, Item 1 of this Quarterly Report. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments, often employing the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in the2. Management’s Discussion and Analysis of Financial Condition and Results of Operations sectionOperations.
The following discussion and analysis are intended to help you understand our business, financial condition, results of operations, liquidity, and capital resources. You should read this discussion in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our 2021 Annual Report on Form 10-K filedfor the year ended December 31, 2022.
In addition to historical financial analysis, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions, as described under the heading “Cautionary Note Regarding Forward Looking Statements.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, risks and uncertainties, including those set forth under “Risk Factors” included elsewhere (or incorporated by reference) in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2022. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “SeaStar Medical,“ “we,“ “us,” “our,” and “the Company” are intended to mean the business and operations of SeaStar Medical Holding Corporation and its consolidated subsidiaries following the Business Combination.
Overview
On October 28, 2022, LMAO consummated a series of transactions that resulted in the combination of LMF Merger Sub, Inc. and SeaStar Medical, Inc. pursuant to an Agreement and Plan of Merger (the "Business Combination").
The Company is a medical technology company developing a platform therapy to reduce the consequences of hyperinflammation on vital organs. In a normal inflammatory response, neutrophils are the first immune cells to arrive at the site and are key to the entire immune response that kills pathogens and promotes tissue repair. If the inflammatory response becomes excessive and dysregulated, normal neutrophil die off may be delayed, altering feedback mechanisms that regulate the immune system. This results in damaging hyperinflammation spreading uncontrollably to other parts of the body, often leading to acute chronic solid organ dysfunction or failure, including heart, lung, kidney and liver diseases. This hyperinflammatory response is also known as the cytokine storm, referring to the body’s reaction to the category of small-secreted proteins released by hyperinflammatory cells that affect communication between cells. The cytokine storm, when left uncontrolled, can lead to organ damage and even death.
We are initially using our proprietary Selective Cytopheretic Device (“SCD”) technology platform to clinically validate several acute organ injury indications, including kidneys and lungs. Our investigational SCD is an extracorporeal synthetic membrane device designed to be easily integrated into existing Continuous Renal Replacement Therapy ("CRRT") systems that are commonly installed in hospitals, including in Intensive Care Units throughout the United States. Once approved and commercialized, the SCD would initially target acute kidney injury in both the pediatric CRRT population as well as adults on CRRT. In addition, we are developing our SCD to address inflammation associated with chronic dialysis and chronic heart failure. The regulatory approval process for our SCD product candidates is costly and involves significant risks and uncertainties. For a detailed description of these and other risks, please see “Risk Factors” under Part II, Item I of this Form 10-Q.
We have incurred net losses in each year since our inception in 2007. As of March 31, 2023 and December 31, 2022, we had an accumulated deficit of $104.6 million and $99.3 million, respectively. Our net losses were $5.3 million and $1.0 million for the SEC on April 6, 2022. Therethree months ended March 31, 2023 and 2022, respectively. Substantially all our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. For the three months ended March 31, 2022, additional losses were related to the change in fair value of the forward option derivatives.
As of March 31, 2023 and December 31, 2022, we had cash of $0.7 million and $0.0 million, respectively.
Our accompanying unaudited consolidated financial statements have been no significant changesprepared on a going concern basis, which contemplates the realization of assets and liabilities in the applicationnormal course of business. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The recurring losses, working capital deficiency, the need for capital to fund our operations, including clinical trial and regulatory approval expenses, and the amount of cash reserve are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the unaudited consolidated financial statements are made available. See Note 1 to our unaudited consolidated financial statements for the three months ended March 31, 2023 included elsewhere in this Form 10-Q for additional information on our assessment.
Our need for additional capital will depend in part on the scope and costs of our critical accounting policies duringdevelopment activities. To date, we have not generated any significant revenue from the nine months ended September 30, 2022.sale of commercialized products. Our ability to generate product revenue will depend on the successful development and eventual commercialization of our products. Until such time, if ever, we expect to finance our operations through the sale of equity or debt, borrowings under credit facilities, potential collaborations, other strategic transactions or government and other grants. Adequate capital may not be available to us when needed or on acceptable terms. If we are unable to raise capital, we could be forced to delay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would
Recent Accounting Pronouncements
14
have a negative impact on our business, prospects, operating results and financial condition. See Note 2Part I, Item 1A “Risk Factors” for additional information.
Key Components of Results of Operations
Revenue
To date, we have not generated any revenue from the sale of commercialized products. Revenue has been primarily derived from government and other grants. We may generate revenue in the future based on payments from future license or collaboration agreements and government and other grants, and, if our products receive regulatory approval for commercialization, from product sales. We expect that any revenue we generate will fluctuate from quarter to quarter. If we fail to complete the development of or obtain regulatory approval for commercialization of our products in a timely manner, our ability to generate future revenue and our results of operations and financial position, would be materially adversely affected.
Research and Development Expenses
Since our inception, we have focused our resources on our research and development activities, including conducting preclinical studies and clinical trials, and developing our process and activities related to regulatory filings for our products. Subject to the unaudited financial statements includedavailability of additional funding, we plan to further increase our research and development expenses for the foreseeable future as we continue the development of our products.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive and finance roles, which also include stock-based compensation expenses and benefits for such employees.
Other significant general and administrative expenses include facilities costs, professional fees for accounting and legal services and expenses associated with obtaining and maintaining patents and obtaining financing. As we continue to expand and grow our operations, we expect that our general and administrative expenses will increase, including additional expenses relating to new hires, travel, a new enterprise resource planning platform, and branding.
Other Income (Expense), Net
Total other income (expense), net primarily consists of interest expense relating to interest incurred on our notes, interest incurred on our convertible notes, change in the fair value of warrants liability, change in fair value of convertible notes, gain on issuance of convertible notes, change in fair value of forward-option forward contracts, and gain on sale of recycled shares.
Net Loss
Net loss consists of the Company’s loss from operations, less other expense.
Factors Affecting the Company’s Operating Results
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges. Please see the factors discussed elsewhere in this Form 10-Q, including those discussed in Part I, Item 11A, “Risk Factors,” for additional information.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022
The following table sets forth a summary of our results of operations. This information should be read together with our unaudited consolidated financial statements and related Notes included elsewhere in this Form 10-Q.
15
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| March 31, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Revenue |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 1,784 |
|
|
| 355 |
|
|
| 1,429 |
|
|
| 403 | % |
General and administrative |
|
| 2,797 |
|
|
| 457 |
|
|
| 2,340 |
|
|
| 512 | % |
Total operating expenses |
|
| 4,581 |
|
|
| 812 |
|
|
| 3,769 |
|
|
| 464 | % |
Loss from operations |
|
| (4,581 | ) |
|
| (812 | ) |
|
| (3,769 | ) |
|
| 464 | % |
Total other income (expense) |
|
| (681 | ) |
|
| (192 | ) |
|
| (489 | ) |
|
| 255 | % |
Loss before income tax provision |
|
| (5,262 | ) |
|
| (1,004 | ) |
|
| (4,258 | ) |
|
| 424 | % |
Income tax provision (benefit) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| |
Net loss |
| $ | (5,262 | ) |
| $ | (1,004 | ) |
| $ | (4,258 | ) |
|
| 424 | % |
Research and Development Expenses
The following table discloses the breakdown of research and development expenses:
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| March 31, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Clinical trials |
| $ | 550 |
|
| $ | — |
|
| $ | 550 |
|
|
| 100 | % |
External services |
|
| 603 |
|
|
| 270 |
|
|
| 333 |
|
|
| 123 | % |
Payroll and personnel expenses |
|
| 568 |
|
|
| 43 |
|
|
| 525 |
|
|
| 1,221 | % |
Other research and development expenses |
|
| 63 |
|
|
| 42 |
|
|
| 21 |
|
|
| 50 | % |
| $ | 1,784 |
|
| $ | 355 |
|
| $ | 1,429 |
|
|
| 403 | % | |
Research and development expenses for the three months ended March 31, 2023 and 2022 were $1.8 million and $0.4 million, respectively. The increase in research and development expenses of $1.4 million, or 403%, was primarily driven by increases in clinical trial expenses of $0.6 million, an increase in the use of external services of $0.3 million, and an increase in payroll and personnel expenses of $0.5 million.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2023 and 2022 were $2.8 million and $0.5 million, respectively. The increase in general and administrative expenses of $2.3 million, or 512%, was driven by an increase in professional fees related to SEC reporting of $0.6 million, an increase in payroll related expenses of $0.7 million, an increase in insurance expense of $0.4 million, expenses related to financial instruments of $0.1 million, cost of SEC reporting of $0.2 million, a legal settlement of $0.2, and an increase in marketing expenses of $0.1 million.
Other Income (Expense)
Other income (expense) for the three months ended March 31, 2023 and 2022 was expense of $0.7 million and expense of $0.2 million, respectively. The increase of $0.5 million primarily resulted from the change in fair value of forward option-prepaid forward contracts, partially offset by the change in fair value of convertible notes, gain in the issuance of convertible notes, and a gain on sales of recycled shares.
Income Tax Provision (Benefit)
SeaStar Medical recorded a provision for income taxes of $0.0 million for the three months ended March 31, 2023, and an income tax benefit of $0.0 million for the three months ended March 31, 2022.
Under Accounting Standards Codification (“ASC”) 740-10-30-5, Income Taxes, deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. SeaStar Medical considers all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses. Based on operating losses reported during 2022 and 2021, the Company concluded there was not sufficient positive evidence to overcome this recent operating history. As a result, we believe that a valuation allowance continues to be necessary based on the more-likely-than-not threshold noted above.
16
Net Loss
During the three months ended March 31, 2023, SeaStar Medical had a net loss of $5.3 million compared to a net loss of $1.0 million for the three months ended March 31, 2022. The increased net loss of $4.3 million primarily resulted from increases in general and administrative expenses of $2.3 million, increases in research and development expenses of $1.4 million, change in fair value of forward option-prepaid forward contracts of $1.7 million, partially offset by the change in fair value of convertible notes of $0.1 million and a gain on sale of recycled shares of $1.3 million during the three months ended March 31, 2023.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily through the sale of equity securities and convertible debt and, to a lesser extent, through grants from governmental and other agencies. Since our inception, we have incurred significant operating losses and negative cash flows. As of March 31, 2023 and December 31, 2022, we had an accumulated deficit of $104.6 million and $99.3 million, respectively.
As of March 31, 2023 and December 31, 2022, we had cash of $0.7 million and $0.0 million, respectively. We expect that our existing cash will be insufficient to fund our operations, including clinical trial expenses and capital expenditure requirements. We believe that this raises doubt about our ability to continue as a going concern. To finance our operations beyond that point, we would need to raise additional capital, and there is no guarantee that we will be able to secure additional funding on favorable terms, or at all. We have concluded that these circumstances raise doubt about our ability to continue as a going concern within one year after the issuance date of this QuarterlyForm 10-Q. See Note 1 to our unaudited consolidated financial statements for the period ended March 31, 2023.
We would receive the proceeds from any exercise of any warrants that are exercised for cash pursuant to their terms. Assuming the exercise in full of all of the warrants for cash, we would receive an aggregate of approximately $185.0 million, but would not receive any proceeds from the sale of the shares of common stock issuable upon such exercise. To the extent any warrants are issued on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease. We would expect to use any such proceeds received from warrants that are exercised for cash in the future for general corporate and working capital purposes, which would increase our liquidity. However, we will only receive such proceeds if and when the warrant holders exercise the warrants. The exercise of the warrants, and any proceeds we may receive from their exercise, are highly dependent on the price of our common stock and the spread between the exercise price of the warrant and the price of our common stock at the time of exercise. There is no assurance that the warrant holders will elect to exercise for cash any or all of such warrants, and we believe that any such exercise currently is unlikely to occur as described below. As of the date of this Annual Report, we have neither included nor intend to include any potential cash proceeds from the exercise of our warrants in our short-term or long-term liquidity projections. We will continue to evaluate the probability of warrant exercise over the life of our warrants and the merit of including potential cash proceeds from the exercise in our liquidity projections.
We do not expect to rely on the cash exercise of warrants to fund our operations. Instead, we intend to rely on our primary sources of cash discussed elsewhere in this Form 10-Q to continue to support our operations. The exercise price of the warrants is $11.50 per share and the closing price of our common stock was $1.86 as of March 31, 2023. Accordingly, we believe that it is currently unlikely that warrant holders will exercise their warrants. The likelihood that warrant holders will exercise the warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our common stock. If the trading price for our common stock remains less than $11.50 per share, we believe our warrant holders will be unlikely to exercise their warrants. There is no guarantee that the warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the warrants may expire worthless, and we may not receive any proceeds from the exercise of the warrants. To the extent that any of the warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease.
On March 15, 2023, the Company entered into a securities purchase agreement with an institutional investor, whereby the Company agreed to issue a series of four senior unsecured convertible notes, with principal amounts totaling up to $9.8 million, and warrants to purchase shares of the Company’s common stock. On March 15, 2023, the Company issued the first senior unsecured convertible note in the amount of $3.3 million and warrants to purchase 328,352 shares of common stock. The senior unsecured convertible notes will be issued at an 8.0% discount and bear interest at 7.0% per annum and mature on June 15, 2024. The senior unsecured convertible notes are redeemable, in whole or in part, at any time at the discretion of the Company. The warrants have an initial exercise price of $2.97 per share of common stock, expire 5 years from their issuance date, and contain cashless exercise provisions.
At the second closing, the Company will issue and sell to the Purchaser (i) an additional Note in a principal amount of $2.2 million and (ii) additional Warrants to purchase up to 218,901 shares of common stock. At each of the third and fourth closings, the Company may, at its option, issue and sell to the Purchaser (i) additional Notes, each in a principal amount of $2.2 million and (ii) additional Warrants to purchase shares of common stock equal to 25% of the shares issuable upon conversion of the Notes on the applicable closing date. Pursuant to the Securities Purchase Agreement, the Company must satisfy certain additional conditions in order to sell and issue the additional Notes and additional Warrants at the second, third and fourth closings. Such additional conditions include, but are not limited
17
to, the effectiveness of a registration statement to be filed by the Company with the SEC to register shares of common stock issuable upon conversion of the Notes and exercise of the Warrants, and for the third and fourth closings, the approval by stockholders of the Company to issue more than 19.99% of issued and outstanding shares pursuant to applicable Nasdaq Rules.
On March 15, 2023, the Company amended its LMFA notes, LMFAO note and Maxim note, extending their maturity dates to June 15, 2024. Inconsideration for such extension, the Company agreed to pay the note holders an aggregate amount of $0.1 million in cash upon receipt of proceeds from the issuance of the notes at the second closing under the securities purchase agreement. The mandatory repayment provisions of the notes were waived for the first senior unsecured convertible note drawn on March 15, 2023, but are not waived for subsequent draws.
On March 13, 2023, the Company entered into a $0.1 millionpromissory note with LM Funding America Inc. with an interest rate of 7.0% per annum. The promissory note was payable on demand at any time after April 13, 2023 and had no prepayment penalty. The Company repaid the loan on March 24, 2023.
Future Funding Requirements
We expect to incur significant expenses in connection with our ongoing activities as we seek to (i) continue clinical development of our SCD product for approval by the Food and Drug Administration ("FDA"), and (ii) if regulatory approval is obtained, to launch and commercialize our product in the U.S. market, including subsequent launches in key international markets. We will need additional funding in connection with these activities. Our future funding requirements, both short-term and long-term, will depend on many factors, including:
Until such time, if ever, as we are able to successfully develop and commercialize our products, we expect to continue financing our operations through the sale of equity, debt, borrowings under credit facilities or through potential collaborations with other companies, other strategic transactions or government or other grants. Adequate capital may not be available to us when needed or on acceptable terms.
Based on our results of operations and liquidity as of March 31, 2023, we believe our cash and cash equivalents, including the cash we obtained from the Business Combination and the PIPE Investment, as well as potential proceeds available under the Purchase Agreement with Tumim Stone Capital ("Tumim") and from the Forward Purchase Agreements ("FPA"), are not sufficient to meet our working capital and capital expenditure requirements for a discussionperiod of recent accounting pronouncements.
Off-Balance Sheet Arrangements
Asat least twelve months from the date of September 30, 2022,our unaudited consolidated financial statements for the three months ended March 31, 2023, are made available. In addition, we diddo not expect to receive any cash proceeds from the exercise of warrants in the near term, because the trading price of our common stock is currently below the exercise price of such warrants. We are seeking additional cash to fund our growth through future debt or equity financing transactions; however, there can be no assurance that we will be able to obtain additional capital on terms acceptable to us, if at all, or that we will generate sufficient future revenues and cash flows to fund our operations. Our estimates of our results of operations, working capital and capital expenditure requirements may be different than our actual needs, and those estimates may need to be revised if, for example, our actual revenue is lower, and our net operating losses are higher, than we project, and our cash and cash equivalents position is reduced faster than anticipated. We do not currently have any off-balance sheetcommitted external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures. Debt financing would also result in fixed payment obligations. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results, and financial condition. See the section titled “Risk Factors” for additional risks associated with our substantial capital requirements.
18
Cash Flows
The following table shows a summary of our cash flows for each of the periods shown below:
|
| Three Months Ended |
|
| |||||
|
| March 31, |
|
| |||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| ||
Statement of cash flow data: |
|
|
|
|
|
|
| ||
Total cash (used in)/provided by: |
|
|
|
|
|
|
| ||
Operating activities |
| $ | (2,294 | ) |
| $ | (587 | ) |
|
Investing activities |
|
| — |
|
|
| — |
|
|
Financing activities |
|
| 2,972 |
|
|
| 284 |
|
|
| $ | 678 |
|
| $ | (303 | ) |
| |
Cash Flow from Operating Activities
Net cash used in operating activities for the three months ended March 31, 2023 was $2.3 million compared to $0.6 million for the three months ended March 31, 2022. The increase in cash used for operating activities of $1.7 million is primarily due to the increase of resources to launch the clinical trial.
Cash Flow from Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2023 was $3.0 million, primarily related to the issuance of new shares of common stock, proceeds from convertible notes, and the sale of recycled shares, partially offset by payments of notes payable. Cash provided by financing activities for the three months ended March 31, 2022 was $0.3 million, primarily from the issuance of notes payable.
Critical Accounting Policies and Estimates
The preparation of the unaudited consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and income and expenses during the periods reported. Although actual results could materially differ from those estimates, such estimates are developed based on the best information available to management and management's best judgments at the time.
Significant estimates include the valuation of the forward option on forward purchase agreement, derivative liability, warrants, convertible notes at fair value, and the amount of share-based compensation expense.
Emerging Growth Company Status
We are an emerging growth company (“EGC”), as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
Thethe Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”(“JOBS”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under theAct. The JOBS Act are allowedpermits companies with EGC status to take advantage of an extended transition period to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delaystandards, delaying the adoption of new or revisedthese accounting standards and as a result, we may notuntil they apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards onthat have different effective dates for public and private companies until the relevant dates on which adoptionearlier of such standards is required for non-emergingthe date we (i) are no longer an emerging growth companies.company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, theour consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncementsstandards as of public company effective dates.
Additionally,In addition, we are in the process of evaluating the benefits of relyingintend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,”Since we chooseintend to rely on such exemptions, we mayare not be required to, among other things,things: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404,404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act,Act; (iii) comply with any requirement that may be adopted by the PCAOBPublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation relatedcompensation-related items such as the correlation between executive compensation and performance and comparisons of the CEO’sChief Executive Officer’s compensation to median employee compensation. These exemptions
We will apply for a periodremain an EGC under the JOBS Act until the earliest of five years(i) the last day of our first fiscal year following the completionfifth anniversary of the closing of this offering, (ii) the last date of our IPO or untilfiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii)
19
the date on which we are no longer an “emerging growth company,” whichever is earlier.
23
Redeemable Equity Instruments
In accordance withdeemed to be a “large-accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three-years.
Contractual Obligations and its staff’s guidance on redeemable equity instruments, which has been codified in ASC Commitments
480-10-S99,The following table summarizes our contractual obligations as of March 31, 2023:
|
| Total |
|
| Less than |
|
| 1-3 years |
|
| 3-5 years |
|
| More than |
| |||||
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LMFA note payable |
|
| 443 |
|
|
| — |
|
|
| 443 |
|
|
| — |
|
|
| — |
|
LMFAO note payable |
|
| 1,758 |
|
|
| — |
|
|
| 1,758 |
|
|
| — |
|
|
| — |
|
Maxim note payable |
|
| 3,640 |
|
|
| — |
|
|
| 3,640 |
|
|
| — |
|
|
| — |
|
First Convertible Note |
|
| 3,251 |
|
|
| 2,599 |
|
|
| 652 |
|
|
|
|
|
|
| ||
Insurance Financing |
|
| 493 |
|
|
| 493 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total contractual obligations |
| $ | 9,585 |
|
| $ | 3,092 |
|
| $ | 6,493 |
|
| $ | — |
|
| $ | — |
|
Recent Developments redemption provisions not solely within the control
Forward Purchase Agreements
The maturity date of the FPA (the “Maturity Date”) will be the earliest of (a) the third anniversary of the Closing, and (b) after any occurrence during any 30 consecutive trading-day period, the VWAP Price for 20 trading days is less than $3.00 per Share, at the FPA Seller decision.
At the Maturity Date, the FPA Sellers will be entitled to retain a cash amount equal to the number of unsold Recycled Shares multiplied by $2.50, and the FPA Sellers will deliver to the Company requirethe unsold Recycled Shares.
In March 2023, a VWAP trigger event occurred, and the Forward Purchase Agreements could mature on the date specified by the FPA Sellers at the FPA Sellers’ discretion. The FPA Sellers have not specified the Maturity Date of the Forward Purchase Agreements as of the issuance of these unaudited consolidated financial statements.
Equity Line of Credit
The Company paid previously accrued commitment fees of $1,500 during the three months ended March 31, 2023, of which $1,000 was paid in 218,842 shares of common stock subject to redemption to be classified outside of permanent equity. Althoughand $500 was paid in cash.
During the three months ended March 31, 2023, the Company did not specifysold 378,006 shares of common stock to Tumim for $1,108 as part of the equity line financing arrangement.
Convertible Notes
On March 15, 2023, the Company entered into a maximum redemption threshold, its charter provides that currently,securities purchase agreement with a related party institutional investor, whereby the Company will not redeem its publicissue a series of four senior unsecured convertible notes, with principal amounts totaling up to $9,000, and warrants to purchase shares in an amount that would cause its net tangible assets to be less than $5,000,001.
Management reviewed the Company’s initial application of ASC 480-10-S99-3A to its accounting classification of public shares and determined that the public shares include certain redemption provisions outside of the Company’s control that requirecommon stock. On March 15, 2023, the publicCompany issued a note, convertible into 1,207,729 shares of common stock at an initial conversion price of $2.70, in a principal amount of $3,261, and a warrant to be presented as temporary equity regardlesspurchase up to 328,352 shares of common stock. The senior unsecured convertible note was issued at an 8.0% discount, bears interest at 7.0% per annum, and matures on June 15, 2024. The senior unsecured convertible notes are redeemable, in whole or in part, at any time at the discretion of the minimum net tangible asset required by the Company to complete itsCompany. The warrants have an initial business combination.exercise price of $2.97 per share of common stock, expire five years from their issuance date, and contain cashless exercise provisions. The convertible note contains an original issue discount of $261 and was measured at fair value.
Warrants as Derivative Liability
The Company previously accounted for its outstanding Public Warrants and Private Placement Warrants issued in connection with its IPO as components of equity instead of as derivative liabilities. The warrant agreement governing the Warrant Agreement includes a provision that provides for potential changeswarrants attached to the settlement amounts dependent upon the characteristics of the holder of the Warrant. In addition, the Warrant Agreement includes a provision that in the event of a tender or exchange offer made to and accepted by holders of more than 50% of the outstanding shares of a single class of common shares, all holders of the Warrants would be entitled to receive cash for their Warrants (the “tender offer provision”).
In connection with the reevaluation of the accounting treatment of the Warrants, the Company’s management evaluated the warrants under Accounting Standards Codification (“ASC”) Subtopic 815-40, Contracts in Entity’s Own Equity. ASC Section 815-40-15 addresses equity versus liability treatment and classification of equity-linked financial instruments, including warrants, and states that a warrant may be classified as a component of equity only if, among other things, the warrant is indexed to the issuer’s common stock. Under ASC Section 815-40-15, a warrant is not indexed to the issuer’s common stock if the terms of the warrant require an adjustment to the exercise price upon a specified event and that event is not an input to the fair value of the warrant. Based on management’s evaluation, the Company’s Audit Committee, in consultation with management and after discussion with the Company’s independent registered public accounting firm, concluded that the Company’s Private Placement Warrants are not indexed to the Company’s common shares in the manner contemplated by ASC Section 815-40-15 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares. In addition, based on management’s evaluation, the Company’s Audit Committee, in consultation with management and after discussion with the Company’s independent registered public accounting firm, concluded the tender offer provision included in the Warrant Agreement fails the “classified in stockholders’ equity” criteria as contemplated by ASC Section 815-40-15.
As a result of the above, the Company should have classified the Warrants as derivative liabilities in its previously issued balance sheet as of January 28, 2021 that was filed on Form 8-K on February 3, 2021. Under this accounting treatment, the Company is required to measure the fair value of the Warrants at the end of each reporting period and recognize changes in the fair value from the prior period in the Company’s operating results for the current period improper accounting classification of warrants we issued in January 2021 which, due to its impact on our financial statements which we determined to be a material weakness. This mistake in classification was brought to our attention only when the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) dated April 12, 2021 (the “SEC Statement”). The SEC Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those we issuednote at the time of our initial public offering in January 2021.issuance had a fair value of $500 and are classified as a liability.
In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,”Item 3. Quantitative and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;” the Company evaluated the changes and has determined that the related impact was material to any previously presented financial statements. Therefore, the Company, in consultation with its Audit Committee, concluded that its previously issued financial statements should be restated to report all public shares as temporary equity and warrants should be classified and measured as derivative liabilities.Qualitative Disclosures About Market Risk.
24
|
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
20
Item 4. Controls and Procedures.
This Item 4 includes information concerning the controls and controls evaluation referred to in the certifications of our Chief Executive Officer and Interim Chief Financial Officer required by Rule 13a-14 of the Exchange Act included in this Form 10-Q as Exhibits 31.1 and 31.2.
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Interim Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),) as of March 31, 2023 and are not required to make disclosures underbased on this item.
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(a) Evaluationevaluation, have concluded that, as a result of the material weaknesses in internal control over financial reporting as described below, our disclosure controls and procedures.procedures were not effective as of March 31, 2023.
DisclosurePursuant to Rule 13a-15(e), the term “disclosure controls areand procedures” means controls and other procedures of an issuer that are designed with the objective of ensuringto ensure that information required to be disclosed by the issuer in ourthe reports filedthat it files or submits under the Exchange Act such as this Report, is recorded, processed, summarized and reported within the time periodperiods specified in the SEC’s rules and forms. Disclosure controls are alsoand procedures include, without limitation, controls and procedures designed withto ensure that information required to be disclosed by an issuer in the objective of ensuringreports that such informationit files or submits under the Exchange Act is accumulated and communicated to ourthe issuer’s management, including the chief executive officerits Chief Executive Officer and chief financial officer,Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our
Management's Report on Internal Control Over Financial Reporting
Management is responsible for designing, implementing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The management evaluated,of the Company has designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the participationgenerally accepted accounting principles. Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of our chief executive officer and chief financial officer (our “Certifying Officers”),changes in conditions, the effectiveness of our disclosureinternal control over financial reporting may vary over time.
As discussed elsewhere in this report, we completed the Business Combination on October 28, 2022. Prior to the Business Combination, SeaStar Medical, Inc. was a private company and therefore its controls were not required to be designed or maintained in accordance with Rules 13a-15 and procedures as of September 30, 2022, pursuant to Rule 13a-15(b)15d-15 under the Exchange Act. Based upon thatThe design and implementation of internal control over financial reporting for the Company post-Business Combination has required and will continue to require significant time and resources from management and other personnel. Because of this, the design and ongoing development of our framework for implementation and evaluation of internal control over financial reporting is in its preliminary stages. As a result, management was unable, without incurring unreasonable effort or expense to conduct an assessment of our Certifying Officers concluded that,internal control over financial reporting as of September 30, 2022, our disclosure controls and procedures were not effective.December 31, 2022. Accordingly, we are excluding management’s report on internal control over financial reporting pursuant to Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Compliance & Disclosure Interpretations.
Specifically, management’s determination was based solely onIdentification of Material Weaknesses
In the followingcourse of preparing the unaudited consolidated financial statements that are included in this Form 10-Q, the Company has identified material weaknesses which existedin its internal controls over financial reporting as of September 30, 2022. Since inceptionMarch 31, 2023, which relates to a deficiency in 2020 to the present, the Company did not effectively segregate certain accounting duties due to the small sizedesign and operation of its accounting staff. In addition, we did not have sufficient controls in place surrounding the accounting of complex financial instruments. This lack of control led to improper accounting classification of warrants we issued in January 2021 which, due to its impact on our financial statements. This lack of control led to improper accounting classification of warrants we issued in January 2021 which we determined to be a material weakness. This mistake in classification was brought to our attention only when the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) dated April 12, 2021 (the “SEC Statement”). The SEC Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those we issued at the time of our initial public offering in January 2021.
controls. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness is a deficiency, or combination of Specifically, the Company identifieddeficiencies in internal controlcontrols over financial reporting suchwhich were determined to rise to the level of material weaknesses. The Company has identified that there is a reasonable possibility that a material misstatement ofadditional headcount will be addressed in the Company’s annual or interim financial statementsnear term to allow for further research and internal dialogue on complex accounting transactions prior to final conclusion. The Company will not be prevented or detected on a timely basis.
In connection withalso continue to review the evaluation of the SEC Statement and management’s subsequent re-evaluation of its Prior Financials, the Company determined that there were errors in its accounting for its warrants and shares as temporary equity. Management concluded that a deficiency inoverall internal control over financial reporting existed relating toenvironment as we develop the accounting treatment for complex financial instruments and that the failure to properly account for such instruments constituted a material weakness. This material weakness resulted in the need to restate the Prior Financials.
Notwithstanding the determination that ourrequisite internal control over financial reporting was not effective, as of September 30, 2022, and that there was a material weakness as identified in this Quarterly Report, we believe that our financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered hereby in all material respects.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.framework.
(b) Changes in internal controlInternal Control over financial reporting.Financial Reporting
There were no changes in our internal control over financial reporting that occurred(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarterperiod ended September 30, 2022March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. II—OTHER INFORMATION
Item 1. Legal Proceedings.
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From time to time, we may become involved in various claims and legal proceedings. We are not currently a party to material litigationany legal proceedings nor, to our knowledge, is any material legal proceeding threatened against us or anythat, in the opinion of our officersmanagement, are likely to have a material adverse effect on our business, financial condition or directorsresults of operations. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
In addition to the other information set forth in their corporate capacity.
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As a result ofthis report, you should carefully consider the closing of the Business Combination on October 28, 2022, the risk factors previously discloseddiscussed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 no longer apply. For risk factors relating to2022 and our other public filings, which could materially affect our business, following the Business Combination, please refer to the section entitled “Risk Factors” in our final prospectus and definitive proxy statement filed with the SEC on September 28, 2022.financial condition or future results. Except as set forth below, there has not been anyno material changes to suchfrom risk factors set forthpreviously disclosed in “Risk Factors” in our Form 10-K for the year ended December 31, 2022:
If the Company fails to obtain additional financing, it would be forced to delay, reduce or eliminate its product development program, which may result in the final prospectuscessation of its operations.
Developing medical device products, including conducting preclinical studies and definitive proxy statement:clinical trials, is expensive. The Company expects its research and development expenses to substantially increase in connection with its ongoing activities, particularly as it advances its clinical programs. As of March 31, 2023 and December 31, 2022, the Company had negative working capital of $4.7 million and $2.3 million, respectively. The Company currently does not have sufficient capital to support its operations and complete its planned regulatory approval process. The Company will need to secure additional capital to continue its operation, and such funding may not be available on acceptable terms, or at all. In addition, the Company incurred a significant amount of debt, including the issuance of unsecured and secured promissory notes to LM Funding America, Inc. (“LMFA”), LMFAO Sponsor (the "Sponsor"), Maxim ("Maxim”), and convertible notes to 3i LP, an affiliate of Tumim Stone Capital ("Tumim"), and the Company may not have sufficient funds to repay these loans. Even if the Company obtains additional funding, the Company will be required to make certain mandatory payments under such promissory notes, which will reduce the amount of proceeds available for the Company to operate its business.
We may suffer from lackOn August 23, 2022, LMAO and SeaStar Medical, Inc. entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Tumim for the purchase of availabilityup to $100.0 million in shares of additional funds.
We expectthe common stock after the consummation of the Business Combination. There are certain conditions and limitations on the Company’s ability to have ongoing needs for working capitalutilize the $100.0 million equity line with Tumim. The Company will be required to satisfy various conditions, which include, among others: (1) delivery of a compliance certificate; (2) filing of an initial registration statement; and (3) customary bring-down opinions and negative assurances, in order to fund operations, continuecommence the selling of common stock to expandTumim under the Purchase Agreement. Once such conditions are satisfied, Tumim’s purchases are subject to various restrictions and other limitations, including a cap on the number of shares of common stock that we can sell based on the trading volume of our operationscommon stock, as well as certain beneficial ownership restrictions of Tumim. If any of these conditions are not satisfied or limitations are in effect, the Company may not be able to utilize all or part of the Tumim equity line, which would have an adverse impact on the Company’s ability to satisfy its capital needs and recruit experienced personnel. Tocould have a material adverse impact on its business. The Company has received a total of $1.1 million from the Purchase Agreement through March 31, 2023. However, this source of capital may be limited since it depends substantially on the trading volume and price of our common stock.
In March 2023, the Company completed a convertible note financing in which the Company may issue up to a principal amount of approximately $9.8 million of convertible notes to 3i LP (the “Lender”) in four separate tranches subject to certain conditions (the “Convertible Note Financing”), and on March 15, 2023, the Company closed the first tranche of the financing by issuing a convertible note in a principal amount of $3.3 million, and a warrant to purchase up to 328,352 shares of common stock. However, there is no guarantee that end, wethe Company will be able to satisfy the conditions required to issue additional notes under the remaining three tranches, including the requirement to obtain stockholder approval of such financing at the next annual meeting of stockholders. In addition, because some of the outstanding notes of the Company with Maxim, LMFA, and Sponsor include mandatory prepayment provisions, the Company may be required to use a portion of the proceeds from the Convertible Note Financing to repay such notes, unless the Company can obtain a waiver from holders of such notes, and there is no guarantee that such waivers will be obtained. Even if the Company receives sufficient capital in the future, the Company will be required to raise additional funds through equityto support its own operations and complete its planned regulatory approval process, and such funding may not be available in sufficient amounts or debt financing. However, there can be no assurance that we will be successful in securing additional capital on favorableacceptable terms ifto the Company, or at all. If we are successful, whether the terms are favorable or unfavorable, thereit is a potential that we will fail to comply with the terms of such financing, which could result in severe liability for us. If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund liabilities, or (d) seek protection from creditors. In addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our inabilityunable to raise capital could require us to significantly curtail or terminate our operations altogether. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital when required or on acceptable terms, is subject to a variety of uncertainties.
In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, itthe Company may be necessary for us to sell allrequired to:
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If it is unable to raise additional capital in significant dilution to our shareholderssufficient amounts or that result in our shareholders losing all of their investment in our Company.
Our management team has limited experience managingon acceptable terms, the Company will be prevented from pursuing development and commercialization efforts, including completing the clinical trials and regulatory approval process for its SCD product candidates, which would have a public company.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect ourmaterial adverse impact on its business, results of operations, cash flows and financial condition.
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InThe Company is subject to certain risks related to our Forward Purchase Agreements, which could have a material adverse effect on the price of our common stock and our business, financial condition and results of operations.
On October 17 and October 25, 2022, LMAO and SeaStar Medical, Inc. entered into a forward purchase agreement (the “Vellar FPAs”) with Vellar Opportunity Fund SPV LLC – Series 4 (“Vellar”) and HB Strategies LLC (“HB Strategies” and together with Vellar, the “FPA Sellers”), respectively. According to the terms of the FPAs, the FPA Sellers purchased, through a broker in the open market, shares of Common Stock from holders other than LMAO or affiliates of LMAO, including from holders who had previously elected to redeem shares pursuant to the redemption rights in connection with the Business Combination LMAO(such purchased shares, the “Recycled Shares”).
Either of the FPA Sellers may, in its discretion, sell in the open market any or all of the Recycled Shares they purchase (the "Terminated Shares"). The Company is entitled to proceeds from sales of Terminated Shares equal to the number of Terminated Shares multiplied by the Reset Price (the “Reset Price”). Following the Closing, the Reset Price was initially $10.00 per Terminated Share, but is adjusted on the last scheduled trading day of each month commencing on the first calendar month following the Closing to the lowest of (a) the then-current Reset Price, (b) $10.00 and (c) the volume weighted average price (“VWAP Price”) of our Common Stock for the last ten (10) trading days of the prior calendar month, but not lower than $5.00. While the Company may receive cash proceeds from sales of Terminated Shares by an FBA Seller, the FBA Sellers may not have any incentive to sell Terminated Shares unless the trading price of our Common Stock is above the Reset Price. There is no guarantee that the trading price of our Common Stock will equal or exceed the current Reset Price, or that the future trading price of our Common Stock may equal or exceed the Reset Price in subsequent applicable periods. In such a case, the FPA Sellers may not sell Terminated Shares, in which case we will not be able to receive any cash proceeds from the FPAs. In addition, if an FPA Seller decides to sell their shares into the market, it may cause the trading price of our Common Stock to decline significantly.
Pursuant to the terms of the FPAs, the maturity date of the FPAs (each, a “Maturity Date” and collectively, the “Maturity Dates”) will be the earliest of (a) the third anniversary of the Closing, and (b) upon an FPA Seller’s election, after any 30 consecutive trading-day period during which the volume-weighted average price of our Common Stock for 20 trading days is less than $3.00 per Share (a “VWAP Trigger Event”). On a Maturity Date, the Company will owe to an FPA Seller an amount equal to the product of (1) number of shares of Common Stock held by such FPA at the time of the Maturity Date, multiplied by (2) $2.50 (the “Maturity Consideration”). The Maturity Consideration may be paid in cash or, at the option of the Company, Common Stock, the number of which shall be based on the average daily volume weighted average price of Common Stock over the 30 trading days ending on the Maturity Date.
Due to the declining trading price of our Common Stock from March to May 2023, a VWAP Trigger Event has occurred, which caused the FPAs to reach Maturity Date. The Company is currently discussing with the FPA Sellers regarding the amount of Maturity Consideration, including the possibility to reduce or restructure the Maturity Consideration. On May 10, 2023, Vellar issued to the Company a VWAP Trigger Event notice (a “VWAP Trigger Event Notice”). If the Company is not able to reach an agreement with the FPA Sellers, then the Company will be required to pay an additional amount in cash or an amount in shares of Common Stock to satisfy the obligations at Maturity Date. There can be no guarantee that the Company will have funds available to satisfy a cash obligation owed to either or both of the FBA Sellers and the issuance of a significant number of additional shares of Common Stock to either or both of the FBA Sellers may have a substantial dilutive effect to our stockholders and a decline in the trading price of our Common Stock. The occurrence of any of these events is likely to have a material adverse effect on our business, financial condition and results of operations.
The Company has not received, and may never receive, approval from the FDA to market its product in the United States or abroad.
The Company may encounter various challenges and difficulties in its application to seek approval from the FDA to sell and market its SCD product candidates, including the application for HDE for pediatric AKI indication and the pivotal trial for adult AKI indication.
The Company is required to submit a substantial amount of supporting documentation for its HDE application to demonstrate the eligibility of the SCD to treat pediatric patients. The Company recently announced that it has received a letter from the Center for Biologics Evaluation and Research (“CBER”) of the FDA regarding the Company’s HDE application for its pediatric SCD program. In the letter, the FDA indicated that the application is not approvable in its current form but outlined specific guidance as to how the application may be amended and resubmitted successfully. While the Company believes that each of the current deficiencies cited by CBER in their letter are readily addressable, there is no guarantee that the Company will be able to fully address these deficiencies to obtain approval in a timely or at all, and failure to do so will adversely affect the Company’s business operations and financial conditions.
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While the Company recently obtained approval from the FDA to conduct the AKI adult pivotal trial for SCE, there is no guarantee that the Company will be able to complete such trial in a timely manner, or at all, nor will there be any assurance that positive data will be generated from such trials. Even if the Company is able to generate positive results from this trial, the FDA and other regulatory agencies may require the Company to conduct additional trials to support the study or disagree with the design of the trial and request changes or improvements to such design. The Company is also subject to numerous other risks relating to the regulatory approval process, which include but are not limited to:
Even if the Company obtains approval, the FDA or other regulatory authorities may require expensive or burdensome post-market testing or controls. Any delay in, or failure to receive or maintain, clearance or approval for its future products could prevent the Company from generating revenue from these products or achieving profitability. Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries, or other increased scrutiny on the Company, could dissuade some physicians from using its products and adversely affect its reputation and the perceived safety and efficacy of its products.
Delays or rejections may occur based on changes in governmental policies for medical devices during the period of product development. The FDA can delay, limit or deny approval of a PMA application for many reasons, including:
If the Company is not able to obtain regulatory approval of its SCD in a timely manner or at all, it may not be able to continue to operate its business and may be forced to shut down its operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On March 15, 2023, the Company entered into subscription agreements, each dated August 23, 2022 (collectively, the “Subscription Agreements”a Securities Purchase Agreement (the “Purchase Agreement”) with certain third-party investors3i LP, an institutional investor (the “PIPE Investors”“Purchaser”), pursuant to which LMAOthe Company agreed to sell and issue to the Purchaser, in a series of up to four closings, senior unsecured convertible notes (the “Notes”), convertible into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), in a principal amount of up to approximately $9.8 million and warrants (the “Warrants”) to purchase shares of the Company’s Common Stock. On March 15, 2023 (the “Initial Closing Date”), the Company issued a Note, convertible into 1,207,729 shares of Common Stock at an initial conversion price of $2.70, in a principal amount of $3,260,869.57, and a Warrant to purchase up to 328,352 shares of Common Stock.
At the second closing, the Company will issue and sell to the PIPE InvestorsPurchaser (i) an additional Note in private placementsa principal amount of $2,173,913.04 and (ii) additional Warrants to close immediately priorpurchase up to 218,901 shares of Common Stock. At each of the third and fourth closings, the Company may, at its option, issue and sell to the Closing, an aggregatePurchaser (i) additional Notes, each in a principal amount of 700,000$2,173,913.04 and (ii) additional Warrants to purchase shares of Common Stock at $10.00 per share, and warrantsequal to purchase up to 700,00025% of the Purchaser’s shares of Common Stock (the “PIPE Warrants”)issuable upon conversion of the Notes on the applicable closing date. Pursuant to the Purchase Agreement, the Company must satisfy certain additional conditions in order to sell and issue the additional Notes and additional Warrants at the second, third and fourth closings. Such additional conditions include, but are not limited to, the effectiveness of a registration statement to be filed by the Company with the SEC to register shares of Common Stock issuable upon conversion of the Notes and exercise of the Warrants, and for the third and fourth closings, the approval
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by stockholders of the Company to issue more than 19.99% of issued and outstanding shares pursuant to applicable Nasdaq Rules. If the third closing and fourth closing do not occur within the one-year anniversary of the Initial Closing Date, the Company’s right to effect the third and fourth closings shall automatically terminate.
The Notes will be issued at an aggregate purchase price8% original issue discount and bear an interest rate of $7,000,000 (the “PIPE Investment”)7%. The PIPENotes mature fifteen (15) months after their issuance, or June 15, 2024 unless accelerated due to an event of default. The Notes are redeemable, in whole or in part, at any time at the discretion of the Company. At the Initial Closing Date, the Company received net proceeds, after the original issue discount and the Purchaser’s counsel fees, of $2,370,000.00.
The Notes contain standard and customary covenants and events of default. Such events of default include, but are not limited to, failure to make payments when due, failure to observe or perform covenants or agreements contained in the Notes, the breach of any material representation or warranty contain therein, the bankruptcy or insolvency of the Company, the suspension of trading of Common Stock, and the Company’s failure to file required reports with the SEC. If any such event of default occurs, subject to any cure period, the Purchaser shall have the right to redeem any portion of the Note for a redemption price, with a certain dollar amount available for conversion, at the Purchaser’s option, into shares of Common Stock.
The Warrants are exercisable starting on the Closing athave an initial exercise price of $11.50$2.97 per share of Common Stock, subject to adjustment in certain circumstances, and expireare exercisable at any time before the close of business on the day five (5) years after the Closing. At the Closing, the PIPE Investorstheir issuance and LMAO consummated the PIPE Investment pursuant tocontain cashless exercise provisions.
The Notes, Warrants, and in accordance with the terms of the Subscription Agreements. The sale of shares of Common Stock issuable upon conversion of the Notes and PIPEupon exercise of such Warrants were made in reliance of an exemption(the “Underlying Securities”), have not been registered under Section 4(2) of the Securities Act of 1933, as amended.
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(b) Use of Proceeds.
On November 6, 2020, we issued 2,156,250 shares of our Class B common stock, to our sponsor for $25,000 in cash, at a purchase price of approximately $0.012 per share, in connection with our formation. Such sharesamended (the “Securities Act”) and were issued and sold to an accredited investor in connection with our organization pursuant toreliance upon the exemption from registration contained in Section 4(a)(2) ofRegulation D promulgated under the Securities Act.
On January 28, 2021, we consummated our initial public offering of 10,350,000 units. Each unit consists of one share of our Class A common stock The Notes, Warrants and one redeemable warrant, with each warrant entitling the holder thereof to purchase one share of Class A common stock for $11.50 per share. The units were sold at a price of $10.00 per unit, generating gross proceeds of $103,500,000. Maxim Group LLC acted as sole book-running manager. The securitiesUnderlying Securities may not be offered or sold in the initial public offering were registeredabsence of an effective registration statement or exemption from the registration requirements under the Securities Act on a Registration Statement on Form Act.S-1 (No. 333-251962), which was declared effective by the SEC on January 25, 2021.
Simultaneously with the closing of our initial public offering, we consummated a private placement of 5,738,000 private placement warrants, at a price of $1.00 per private placement warrant, to our sponsor, generating gross proceeds of $5,738,000. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Following the closing of our initial public offering and the sale of the private placement warrants, an aggregate amount of $105,570,00 (which amount includes the deferred underwriting discount) was placed in a trust account established in connection with the initial public offering.
Transaction costs amounted to $6,211,902, consisting of $2,070,000 in underwriting discount, $3,622,500 in deferred underwriting discount, the fair value of the shares issued to the underwriters of $1,000 deemed as underwriters’ compensation, and $518,402 of other offering costs.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account not previously released to us (less taxes payable) to complete our initial business combination. We may withdraw interest to pay our franchise and income taxes. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial business combination, we may apply the balance of the cash released to us from the trust account for general corporate purposes, including for maintenance or expansion of operations of the post-transaction company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies or for working capital.
We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate, complete a business combination, and implement our plan of dissolution.
For a description of the use of the proceeds generated in our initial public offering, see Part I, Item 2 of this Quarterly Report.
(c) Repurchase of Securities.Item 3. Defaults Upon Senior Securities.
None.N/A
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None.
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None.
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None
N/A
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The following documents are filed as a part of this report or are incorporated herein by reference.
Item 6. Exhibits
Exhibit Index
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28** Filed herewith
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SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrantRegistrant has duly caused this reportReport to be signed on its behalf by the undersigned, thereunto duly authorized:authorized.
SeaStar Medical Holding Corporation | |||
Date: May 15, 2023 | By: | /s/ Eric Schlorff | |
Eric Schlorff | |||
Chief Executive Officer (Principal Executive Officer) | |||
Date: May 15, 2023 | By: | /s/ Caryl Baron | |
Caryl Baron | |||
Interim Chief Financial Officer (Principal Financial and Accounting Officer) | |||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and appoints Eric Schlorff his or her true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him or her and in his or her name, place and stead, in any and all capacities, to execute any or all amendments to this Form 10-Q, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this report has been signed below by the following persons in the capacities and on the dates indicated.
Name |
| Title | Date | ||||
/s/ Eric Schlorff Eric Schlorff | Chief Executive Officer and Director (Principal Executive Officer) | May 15, 2023 | |||||
/s/ Caryl Baron Caryl Baron | Interim Chief Financial Officer (Principal Financial and Accounting Officer) | May 15, 2023 | |||||
/s/ Rick Barnett Rick Barnett | Chairman of the Board of Directors | May 15, 2023 | |||||
/s/ Kenneth Van Heel Kenneth Van Heel | Director | May 15, 2023 | |||||
/s/ Andres Lobo Andres Lobo | Director | May 15, 2023 | |||||
/s/ Allan Collins Allan Collins | Director | May 15, 2023 | |||||
/s/ Bruce Rodgers Bruce Rodgers | Director | May 15, 2023 | |||||
/s/ Richard Russell Richard Russell |
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May 15, 2023 | ||||||
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