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 June 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 | |||||
1 | ||||||
2 | ||||||
Condensed Consolidated Statements of Changes in Stockholders' Deficit (Unaudited) | 3 | |||||
4 | ||||||
Notes to Unaudited Condensed Consolidated Financial Statements | 5 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||||
Item 3. | 23 | |||||
Item 4. | 23 | |||||
PART II. | 25 | |||||
Item 1. | 25 | |||||
Item 1A. | 25 | |||||
Item 2. | 27 | |||||
Item 3. | 27 | |||||
Item 4. | 27 | |||||
Item 5. | 27 | |||||
Item | 28 | |||||
29 |
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”))
Condensed Consolidated Balance Sheets
(the “Company”), consummated the previously announced business combination pursuantin thousands, except for share and per-share amounts)
|
| June 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
ASSETS |
| |||||||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 13 |
|
| $ | 47 |
|
Other receivables |
|
| — |
|
|
| 12 |
|
Prepaid expenses |
|
| 2,319 |
|
|
| 2,977 |
|
Total current assets |
|
| 2,332 |
|
|
| 3,036 |
|
Forward option-prepaid forward contracts, net |
|
| - |
|
|
| 1,729 |
|
Other assets |
|
| 2 |
|
|
| 2 |
|
Total assets |
| $ | 2,334 |
|
| $ | 4,767 |
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
| |||||||
Current liabilities |
|
|
|
|
|
| ||
Accounts payable |
| $ | 4,355 |
|
| $ | 1,927 |
|
Accrued expenses |
|
| 1,095 |
|
|
| 2,245 |
|
Contingent upfront payment for license agreement |
|
| 100 |
|
|
| — |
|
Notes payable, net of deferred financing costs |
|
| 5,907 |
|
|
| 1,178 |
|
Convertible notes |
|
| 2,230 |
|
|
| — |
|
Warrants liability |
|
| 95 |
|
|
| — |
|
Total current liabilities |
|
| 13,782 |
|
|
| 5,350 |
|
Notes payable, net of deferred financing costs |
|
| - |
|
|
| 7,652 |
|
Total liabilities |
|
| 13,782 |
|
|
| 13,002 |
|
Commitments and contingencies (see Note 10) |
|
|
|
|
|
| ||
Stockholders' deficit (1) |
|
|
|
|
|
| ||
Common stock - $0.0001 par value per share; 100,000,000 shares authorized; |
|
| 2 |
|
|
| 1 |
|
Additional paid-in capital |
|
| 96,806 |
|
|
| 91,089 |
|
Accumulated deficit |
|
| (108,256 | ) |
|
| (99,325 | ) |
Total stockholders' deficit |
|
| (11,448 | ) |
|
| (8,235 | ) |
Total liabilities and stockholders' deficit |
| $ | 2,334 |
|
| $ | 4,767 |
|
(1) Retroactively restated to that certain Agreement and Plan of Merger, dated April 21, 2022, (the “Merger Agreement”) by 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 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
SeaStar Medical Holding Corporation
Condensed 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 | ) |
(in thousands, except for share and per-share amounts)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
| $ | 2,007 |
|
| $ | 596 |
|
| $ | 3,791 |
|
| $ | 951 |
|
General and administrative |
|
| 1,743 |
|
|
| 716 |
|
|
| 4,540 |
|
|
| 1,173 |
|
Total operating expenses |
|
| 3,750 |
|
|
| 1,312 |
|
|
| 8,331 |
|
|
| 2,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss from operations |
|
| (3,750 | ) |
|
| (1,312 | ) |
|
| (8,331 | ) |
|
| (2,124 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| (225 | ) |
|
| (191 | ) |
|
| (658 | ) |
|
| (360 | ) |
Change in fair value of convertible notes |
|
| (100 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Change in fair value of warrants liability |
|
| 480 |
|
|
| — |
|
|
| 480 |
|
|
| — |
|
Change in fair value of notes payable derivative liability |
|
| — |
|
|
| 601 |
|
|
| — |
|
|
| 578 |
|
Change in fair value of forward option-prepaid forward contracts |
|
| (69 | ) |
|
| — |
|
|
| (1,723 | ) |
|
| — |
|
Gain on sale of recycled shares |
|
| — |
|
|
| — |
|
|
| 1,306 |
|
|
| — |
|
Total other income (expense), net |
|
| 86 |
|
|
| 410 |
|
|
| (595 | ) |
|
| 218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss before provision for income taxes |
|
| (3,664 | ) |
|
| (902 | ) |
|
| (8,926 | ) |
|
| (1,906 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (3,669 | ) |
| $ | (902 | ) |
| $ | (8,931 | ) |
| $ | (1,906 | ) |
Net loss per share of common stock, basic and diluted |
| $ | (0.25 | ) |
| $ | (0.12 | ) |
| $ | (0.64 | ) |
| $ | (0.26 | ) |
Weighted-average shares outstanding, basic and diluted (1) |
|
| 14,932,866 |
|
|
| 7,238,767 |
|
|
| 13,984,625 |
|
|
| 7,238,767 |
|
(1) Retrospectively restated to give effect to the reverse recapitalization
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
SeaStar Medical Holding Corporation
Condensed Consolidated Statements of Changes in Stockholders' Deficit
(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 | ) |
Stock-based compensation |
|
|
|
|
|
|
|
| 345 |
|
|
|
|
|
| 345 |
| |||
Net loss |
|
|
|
|
|
|
|
|
|
|
| (902 | ) |
|
| (902 | ) | |||
Balance, June 30, 2022 |
|
| 7,238,767 |
|
| $ | 1 |
|
| $ | 73,844 |
|
| $ | (78,218 | ) |
| $ | (4,373 | ) |
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 | ) |
Issuance of shares - equity line of credit |
|
| 26,993 |
|
|
| — |
|
|
| 55 |
|
|
| — |
|
|
| 55 |
|
Issuance of shares - conversion of convertible notes |
|
| 3,088,167 |
|
|
| 1 |
|
|
| 1,936 |
|
|
| — |
|
|
| 1,937 |
|
Issuance of shares - vesting of RSUs |
|
| 153,405 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of shares - prepaid forward contracts |
|
| 1,096,972 |
|
|
| — |
|
|
| 558 |
|
|
| — |
|
|
| 558 |
|
Stock-based compensation |
|
| 459,185 |
|
|
| — |
|
|
| 555 |
|
|
| — |
|
|
| 555 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,669 | ) |
|
| (3,669 | ) |
Balance, June 30, 2023 |
|
| 18,121,238 |
|
| $ | 2 |
|
| $ | 96,806 |
|
| $ | (108,256 | ) |
| $ | (11,448 | ) |
(1) Retroactively restated to give effect to the reverse recapitalization
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
SeaStar Medical Holding Corporation
Condensed 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 | $ | — |
(in thousands, except for shares and per-share amounts)
|
| Six Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (8,931 | ) |
| $ | (1,906 | ) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
| ||
Amortization of discount on notes payable |
|
| — |
|
|
| 208 |
|
Amortization of deferred financing costs |
|
| 23 |
|
|
| — |
|
Non-cash accrued interest related to notes payable |
|
| — |
|
|
| 151 |
|
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 derivative liability |
|
| — |
|
|
| (578 | ) |
Change in fair value of warrants liability |
|
| (480 | ) |
|
| — |
|
Change in fair value of forward option - prepaid forward contracts |
|
| 1,723 |
|
|
| — |
|
Gain on sale of recycled shares |
|
| (1,306 | ) |
|
| — |
|
Stock-based compensation |
|
| 1,060 |
|
|
| 349 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Other receivables |
|
| 12 |
|
|
| — |
|
Prepaid expenses |
|
| 658 |
|
|
| (777 | ) |
Accounts payable |
|
| 2,428 |
|
|
| 584 |
|
Accrued expenses |
|
| 350 |
|
|
| 295 |
|
Net cash used in operating activities |
|
| (4,463 | ) |
|
| (1,578 | ) |
|
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
|
|
|
| ||
Proceeds from issuance of convertible notes |
|
| 5,000 |
|
|
| — |
|
Payment of convertible notes |
|
| (258 | ) |
|
| — |
|
Proceeds from issuance of shares |
|
| 1,163 |
|
|
| — |
|
Payment of commitment fee - equity line of credit |
|
| (500 | ) |
|
| — |
|
Proceeds from sale of recycled shares |
|
| 1,870 |
|
|
| — |
|
Proceeds from notes payable |
|
| 100 |
|
|
| 1,681 |
|
Payment of notes payable |
|
| (2,946 | ) |
|
| — |
|
Net cash provided by financing activities |
|
| 4,429 |
|
|
| 1,681 |
|
|
|
|
|
|
|
| ||
Net increase (decrease) in cash |
|
| (34 | ) |
|
| 103 |
|
|
|
|
|
|
|
| ||
Cash, beginning of period |
|
| 47 |
|
|
| 510 |
|
|
|
|
|
|
|
| ||
Cash, end of period |
| $ | 13 |
|
| $ | 613 |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 675 |
|
| $ | — |
|
|
|
|
|
|
|
| ||
Supplemental disclosure of noncash financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Shares issued as payment of convertible notes |
| $ | 1,937 |
|
| $ | — |
|
Shares issued to settle forward option-prepaid forward contracts |
| $ | 558 |
|
| $ | — |
|
Issuance of convertible note warrants |
| $ | 575 |
|
| $ | — |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Notes to the Condensed 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 condensed 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 condensed consolidated financial statements have been prepared on the parties agreed that $4,182,353 of such amount would be paidsame basis as the annual condensed 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 and six months ended June 30, 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 condensed consolidated financial statements should be read in conjunction with the annual condensed 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 condensed 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 June 30, 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 abilityCondensed Consolidated 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 changecondensed consolidated 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 fairCondensed Consolidated 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 defined as– significant unobservable inputs (including the Company’s own assumptions in determining 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 six months ended June 30, 2023 and 2022 (in thousands):
|
| Forward Option- |
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Prepaid |
|
|
|
|
|
|
|
|
| Notes Payable |
| ||||
Level 3 Rollforward |
| Forward Contracts |
|
| Convertible Notes |
|
| Warrants Liability |
|
|
| Derivative Liability |
| ||||
Balance January 1, 2022 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| $ | (526 | ) |
Additions |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| (52 | ) |
Changes in fair value |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 578 |
|
Balance June 30, 2022 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance January 1, 2023 |
| $ | 1,729 |
|
| $ | — |
|
| $ | — |
|
|
| $ | — |
|
Additions |
|
| — |
|
|
| 4,425 |
|
|
| 575 |
|
|
|
| — |
|
Sale of recycled shares |
|
| (564 | ) |
|
| — |
|
|
| — |
|
|
|
| — |
|
Payments |
|
| — |
|
|
| (258 | ) |
|
| — |
|
|
|
| — |
|
Shares issued as payments |
|
| — |
|
|
| (1,937 | ) |
|
| — |
|
|
|
| — |
|
Changes in fair value |
|
| (1,723 | ) |
|
| — |
|
|
| (480 | ) |
|
|
| — |
|
Shares issued as maturity consideration |
|
| 558 |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
Balance June 30, 2023 |
| $ | — |
|
| $ | 2,230 |
|
| $ | 95 |
|
|
| $ | — |
|
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 little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniquesthe convertible notes are outstanding, in which one or more significant inputs or significanteach 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 drivers are unobservable.
Emerging growth company status
The Company compliesis 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 revised accounting standards, delaying the adoption of these accounting standards until
7
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and reportingper-share amounts)
they would apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies 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 six months ended June 30, 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. Losses on remeasurement of $69 and $1,723 were recorded in Change in fair value of forward option-prepaid forward contracts on the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2023, respectively.
In March 2023, the price of the Company stock was below $3.00 for more than 20 trading days and the FPA Sellers at their discretion had the ability to specify the maturity dates for the FPA. During the three months ended June 30, 2023, the FPA Sellers specified the maturity dates and the FPAs matured and were settled by transferring 1,096,972 shares to the FPA Sellers, with a fair value of $558. As the FPAs were classified as a liability at fair value, upon settlement, the FPAs were marked to their fair value at the settlement dates and the liability was settled.
Note 4. Accrued Expenses
Accrued expenses consisted of the following:
($ in thousands) |
| June 30, |
|
| December 31, |
| ||
Accrued commitment fee, equity line of credit |
| $ | — |
|
| $ | 1,500 |
|
Accrued bonus |
|
| 502 |
|
|
| 450 |
|
Accrued director remuneration |
|
| 244 |
|
|
| 61 |
|
Accrued settlement |
|
| 150 |
|
|
| — |
|
Accrued interest |
|
| 72 |
|
|
| 112 |
|
Accrued legal |
|
| 51 |
|
|
| 80 |
|
Accrued research and development |
|
| 19 |
|
|
| 18 |
|
Other |
|
| 57 |
|
|
| 24 |
|
Total accrued expenses |
| $ | 1,095 |
|
| $ | 2,245 |
|
Note 5. Equity Line of Credit
The Company paid previously accrued commitment fees of $1,500 during the six months ended June 30, 2023, of which $1,000 was paid in 218,842 shares of common stock and $500 was paid in cash.
During the three and six months ended June 30, 2023, the Company sold 26,993 and 404,999 shares of common stock to Tumim Stone Capital LLC for proceeds of $55 and $1,162, respectively, as part of the equity line financing arrangement. As of June 30, 2023, $98,837 was available to draw.
8
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
Note 6. Notes Payable
Notes payable consisted of the following:
($ in thousands) |
| June 30, |
|
| December 31, |
| ||
LMFA notes payable |
| $ | 438 |
|
| $ | 968 |
|
LMFAO note payable |
|
| 1,757 |
|
|
| 2,785 |
|
Maxim note payable |
|
| 3,590 |
|
|
| 4,167 |
|
Insurance financing |
|
| 199 |
|
|
| 910 |
|
Unamortized deferred financing costs |
|
| (77 | ) |
|
| — |
|
|
|
| 5,907 |
|
|
| 8,830 |
|
Less current portion |
|
| (5,907 | ) |
|
| (1,178 | ) |
|
| $ | — |
|
| $ | 7,652 |
|
Future maturities of principal repayment of the notes payable as of June 30, 2023 are as follows:
($ in thousands) |
|
|
|
|
|
|
| |
Years ended December 31: |
|
|
|
|
|
|
| |
2023 (remaining) |
|
|
|
|
| $ | — |
|
2024 |
|
|
|
|
|
| 5,907 |
|
|
|
|
|
|
| $ | 5,907 |
|
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 a deferred financing cost. The Company amortized $20 and $23 of the deferred financing cost during the three and six months ended June 30, 2023, respectively.
LMFA Notes Payable
During the six months ended June 30, 2023, the maturity date was extended to June 15, 2024. The balance due was $438 and $968 as of June 30, 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 $7 and $19 for the three and six months ended June 30, 2023, respectively, on the interest-bearing note. The noninterest bearing note was paid in full in January 2023.
The mandatory repayment provisions of the LMFA note were waived for the second senior unsecured convertible note drawn on May 12, 2023 (see Note 7).
LMFAO Note Payable
During the six months ended June 30, 2023, the maturity date was extended to June 15, 2024. The mandatory repayment provisions of the LMFA note were waived for the second senior unsecured convertible note drawn on May 12, 2023 (see Note 7).
The balance due was $1,757 and $2,785 on June 30, 2023 and December 31, 2022, respectively. The Company recorded interest expense of $31 and $74 for the three and six months ended June 30, 2023, respectively.
Maxim Note Payable
During the six months ended June 30, 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 (see Note 7).
9
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
The balance of the Maxim note was $3,590 and $4,167 as of June 30, 2023 and December 31, 2022, respectively. The Company recorded interest expense of $63 and $130 for the six months ended June 30, 2023.
Insurance Financing
The balance due was $199 and $910 on June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023, two monthly installments of $101, consisting of principal and interest remain. The Company recorded interest expense of $6 and $17 for the three and six months ended June 30, 2023.
Notes Payable
Amortization of the debt discounts related to the Dow, Union Carbide, IBT and investor notes for the three and six months ended June 30, 2022 was $99 and $208, respectively.
Note 7. Convertible Notes
3i Notes
On March 15, 2023, the Company entered into a securities purchase agreement with 3i LP ("3i") an institutional investor, whereby the Company 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 warrants 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.
On May 12, 2023, the Company issued a note (the "Second Convertible Note"), 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 purchase 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 requires monthly installments of principal and interest.
The Company concluded that the transactions include 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 condensed consolidated balance sheets. The Convertible Notes are measured at fair value each reporting date with changes in fair value recognized in the condensed consolidated statements of operations, unless the change is concluded to be related to the changes in the Company’s credit rating, in which case the change will be recognized as a component of accumulated other comprehensive income in the condensed consolidated balance sheets.
During the six months ended June 30, 2023, the Company made cash payments of principal and interest of $238 and $20, respectively, on the First Convertible Note. The Company also made additional principal and interest payments, which requiresincluded accelerated payments through equity conversions. In accordance 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. The Company converted principal and interest into1,879,688 shares of common stock with a fair value of $1,291.
During the six months ended June 30, 2023, the Company made principal and interest payments on the Second Convertible Note, which included accelerated payments, though equity conversions. In accordance and pursuant to the Second Convertible Note, 3i elected to convert the conversion amount (as defined in the Second Convertible Note) of principal and interest into shares of common stock of the Company. The Company converted principal and interest into 1,208,479 shares of common stock with a fair value of $646.
Future maturities of principal repayment of the Convertible Notes as of June 30, 2023 are as follows:
10
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
($ in thousands) |
|
|
|
|
|
|
| |
Years ended December 31: |
|
|
|
|
|
|
| |
2023 (remaining) |
|
|
|
|
| $ | 2,609 |
|
2024 |
|
|
|
|
|
| 1,009 |
|
|
|
|
|
|
| $ | 3,618 |
|
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 assetexercise price of $2.97 per share. On May 12, 2023, as part of the issuance of the Second Convertible Note (see Note 7) 218,901 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 for the First Convertible Note were valued at $500 at issuance. The Convertible Note Warrants for the Second Convertible Note were valued at $75 at issuance.
In accordance with ASC 815-40, Derivatives and Hedging-Contracts in and Entity’s own Equity, the Company has determined that the 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 condensed consolidated balance sheets as a liability approachmeasured at fair value, with subsequent changes in fair value recorded in the condensed 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 financial accountingmaturity, and reporting for income taxes. Deferred income tax assetsthe risk-free interest rate. The risk-free interest rate is the U.S. Treasury rate at the date of issuance, and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts,time to maturity is based on enacted tax lawsthe contractual life at the date of issuance, which is five years.
The Company has the following warrants outstanding:
|
| June 30, |
|
| 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 |
|
| 547,253 |
|
|
| — |
|
SeaStar Warrants |
| 69,714 |
|
|
| 69,714 |
| |
|
| 17,404,967 |
|
|
| 16,857,714 |
|
Note 9. Common Stock and rates applicableStock-Based Compensation
During the six months ended June 30, 2023, the Company issued 459,185 shares of common stock for management bonuses and 153,405 shares of common stock for vested restricted stock units. The Company also granted 351,029 options and 234,019 restricted stock units during the six months ended June 30, 2023. For options granted during the six months ended June 30, 2023, the weighted-average grant date fair value was $1.20 per share and the options vest one year from the grant date. For RSUs granted during the six months ended June 30, 2023, the weighted-average grant date fair value was $1.47 per share and the RSUs vest one year from the grant date.
The following represents stock-based compensation expense in the company’s unaudited condensed consolidated statements of operations:
11
Notes to the periods Condensed Consolidated Financial Statements
(in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.thousands, except for shares and per-share amounts)
($ in thousands) |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Research and development |
| $ | 96 |
|
| $ | 90 |
|
| $ | 135 |
|
| $ | 90 |
|
General and administrative |
|
| 459 |
|
|
| 255 |
|
|
| 925 |
|
|
| 259 |
|
Total |
| $ | 555 |
|
| $ | 345 |
|
| $ | 1,060 |
|
| $ | 349 |
|
Note 10. Commitments and prescribes a recognition thresholdContingencies
License and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must bemore-likely-than-notto be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
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 unaudited condensed consolidated balance sheets as of June 30, 2023. The Company shall also receive milestone payments in the amounts of $450 and $350 for obtaining approval from the Food and Drug Administration and for selling the first sixty units to any third parties. The term of the agreement is three years.
Lease agreements
The Company is part of a membership agreement for shared office space and can cancel at any time. Rent expense was $8 and $16 for the three and six months ended June 30, 2023 and 2022, respectively.
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.
In connection with the Business Combination, LMAO proposed, for stockholder approval, various amendments to its Amended and Restated Certificate of Incorporation, which included among other things a proposal to increase the authorized shares of common stock. A purported stockholder sent a Stockholder Litigation Demand letter (the “Demand”) to the Board of Directors of LMAO alleging that the Delaware General Corporation Law required a separate class vote of the Class A common stockholders to increase the authorized shares of common stock. Following receipt of the Demand, the Company canceled and withdrew the proposal to increase the authorized shares of common stock.
The stockholder’s counsel thereafter demanded that the Company pay counsel fees for the purported benefit conferred upon the Company’s shareholders by causing the Company to withdraw the allegedly invalid proposal to increase the authorized shares of common stock. The Company recorded $150 for a legal settlement in accrued expenses as of June 30, 2023. The settlement will be paid in three installments of $50 in August 2023, September 2023, and November 2023. The Company was not subject to any other material legal proceedings during the three and six months ended June 30, 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.
12
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
Company believes its tax filing position and deductions related to tax periods subject to examination will be able to sustain the tax return position, based on its technical merits. If a tax benefit meets this criterion, it is measuredsustained under audit and, recognized based on the largest amount of benefit that is cumulatively greater than 50% likely to be realized. Management does not believe that there are anytherefore, has no reserve for uncertain tax positions at September 30, 2022 and December 31, 2021.
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, including vested restricted stock units for which common shares have not yet been issued, 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 unvested restricted stock units are considered to be potentially dilutive securities. As the Company applies thetwo-classmethod in calculating thehas reported a 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 such shares, if redeemed, only participate in their pro rata share ofattributable to common stockholders for the Trust Account earnings. When calculating its diluted net incomeperiods presented because including them would have been anti-dilutive:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 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 |
|
| 448,627 |
|
|
| — |
|
|
| 256,393 |
|
|
| — |
|
SeaStar warrants |
|
| 69,714 |
|
|
| 69,714 |
|
|
| 69,714 |
|
|
| 69,714 |
|
Options to purchase common stock |
|
| 576,534 |
|
|
| 332,544 |
|
|
| 411,579 |
|
|
| 335,102 |
|
Unvested restricted stock units |
|
| 129,640 |
|
|
| 296,696 |
|
|
| 213,548 |
|
|
| 149,168 |
|
Total |
|
| 18,012,515 |
|
|
| 698,954 |
|
|
| 17,739,234 |
|
|
| 553,984 |
|
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 |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net loss |
| $ | (3,669 | ) |
| $ | (902 | ) |
| $ | (8,931 | ) |
| $ | (1,906 | ) |
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||
and diluted |
|
| 14,932,866 |
|
|
| 7,238,767 |
|
|
| 13,984,625 |
|
|
| 7,238,767 |
|
Basic and diluted net loss per share |
| $ | (0.25 | ) |
| $ | (0.12 | ) |
| $ | (0.64 | ) |
| $ | (0.26 | ) |
Note 13. Subsequent Events
In July 2023, the Company sold 234,579 shares of common stock to Tumim Stone Capital LLC for proceeds of $120, as part of the equity line financing arrangement (see Note 5).
In July and August 2023, the Company made principal and interest payments on the Second Convertible Note, which included accelerated payments, through equity conversions. In accordance and pursuant to the Second Convertible
13
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
Note, 3i elected to convert the conversion amount (as defined in the Second Convertible Note) into shares of common stock of the Company. The Company converted principal and interest into 590,154 shares of common stock with a fair value of $283.
On August 7, 2023, the Company entered into an amendment to the securities purchase agreement with 3i, whereby the VWAP price will be $0.20 for all future conversions and the provisions of the third closing have been amended. 3i will have the discretion to purchase additional shares of the Company common stock in an aggregate principal amount of $2,000, provided that 3i will purchase additional shares of the Company common stock in an aggregate principal amount of $1,000 in two tranches no later than September 5, 2023. On August 7, 2023, the Company issued a note (the "Third Convertible Note") in a principal amount of $543, convertible into shares of common stock at an initial conversion price of $0.20, and a warrant to purchase up to 738,791 shares of common stock. The Third Convertible Note was issued at an 8.0% discount, bears interest at 7.0% per annum, matures on November 6, 2024, and requires monthly installments of principal and interest.
In connection with the amendment to the securities purchase agreement with 3i, the Company entered into a letter agreement with 3i, providing for (i) certain adjustment mechanisms for the conversion price of the First and Second Convertible Notes and additional notes issued or to be issued to any seller inunder the Business Combination or any private placement-equivalent units issued to the Sponsor, its affiliates, or certain of officers and directors upon conversion of working capital loans made to the Company).
|
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 outcomesix month waiver period 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 abilitycash payment obligations of the Company under each existing note, and (iii) the issuance of an additional warrant to grow and manage growth profitably;
costs related to the Business Combination; and
|
Should one or morepurchase an aggregate of these risks or uncertainties materialize or should any4,765,620 shares 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.common stock.
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 Delaware for the purpose 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”)Also 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,August 7, 2023, the Company entered into an Agreementcertain amendments and Plan of Merger (the “Merger Agreement”) with LMF Merger Sub, Inc., a Delaware corporation and direct, wholly owned subsidiary ofwaivers for 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, 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 PromissoryMaxim 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 Companyand LMFAO Note. The lenders waved their rights to use 5.0% of the gross cashreceive any mandatory prepayments for proceeds received by the Company from any future debtthe convertible note financings and equity financingagreed to pay outstanding balance of LMFA Note, provided that such repayment is not required forextend the first $500,000 of cash proceeds; (iv) reducematurity dates to 91 days after the interest ratelast maturity date applicable to any of the LMFA Note from 15% to 7% 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”),notes issued 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 Notesecurities purchase agreement with 3i.
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 Note14
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 expense for the three months ended September 30, 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 compared to the three months ended September 30, 2021.
22
Results of Operations for the Nine 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 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, the Company issued 10.3 million units, 0.1 million Class A shares to our underwriter, 0.4 million in Class B shares and 5.7 million Private Placement Warrants. There were no issuance of either shares or warrants during the nine months ended September 30, 2022.
Contractual Obligations
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 condensed condition, results of operations, liquidity, and capital resources. You should read this discussion in conjunction with the Company’s condensed 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 June 30, 2023 and December 31, 2022, we had an accumulated deficit of $108.3 million and $99.3 million, respectively. Our net losses were $3.7 million and $0.9 million for the SEC on April 6, 2022. Therethree months ended June 30, 2023 and 2022, respectively. Our net losses were $8.9 million and $1.9 million for the six months ended June 30, 2023, 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 and six months ended June 30, 2022, additional losses were related to the change in fair value of the forward option derivatives and the change in fair value of convertible notes.
As of June 30, 2023 and December 31, 2022, we had cash of $0.0 million.
Our accompanying unaudited condensed 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 condensed 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 condensed consolidated financial statements are made available.
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
Recent Accounting Pronouncements
15
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. 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, expenses associated with obtaining and maintaining patents and obtaining financing, and expenses related to SEC reporting. 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, financing fees related to our convertible notes, gain on issuance of convertible notes, change in fair value of convertible notes, change in fair value of warrants liability, 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 June 30, 2023 to the Three Months Ended June 30, 2022
The following table sets forth a summary of our results of operations. This information should be read together with our unaudited condensed consolidated financial statements and related Notes included elsewhere in this Form 10-Q.
16
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| June 30, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Revenue |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 2,007 |
|
|
| 596 |
|
|
| 1,411 |
|
|
| 237 | % |
General and administrative |
|
| 1,743 |
|
|
| 716 |
|
|
| 1,027 |
|
|
| 143 | % |
Total operating expenses |
|
| 3,750 |
|
|
| 1,312 |
|
|
| 2,438 |
|
|
| 186 | % |
Loss from operations |
|
| (3,750 | ) |
|
| (1,312 | ) |
|
| (2,438 | ) |
|
| 186 | % |
Total other income (expense) |
|
| 86 |
|
|
| 410 |
|
|
| (324 | ) |
|
| (79 | )% |
Loss before income tax provision |
|
| (3,664 | ) |
|
| (902 | ) |
|
| (2,762 | ) |
|
| 306 | % |
Income tax provision (benefit) |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
|
| |
Net loss |
| $ | (3,669 | ) |
| $ | (902 | ) |
| $ | (2,767 | ) |
|
| 307 | % |
Research and Development Expenses
The following table discloses the breakdown of research and development expenses:
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| June 30, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Clinical trials |
| $ | 803 |
|
| $ | — |
|
| $ | 803 |
|
|
| 100 | % |
External services |
|
| 486 |
|
|
| 419 |
|
|
| 67 |
|
|
| 16 | % |
Payroll and personnel expenses |
|
| 656 |
|
|
| 115 |
|
|
| 541 |
|
|
| 470 | % |
Other research and development expenses |
|
| 62 |
|
|
| 62 |
|
|
| - |
|
|
| 0 | % |
| $ | 2,007 |
|
| $ | 596 |
|
| $ | 1,411 |
|
|
| 237 | % |
Research and development expenses for the three months ended June 30, 2023 and 2022 were $2.0 million and $0.6 million, respectively. The increase in research and development expenses of $1.4 million, or 237%, was primarily driven by increases in clinical trial expenses of $0.8 million, an increase in the use of external services of $0.1 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 June 30, 2023 and 2022 were $1.7 million and $0.7 million, respectively. The increase in general and administrative expenses of $1.0 million, or 143%, is due primarily to an increase in insurance expense of $0.4 million, increase in professional fees related to SEC reporting of $0.2 million, cost of SEC reporting of $0.2 million, an increase in payroll related expenses of $0.1 million, and an increase in marketing and travel expenses of $0.1 million.
Other Income (Expense)
Other income (expense) for the three months ended June 30, 2023 and 2022 was income of $0.1 million and income of $0.4 million, respectively. The decrease of $0.3 million primarily resulted from increases in interest, the change in fair value of forward option-prepaid forward contracts, and change in fair value of convertible notes, partially offset by the gain on issuance of convertible notes, and the change in fair value of warrants liability.
Income Tax Provision (Benefit)
SeaStar Medical recorded a provision for income taxes of $0.0 million for the three months ended June 30, 2023, and an income tax benefit of $0.0 million for the three months ended June 30, 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.
17
Net Loss
During the three months ended June 30, 2023, SeaStar Medical had a net loss of $3.7 million compared to a net loss of $0.9 million for the three months ended June 30, 2022. The increased net loss of $2.8 million primarily resulted from increases in general and administrative expenses of $1.0 million, increases in research and development expenses of $1.4 million, change in fair value of forward option-prepaid forward contracts of $0.1 million, and the change in fair value of convertible notes of $0.8 million, partially offset by the change in fair value of notes payable of $0.6 million during the three months ended June 30, 2022, and the gain on issuance of convertible notes of $0.7 million, and the change in fair value of warrants liability of $0.5 million during the three months ended June 30, 2023.
Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022
The following table sets forth a summary of our results of operations. This information should be read together with our unaudited condensed consolidated financial statements and related Notes included elsewhere in this Form 10-Q.
|
| Six Months Ended |
|
|
|
|
|
|
| |||||||
|
| June 30, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Revenue |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 3,791 |
|
|
| 951 |
|
|
| 2,840 |
|
|
| 299 | % |
General and administrative |
|
| 4,540 |
|
|
| 1,173 |
|
|
| 3,367 |
|
|
| 287 | % |
Total operating expenses |
|
| 8,331 |
|
|
| 2,124 |
|
|
| 6,207 |
|
|
| 292 | % |
Loss from operations |
|
| (8,331 | ) |
|
| (2,124 | ) |
|
| (6,207 | ) |
|
| 292 | % |
Total other income (expense) |
|
| (595 | ) |
|
| 218 |
|
|
| (813 | ) |
|
| (373 | )% |
Loss before income tax provision |
|
| (8,926 | ) |
|
| (1,906 | ) |
|
| (7,020 | ) |
|
| 368 | % |
Income tax provision (benefit) |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
|
| |
Net loss |
| $ | (8,931 | ) |
| $ | (1,906 | ) |
| $ | (7,025 | ) |
|
| 369 | % |
Research and Development Expenses
The following table discloses the breakdown of research and development expenses:
|
| Six Months Ended |
|
|
|
|
|
|
| |||||||
|
| June 30, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Clinical trials |
| $ | 1,314 |
|
| $ | — |
|
| $ | 1,314 |
|
|
| 100 | % |
External services |
|
| 1,167 |
|
|
| 689 |
|
|
| 478 |
|
|
| 69 | % |
Payroll and personnel expenses |
|
| 1,224 |
|
|
| 158 |
|
|
| 1,066 |
|
|
| 675 | % |
Other research and development expenses |
|
| 86 |
|
|
| 104 |
|
|
| (18 | ) |
|
| (17 | )% |
| $ | 3,791 |
|
| $ | 951 |
|
| $ | 2,840 |
|
|
| 299 | % |
Research and development expenses for the six months ended June 30, 2023 and 2022 were $3.8 million and $1.0 million, respectively. The increase in research and development expenses of $2.8 million, or 299%, was primarily driven by increases in clinical trial expenses of $1.3 million, an increase in the use of external services of $0.5 million, and an increase in payroll and personnel expenses of $1.0 million.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2023 and 2022 were $4.5 million and $1.2 million, respectively. The increase in general and administrative expenses of $3.4 million, or 287%, was driven by an increase in payroll related expenses of $0.8 million, an increase in insurance expense of $0.8 million, an increase in professional fees related to SEC reporting of $0.8 million, cost of SEC reporting of $0.4 million, an increase in marketing and travel expenses of $0.3 million, a legal settlement of $0.2 million, and an increase in director's compensation of $0.1 million.
Other Income (Expense)
Other income (expense) for the six months ended June 30, 2023 and 2022 was expense of $0.6 million and income of $0.2 million, respectively. The decrease of $0.8 million primarily resulted from increases in interest expense, the change in fair value of convertible notes, the change in fair value of forward option-prepaid forward contracts, partially offset by the gain on issuance of convertible notes, the change in fair value of warrants liability, and a gain on sales of recycled shares.
18
Income Tax Provision (Benefit)
SeaStar Medical recorded a provision for income taxes of $0.0 million for the six months ended June 30, 2023, and an income tax benefit of $0.0 million for the six months ended June 30, 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.
Net Loss
During the six months ended June 30, 2023, SeaStar Medical had a net loss of $8.9 million compared to a net loss of $1.9 million for the six months ended June 30, 2022. The increased net loss of $7.0 million primarily resulted from increases in general and administrative expenses of $3.4 million, increases in research and development expenses of $2.8 million, increases in interest expense of $0.3 million, change in fair value of convertible notes of $0.7 million, and a change in fair value of forward option-prepaid forward contracts of $1.7 million, partially offset by the change in fair value of notes payable of $0.6 million during the six months ended June 30, 2022, and the gain on issuance of convertible notes of $0.7 million, change in fair value of warrants liability of $0.5 million, and a gain on sale of recycled shares of $1.3 million during the six months ended June 30, 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 June 30, 2023 and December 31, 2022, we had an accumulated deficit of $108.3 million and $99.3 million, respectively.
As of June 30, 2023 and December 31, 2022, we had cash of $0.0 million. 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 Quarterly ReportForm 10-Q.
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. On May 12, 2023, the Company issued the second senior unsecured convertible note in the amount of $2.2 million and warrants to purchase 218,901 shares of common stock. The senior unsecured convertible notes were issued at an 8.0% discount and bear interest at 7.0% per annum and mature on June 15, 2024, and August 12, 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 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 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 August 7, 2023, the Company entered into an amendment to the securities purchase agreement, whereby the provisions of the third closing are amended. The institutional investor shall have the discretion to purchase additional shares of the Company common stock in an aggregate principal amount of $2.0 million, provided that institutional investor will purchase additional shares of the Company common stock in an aggregate principal amount of $1.0 million in two tranches no later than September 5, 2023. On August 7, 2023,
19
the Company issued a note, convertible into shares of common stock at an initial conversion price of $0.20, in a principal amount of $0.5 million, and a warrant to purchase up to 738,791 shares of common stock.
In connection with the amendment to the securities purchase agreement, the Company entered into a letter agreement with the institutional investor, providing for (i) certain adjustment mechanisms for the conversion price of the First and Second Convertible Notes and additional notes issued or to be issued under the securities purchase agreement, as amended, (ii) a six month waiver period of any cash payment obligations of the Company under each existing note, and (iii) the issuance of an additional warrant to purchase an aggregate of 4,765,620 shares of common stock.
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.
On May 12, 2023, the Company amended its LMFA notes, LMFAO note and Maxim note. The mandatory repayment provisions of the notes were waived for the LMFA notes, and LMFAO note for the second senior unsecured convertible note drawn on May 12, 2023. The mandatory repayment for the Maxim note was reduced to $0.1 in full satisfaction of the obligation under the promissory note with respect to the second closing.
On August 7, 2023, the Company entered into certain amendments and waivers for the Maxim Note, LMFA Note, and LMFAO Note. The lenders waved their rights to receive any mandatory prepayments for proceeds received by the Company from the convertible note financings and agreed to extend the maturity dates to 91 days after the last maturity date applicable to any of the notes issued pursuant to the amended securities purchase agreement with 3i.
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 June 30, 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.at least twelve months from the date of our unaudited condensed consolidated financial statements as of June 30, 2023, are made available. In addition, we do 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 committed 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
Off-Balance Sheet Arrangements
As20
liquidation or other preferences that adversely affect the rights of Septemberstockholders. 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.
Cash Flows
The following table shows a summary of our cash flows for each of the periods shown below:
|
| Six Months Ending |
|
| |||||
|
| June 30, |
|
| |||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| ||
Statement of cash flow data: |
|
|
|
|
|
|
| ||
Total cash (used in)/provided by: |
|
|
|
|
|
|
| ||
Operating activities |
| $ | (4,463 | ) |
| $ | (1,578 | ) |
|
Investing activities |
|
| — |
|
|
| — |
|
|
Financing activities |
|
| 4,429 |
|
|
| 1,681 |
|
|
| $ | (34 | ) |
| $ | 103 |
|
|
Cash Flow from Operating Activities
Net cash used in operating activities for the six months ended June 30, 2023 was $4.5 million compared to $1.6 million for the six months ended June 30, 2022. The increase in cash used for operating activities of $2.9 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 six months ended June 30, 2023 was $4.4 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, payment of convertible notes, and payment of commitment fees for the equity line of credit. Cash provided by financing activities for the six months ended June 30, 2022 we did not have any off-balance sheet arrangementswas $1.7 million, primarily from the issuance of notes payable.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed 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 condensed 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 condensed 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
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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 condensed 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) the date on which we are no longer an “emerging growth company,” whichever is earlier.
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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 guidanceCommitments
The following table summarizes our contractual obligations as of June 30, 2023:
|
| Total |
|
| Less than |
|
| 1-3 years |
|
| 3-5 years |
|
| More than |
| |||||
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LMFA note payable |
|
| 438 |
|
|
| 438 |
|
|
| — |
|
|
| — |
|
|
| — |
|
LMFAO note payable |
|
| 1,757 |
|
|
| 1,757 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Maxim note payable |
|
| 3,590 |
|
|
| 3,590 |
|
|
| — |
|
|
| — |
|
|
| — |
|
First Convertible Note |
|
| 2,107 |
|
|
| 2,107 |
|
|
| — |
|
|
|
|
|
|
| ||
Second Convertible Note |
|
| 1,719 |
|
|
| 1,719 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Insurance Financing |
|
| 199 |
|
|
| 199 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total contractual obligations |
| $ | 9,810 |
|
| $ | 9,810 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Financing Transactions
Forward Purchase Agreements
In March 2023, a Volume Weighted Average Price (“VWAP”) trigger event occurred, and the FPAs could mature on redeemable equity instruments,the date specified by the FPA Sellers’ discretion. During the three months ended June 30, 2023, the FPAs matured and were settled by transferring 1,096,972 shares to the FPA Sellers, with a fair value of $0.6 million.
Equity Line of Credit
The Company paid previously accrued commitment fees of $1.5 million during the six months ended June 30, 2023, of which has been codified$1.0 million was paid in ASC 218,842 shares of common stock and $0.5 million was paid in cash.
480-10-S99, redemption provisions not solely withinDuring the controlsix months ended June 30, 2023, the Company sold 404,999 shares of common stock to Tumim for $1.2 million as part of the Company require common stock subject to redemption to be classified outside of permanent equity. Althoughequity line financing arrangement.
Convertible Notes
On March 15, 2023, the Company did not specifyentered 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 $9.0 million, 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 $3.0 million, 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 byCompany. The warrants have an initial 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 $0.3 million and was measured at fair value.
On May 12, 2023, the Company issued the second convertible note, convertible into 805,153 shares of common stock at an initial conversion price of $2.70, in a principal amount of $2.2 million, and a warrant to complete its initial business combination.purchase up to 218,901 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 August 12, 2024.
Warrants as Derivative Liability
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The Company previously accounted for its outstanding Public Warrantssenior unsecured convertible note is 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 five years from their issuance date, and Private Placement Warrants issued in connection with its IPO as componentscontain cashless exercise provisions. The convertible note contains an original issue discount of equity instead of as derivative liabilities. The warrant agreement governing$0.2 million and was measured at fair value.
On May 12, 2023, the Warrant Agreement includes a provision that provides for potential changessecond convertible note and the warrants attached to the settlement amounts dependent uponsecond convertible note were recorded at their fair values of $1.2 million and $0.1 million, respectively, which was less than the characteristicsproceeds received from the second convertible note of $2.0 million and the Company recorded a gain on the issuance of the holderSecond Convertible Note of the Warrant. In addition, the Warrant Agreement includes a provision that$0.7 million in the eventunaudited condensed consolidated statements of a tender or exchange offer made to and accepted by holders of more than 50% ofoperations for 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”).three months ended June 30, 2023.
In connection with the reevaluation of the accounting treatment of the Warrants, the Company’s management evaluated theThe 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 indexedattached 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 issuednotes at the time of our initial public offering in January 2021.issuance 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.
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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.
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 June 30, 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 June 30, 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 on
23
Identification of Material Weaknesses
In the followingcourse of preparing the unaudited condensed 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 SeptemberJune 30, 2022. Since inception2023, 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 deficiencies,The Company has identified that additional headcount will be addressed in the near term to allow for further research and internal dialogue on complex accounting transactions prior to conclusion. The Company will also continue to review the overall internal control over financial reporting, such that there is a reasonable possibility that a material misstatement ofenvironment as we develop the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
In connection with 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 inrequisite internal control over financial reporting existed relating to 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 our 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 SeptemberJune 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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24
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 directors in their corporate capacity.
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As a resultresults of operations. Regardless of the closingoutcome, 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 Business Combination on October 28, 2022,other information set forth in this report, you should carefully consider 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 June 30, 2023 and December 31, 2022, the Company had negative working capital of $(11.4) 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 $1.9 million from the Purchase Agreement through June 30, 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,on acceptable terms to the Company, or at all. If it is unable to raise additional capital when required or on acceptable terms, the Company may be required to:
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If it is unable to raise additional capital in sufficient amounts or on 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 material adverse impact on its business, results of operations, and financial condition.
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. In addition, even if the Company is able to comply with the guidance provided by the FDA and address the deficiencies, the Company may be required to make significant or material changes to the device structure and process of implement of SCD, and such changes may render the device less effective or require additional testing or trial to confirm effectiveness, which will increase the cost of our operations significantly. Our failure to address the FDA’s concerns will adversely affect the Company’s business operations and financial conditions.
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:
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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.
We recently received letters of deficiency from NASDAQ for failure to comply with certain continued listing requirements, and there is no assuranceguarantee that we will be successful in securing additional capitalable to regain compliance to avoid a delisting of our common stock.
On June 14, 2023, the Company received a letter from the NASDAQ Stock Market (“NASDAQ”), indicating that the Company did not comply with the $35 million minimum market value requirement for continued listing on favorable terms, if at all.the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2). In accordance with NASDAQ rules, the Company has been provided an initial period of 180 calendar days, or until December 11, 2023, to regain compliance with such market value requirement. In addition, on June 26, 2023, the Company received a letter from NASDAQ indicating that the Company did not comply with the $1.00 per share minimum bid price requirement for continued inclusion on the NASDAQ Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). In accordance with NASDAQ rules, the Company has been provided an initial period of 180 calendar days, or until December 26, 2023 to regain compliance with such minimum bid price requirement. If we are successful, whether the terms are favorableCompany does not regain compliance by each such date, the Company may apply for an extension of grace periods or unfavorable, therefile an appeal with NASDAQ requesting continued listing of our common stock.
There is a potentialno guarantee that we will failbe able to comply withregain compliance of the terms ofmarket value or the minimum bid price requirement under NASDAQ rules prior to these deadlines for the grace periods, and while we have the option to extend the grace periods, there is no guarantee that NASDAQ will grant such financing, which couldextension. Our failure to meet NASDAQ’s continued listing requirements may 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 salethe delisting of our equity securities would dilutecommon stock, which will make our stock significantly less liquid and negatively affect its value. Delisting may also result in an event of default under our Notes and a breach of certain covenants with our warrant holders, which will have a material adverse effect on us. Delisting could also impair the ownership and controlliquidity of your sharesour common stock and could be at prices substantially below prices at whichharm our shares currently trade. Our inabilityability to raise capital could requirethrough alternative financing sources on terms acceptable to us, to significantly curtail or terminate our operations altogether. Weat all, and 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 additionalpotential loss of confidence by investors, employees, and potentially substantial dilution to our shareholders. The incurrencefewer business development opportunities.
Item 2. Unregistered Sales of indebtedness would result in increased debt service obligationsEquity Securities and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject toUse of Proceeds.
N/A
Item 3. Defaults Upon Senior Securities.
N/A
Item 4. Mine Safety Disclosures.
N/A
Item 5. Other Information.
On August 8, 2023, the compensation committee of the board of directors of the Company approved a varietymodification of uncertainties.
In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company.
Our management team has limited experience managing 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 our business, results of operations, cash flows and financial condition.
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In connection with Business Combination, LMAO 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 the 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. The salebase salary of each of Eric Schlorff, Chief Executive Officer, Kevin Chung, Chief Operating Officer and Caryl Baron, Interim Chief Financial Officer, as follows:
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(b) Usecash payment of Proceeds.
On November 6, 2020, we issued 2,156,250monthly salary of Ms. Baron for the months of August and September 2023 will be paid in shares of our Class B common stock of the Company calculated based on the average trading price in ten (10) consecutive trading days immediately prior to our sponsoreach payroll date.
Except for $25,000 in cash, at a purchase price of approximately $0.012 per share, in connection with our formation. Such shares were issued in connection with our organization pursuantthe above, no other changes have been made to the exemption from registration contained in Section 4(a)(2) of 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 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 securities sold in the initial public offering were registered under the Securities Act on a Registration Statement on Form S-1 (No. 333-251962), which was declared effective by the SEC on January 25, 2021.
Simultaneouslycompensation arrangements 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.three executive officers.
(c) Repurchase of Securities.
None.27
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None.
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None.
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None
27
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The following documents are filed as a part of this report or are incorporated herein by reference.
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** 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.
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SeaStar Medical Holding Corporation | ||||||||
Date: August 14, 2023 | By: | /s/ Eric Schlorff | ||||||
Eric Schlorff | ||||||||
Chief Executive Officer | ||||||||
(Principal Executive Officer) | ||||||||
Date: | 2023 | By: | /s/ Caryl Baron | |||||
Caryl Baron | ||||||||
Interim Chief Financial Officer | ||||||||
(Principal Financial and Accounting Officer) |
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