UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission file number
SEASTAR MEDICAL HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware | 85-3681132 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Identification No.) | |
3513 Brighton Blvd.,Suite 410 Denver, CO | 80216 | |
| ||
(Address of principal executive offices) | (Zip |
Registrant’s telephone number, including area code:(844) (844) 427-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of each | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.0001 par value | ICU | The Nasdaq Stock Market LLC | ||
Warrants, each whole warrant exercisable for one share of Common Stock | ICUCW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrantRegistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrantRegistrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||||||
Emerging growth company | ☒ | |||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrantRegistrant is a shell company (as defined in RuleAct).Act ). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of November11, 2022, there were 12,699,668
SEASTAR MEDICAL HOLDING CORPORATION
(f/k/a LMF Acquisition Opportunities, Inc.)
TABLE OF CONTENTS
Table of Contents
Page | ||||||
PART I. | 1 | |||||
Item 1. | 1 | |||||
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)
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
ASSETS |
| |||||||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 73 |
|
| $ | 47 |
|
Other receivables |
|
| — |
|
|
| 12 |
|
Prepaid expenses |
|
| 2,172 |
|
|
| 2,977 |
|
Total current assets |
|
| 2,245 |
|
|
| 3,036 |
|
Forward option-prepaid forward contracts, net |
|
| — |
|
|
| 1,729 |
|
Other assets |
|
| 2 |
|
|
| 2 |
|
Total assets |
| $ | 2,247 |
|
| $ | 4,767 |
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
| |||||||
Current liabilities |
|
|
|
|
|
| ||
Accounts payable |
| $ | 5,042 |
|
| $ | 1,927 |
|
Accrued expenses |
|
| 1,481 |
|
|
| 2,245 |
|
Contingent upfront payment for license agreement |
|
| 100 |
|
|
| — |
|
Notes payable, net of deferred financing costs |
|
| — |
|
|
| 1,178 |
|
Convertible notes |
|
| 4,405 |
|
|
| — |
|
Warrants liability |
|
| 1,400 |
|
|
| — |
|
Total current liabilities |
|
| 12,428 |
|
|
| 5,350 |
|
Notes payable, net of deferred financing costs |
|
| 5,722 |
|
|
| 7,652 |
|
Total liabilities |
|
| 18,150 |
|
|
| 13,002 |
|
Commitments and contingencies (see Note 10) |
|
|
|
|
|
| ||
Stockholders' deficit (1) |
|
|
|
|
|
| ||
Common stock - $0.0001 par value per share; 500,000,000 and 100,000,000 shares authorized at September 30, 2023 and December 31, 2022, respectively; |
|
| 3 |
|
|
| 1 |
|
Additional paid-in capital |
|
| 99,776 |
|
|
| 91,089 |
|
Accumulated deficit |
|
| (115,682 | ) |
|
| (99,325 | ) |
Total stockholders' deficit |
|
| (15,903 | ) |
|
| (8,235 | ) |
Total liabilities and stockholders' deficit |
| $ | 2,247 |
|
| $ | 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 |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
| $ | 1,107 |
|
| $ | 727 |
|
| $ | 4,898 |
|
| $ | 1,678 |
|
General and administrative |
|
| 1,829 |
|
|
| 1,042 |
|
|
| 6,369 |
|
|
| 2,215 |
|
Total operating expenses |
|
| 2,936 |
|
|
| 1,769 |
|
|
| 11,267 |
|
|
| 3,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss from operations |
|
| (2,936 | ) |
|
| (1,769 | ) |
|
| (11,267 | ) |
|
| (3,893 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| (224 | ) |
|
| (123 | ) |
|
| (882 | ) |
|
| (483 | ) |
Change in fair value of convertible notes |
|
| (291 | ) |
|
| — |
|
|
| (291 | ) |
|
| — |
|
Change in fair value of warrants liability |
|
| 825 |
|
|
| — |
|
|
| 1,305 |
|
|
| — |
|
Change in fair value of notes payable derivative liability |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 578 |
|
Change in fair value of forward option-prepaid forward contracts |
|
| — |
|
|
| — |
|
|
| (1,723 | ) |
|
| — |
|
Loss on extinguishment of convertible notes |
|
| (4,949 | ) |
|
| — |
|
|
| (4,949 | ) |
|
| — |
|
Gain on sale of recycled shares |
|
| — |
|
|
| — |
|
|
| 1,306 |
|
|
| — |
|
Other income |
|
| 149 |
|
|
| 1 |
|
|
| 149 |
|
|
| 1 |
|
Total other income (expense), net |
|
| (4,490 | ) |
|
| (122 | ) |
|
| (5,085 | ) |
|
| 96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss before provision for income taxes |
|
| (7,426 | ) |
|
| (1,891 | ) |
|
| (16,352 | ) |
|
| (3,797 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
|
| — |
|
|
| 1 |
|
|
| 5 |
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (7,426 | ) |
| $ | (1,892 | ) |
| $ | (16,357 | ) |
| $ | (3,798 | ) |
Net loss per share of common stock, basic and diluted |
| $ | (0.37 | ) |
| $ | (0.26 | ) |
| $ | (1.02 | ) |
| $ | (0.52 | ) |
Weighted-average shares outstanding, basic and diluted, retrospectively restated to present effect of the reverse recapitalization |
|
| 20,048,473 |
|
|
| 7,238,767 |
|
|
| 16,028,118 |
|
|
| 7,238,767 |
|
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 | ) |
Stock-based compensation |
|
|
|
|
|
|
|
| 357 |
|
|
|
|
|
| 357 |
| |||
Net loss |
|
|
|
|
|
|
|
|
|
|
| (1,892 | ) |
|
| (1,892 | ) | |||
Balance, September 30, 2022 |
|
| 7,238,767 |
|
| $ | 1 |
|
| $ | 74,201 |
|
| $ | (80,110 | ) |
| $ | (5,908 | ) |
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 | ) |
Issuance of shares - equity line of credit |
|
| 234,579 |
|
|
| — |
|
|
| 120 |
|
|
| — |
|
|
| 120 |
|
Issuance of shares - conversion of convertible notes |
|
| 8,432,517 |
|
|
| 1 |
|
|
| 2,410 |
|
|
| — |
|
|
| 2,411 |
|
Issuance of shares - vesting of RSUs |
|
| 32,839 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 379,914 |
|
|
| — |
|
|
| 440 |
|
|
| — |
|
|
| 440 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,426 | ) |
|
| (7,426 | ) |
Balance, September 30, 2023 |
|
| 27,201,087 |
|
| $ | 3 |
|
| $ | 99,776 |
|
| $ | (115,682 | ) |
| $ | (15,903 | ) |
(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)
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (16,357 | ) |
| $ | (3,798 | ) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
| ||
Amortization of discount on notes payable |
|
| — |
|
|
| 234 |
|
Amortization of deferred financing costs |
|
| 37 |
|
|
| — |
|
Non-cash accrued interest related to convertible notes |
|
| — |
|
|
| 249 |
|
Change in fair value of notes payable derivative liability |
|
| — |
|
|
| (578 | ) |
Change in fair value of convertible notes |
|
| 291 |
|
|
| — |
|
Change in fair value of warrants liability |
|
| (1,305 | ) |
|
| — |
|
Change in fair value of forward option-prepaid forward contracts |
|
| 1,723 |
|
|
| — |
|
Gain on sale of recycled shares |
|
| (1,306 | ) |
|
| — |
|
Loss on extinguishment of convertible notes |
|
| 4,949 |
|
|
| — |
|
Stock-based compensation |
|
| 1,544 |
|
|
| 706 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Other receivables |
|
| 12 |
|
|
| — |
|
Prepaid expenses |
|
| 805 |
|
|
| (3 | ) |
Capitalized merger costs |
|
| — |
|
|
| (1,005 | ) |
Accounts payable |
|
| 3,115 |
|
|
| 1,206 |
|
Accrued expenses |
|
| 692 |
|
|
| 497 |
|
Net cash used in operating activities |
|
| (5,800 | ) |
|
| (2,492 | ) |
|
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
|
|
|
| ||
Proceeds from issuance of convertible notes |
|
| 6,500 |
|
|
| — |
|
Payment of convertible notes |
|
| (282 | ) |
|
| — |
|
Proceeds from issuance of shares |
|
| 1,283 |
|
|
| — |
|
Payment of commitment fee - equity line of credit |
|
| (500 | ) |
|
| — |
|
Proceeds from sale of recycled shares |
|
| 1,870 |
|
|
| — |
|
Proceeds from notes payable |
|
| 100 |
|
|
| 2,031 |
|
Payment of notes payable |
|
| (3,145 | ) |
|
| — |
|
Net cash provided by financing activities |
|
| 5,826 |
|
|
| 2,031 |
|
|
|
|
|
|
|
| ||
Net increase (decrease) in cash |
|
| 26 |
|
|
| (461 | ) |
|
|
|
|
|
|
| ||
Cash, beginning of period |
|
| 47 |
|
|
| 510 |
|
|
|
|
|
|
|
| ||
Cash, end of period |
| $ | 73 |
|
| $ | 49 |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 707 |
|
| $ | — |
|
|
|
|
|
|
|
| ||
Supplemental disclosure of noncash financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Value of derivative liability on issuance of convertible notes |
| $ | — |
|
| $ | 52 |
|
Non-cash conversion of accrued expenses into convertible notes |
| $ | — |
|
| $ | 96 |
|
Shares issued as payment of convertible notes |
| $ | 4,348 |
|
| $ | — |
|
Shares issued to settle forward option-prepaid forward contracts |
| $ | 558 |
|
| $ | — |
|
Issuance of convertible note warrants |
| $ | 2,705 |
|
| $ | — |
|
|
|
|
|
|
|
| ||
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 | ) | ||||||||||||||
The Company is in the pre-revenue stage focused on product development.
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 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.
The accompanying unaudited condensed consolidated financial statement hasstatements have been prepared in conformity with accounting principles generally accepted accounting principles in the United States of America (“GAAP”("U.S. GAAP"), which contemplate continuation of the Company as a going concern.
The accompanying balance sheet as of December 31, 2021, is derived from the auditedinterim unaudited condensed consolidated financial statements presentedshould be read in conjunction with the Company’s Annual Report on Form10-K fiscal the year ended December 31, 2021.
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 Statusoperates in one operating segment and, accordingly, no segment disclosures have been presented herein.
Liquidity and Going Concern
As of September 30, 2023, the Company has an accumulated deficit of $115,682 and cash of $73. We do not believe that will be sufficient to enable us to fund our operations, including clinical trial expenses and capital expenditure requirements for at least 12 months from the issuance of these unaudited condensed consolidated financial statements. We believe that these conditions raise substantial doubt about our ability to continue as a going concern.
Our need for additional capital will depend in part on the scope and costs of our development activities. To date, we have not generated any revenue from the sales of commercialized products. Our ability to generate product 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 us when needed or on acceptable terms.
5
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
If we are unable to raise capital, we could be forced to delay, reduce, suspend, or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.
Risks and uncertainties
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 – significant unobservable inputs (including the financial statement and tax basesCompany’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 nine months ended September 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 September 30, 2022 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance January 1, 2023 |
| $ | 1,729 |
|
| $ | — |
|
| $ | — |
|
|
| $ | — |
|
Additions |
|
| — |
|
|
| 3,795 |
|
|
| 2,705 |
|
|
|
| — |
|
Sale of recycled shares |
|
| (564 | ) |
|
| — |
|
|
| — |
|
|
|
| — |
|
Payments |
|
| — |
|
|
| (282 | ) |
|
| — |
|
|
|
| — |
|
Shares issued as payments |
|
| — |
|
|
| (4,348 | ) |
|
| — |
|
|
|
| — |
|
Changes in fair value |
|
| (1,723 | ) |
|
| 291 |
|
|
| (1,305 | ) |
|
|
| — |
|
Loss on extinguishment (see Note 7) |
|
| — |
|
|
| 4,949 |
|
|
| — |
|
|
|
| — |
|
Shares issued as maturity consideration |
|
| 558 |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
Balance September 30, 2023 |
| $ | — |
|
| $ | 4,405 |
|
| $ | 1,400 |
|
|
| $ | — |
|
The convertible notes are recorded as liabilities that will result in future taxable or deductible amounts,and are recorded at fair value based on enacted tax laws and rates applicableLevel 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 the periodseach reporting period in which the differencesconvertible notes are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets tooutstanding, in each case, based on a risk-adjusted discount rate estimated based on the amount expected to be realized.
The estimated fair value of prepaid expenses, accounts payable and accrued expenses approximate their fair value because of the short-term nature of these instruments.
Emerging growth company status
7
Notes to sustain the tax return position, based on its technical merits. If a tax benefit meetsCondensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
The Company is an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). Under the JOBS Act, emerging growth companies can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. The Company has elected to use this criterion,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 measured(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 nine months ended September 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 baseda gain of $1,306 on the largest amountsale. Losses on remeasurement of benefit that is cumulatively greater than 50% likely to be realized. Management does not believe that there are any uncertain tax positions at$0 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 nine months ended September 30, 20222023, respectively.
In March 2023, the price of the Company stock was below $3.00 for more than 20 trading days and December 31, 2021.the FPA Sellers at their discretion had the ability to specify the maturity dates for the Forward Purchase Agreements ("FPA"). During the nine months ended September 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) |
| September 30, |
|
| December 31, |
| ||
Accrued commitment fee, equity line of credit |
| $ | — |
|
| $ | 1,500 |
|
Accrued bonus |
|
| 663 |
|
|
| 450 |
|
Accrued director compensation |
|
| 335 |
|
|
| 61 |
|
Accrued interest |
|
| 224 |
|
|
| 112 |
|
Accrued settlement |
|
| 100 |
|
|
| — |
|
Other |
|
| 159 |
|
|
| 122 |
|
Total accrued expenses |
| $ | 1,481 |
|
| $ | 2,245 |
|
Note 5. Equity Line of Credit
The Company may be subject to potential examination by federal, state and city taxing authoritiespaid previously accrued commitment fees of $1,500 during the nine months ended September 30, 2023, of which $1,000 was paid in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
During the three and nine month periodsmonths ended September 30, 2022 and 2021 have been excluded from the calculation of the basic net income per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. When calculating its diluted net income per share,2023, the Company has not considered the effect of the incremental number ofsold 234,579 and 639,578 shares of common stock to settle Warrants sold Tumim Stone Capital LLC for proceeds of $120 and $1,283, respectively, as part of the equity line financing arrangement. As of September 30, 2023, $98,717 was available to draw.
8
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
Note 6. Notes Payable
Notes payable consisted of the Initial Public Offeringfollowing:
($ in thousands) |
| September 30, |
|
| December 31, |
| ||
LMFA notes payable |
| $ | 438 |
|
| $ | 968 |
|
LMFAO note payable |
|
| 1,757 |
|
|
| 2,785 |
|
Maxim note payable |
|
| 3,590 |
|
|
| 4,167 |
|
Insurance financing |
|
| — |
|
|
| 910 |
|
Unamortized deferred financing costs |
|
| (63 | ) |
|
| — |
|
|
|
| 5,722 |
|
|
| 8,830 |
|
Less current portion |
|
| — |
|
|
| (1,178 | ) |
|
| $ | 5,722 |
|
| $ | 7,652 |
|
Future maturities of principal repayment of the notes payable as of September 30, 2023 are as follows:
($ in thousands) |
|
|
|
|
|
|
| |
2023 (remaining) |
|
|
|
|
| $ | — |
|
2024 |
|
|
|
|
|
| — |
|
2025 |
|
|
|
|
|
| 5,722 |
|
|
|
|
|
|
| $ | 5,722 |
|
On March 15, 2023, the Company amended its LMFA notes payable, LMFAO note payable, and Private Placement,Maxim note payable, 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 (the "SPA") (see Note 7). The $100 consideration for the modification was capitalized as calculated usinga deferred financing cost. The Company amortized $14 and $37 of the treasury stock method.deferred financing cost during the three and nine months ended September 30, 2023, respectively.
On August 7, 2023, the Company entered into certain amendments and waivers for the LMFA notes payable, LMFAO note payable, and Maxim note payable. The calculation
LMFA Notes Payable
The balance due was $438 and $968 as of September 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 $8 and $27 for the three and nine month periodsmonths ended September 30, 2022 and 2021 as the exercise prices were greater than the average market price during the period(out-of-the-moneywarrants).
LMFAO Note Payable
The balance due was $1,757 and $2,785 on September 30, 2023 and December 31, 2022, substantially allrespectively. The Company recorded interest expense of $32 and $105 for the three and nine months ended September 30, 2023, respectively.
Maxim Note Payable
The balance of the assets totaling approximately $107,048,750 were held in a treasury money market fund. Management elects to measure the treasury money market fund at fair value in accordance with the guidance in ASC Topic 825 “Financial Instruments”. Any changes in fair value of the government securities are recognized in net income. Impairment of government securities is recognized in earnings when a decline in value has occurred that is deemed to be other than temporary,Maxim note was $3,590 and the current fair value becomes the new cost basis for the securities.
9
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
Insurance Financing
The balance due was $0 and $910 on September 30, 2023 and December 31, 2021 ($0.43 per warrant). Significant deviations from these estimates2022, respectively. The Company recorded interest expense of $2 and inputs could result in a material change in fair value. The fair value$19 for the three and nine months ended September 30, 2023, respectively.
Notes Payable
Amortization of the warrant liability for Public WarrantsandPrivate Placement Warrantsareclassified within Level 3 ofdebt discounts related to the fair value hierarchy.
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 | |||||
Note 7. Convertible Notes
3i Notes
On March 15, 2023, the revaluationCompany entered into the SPA 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 aggregate principal amounts totaling up to $9,000 and warrants to purchase shares of the warrantsCompany’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 gainwarrant 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.
During the period from January 1, 2023 through August 7, 2023, the Company made cash payments of principal and interest of $237 and $21, respectively, on the First Convertible Note. The Company also made additional principal and interest payments, which included accelerated payments through equity conversions. 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 into 1,879,688 shares of common stock with a fair value of $1,291 during the period from January 1, 2023 through August 7, 2023.
During the period from January 1, 2023 through August 7, 2023, the Company made cash payments of principal and interest of $21 and $3, respectively, on the Second Convertible Note. The Company also made additional principal and interest payments, which included accelerated payments through equity conversions. 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 1,423,633 shares of common stock with a fair value of $763 during the period from January 1, 2023 through August 7, 2023.
On August 7, 2023, the Company entered into an amendment to the SPA dated March 15, 2023, whereby 3i may purchase additional Convertible Notes in aggregate principal amounts up to $2,000 (the "Additional Convertible Notes") in lieu of the third and fourth series as provided in the original SPA dated March 15, 2023.
Also on August 7, 2023, the Company entered into a side letter with 3i (the “Letter Agreement”), pursuant to which the Company agreed to adjust the conversion price of the First and Second Convertible Notes to the lowest of (i) $0.20, (ii) the closing sale price of common stock on the trading day immediately preceding the date of the conversion, and (iii) the average closing sale price of common stock for the five consecutive trading days immediately preceding the date of the conversion. The Company also agreed to issue a convertible note warrant to purchase up to 4,765,620 shares of common stock with an exercise price of $0.20 per share, as part of the August 7, 2023 amendment to the SPA.
The Company concluded that the August 7, 2023 amendment should be accounted for as an extinguishment of the First and Second Convertible Notes. The Company derecognized the First and Second Convertible Notes with principal amounts of $1,937 and $1,568, respectively, and recorded fair value amounts of $1,643 and $1,257, respectively. The amended First and Second Convertible Notes were recorded at fair value based on the amended
10
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
terms at $3,472 and $2,747, respectively, along with a loss on extinguishment for the difference between the fair value of the amended terms and the fair value of the original terms on August 7, 2023 of $3,319. The Company recorded the convertible note warrants issued with the Letter Agreement as a liability measured at fair value at inception with subsequent changes in fair value recorded in earnings. The initial fair value of the convertible note warrants issued with the Letter Agreement of $1,630 was also recorded as loss on extinguishment.
The Company closed three of four tranches of the Additional Convertible Notes on August 7, 2023, August 30, 2023, and September 26, 2023, respectively. Each tranche of the Additional Convertible Notes is convertible into 2,717,144 shares of common stock at an initial conversion price of $0.20, in a principal amount of $543, and includes a warrant to purchase up to 738,791 shares of common stock. The Additional Convertible Notes mature on November 6, 2024, November 29, 2024, and December 25, 2024, respectively. All Additional Convertible Notes are issued at an 8.0% discount, bear interest at 7.0% per annum, and require monthly installments of principal and interest.
During the period from August 8, 2023 through September 30, 2023, the Company made additional principal and interest payments, which included accelerated payments through 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) into shares of common stock of the Company. The Company converted principal and interest into 8,217,363 shares of common stock with a fair value of $2,294.
The Company did not make any payments on the Additional Convertible Notes during the nine months ended September 30, 2023.
The Company concluded that the transactions include legally detachable and separately exercisable freestanding financial instruments: the Convertible Notes and the warrants. The Company concluded that the warrants should be recorded as a liability (see Note 8). The Company determined the Convertible Notes are liability instruments under ASC 480, Distinguishing Liabilities from Equity. The Convertible Notes were then evaluated in accordance with the requirements of ASC 825, and it was concluded that the Company was not precluded from electing the FVO for the Convertible Notes. As such, the Convertible Notes are carried at fair value in the condensed consolidated balance sheets. The Convertible Notes are measured at fair value each reporting date with changes in fair value recognized in the condensed consolidated statements of operations, unless the change is concluded to be related to the changes in the Company’s credit rating, in which case the change will be recognized as a component of accumulated other comprehensive income in the condensed consolidated balance sheets.
The Second Convertible Note was paid in full in October 2023 (see Note 13).
Future maturities of principal repayment of the Convertible Notes as of September 30, 2023 are as follows:
($ in thousands) |
|
|
|
|
|
|
| |
2023 (remaining) |
|
|
|
|
| $ | 2,065 |
|
2024 |
|
|
|
|
|
| 1,645 |
|
|
|
|
|
|
| $ | 3,710 |
|
Note 8. Warrants
On March 15, 2023, as part of the issuance of the First Convertible Note, a convertible note warrant exercisable for the purchase of 328,352 shares of common stock was issued with an exercise price of $2.97 per share. On May 12, 2023, as part of the issuance of the Second Convertible Note, a convertible note warrant exercisable for the purchase of 218,901 shares of common stock was issued with an exercise price of $2.97 per share. On August 7, 2023, as part of the Letter Agreement, an additional convertible note warrant exercisable for the purchase of 4,765,620 shares of common stock was issued with an exercise price of $0.20 per share. Also on August 7, 2023, as part of the issuance of the First Additional Convertible Note, 738,791 Convertible Note Warrants were issued with an exercise price of $0.20 per share. On August 30, 2023, as part of the issuance of the Second Additional Convertible Note, a convertible note warrant exercisable for the purchase of 738,791 shares of common stock was issued with an exercise price of $0.20 per share. On September 26, 2023, as part of the issuance of the Third Additional Convertible Note, a convertible note warrant exercisable for the purchase of 738,791 shares of common stock was issued with an exercise price of $0.20 per share. The convertible note warrants expire five years from their issuance date and contain cashless exercise
11
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
provisions. The Company does not have the ability to redeem the convertible note warrants. The convertible note warrants were collectively valued at $2,705 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 provisions located in the SPA, and should be carried on the condensed consolidated balance sheets as a liability measured 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 maturity, and the risk-free interest rate. The risk-free interest rate is the U.S. Treasury rate at the date of issuance, and the time to maturity is based on the contractual life at the date of issuance, which is five years.
The Company has the following warrants outstanding:
|
| September 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 |
|
| 7,529,246 |
|
|
| — |
|
SeaStar Medical, Inc. Warrants |
| 69,714 |
|
|
| 69,714 |
| |
|
| 24,386,960 |
|
|
| 16,857,714 |
| |
Note 9. Common Stock and $702,400Stock-Based Compensation
During the nine months ended September 30, 2023, the Company issued 474,255 shares of common stock for management bonuses, 186,244 shares of common stock for vested restricted stock units, and 364,844 stock awards. In addition, the Company granted 168,002 stock awards for which shares had not been issued as of September 30, 2023. The Company has recorded $44 in accrued expenses as of September 30, 2023, for the unissued stock awards. The Company also granted 351,029 options and 234,019 restricted stock units during the nine months ended September 30, 2023. For options granted during the nine months ended September 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 nine months ended September 30, 2023, the weighted-average grant date fair value was $1.47 per share and the RSUs vest one year from the grant date.
The following represents stock-based compensation expense in the company’s unaudited condensed consolidated statements of operations:
($ in thousands) |
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Research and development |
| $ | 198 |
|
| $ | 27 |
|
| $ | 355 |
|
| $ | 53 |
|
General and administrative |
|
| 286 |
|
|
| 330 |
|
|
| 1,189 |
|
|
| 653 |
|
Total |
| $ | 484 |
|
| $ | 357 |
|
| $ | 1,544 |
|
| $ | 706 |
|
Note 10. Commitments and Contingencies
License and distribution agreement
On December 27, 2022, the Company entered 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
12
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
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 September 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 party to a membership agreement for shared office space and can cancel at any time. Rent expense was $8 and $24for the three and nine months ended September 30, 2021, respectively,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 revaluation.Company’s shareholders by causing the Company to withdraw the allegedly invalid proposal to increase the authorized shares of common stock. The Company will remeasure these warrants at the endrecorded $100 for a legal settlement in accrued expenses as 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.
Note 11. Income Taxes
In accordance with U.S. GAAP, a valuation allowance should be provided if it is more likely than not that arere-measuredand reported at fair value at each reporting period, andnon-financialassets and liabilities that arere-measuredand reported at fair value at least annually.
Note 12. Net Loss Per Share
Basic net loss per common share is calculated by dividing the net 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 shares and potentially dilutive securities outstanding for the period. For 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 has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for all periods.
13
Notes to the Condensed Consolidated Financial Statements
(in thousands, except for shares and per-share amounts)
The following weighted-average outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have receivedbeen anti-dilutive:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 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 |
|
| 4,135,056 |
|
|
| — |
|
|
| 1,563,488 |
|
|
| — |
|
SeaStar Medical, Inc. warrants |
|
| 69,714 |
|
|
| 69,714 |
|
|
| 69,714 |
|
|
| 69,714 |
|
Options to purchase common stock |
|
| 595,821 |
|
|
| 326,399 |
|
|
| 473,668 |
|
|
| 330,121 |
|
Unvested restricted stock units |
|
| 353,446 |
|
|
| 306,811 |
|
|
| 339,169 |
|
|
| 202,293 |
|
Total |
|
| 21,942,037 |
|
|
| 702,924 |
|
|
| 19,234,039 |
|
|
| 602,128 |
|
Net loss per share is calculated using the shares in connection with the sale ofBusiness Combination and related transactions, assuming the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
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 September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net loss |
| $ | (7,426 | ) |
| $ | (1,892 | ) |
| $ | (16,357 | ) |
| $ | (3,798 | ) |
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||
and diluted |
|
| 20,048,473 |
|
|
| 7,238,767 |
|
|
| 16,028,118 |
|
|
| 7,238,767 |
|
Basic and diluted net loss per share |
| $ | (0.37 | ) |
| $ | (0.26 | ) |
| $ | (1.02 | ) |
| $ | (0.52 | ) |
Note 13. Subsequent Events
In October 2023, the Sponsor, its affiliates, or certain of officers and directors upon conversion of working capital loans made to the Company).
In October and November 2023, the Company made principal and interest payments on the First Convertible Note, which included accelerated payments, through equity conversions. 3i elected to one vote.
In October 2023, the Company did not identify any events that require disclosuremade the final principal and interest payments on the Second Convertible Note, which included accelerated payments, through equity conversions. 3i elected to convert the conversion amount (as defined in the condensed consolidated financial statements.
14
Item 2. Management’s Discussion |
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 directorsAnalysis of LMF Acquisition Opportunities, Inc. prior to the Business Combination (as defined below),Financial Condition and references to the “Sponsor” refer to LMFAO Sponsor LLC. Results of Operations.
The following discussion and analysis of the Company’sare intended to help you understand our business, financial condition, and results of operations, liquidity, and capital resources. You should be read this discussion in conjunction with the Company’s condensed consolidated financial statements and therelated notes thereto containedincluded elsewhere in this Quarterly Report. Certain information containedForm 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2022.
In addition to historical financial analysis, this discussion and analysis set forth below includescontains 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 ourupon 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 unknownthat involve 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 ouras described under the heading “Cautionary Note Regarding Forward Looking Statements.” Actual results and our future performance include, without limitation:
the Company’s future capital requirements and sources and usestiming of cash;
the Company’s ability to obtain funding or raise capital for its operations and future growth;
any delays or challenges in obtaining FDA approval of the Company’s SCD product candidates;
economic downturns and the possibility of rapid change in the highly competitive industry in which the Company operates;
the ability to develop and commercialize its products or services following regulatory approval of the Company’s product candidates;
the failure of third-party suppliers and manufacturers to fully and timely meet their obligations;
product liability or regulatory lawsuits or proceedings relating to the Company’s products and services;
inability to secure or protect its intellectual property;
dispute or deterioration of relationship with the Company’s major partners and collaborators;
the outcome of any legal proceedings thatselected events may be instituted against the Company following completion of the Business Combination and transactions contemplated thereby;
the ability to maintain the listing of its Common Stock on Nasdaq;
the risk that the Business Combination disrupts current plans and operations;
the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, and the ability of the Company to grow and manage growth profitably;
costs related to the Business Combination; and
|
Should one or more of these risks or uncertainties materialize or should any of the assumptions made by the management of the Company prove incorrect, actual results may vary in material respectsdiffer materially from those projectedanticipated in these forward-looking statements.
Exceptstatements as requireda result of various factors, risks and uncertainties, including those set forth under “Risk Factors” included elsewhere (or incorporated 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 incorporatedreference) in Delawarethis Form 10-Q and in our Annual Report on Form 10-K for the purposeyear ended December 31, 2022. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similarFinancial Condition and Results of Operations” to “SeaStar Medical,“ “we,“ “us,” “our,” and “the Company” are intended to mean the business combination with one or more businesses (a “Business Combination”). We completed our initial public offering (the “IPO”) on January 28, 2021. For additional detail regarding the IPO and related transactions, see “Note 1 - Organizationoperations of SeaStar Medical Holding Corporation and Business Operations - Prior toits consolidated subsidiaries following the Business Combination.” We are an emerging growth company and, as such, are subject to all of the risks associated with emerging growth companies.
Overview
On October 28, 2022, weLMAO consummated our Business Combination with Olda series of transactions that resulted in the combination of LMF Merger Sub, Inc. and SeaStar Medical, (as defined below) as further described in Note 1 – Organization and Business Operations.
19
Business Combination
On April 21, 2022, the Company, entered intoInc. pursuant to an Agreement and Plan of Merger (the “Merger Agreement”"Business Combination") with LMF Merger Sub, Inc.,.
The Company is a Delaware corporationmedical 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 direct, wholly owned subsidiaryare 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 Company (“Merger Sub”),body, often leading to acute chronic solid organ dysfunction or failure, including heart, lung, kidney and SeaStar Medical, Inc., a Delaware corporation (“Old SeaStar Medical”).
On October 28, 2022 (the “Closing Date”), LMAO consummatedliver diseases. This hyperinflammatory response is also known as 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 payablecytokine storm, referring 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 priorbody’s reaction to the Closingcategory 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 (2) Old SeaStar Medical options issuedeven death.
We are initially using our proprietary Selective Cytopheretic Device (“SCD”) technology platform to clinically validate several acute organ injury indications, including kidneys and outstanding immediately priorlungs. 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 Closing, lessUnited States. Once approved and commercialized, the valueSCD 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 September 30, 2023 and December 31, 2022, we had an accumulated deficit of $115.7 million and $99.3 million, respectively. Our net losses were $7.4 million and $1.9 million for the shares of Common Stock (as defined below) underlyingthree months ended September 30, 2023 and 2022, respectively. Our net losses were $16.4 million and $3.8 million for 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,nine months ended September 30, 2023 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 exchanged2022, 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 Business Combination pursuantthree and nine months ended September 30, 2023 additional losses were related to change in fair value of convertible notes, change in fair value of forward option-prepaid forward contracts and loss on extinguishment of convertible notes, which were partially offset by gains from the change in fair value of warrants liability and gain on sale of recycled shares. For the three and nine months ended September 30, 2022, additional gains were related to the terms thereof were exercised for shareschange in fair value of Old SeaStar Medical common stock. At Closing,notes payable derivative liability.
As of September 30, 2023 and December 31, 2022, we had cash of $0.1 million and $0.0 million.
Our accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the (i) Old SeaStar Medical warrantsrealization of assets and liabilities in the normal 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 would notmight be exercised or exchanged in connection with the Business Combination were assumed bynecessary should the Company and converted into warrantsbe unable 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 Agreementscontinue as a going concern.
On October 17The recurring losses, working capital deficiency, the need for capital to fund our operations, including clinical trial and October 26, 2022, LMAOregulatory approval expenses, 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 payablecash reserve are factors that raise substantial doubt about our ability to Tumim,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 development activities. To date, we have not generated any significant revenue from the sale of commercialized products. Our ability to generate product revenue will depend on the successful development and eventual commercialization of our products. Until such Commitment Fee shalltime, if ever, we expect to finance our operations through the
15
sale of equity or debt, borrowings under credit facilities, potential collaborations, other strategic transactions or government and other grants. Adequate capital may not be paidavailable to us when needed or on acceptable terms. If we are unable to raise capital, we could be forced to delay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. See Part 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 sharesthe 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 availability 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 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, amongCompany’s loss from operations, less 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.expense.
Amendment to Credit Agreement with LM Funding America, Inc. (“LMFA”) and Amended Promissory Note
On October 28, 2022, Old SeaStar Medical and LMFA entered into the First Amendment to Credit Agreement, dated September 9, 2022 between LMFA and Old SeaStar Medical (the “First Amendment to Credit Agreement”), pursuant to which the parties amended the Credit Agreement and entered into an Amended and Restated Promissory Note (the “LMFA Note”) to (i) extend the maturity date of the loan under the Credit Agreement to October 30, 2022; (ii) permit the LMFA Note be prepaid without premium or penalty; (iii) require the Company to use 5.0% of the gross cash proceeds received by the Company from any future debt and equity financing to pay outstanding balance of LMFA Note, provided that such repayment is not required for the first $500,000 of cash proceeds; (iv) reduce the interest rate of the LMFA Note from 15% to 7% per annum; and (iv) reduce the default interest rate from 18% to 15%. The LMFA Note contains customary representations and warranties, affirmative and negative covenants and events of default. In addition, on October 28, 2022, the parties entered into a Security Agreement (the “LMFA Security Agreement”), pursuant to which the Company and Old SeaStar Medical granted LMFA a security interest in substantially all of the assets and property of the Company and Old SeaStar Medical, subject to certain exceptions, as collateral to secureFactors Affecting 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 NoteOperating Results
On October 28, 2022,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 Company entered into a Consolidated Amended and Restated Promissory Note with Sponsor as the lender, for an aggregate principal amount of $2,785,000 (the “Sponsor Note”) to amend and restate in its entirety (i) the Promissory Note, dated July 29, 2022, for $1,035,000 in aggregate principal amount issued by LMAO to the Sponsor and (ii) the Amended and Restated Promissory Note, dated July 28, 2022, for $1,750,000 in aggregate principal amount, issued by LMAO to the Sponsor (collectively, the “Original Notes”). The Sponsor Note amended and consolidated the Original Notes to: (i) extend maturity dates of the Original Notes to October 30, 2023; (ii) permit outstanding amounts due under the Sponsor Notes to be prepaid without premium or penalty; and (iii) require the Company to use 5.0% of the gross cash proceeds received from any future debt and equity financing to pay outstanding balance of Sponsor Note, provided that such repayment is not required for the first $500,000 of cash proceeds. The Sponsor Note carries an interest rate of 7% per annum and contains customary representations and warranties and affirmative and negative covenants. The Sponsor Note is also subject to customary events of default, the occurrence of which may result in the Sponsor Promissory Note then outstanding becoming immediately due and payable, with interest being increased to 15.0% per annum. In addition, on October 28, 2022, the parties entered into a Security Agreement (the “Sponsor Security Agreement”), pursuant to which the Company and Old SeaStar Medical granted Sponsor a security interest in substantially all of the assets and property of the Company and Old SeaStar Medical, subject to certain exceptions, as collateral to secure the Company’s obligations under the Sponsor Note. In addition, Old SeaStar Medical entered into a Guaranty, dated October 28, 2022 (the “Sponsor Guaranty”), pursuant to which Old SeaStar Medical unconditionally guarantees and promises to pay to Sponsor the outstanding principal amount under the LMFA Note.
Maxim Group LLC (“Maxim”) Promissory Note
Pursuant to an engagement letter between Old SeaStar Medical and Maxim dated October 28, 2022, Old SeaStar Medical or the Company following the consummation of the Business Combination, was required to pay Maxim, as its financial advisor and/or placement agent, an amount equal to $4,182,353 in cash as professional fees. Upon the closing of the Business Combination, the parties agreed that $4,182,353 of such amount would be paid in the form of a promissory note. Accordingly, on October 28, 2022, the Company entered into a Promissory Note with Maxim as the lender, for an aggregate principal amount of $4,182,353 (the “Maxim Note”). The Maxim Note has a maturity date of October 30, 2023 and outstanding amount may be prepaid without premium or penalty. If the Company receives any cash proceeds from a debt or equity financing transaction prior to the maturity date, then the Company is required to prepay the indebtedness equal to 25.0% of the gross amount of the cash proceeds, provided that such repayment obligation shall not apply to the first $500,000 of the cash proceeds received by the Company. Interest on the Maxim Note is due at 7.0% per annum. The Maxim Note contains customary representations and warranties, and affirmative and negative covenants. The Maxim Note is also subject to customary events of default, the occurrence of which may result in the Maxim Promissory Note then outstanding becoming immediately due and payable, with interest being increased to 15.0% per annum.
Intercreditor Agreement
On October 28, 2022, Maxim, LMFA, Sponsor (collectively, the “Creditors”), SeaStar Medical and the Company entered into an Intercreditor Agreement (the “Intercreditor Agreement”) in order to set forth their relative rights under the LMFA Note, Sponsor Note and Maxim Note, including the payments of amounts by the Company upon an event of default under such notes. Pursuant to the Intercreditor Agreement, each Creditor agrees and acknowledges that LMFA and Sponsor have been granted liens on the collateral as set forth in the applicable LMFA Security Agreement and Sponsor Security Agreement. Each Creditor also agrees and acknowledges that Maxim’s indebtedness under the Maxim Promissory Note is unsecured.
Except as otherwise expressly provided herein, the informationfactors discussed elsewhere in this Report does not reflect the consummation of the Business Combination, which, asForm 10-Q, including those discussed above, occurred subsequent to the period covered hereunderin Part I, Item 1A, “Risk Factors,” for additional information.
Results of Operations
Results of Operations for
Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022
The following table sets forth a summary of our results of operations. This information should be read together with our unaudited condensed consolidated financial statements and related Notes included elsewhere in this Form 10-Q.
16
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Revenue |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 1,107 |
|
|
| 727 |
|
|
| 380 |
|
|
| 52 | % |
General and administrative |
|
| 1,829 |
|
|
| 1,042 |
|
|
| 787 |
|
|
| 76 | % |
Total operating expenses |
|
| 2,936 |
|
|
| 1,769 |
|
|
| 1,167 |
|
|
| 66 | % |
Loss from operations |
|
| (2,936 | ) |
|
| (1,769 | ) |
|
| (1,167 | ) |
|
| 66 | % |
Total other income (expense) |
|
| (4,490 | ) |
|
| (122 | ) |
|
| (4,368 | ) |
|
| 3580 | % |
Loss before income tax provision |
|
| (7,426 | ) |
|
| (1,891 | ) |
|
| (5,535 | ) |
|
| 293 | % |
Income tax provision (benefit) |
|
| — |
|
|
| 1 |
|
|
| (1 | ) |
|
|
| |
Net loss |
| $ | (7,426 | ) |
| $ | (1,892 | ) |
| $ | (5,534 | ) |
|
| 292 | % |
Research and Development Expenses
The Company’s only activities since inception in October 28, 2020 through September 30, 2022 were organizational activitiesfollowing table discloses the breakdown of research 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.development expenses:
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Clinical trials |
| $ | 447 |
|
| $ | — |
|
| $ | 447 |
|
|
| 100 | % |
External services |
|
| 96 |
|
|
| 574 |
|
|
| (478 | ) |
|
| (83 | )% |
Payroll and personnel expenses |
|
| 551 |
|
|
| 119 |
|
|
| 432 |
|
|
| 363 | % |
Other research and development expenses |
|
| 13 |
|
|
| 34 |
|
|
| (21 | ) |
|
| (62 | )% |
| $ | 1,107 |
|
| $ | 727 |
|
| $ | 380 |
|
|
| 52 | % | |
Revenues
The Company had no revenues during the three months ended September 30, 2022.
Expenses
During the three months ended September 30, 2022Research and 2021,development 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, 2023 and 2022 were $1.1 million and $0.7 million, respectively. The increase in research and development expenses of $0.4 million, or 2021.52%, was primarily driven by increases in clinical trial expenses of $0.5 million, an increase in payroll and personnel expenses of $0.4 million, partially offset by a decrease of external services of $0.5 million.
Net Income (Loss)General and Administrative Expenses
DuringGeneral and administrative expenses for the three months ended September 30, 2023 and 2022 were $1.8 million and $1.0 million, respectively. The increase in general and administrative expenses of $0.8 million, or 76%, is due primarily to an increase in insurance expense of $0.4 million, increased fees related to SEC reporting of $0.2 million, an increase in payroll related expenses of $0.1 million, and an increase in accounting and tax expenses of $0.1 million.
Other Income (Expense)
Other income (expense) for the three months ended September 30, 2023 and 2022 was expense of $4.5 million and expense of $0.1 million, respectively. The increase of $4.4 million primarily resulted from a change in interest expense of $0.1 million, change in fair value of convertible notes of $0.3 million, and loss on extinguishment of convertible notes of $4.9 million, partially offset by the change in fair value of warrants liability of $0.8, and other income of $0.1.
Income Tax Provision (Benefit)
SeaStar Medical recorded a provision for income taxes of $0.0 million for the three months ended September 30, 2023, and an income tax benefit of $0.0 million for the three months ended September 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, net income (loss)the Company concluded there was ($620) thousand and $236 thousand, respectively. 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
The net loss for the three months ended September 30, 2023 and 2022 waswere $7.4 million and $1.9 million, respectively. The increased net loss of $5.5 million primarily driven by an increaseresulted from increases in mergergeneral and administrative expenses of $1,392$0.8 million, increases in research and development expenses of $0.4 million, change in fair value of convertible notes of $0.3, and loss on extinguishment of convertible notes of $4.9, partially offset by a reduction in formationfair value of warrants liability of $0.8 million, and administrative expense of as $141 thousand as compared to$0.1 other income during the three months ended September 30, 2021.2022.
22
ResultsComparison of Operations forthe Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022
The following table sets forth a summary of our results of operations. This information should be read together with our unaudited condensed consolidated financial statements and related Notes included elsewhere in this Form 10-Q.
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Revenue |
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 4,898 |
|
|
| 1,678 |
|
|
| 3,220 |
|
|
| 192 | % |
General and administrative |
|
| 6,369 |
|
|
| 2,215 |
|
|
| 4,154 |
|
|
| 188 | % |
Total operating expenses |
|
| 11,267 |
|
|
| 3,893 |
|
|
| 7,374 |
|
|
| 189 | % |
Loss from operations |
|
| (11,267 | ) |
|
| (3,893 | ) |
|
| (7,374 | ) |
|
| 189 | % |
Total other income (expense) |
|
| (5,085 | ) |
|
| 96 |
|
|
| (5,181 | ) |
|
| (5397 | )% |
Loss before income tax provision |
|
| (16,352 | ) |
|
| (3,797 | ) |
|
| (12,555 | ) |
|
| 331 | % |
Income tax provision (benefit) |
|
| 5 |
|
|
| 1 |
|
|
| 4 |
|
|
|
| |
Net loss |
| $ | (16,357 | ) |
| $ | (3,798 | ) |
| $ | (12,559 | ) |
|
| 331 | % |
Research and Development Expenses
The Company’s only activities since inception in October 28, 2020 through September 30, 2022 were organizational activitiesfollowing table discloses the breakdown of research 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.development expenses:
Revenues
The Company had no revenues during the nine months ended September 30, 2022.
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||||
|
| September 30, |
|
| Change |
| ||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Clinical trials |
| $ | 1,735 |
|
| $ | — |
|
| $ | 1,735 |
|
|
| 100 | % |
External services |
|
| 1,289 |
|
|
| 1,263 |
|
|
| 26 |
|
|
| 2 | % |
Payroll and personnel expenses |
|
| 1,775 |
|
|
| 277 |
|
|
| 1,498 |
|
|
| 541 | % |
Other research and development expenses |
|
| 99 |
|
|
| 138 |
|
|
| (39 | ) |
|
| (28 | )% |
| $ | 4,898 |
|
| $ | 1,678 |
|
| $ | 3,220 |
|
|
| 192 | % | |
Expenses
During the nine months ended September 30, 2022Research and 2021,development 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, 2023 and 2022 were $4.9 million and $1.7 million, respectively. The increase in research and development expenses of $3.2 million, or 2021.192%, was primarily driven by increases in clinical trial expenses of $1.7 million, and an increase in payroll and personnel expenses of $1.5 million.
Net Income (Loss)General and Administrative Expenses
DuringGeneral and administrative expenses for the nine months ended September 30, 2023 and 2022 were $6.4 million and 2021, net income (loss)$2.2 million, respectively. The increase in general and administrative expenses of $4.2 million, or 188%, was $2,949 thousanddriven by an increase in marketing related expenses of $0.2 million, an increase in SEC reporting related expenses of $0.5 million, payroll related expenses of $0.8 million, an increase in professional fees of $1.0 million, a legal settlement of $0.2 million, an increase in insurance expense of $1.3 million, and ($40) thousand, respectively. Such net income resulted from a revaluationan increase in general business expenses of the Company’s warrants.
Liquidity and Capital Resources$0.2 million.
GeneralOther Income (Expense)
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 SponsorOther income (expense) 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, 2023 and 2022 was expense of $5.1 million and 2021, respectively, due to cash used for merger expenses, operatingincome of $0.1 million, respectively. The decrease of $5.2 million, or 5,397%, primarily resulted from an increase in interest expense of $0.4 million, the change in fair value of convertible notes of $0.3 million, the change in fair value of forward option-prepaid forward contracts of $1.7 million, and formation costs.the loss on extinguishment of convertible notes of $4.9 million, partially offset by the change in fair value of warrants liability of $1.3 million, a gain on sales of recycled shares of $1.3 million, the change in fair value of notes payable derivative liability of $0.6 million, and other income of $0.1 million.
Cash from Investing Activities
For18
Income Tax Provision (Benefit)
SeaStar Medical recorded a provision for income taxes of $0.0 million for the nine months ended September 30, 2023, and an income tax benefit of $0.0 million for the nine months ended September 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, 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 duringconcluded 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 periodmore-likely-than-not threshold noted above.
Net Loss
The net loss for the nine months ended September 30, 20212023 and invested an additional $1.02022 were $16.4 million and $3.8 million, respectively. The increased net loss of $12.6 million primarily resulted from increases in general and administrative expenses of $4.2 million, increases in research and development expenses of $3.2 million, increases in interest expense of $0.3 million, a change in fair value of convertible notes of $0.3 million, a change in fair value of forward option-prepaid forward contracts of $1.7 million, a change in fair value of notes payable of $0.6 million, and a loss on extinguishment of convertible notes of $4.9 million, partially offset by a change in fair value of warrants liability of $1.3 million, and a gain on sale of recycled shares of $1.3 million during the nine months ended September 30, 2022.2023.
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 September 30, 2023 and December 31, 2022, we had an accumulated deficit of $115.7 million and $99.3 million, respectively.
As of September 30, 2023 and December 31, 2022, we had cash of $0.1 million and $0.0 million, respectively. We expect that our existing cash will be insufficient to fund our operations, including clinical trial expenses and capital expenditure requirements. We believe that this raises doubt about our ability to continue as a going concern. To finance our operations beyond that point, we would need to raise additional capital, and there is no guarantee that we will be able to secure additional funding on favorable terms, or at all. We have concluded that these circumstances raise doubt about our ability to continue as a going concern within one year after the issuance date of this Form 10-Q.
On March 15, 2023, the Company entered into a Securities Purchase Agreement ("SPA") with 3i LP ("3i"), 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.
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 Second Convertible Note was paid in full in October 2023.
On August 7, 2023, the Company entered into an amendment to the SPA, whereby 3i will have the discretion to purchase additional convertible notes in an aggregate principal amount of $2.0 million (the "Additional Convertible Notes") in lieu of the third and forth series of convertible notes as provided in the original SPA dated March 15, 2023.
Also on August 7, 2023, the Company entered into a side letter with 3i (the “Letter Agreement”), pursuant to which the Company agreed to adjust the conversion price of the First and Second Convertible Notes to the lowest of (i) $0.20, (ii) the closing sale price of common stock on the trading day immediately preceding the date of the conversion, and (iii) the average closing sale price of common stock for
19
the five consecutive trading days immediately preceding the date of the conversion. The Company also agreed issue a warrant to purchase up to 4,765,620 shares of common stock, as part of the August 7, 2023 amendment to the SPA.
The Company closed three of four tranches of the Additional Convertible Notes on August 7, 2023, August 30, 2023, and September 26, 2023, respectively. Each tranche of the Additional Convertible Notes is convertible into 2,717,144 shares of common stock at an initial conversion price of $0.20, in a principal amount of $0.5 million, and includes a warrant to purchase up to 738,791 shares of common stock. The Additional Convertible Notes mature on November 6, 2024, November 29, 2024, and December 25, 2024, respectively.
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 $0.1 million in cash upon receipt of proceeds from the issuance of the notes at the second closing under the SPA. 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 March 26, 2023.
Future Funding Requirements
We expect to incur significant expenses in connection with our ongoing activities as we seek to (i) continue clinical development of our SCD product for approval by the Food and Drug Administration ("FDA"), and (ii) if regulatory approval is obtained, to launch and commercialize our product in the U.S. market, including subsequent launches in key international markets. We will need additional funding in connection with these activities. Our future funding requirements, both short-term and long-term, will depend on many factors, including:
Until such time, if ever, as we are able to successfully develop and commercialize our products, we expect to continue financing our operations through the sale of equity, debt, borrowings under credit facilities or through potential collaborations with other companies, other strategic transactions or government or other grants. Adequate capital may not be available to us when needed or on acceptable terms.
Based on our results of operations and liquidity as of September 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 period of at least twelve months from the date of our unaudited condensed consolidated financial statements as of September 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 liquidation or other preferences that adversely affect the rights of stockholders. Debt financing and preferred equity
20
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 from Financing ActivitiesFlows
The following table shows a summary of our cash flows for each of the periods shown below:
|
| Nine Months Ending |
|
| |||||
|
| September 30, |
|
| |||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| ||
Statement of cash flow data: |
|
|
|
|
|
|
| ||
Total cash (used in)/provided by: |
|
|
|
|
|
|
| ||
Operating activities |
| $ | (5,800 | ) |
| $ | (2,492 | ) |
|
Investing activities |
|
| — |
|
|
| — |
|
|
Financing activities |
|
| 5,826 |
|
|
| 2,031 |
|
|
| $ | 26 |
|
| $ | (461 | ) |
| |
Cash Flow from Operating Activities
Net cash provided by financingused in operating activities for the nine months ended September 30, 2023 was $2.8$5.8 million and $106.1compared to $2.5 million for the nine months ended September 30, 20222022. The increase in cash used for operating activities of $3.3 million is primarily due to the increase of resources to launch the clinical trial, an increase in expenses related to SEC reporting, and 2021. Duringan increase in insurance expense.
Cash Flow from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 20222023 was $5.8 million, primarily related to the Company received $2.8 million, netissuance of repayments, under a related party loan. During the nine months ended September 30, 2021, $106.8 million was generated by the Company’s IPOnew shares of common stock, proceeds from convertible notes, and the Company paid $754 thousandsale of recycled shares, partially offset by payments of notes payable, payment of convertible notes, and payment of commitment fees 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 issuanceequity line of either shares or warrants during the nine months ended September 30, 2022.
Contractual Obligationscredit.
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 and Estimates
The preparation of the unaudited condensed consolidated financial statements and related disclosures in accordanceconformity with accounting principles generally accepted in the United States of AmericaU.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, revenuesdisclosure of contingent assets and expenses. A summaryliabilities at the date of our significant accounting policies is included in Note 2 to our unauditedthe 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 ourconsolidated 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 the Management’s Discussionincome and Analysis of Financial Condition and Results of Operations section in our 2021 Annual Report on Form 10-K filed with the SEC on April 6, 2022. There have been no significant changes in the application of our critical accounting policiesexpenses during the nine months ended September 30, 2022.
Recent Accounting Pronouncements
See Note 2periods 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 unaudited financial statements included in Part I, Item 1 of this Quarterly Report for a discussion of recent accounting pronouncements.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.Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangementsEmerging 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 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
21
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 the Business Combination, (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 guidance on redeemable equity instruments,Commitments
The following table summarizes our contractual obligations as of September 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 |
|
| 2,436 |
|
|
| 2,436 |
|
|
| — |
|
|
|
|
|
|
| ||
Second Convertible Note |
|
| 202 |
|
|
| 202 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Additional Convertible Notes |
|
| 1,767 |
|
|
| — |
|
|
| 1,767 |
|
|
| — |
|
|
| — |
|
Insurance Financing |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total contractual obligations |
| $ | 10,190 |
|
| $ | 2,638 |
|
| $ | 7,552 |
|
| $ | — |
|
| $ | — |
|
Financing Transactions
Equity Line of Credit
The Company paid previously accrued commitment fees of $1.5 million during the nine months ended September 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 controlnine months ended September 30, 2023, the Company sold 639,578 shares of common stock to Tumim for $1.3 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,SPA with 3i, whereby the Company will not redeem its publicagreed to issue a series of four Convertible Notes ("Convertible Notes"), with principal amounts totaling up to $9.8 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 the First Convertible 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 $3.0 million, and a warrant to be presented as temporary equity regardlesspurchase 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, and matures on June 15, 2024. The First Convertible Note is redeemable, in whole or in part, at any time at the discretion of the minimum net tangible asset required byCompany. The warrant has 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 First 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 (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 itspurchase 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, and matures on August 12, 2024. The Second Convertible Note is redeemable, in whole or in part, at any time at the discretion of the Company. The warrant has an initial business combination.exercise price of $2.97 per share of common stock, expires five years from their issuance date, and contains
Warrants22
cashless exercise provisions. The Second Convertible Note contains an original issue discount of $0.2 million and was measured at fair value.
On May 12, 2023, the Second Convertible Note and the warrant attached to the Second Convertible Note were recorded at their fair values of $1.2 million and $0.1 million, respectively, which was less than the proceeds received from the Second Convertible Note of $2.0 million.
On August 7, 2023, the Company entered into an amendment to the SPA, whereby 3i will have the discretion to purchase the Additional Convertible Notes (the "Additional Convertible Notes") in an aggregate principal amount of $2.0 million in lieu of the third and fourth series of convertible notes as Derivative Liabilityprovided in the original SPA.
Also on August 7, 2023, the Company entered into a side letter with 3i (the “Letter Agreement”), pursuant to which the Company agreed to adjust the conversion price of the First and Second Convertible Notes to the lowest of (i) $0.20, (ii) the closing sale price of common stock on the trading day immediately preceding the date of the conversion, and (iii) the average closing sale price of common stock for the five consecutive trading days immediately preceding the date of the conversion. The Company previously accounted for its outstanding Public Warrantsalso agreed issue a warrant to purchase up to 4,765,620 shares of common stock, as part of the August 7, 2023 amendment to the SPA.
The Company issued three of four tranches of the Additional Convertible Notes on August 7, 2023, August 30, 2023, and Private Placement Warrants issuedSeptember 26, 2023, respectively. Each tranche of the Additional Convertible Notes is convertible into 2,717,144 shares of common stock at an initial conversion price of $0.20, in connection with its IPO as componentsa principal amount of equity instead of as derivative liabilities. The warrant agreement governing the Warrant Agreement$543, and includes a provision that provides for potential changeswarrant to purchase up to 738,791 shares of common stock. The Additional Convertible Notes mature on November 6, 2024, November 29, 2024, and December 25, 2024, respectively.
The warrants attached to the settlement amounts dependent upon the characteristics of the holder of the Warrant. In addition, the Warrant Agreement includes a provision that in the event of a tender or exchange offer made to and accepted by holders of more than 50% of the outstanding shares of a single class of common shares, all holders of the Warrants would be entitled to receive cash for their Warrants (the “tender offer provision”).
In connection with the reevaluation of the accounting treatment of the Warrants, the Company’s management evaluated the warrants under Accounting Standards Codification (“ASC”) Subtopic 815-40, Contracts in Entity’s Own Equity. ASC Section 815-40-15 addresses equity versus liability treatment and classification of equity-linked financial instruments, including warrants, and states that a warrant may be classified as a component of equity only if, among other things, the warrant is indexed to the issuer’s common stock. Under ASC Section 815-40-15, a warrant is not indexed to the issuer’s common stock if the terms of the warrant require an adjustment to the exercise price upon a specified event and that event is not an input to the fair value of the warrant. Based on management’s evaluation, the Company’s Audit Committee, in consultation with management and after discussion with the Company’s independent registered public accounting firm, concluded that the Company’s Private Placement Warrants are not indexed to the Company’s common shares in the manner contemplated by ASC Section 815-40-15 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares. In addition, based on management’s evaluation, the Company’s Audit Committee, in consultation with management and after discussion with the Company’s independent registered public accounting firm, concluded the tender offer provision included in the Warrant Agreement fails the “classified in stockholders’ equity” criteria as contemplated by ASC Section 815-40-15.
As a result of the above, the Company should have classified the Warrants as derivative liabilities in its previously issued balance sheet as of January 28, 2021 that was filed on Form 8-K on February 3, 2021. Under this accounting treatment, the Company is required to measure the fair value of the Warrants at the end of each reporting period and recognize changes in the fair value from the prior period in the Company’s operating results for the current period improper accounting classification of warrants we issued in January 2021 which, due to its impact on our financial statements which we determined to be a material weakness. This mistake in classification was brought to our attention only when the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) dated April 12, 2021 (the “SEC Statement”). The SEC Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those we 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.
24
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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 September 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 September 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 internal control over financial reporting may vary over time.
23
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 15d-15 under the Exchange Act. The 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 disclosureframework 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 internal control over financial reporting as of 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.
Identification of Material Weaknesses
In the course of preparing the unaudited condensed consolidated financial statements that are included in this Form 10-Q, the Company has identified material weaknesses in its internal controls and proceduresover financial reporting as of September 30, 2022, pursuant2023, which relates to Rule 13a-15(b) undera deficiency in the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of September 30, 2022, our disclosure controlsdesign and procedures were not effective.
Specifically, management’s determination was based solely on the following material weaknesses which existed as of September 30, 2022. Since inception in 2020 to the present, the Company did not effectively segregate certain accounting duties due to the small sizeoperation 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 September 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 September 30, 2023 and December 31, 2022, the Company had negative working capital of $10.2 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 $1.3 million from the Purchase Agreement through September 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”). 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. On May 12, 2023, the Company closed the second tranche of the financing by issuing a convertible note in a principal amount of $2.2 million and a warrant to purchase up to 218,901 shares of common stock. On August 7, 2023, the Company and the Lender amended the terms of the financing, whereby the Lender may purchase additional convertible notes in aggregate principal amounts up to $2 million in lieu of the third and fourth series as originally provided. However, there is no guarantee that end, wethe Company will be able to satisfy the conditions required to issue additional notes under the remaining tranches. 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 submitted an application for a HDE for SCD in June 2022 for the treatment of pediatric patients with AKI on CRRT. On September 29, 2023, the Company received a correspondence from the FDA indicating that this HDE is approvable for use in children weighing 10 kilograms or more with AKI and sepsis or a septic condition requiring CRRT in the hospital ICU. On October 30, 2023 the Company announced that it received the approvable letter from the FDA. Following the receipt of this approvable letter, we intend to work diligently and expeditiously to respond to these requests for additional information and address these conditions for approval of our HDE application. We anticipate receiving the HDE approval letter between December 2023 and January 2024. The Company believes the approval of its HDE will confirm SCD and its technology as an effective tool to treat hyperinflammation related diseases, which will enable us to successfully execute our business and growth strategies.
The Company believes that its novel therapeutic device is readily applicable for use in other indications, which will require additional clinical studies and FDA approval. For example, on September 28, 2023, the Company received Breakthrough Device Designation for our patented and cell-directed SCD for use with patients in the hospital ICU with acute or chronic systolic heart failure and worsening renal function due to cardiorenal syndrome or right ventricular dysfunction awaiting implantation of a left ventricular assist device, and on October 18, 2023, the Company received Breakthrough Device Designation for our patented and cell-directed SCD for use with patients in the hospital ICU with AKI and acute on chronic liver failure. While the Company expects the Breakthrough Device Designation to expedite the clinical development and regulatory review of the SCD program for use in this patient population, there is no guarantee that the Company will be able to expedite the clinical development or obtain regulatory approval.
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 Mr. Schlorff for the payroll period ending October 15, 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: November 14, | 2023 | By: | /s/ Eric Schlorff | |||||
Eric Schlorff | ||||||||
Chief Executive Officer | ||||||||
(Principal Executive Officer) | ||||||||
Date: November 14, | 2023 | By: | /s/ Caryl Baron | |||||
Caryl Baron | ||||||||
Interim Chief Financial Officer | ||||||||
(Principal Financial and Accounting Officer) | ||||||||
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