SeaStar Medical Holding Corp

Note 1. Description of Business

Organization and description of business

SeaStar Medical Holding Corporation, a Delaware corporation ("SeaStar", "we") and its wholly owned subsidiary, SeaStar Medical, Inc., are collectively referred to as the "Company". SeaStar Medical, Inc. was incorporated as a Delaware corporation in June 2007, and it is headquartered in Denver, Colorado. The Company is principally engaged in the research, development, and commercialization of a platform medical device technology designed to modulate inflammation in various patient populations. The primary target of this technology is for the treatment of acute kidney injuries.

The Company is in the pre-revenue stage focused on product development.

On October 28, 2022, LMF Merger Sub, Inc., a wholly owned subsidiary of LMF Acquisition Opportunities, Inc., (“LMAO”) merged with and into SeaStar Medical, Inc. (the "Business Combination"), with SeaStar Medical, Inc. surviving the Business Combination as a wholly owned subsidiary of LMAO. Following the consummation of the Business Combination, LMAO was renamed to "SeaStar Medical Holding Corporation."

Basis of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules and regulations, certain notes or other financial information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal, recurring adjustments that are necessary to present fairly the Company’s results for the interim periods presented. The results from operations for the three months ended March 31, 2024, are not necessarily indicative of the results to be expected for the year ended December 31, 2024, or for any future annual or interim period.

The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the related notes for the year ended December 31, 2023. There have been no material changes in our significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2023.

The interim unaudited condensed consolidated financial statements include the consolidated accounts of the Company's wholly owned subsidiary, SeaStar Medical, Inc. All significant intercompany transactions have been eliminated in consolidation.

Segment information

The Company operates in one operating segment and, accordingly, no segment disclosures have been presented herein.

Liquidity and going concern

As of March 31, 2024, the Company has an accumulated deficit of $127.4 million and cash of $5.0 million. 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 interim 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.

Risks and uncertainties

The Company is subject to risks common to early-stage companies in the medical technology industry including, but not limited to, new medical and technological innovations, dependence on key personnel, 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 Company's future financial results, financial position and cash flows.

Note 2. Summary of Significant Accounting Policies

Use of estimates

The preparation of the unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the period. Significant estimates include the valuation of the liability classified warrants, prepaid forward purchase agreement derivative liability, provision for income taxes, convertible debt measured at fair value, and the amount of stock-based compensation expense. Although actual results could differ from those estimates, such estimates are developed based on the best information available to management and management's best judgments at the time.

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. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows.

Fair value of financial instruments

The following provides a summary of those assets or liabilities for which the Company is required to measure at fair value either on a recurring basis, the valuation techniques and summary of inputs used to arrive at the measure of fair value. Changes in fair value of these assets or liabilities are recognized as a component of net income in the consolidated statement of operations. Changes in fair value of these assets or liabilities are considered unrealized gains or losses and therefore are classified as non-cash adjustments to reconcile net income to operating cash flows. Significant increases (decreases) in unobservable inputs used in fair value measurements could, in isolation, potentially result in a significantly lower or higher valuation for those assets or liabilities requiring recurring fair value measurements at each reporting date.

The Company uses a Black-Scholes option pricing model to fair value Warrants, using standard option pricing inputs such as the strike price of each warrant tranche, 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 an interpolated value based on the remaining term of each individual instrument. The change in fair value of the liability classified warrants each reporting period is recorded to the change in fair value of warrants liability in the consolidated statement of operations.

Emerging growth company status

The Company is an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). Under the JOBS Act, emerging growth companies can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (1) no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

Recently issued accounting standards

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09 Income Taxes (Topic 740) Improvements to Income Tax Disclosures. ASU 2023-09 enhances the transparency and decision usefulness of income tax disclosures. The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently assessing the impact of this guidance on our disclosures.

Note 3. Accrued Expenses

Accrued expenses consisted of the following amounts as of March 31, 2024 and December 31, 2023:

Note 4. Notes Payable

Notes payable activity was as follows for the three month period ended March 31, 2024:

Future maturities of principal repayment of the notes payable as of March 31, 2024 are as follows:

Senior Secured LMFA Note Payable

The company entered into a senior secured note with LMFA in September 2022. The interest rate on the loan was 7.0% and was to mature on March 27, 2025. The Company paid this note in full during Q1 2024.

Senior Secured LMFAO Note Payable

The company entered into a senior secured note with LMFAO in October 2022. The interest rate on the loan was 7.0% and was to mature on March 27, 2025. The Company paid this note in full during Q1 2024.

Unsecured Maxim Note Payable

In October 2022, the Company entered into an unsecured promissory note with Maxim, for an aggregate principal amount of $4.2 million. The interest rate on the note is 7% and matures on May 8, 2025.

Insurance Financing

In October 2023, the Company entered into a financing arrangement with a lender to finance a portion of the annual premium of an insurance policy in the amount of $0.7 million. The Company will pay the remaining five monthly installments of principal and interest with the last payment being made in August 2024.

Note 5. Convertible Notes

The activity for the convertible notes is disclosed in the table below for the period ended March 31, 2024. See our Annual Report on Form 10-K for the year-ended for December 31, 2023, for all other details relating to the Investor D convertible notes issued prior to December 31, 2023. During the quarter-ended March 31, 2024, the Company entered into two additional Investor D note issuances:

The Company completed Additional Closings related to the Second Amendment to the Investor D SPA on January 12, 2024 and January 24, 2024, issuing notes in principal amounts of $0.3 million and $0.8 million, respectively, each at 7.00% per annum (the "Fifth Investor D Note" and "Sixth Investor D Note", collectively called the "2024 Investor D Notes"). The 2024 Investor D Notes mature on April 12, 2025 and April 24, 2025, respectively. The 2024 Investor D Notes have an initial conversion price of $0.56 per share and are convertible into shares of the Company's common stock, par value $0.0001 (the "common stock"), beginning on the earlier of June 11, 2024 (or earlier upon mutual written agreement of the Company and the purchaser), or the date of an event of default, as defined in the note. The Company also issued warrants to purchase up to 131,927 and 395,781 shares of common stock, respectively, with an exercise price of $0.56 per share, and an additional warrants to purchase up to 131,927 and 395,781 shares of common stock, respectively, with an exercise price of $0.56 per share.

Future maturities of principal repayment of convertible Notes as of March 31, 2024, was as follows:

On January 30, 2024, the institutional investor agreed to waive its Optional Redemption Rights and any event of default that may arise thereunder with respect to this offering and suspend the Optional Redemption Rights for a period of sixty (60) days following the closing of this offering (the “Suspension Period”), and the Company granted the institutional investor a right to redeem all or a portion of the then outstanding Conversion Amount (as defined in the Note Documents) within three (3) trading days after the Suspension Period at an amount equal to 200% of the Conversion Amount.

During the quarter-ended March 31, 2024, the institutional investor converted approximately $3.3 million (face value) of outstanding debt, by converting the outstanding debt into approximately $9.5 million of the Company's common stock. As of March 31, 2024, the Company still owed the institutional investor approximately $1.0 million (face value) in convertible debt, with a fair value of approximately $1.1 million.

The Company incurred a loss of approximately $5.8 million as a result of the following: (i) $4.7 million loss on conversion into equity as a result of the difference between the fair value of the convertible notes being converted and the equity being delivered, (ii) $0.7 million losses on issuance of the Investor D convertible notes issued during the three-months ended March 31, 2024, as a result of the combination of the fair value of detachable warrants issued in conjunction to the Investor D Notes issues during the three-months ended March 31, 2024, and the excess fair value over the proceeds received for the Investor D convertible notes issues during the three-months ended March 31, 2024, and (iii) $0.4 million loss on the change in fair value of those Investor D convertible notes still outstanding as of March 31, 2024.

Note 6. Equity Transactions

On January 26, 2024, the Company entered into a Securities Purchase Agreement with a single institutional investor, pursuant to which the Company issued to the Purchaser (the "Q1 2024 SPA"), (i) in a registered direct offering,6,304,545 shares of the Company’s common stock, par value $0.0001 per share, and pre-funded warrants to purchase 4,536,216 shares of Common Stock with an exercise price of $0.0001 per share, and (ii) in a concurrent private placement, series A warrants to purchase 10,840,761 shares of common stock (the "Series A Common Warrants") and series B warrants to purchase 5,420,381 shares of common stock each with an exercise price of $0.8302 (the "Series B Common Warrants" and together with the Series A Common Warrants, the "Investor E Warrants". Such registered direct offering and concurrent private placement are referred to herein as the “Transactions.”

The Company received aggregate gross proceeds from the Transactions of approximately $9.0 million, before deducting fees to the Placement Agent and other estimated offering expenses payable by the Company. The Shares were declared effective on December 22, 2023. The Investor E Warrants will be exercisable commencing on the effective date of stockholder approval for the issuance of the shares of common stock issuable upon exercise of the Investor E Warrants. The Series A Common Warrants will expire on the fifth anniversary of the Stockholder Approval

Dateand the Series B Common Warrants will expire on the 12 month anniversary of the Stockholder Approval Date. The Pre-Funded Warrants will not expire and will be exercisable commencing on January 26, 2024, and at any time until all of the Pre-Funded Warrants are exercised in full. All Pre-Funded Warrants were exercised during the first quarter ended March 31, 2024.

The Company paid approximately $0.7 million in fees to the Placement Agent and issued 542,038 warrants (the "PA Warrants") to purchase shares of the Company's common stock, with a fair value of approximately $0.3 million at issuance. The exercise price of these warrants is $0.9132 and the warrants became exercisable on January 30, 2024, expiring one year after the grant date.

Tumin Equity Line of Credit

During the year ended December 31, 2023, the Company sold 6,500,000 shares of common stock to Tumim for proceeds of approximately $4.7 million as part of the Tumin Equity Line of Credit (see the Company's Annual Report on Form 10-K for the year-ended December 31, 2023, for additional information on the structure and purpose). As of December 31, 2023, approximately $95.3 million was available to draw. In February 2024, the Company and Tumim agreed to terminate the Purchase Agreement.

Note 7. Warrants

Warrants Issued in FY 2024

As discussed in Note 7, as part of the Q1 2024 SPA, the Company issued on January 26, 2024 the following warrants to purchase the Company's common stock:

•

Pre-Funded Warrants -warrants to purchase 4,536,216 shares of common stock with an exercise price of $0.0001. The Pre-Funded Warrants had no expiration date and were exercisable commencing on the date of issuance and at any time until all of the Pre-Funded Warrants are exercised in full. The Pre-Funded Warrants were exercised in full during the first quarter-ended March 31, 2024

•

Series A and Series B Warrants -in a concurrent private placement, Series A Common Warrants to purchase 10,840,761 shares of Common Stock and Series B Common Warrants to purchase 5,420,381 shares of common stock each with an exercise price of $0.8302.

•

Investor E Warrants will be exercisable commencing on the effective date of stockholder approval for the issuance of the shares of common stock issuable upon exercise of the Investor E Warrants. The Series A Common Warrants will expire on the fifth anniversary of the Stockholder Approval Date and the Series B Common Warrants will expire on the 12-month anniversary of the Stockholder Approval Date.

Maxim Group LLC acted as the placement agent in connection with the Transactions pursuant to the Placement Agency Agreement, dated January 26, 2024, by and between the Company and the Placement Agent. The Placement Agent will receive warrants to purchase common stock covering a number of shares equal to 5% of the total number of shares of common stock sold in the Transactions. The PA Warrants will be exercisable commencing six months after the Closing and will expire five years after such date. The PA Warrants are exercisable at a price equal to 110.0% of the offering price in connection with the placement.

In accordance with ASC 815-40, Derivatives and Hedging-Contracts in Entity’s own Equity, the Company determined the Investor E and PA Warrants meet the conditions for equity classification, and should be carried on the consolidated balance sheets as a component of stockholders equity (deficit). The initial 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 had the following warrants outstanding at March 31, 2024 and December 31, 2023:

The following tables provides the weighted-average strike price and time to maturity for each warrant tranche as of March 31, 2024 and December 31, 2023:

Below is the warrant activity for the period ended March, 31, 2024:

During the quarter-ended March 31, 2024, the Company incurred $1.6 million from losses on exercises of certain Investor D Warrants, and a loss of approximately $1.2 million from the mark-to-market adjustment for all remaining liability classified warrants; which are required to be remeasured at fair value at each reporting period, including March 31, 2024.

`

Note 8. Stock-Based Compensation Awards

The following table sets forth the total stock-based compensation cost included in the Company's condensed consolidated statements of operations for the period indicated:

Hi, I am hiring for my 9* logistics company. If interested, please send working stats and # of EE merits. Thank you!

Equity incentive plan - summary

2022 Omnibus Incentive Plan

The Company's Board of Directors adopted, and the shareholders approved the 2022 Omnibus Incentive Plan to provide long-term incentive for its employees and non-employee service providers. The vesting of stock options is stated in each individual grant agreement, which is generally eitherone orfour years. Options granted expire 10 years after the date of grant.

2019 Stock Incentive Plan

The Company’s Board of Directors adopted the 2019 Stock Incentive Plan on February 25, 2019, to provide long-term incentive for its employees and non-employee service providers. The Stock Incentive Plan was terminated on October 28, 2022, and no further awards were granted under such plan.

Equity incentive plan - stock options

Option activity for the periods ended March 31, 2024, is as follows:

2022 Omnibus Incentive Plan - Options

2019 Omnibus Incentive Plan - Options

Equity incentive plan - restricted stock units

A summary of the Company’s restricted stock unit (‘RSU”) activity is as follows:

2022 Omnibus Incentive Plan - RSUs

2019 Stock Incentive Plan - RSUs

Note 9. Commitments and Contingencies

License and distribution agreement

On December 27, 2022, the Company entered into a license and distribution agreement (“License Agreement”) with a distributor, appointing the distributor as the exclusive distributor to promote, advertise, market, distribute and sell the Selective Cytopheretic Device (“SCD”) in the United States. The Company received an upfront payment of $0.1 million on January 3, 2023. Pursuant to the License Agreement, the Company received milestone payments in the amounts of approximately $0.5 million for obtaining a Humanitarian Device Approval ("HDE") from the Food and Drug Administration (the "FDA") and shall receive another milestone payment of approximately $0.4 million after the distributor sells the first sixty units to third parties. The term of the agreement isthree years. The license agreement was amended in December 2023, removing the potential to require refund of the $0.1 million up-front payment from the Company to the distributor, while extending a certain milestone payment owed to the Company upon certain regulatory achievements. However, recognition for such relief from repayment of the deposit would be recognized over the remaining term of the agreement due to certain ongoing future obligations of the Company under the arrangement.

Lease agreements

The Company is part of a membership agreement for shared office space and can cancel at any time. Rent expense was approximately $8 thousand for the three months ended March 31, 2024 and 2023, respectively.

Litigation

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business.

In connection with the Business Combination, LMAO proposed, for stockholder approval, various amendments to its Amended and Restated Certificate of Incorporation, which included among other things a proposal to increase the authorized shares of common stock. A purported stockholder sent a Stockholder Litigation Demand letter (the “Demand”) to the Board of Directors of LMAO alleging that the Delaware General Corporation Law required a separate class vote of the Class A common stockholders to increase the authorized shares of common stock. Following receipt of the Demand, the Company canceled and withdrew the proposal to increase the authorized shares of common stock.

The stockholder’s counsel thereafter demanded that the Company pay counsel fees for the purported benefit conferred upon the Company’s shareholders by causing the Company to withdraw the allegedly invalid proposal to increase the authorized shares of common stock. The Company paid approximately $0.2 million for a legal settlement during the year ended December 31, 2023.

Note 10. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified into the following hierarchy:

Level 1 – quoted prices in active markets for identical assets and liabilities.

Level 2 – other significant observable inputs (including quoted prices for similar assets and liabilities, interest rate, credit risk, etc.).

Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities).

The fair value of the forward option on prepaid forward contracts, convertible notes, and the warrants liability is classified as Level 3 in the fair value hierarchy.

Fair Value Measurement Hierarchy

The following table presents the Company's financial assets and/or liabilities that were accounted for at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, by level withing the fair value hierarchy. There were no non-recurring fair value measurements, as the Company does not have any long-lived assets, including fixed assets, intangible assets or goodwill which can require non-recurring measurements for impairment.

Summary of Level 3 Input Changes

The following table 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 periods ended March 31, 2024 and December 31, 2023 (in thousands):

Level 3 Inputs

For assets or liabilities for which the Company is required to remeasure the fair value on a recurring basis at each reporting date, generally the Company is required to disclose certain quantitative data related to the inputs used at the most recent reporting period date. However, for those assets or liabilities for which the Company has elected to take the FVO in accordance with ASC 825, Financial Instruments, then such quantitative disclosures are not required.

Liability Classified Warrants

The liability classified warrants as of March 31, 2024 and December 31, 2023, include three classes of warrants, and therefore, the range of assumptions used has been provided. Significant assumptions used in valuing warrants which require liability classification were as follows as of March 31, 2024 and December 31, 2023.

Note 11. Income Taxes

In accordance with U.S. GAAP, a valuation allowance should be provided if it is more likely than not that some or all of the Company’s deferred tax assets will not be realized. The Company’s ability to realize the benefit of its deferred tax assets will depend on the generation of future taxable income. Due to the uncertainty of future profitable operations and taxable income, the Company has recorded a full valuation allowance against its net deferred tax assets. The Company believes its tax filing position and deductions related to tax periods subject to examination will be sustained under audit and, therefore, has no reserve for uncertain tax positions.

Note 12. Net Loss Per Share

The following table presents the calculation of basic and diluted net loss per share (in thousands except share and per share information):

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 been anti-dilutive:

Note 13. Subsequent Events

Investor D April 2024 Side Letter

On April 1, 2024, the Company and Investor D entered into the a side letter agreement (the "April 2024 Side Letter") whereby each party agreed to suspend certain rights of Investor D for a 60 day period, extending those rights from March 30, 2024, to May 30, 2024. Those rights included a 10 day notice period for any subsequent financing and rights to review terms of such financing arrangements. Finally, Investor D waived its rights or notice of default in the event of such financings. In addition, after the end to the May 30, 2024, suspension period has been reached, Investor D has the right to require the Company to redeem all or a portion of any outstanding Investor D convertible notes in the amount equity to 200% of the conversion amount.