SeaStar Medical Holding Corp

Previous wording

The following discussion and analysis are intended to help you understand our business, financial condition, results of operations, liquidity, and capital resources. You should read this discussion in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The following discussion and analysis are intended to help you understand our business, financial condition, results of operations, liquidity, and capital resources. You should read this discussion in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

The Company is a medical technology company developing a platform therapy to reduce the consequences of hyperinflammation on vital organs. In a normal inflammatory response, neutrophils are the first immune cells to arrive at the site and are key to the entire immune response that kills pathogens and promotes tissue repair. If the inflammatory response becomes excessive and dysregulated, normal neutrophil die off may be delayed, altering feedback mechanisms that regulate the immune system. This results in damaging hyperinflammation spreading uncontrollably to other parts of the body, often leading to acute chronic solid organ dysfunction or failure, including heart, lung, kidney and liver diseases. This hyperinflammatory response is also known as the cytokine storm, referring to the body’s reaction to the category of small-secreted proteins released by hyperinflammatory cells that affect communication between cells. The cytokine storm, when left uncontrolled, can lead to organ damage and even death.

Current wording

If the inflammatory response becomes excessive and dysregulated (referred as proinflammatory), normal neutrophil cells die off (“apoptosis”), allowing the inflammatory cells to continue to produce cytokines, further enhancing the dysregulated immune response, and altering feedback mechanisms that regulate the immune system. This results in damaging hyperinflammation spreading uncontrollably to other parts of the body, often leading to acute chronic solid organ dysfunction or failure, including heart, lung, kidney and liver diseases. This hyperinflammatory response is also known as the “cytokine storm,” referring to the body’s reaction to the category of small-secreted proteins released by hyperinflammatory cells that affect communication between cells. The cytokine storm, when left uncontrolled, can lead to organ damage and even death.

Previous wording

We are initially using our proprietary Selective Cytopheretic Device (“SCD”) technology platform to clinically validate several acute organ injury indications, including kidneys and lungs. Our investigational SCD is an extracorporeal synthetic membrane device designed to be easily integrated into existing Continuous Renal Replacement Therapy ("CRRT") systems that are commonly installed in hospitals, including in Intensive Care Units throughout the United States. Once approved and commercialized, the SCD would initially target acute kidney injury in both the pediatric CRRT population as well as adults on CRRT. In addition, we are developing our SCD to address inflammation associated with chronic dialysis and chronic heart failure. The regulatory approval process for our SCD product candidates is costly and involves significant risks and uncertainties. For a detailed description of these and other risks, please see “Risk Factors” under Part II, Item I of this Form 10-Q.

Current wording

We are using our SCD to clinically validate several acute and chronic organ injury indications, which include kidneys, heart, liver, brain and lungs. Our investigational SCD for adults is an extracorporeal synthetic membrane device that is currently being evaluated in a pivotal clinical trial in the US for pre-market clearance by the FDA. The SCD for adults is designed to be easily integrated into existing continuous renal replacement therapy (“CRRT”) systems that are commonly installed in hospitals, including in ICUs throughout the United States. Similar to our pediatric SCD, once approved and commercialized, our adult SCD is expected to initially target acute kidney injury adults on CRRT. In addition, we are developing our SCD to address inflammation associated with liver disease, chronic dialysis and chronic heart failure in adult populations.

Previous wording

We have incurred net losses in each year since our inception in 2007. As of March 31, 2024 and December 31, 2023, we had an accumulated deficit of $127.4 million and $114.7 million, respectively. Our net losses were $12.7 million and $7.1 million for the three months ended March 31, 2024 and 2023, respectively. Substantially all our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

Current wording

We have incurred net losses in each year since our inception in 2007. As of June 30, 2024 and December 31, 2023, we had an accumulated deficit of $130.7 million and $114.7 million, respectively. Our net losses were $15.9 million and $9.5 million for the six months ended June 30, 2024 and 2023, respectively. Substantially all our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

Previous wording

As of March 31, 2024 and December 31, 2023, we had cash of $5.0 million and $0.2 million, respectively.

Current wording

As of June 30, 2024 and December 31, 2023, we had cash of $1.2 million and $0.2 million, respectively.

Previous wording

Our accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Current wording

Our accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable to continue as a going concern.

Previous wording

The recurring losses, working capital deficiency, the need for capital to fund our operations, including clinical trial and regulatory approval expenses, and the amount of cash reserve are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the unaudited consolidated financial statements are made available. See Note 1 to our unaudited consolidated financial statements for the three months ended March 31, 2024 included elsewhere in this Form 10-Q for additional information on our assessment.

Current wording

The recurring losses, working capital deficiency, the need for capital to fund our operations, including clinical trial and regulatory approval expenses, and the amount of cash reserve are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the unaudited consolidated financial statements are made available. See Note 1 to our unaudited consolidated financial statements for the three- and six- months ended June 30, 2024, included elsewhere in this Form 10-Q for additional information on our assessment.

Previous wording

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 time, if ever, we expect to finance our operations through the sale of equity or debt, borrowings under credit facilities, potential collaborations, other strategic transactions or government and other grants. Adequate capital may not be available to us when needed or on acceptable terms. If we are unable to raise capital, we could be forced to delay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. See Part I, Item 1A “Risk Factors” for additional information.

Current wording

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 successful commercialization of our products. Until such time, if ever, we expect to finance our operations through the sale of equity or debt, borrowings under credit facilities, potential collaborations, other strategic transactions or government and other grants. Adequate capital may not be available to us when needed or on acceptable terms. If we are unable to raise capital, we could be forced to delay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. See Part I, Item 1A “Risk Factors” for additional information.

Previous wording

In April of 2024, the Company was included as part of a consortium with various research institutions as part of a National Institute for Health ("NIH") National Heart, Lung, and Blood Institute has awarded a $3.6 million grant, of which SeaStar expects to receive a portion, for serving as a contract research organization for the clinical trial, to evaluate the Selective Cytopheretic Device Adult (SCD-ADULT, a member of the Company’s Quelimmune™ product family). SCD-Adult is a potential bridging strategy to left ventricular assist device (LVAD) implantation in patients with chronic heart failure (CHF) who have progressed to acute decompensated heart failure (ADHF). This grant award follows a Breakthrough Device Designation for cardiorenal syndrome granted by the FDA's Center for Biologics Evaluation and Research (CBER) in September 2023. With current standard of care treatment, ADHF can accelerate worsening renal function in a feedback loop known as cardiorenal syndrome, which is associated with a poor prognosis. These patients are often ineligible for lifesaving LVAD implantation due to the severity of their condition. This grant was awarded to Innovative BioTherapies (IBT), which is led by SCD inventor H. David Humes, M.D., Professor, Division of Nephrology, Internal Medicine, University of Michigan and SeaStar Medical Scientific Advisor.

Current wording

In April of 2024, the Company was included as part of a consortium with various research institutions as part of a National Institute for Health ("NIH") National Heart, Lung, and Blood Institute has awarded a $3.6 million grant, of which SeaStar expects to receive a portion, for serving as a contract research organization for the clinical trial, to evaluate the Selective Cytopheretic Device Adult (SCD-ADULT, a member of our WUELIMMUNE™ product family). SCD-Adult is a potential bridging strategy to left ventricular assist device (LVAD) implantation in patients with chronic heart failure (CHF) who have progressed to acute decompensated heart failure (ADHF). This grant award follows a Breakthrough Device Designation for cardiorenal syndrome granted by the FDA's Center for Biologics Evaluation and Research (CBER) in September 2023. With current standard of care treatment, ADHF can accelerate worsening renal function in a feedback loop known as cardiorenal syndrome, which is associated with a poor prognosis. These patients are often ineligible for lifesaving LVAD implantation due to the severity of their condition. This grant was awarded to Innovative BioTherapies (IBT), which is led by SCD inventor H. David Humes, M.D., Professor, Division of Nephrology, Internal Medicine, University of Michigan and SeaStar Medical Scientific Advisor.

Previous wording

To date, we have not generated any revenue from the sale of commercialized products. Our pediatric SCD received HDE approval from the Food and Drug Administration (the "FDA") in February 2024, and we expect to commercialize the product in the near term. Revenue has been primarily derived from government and other grants. We may generate revenue in the future based on payments from license or collaboration agreements and government and other grants, and, from product sales of our pediatric SCD. We expect that any revenue we generate will fluctuate from quarter to quarter. We also continue to develop our adult SCD product for which we are pursuing FDA approval. If we fail to complete the development of or obtain regulatory approval for commercialization of our adult SCD products in a timely manner, our ability to generate future revenue and our results of operations and financial position, would be materially adversely affected.

Current wording

Through June 30, 2024, we have not generated any revenue from the sale of commercialized products. Our pediatric SCD received HDE approval from the FDA in February 2024, and we expect to commercialize the product in the near term. Revenue has been primarily derived from government and other grants. We may generate revenue in the future based on payments from license or collaboration agreements and government and other grants, and, from product sales of our pediatric SCD. We expect that any revenue we generate will fluctuate from quarter to quarter. We also continue to develop our adult SCD product for which we are pursuing FDA approval. If we fail to complete the development of or obtain regulatory approval for commercialization of our adult SCD products in a timely manner, our ability to generate future revenue and our results of operations and financial position, would be materially adversely affected.

Previous wording

Other significant general and administrative expenses include facilities costs, professional fees for accounting and legal services and expenses associated with obtaining and maintaining patents and obtaining financing. As we continue to expand and grow our operations, we expect that our general and administrative expenses will increase, including additional expenses relating to new hires, travel, a new enterprise resource planning platform, and branding.

Current wording

Other significant general and administrative expenses include facilities costs, insurance, professional fees for accounting and legal services and expenses associated with obtaining and maintaining patents and obtaining financing. As we continue to expand and grow our operations, we expect that our general and administrative expenses will increase, including additional expenses relating to new hires, travel, a new enterprise resource planning platform, and branding.

Previous wording

Net loss consists of the Company’s loss from operations, less other expense.

Current wording

Net loss consists of the loss from operations, less other expense.

Previous wording

Research and development expenses for the three months ended March 31, 2024 and 2023 were $1.7 million and $1.7 million, respectively. The slight decrease in research and development expenses of less than $0.1 million, or 2%, was primarily driven by (i) a decrease in the use of external services of $0.1 million, driven by a reduction in the amount of focus on the design of the technology, and (ii) a reduction in other expenses of less than $0.1 million, due to a reduction in patent fees. This was offset by (i) increases in clinical trial expenses of $0.1 million, and (ii) an increase in payroll and personnel expenses of $0.1 million, as the Company began to increase its clinical trial activity in order to gain future regulatory approvals.

Current wording

Research and development expenses for the three months ended June 30, 2024 and 2023 were $2.334 million and $1.981 million, respectively. The increase in research and development expenses approximately $0.4 million, or 18%, was primarily driven by (i) an increase in clinical trial costs of approximately $0.5 million as the Company has increased clinical trial activities related to the adult SCD device, offset by (i) a reduction in external services expense of approximately $0.2 million as the Company has added internal resources to facilitate certain research and development activities and (ii) a reduction in payroll and personnel expenses of less than $0.1 million due to a reduction in stock compensation expense during the three-months ended June 30, 2024, as grants of restricted stock from 2023 vested in full in April 2024, and no new grants have been granted.

Previous wording

Other expenses increased approximately $6.2 million, or 248% for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The key drivers for this increase was (i) a $4.6 million loss on the extinguishment of convertible notes, due to the fair value of the common stock issued in excess of the fair value of the underlying note; (ii) $2.8 million loss on the change in the fair value of liability classified warrants, whether exercised or outstanding at March 31, 2024, a (iii) $0.7 million loss on issuance of convertible notes, as a result of the fair value of the convertible notes exceeding the proceeds received from the investor, net of the fair value of detachable warrants and (iv) a $0.4 million loss on the increase in the fair value of convertible notes. This was offset by (i) the company recognized a $2.2 million dollar loss on a forward purchase agreement derivative liability at March 31, 2023, which no longer exists in 2024, and (ii) $0.3 million reduction in interest expense as a result of both paying down notes payable and converting all but $1.1 million in convertible notes at March 31, 2024.

Current wording

Other income increased approximately $0.1 million, or 10% for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The key drivers for this increase was the following:

Previous wording

During the three months ended March 31, 2024, SeaStar Medical had a net loss of $12.7 million compared to a net loss of $7.1 million for the three months ended March 31, 2023. The increased net loss of $5.6 million has been disclosed in the above discussion.

Current wording

During the three months ended June 30, 2024, SeaStar Medical had a net loss of $3.2 million compared to a net loss of $2.4 million for the three months ended June 31, 2023. The increased net loss of $0.8 million has been disclosed in the above discussion.

Previous wording

SeaStar Medical recorded a provision for income taxes of $0.0 million for the three months ended March 31, 2024, and a provision for income taxes of $0.0 million for the three months ended March 31, 2023.

Current wording

SeaStar Medical recorded a provision for income taxes of $0.0 million for the three months ended June 30, 2024, and a provision for income taxes of $0.0 million for the three and six months ended June 30, 2023.

Previous wording

To date, we have financed our operations primarily through the sale of equity securities and convertible debt and, to a lesser extent, through grants from governmental and other agencies. Since our inception, we have incurred significant operating losses and negative cash flows. As of March 31, 2024 and December 31, 2023, we had an accumulated deficit of $127.4 million and $114.7 million, respectively.

Current wording

To date, we have financed our operations primarily through the sale of equity securities and convertible debt and, to a lesser extent, through grants from governmental and other agencies. Since our inception, we have incurred significant operating losses and negative cash flows. As of June 30, 2024 and December 31, 2023, we had an accumulated deficit of $130.7 million and $114.7 million, respectively.

Previous wording

Based on our results of operations and liquidity as of March 31, 2024, we believe our cash and cash equivalents, including the cash we obtained from the Q1 2024 SPA registered direct financing 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 consolidated financial statements for the three months ended March 31, 2024, 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.

Current wording

To finance our operations, we will need to raise additional capital. As described below, 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. We do not currently have any committed external source of funds. 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. See Note 1 to our unaudited condensed consolidated financial statements for the period ended June 30, 2024.

Previous wording

We would receive the proceeds from any exercise of any warrants that are exercised for cash pursuant to their terms. Assuming the exercise in full of all of the warrants for cash, we would receive an aggregate of approximately $16.2 million, but would not receive any proceeds from the sale of the shares of common stock issuable upon such exercise. To the extent any warrants are issued on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease. We would expect to use any such proceeds received from warrants that are exercised for cash in the future for general corporate and working capital purposes, which would increase our liquidity. However, we will only receive such proceeds if and when the warrant holders exercise the warrants. The exercise of the warrants, and any proceeds we may receive from their exercise, are highly dependent on the price of our common stock and the spread between the exercise price of the warrant and the price of our common stock at the time of exercise. There is no assurance that the warrant holders will elect to exercise for cash any or all of such warrants, and we believe that any such exercise currently is unlikely to occur as described below. As of the date of this Annual Report, we have neither included nor intend to include any potential cash proceeds from the exercise of our warrants in our short-term or long-term liquidity projections. We will continue to evaluate the probability of warrant exercise over the life of our warrants and the merit of including potential cash proceeds from the exercise in our liquidity projections.

Current wording

We would receive the proceeds from any exercise of any warrants that are exercised for cash pursuant to their terms. To the extent any warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease. We would expect to use any such proceeds received from warrants that are exercised for cash in the future for general corporate and working capital purposes, which would increase our liquidity. However, we will only receive such proceeds if and when the warrant holders exercise the warrants. The exercise of the warrants, and any proceeds we may receive from their exercise, are highly dependent on the price of our common stock and the spread between the exercise price of the warrant and the price of our common stock at the time of exercise. There is no assurance that the warrant holders will elect to exercise for cash any or all of such warrants, and we believe that any such exercise currently is unlikely to occur. The likelihood that warrant holders will exercise the warrants, and therefore the amount of cash proceeds that we would receive from such exercise, is dependent upon the trading price of our common stock. If the trading price for our common stock remains less than the respective exercise price of our outstanding warrants, we believe our warrant holders will be unlikely to exercise their warrants. There is no guarantee that the warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the warrants may expire worthless, and we may not receive any proceeds from the exercise of the warrants. To the extent that any of the warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease.

Previous wording

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.

Current wording

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. 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.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was $3.5 million compared to $2.3 million for the three months ended March 31, 2023. The increase in cash used for operating activities of $1.2 million is primarily due to the timing of certain payments to vendors, reducing our outstanding payables, as a result cash provided by financing activities as discussed below.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was $6.3 million compared to $4.5 million for the six months ended June 30, 2023. The increase in cash used for operating activities of $1.8 million is primarily due to the timing of certain payments to vendors, reducing our outstanding payables, as a result cash provided by financing activities as discussed below.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 was $8.3 million, primarily related to the issuance of new shares of common stock, proceeds from exercise of warrants, and the avoidance of certain principal payments due to the conversion of certain convertible notes. Cash provided by financing activities for the three months ended March 31, 2023 was $3.0 million, primarily from the issuance of notes payable.

Current wording

Net cash provided by financing activities for the three months ended June 30, 2024 was $7.3 million, primarily related to the issuance of new shares of common stock, proceeds from exercise of warrants, and the avoidance of certain principal payments due to the conversion of certain convertible notes. Cash provided by financing activities for the six months ended June 30, 2023 was $4.4 million, primarily from the issuance of notes payable.

Previous wording

There has been no material change from the policies or methods disclosed in our Annual Report to Form 10-K filed April 16, 2024, as amended by Form 10-K/A filed April 26, 2024, for the year-ended December 31, 2023.

Current wording

There has been no material change from the policies or methods disclosed in our Annual Report to Form 10-K filed April 16, 2024, as amended by Form 10-K/A filed April 26, 2024, and Form 10-K/A filed July 3, 2024, for the year-ended December 31, 2023.

Previous wording

We will remain an EGC under the JOBS Act until the earliest of (i) the last day of our first fiscal year following the fifth anniversary of the closing of this the Business Combination, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the date on which we are deemed 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.

Current wording

We will remain an EGC under the JOBS Act until the earliest of (i) the last day of our first fiscal year following the fifth anniversary of the closing of the Business Combination, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the date on which we are deemed 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