SeaStar Medical Holding Corp

Note 1. Description of Business

Organization and Description of Business

SeaStar Medical Holding Corporation, a Delaware corporation ("SeaStar") 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 a commercial stage medical technology company developing a proprietary platform therapy, its Selective Cytopheretic Device (“SCD”), to reduce the consequences of hyperinflammation on vital organs. The initial target of this technology is for the treatment of acute kidney injuries. The Company received FDA approval for our pediatric SCD on February 22, 2024, under a Humanitarian Device Exemption ("HDE"), and shipped its first commercial units in July 2024. A pivotal clinical trial for the SCD in adult patients with Acute Kidney Injury ("AKI") is underway with 51 patients enrolled.

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 "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 and nine months ended September 30, 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 except for inclusion of the (i) Company’s policy for revenue recognition, and (ii) adoption of the expected credit loss model pursuant to Topic 326 -Credit Losses, which is discussed in Note 2 of this Form 10-Q.

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.

On June 7, 2024, the Company effected a 1-for-25 reverse stock split (the “Reverse Stock Split”) of its issued and outstanding shares of common stock, par value $0.0001 (the "common stock"). Following the effect of the Reverse Stock Split, each 25 shares of the Company’s common stock that were issued and outstanding automatically converted into one outstanding share of common stock. All stock options and warrants of the Company outstanding immediately prior to the Reverse Stock Split were proportionally adjusted except for the Listed Warrants and the private placement warrants that were issued as part of the SPAC transaction that closed on October 28, 2022, which total 16,788,000 outstanding warrants in the aggregate (the “Unadjusted Warrants”). The Unadjusted Warrants retained an $11.50 exercise price each and require the exercise of 25 warrants to purchase one share of common stock. Unless otherwise indicated, all other share and per share amounts in this quarterly report reflect the effect of the Reverse Stock Split. The par value of the Company’s common stock remained unchanged at $0.0001 per share and the number of authorized shares of common stock remained the same after the Reverse Stock Split.

Segment Information

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

Liquidity and Going Concern

The Company incurred losses of $4.5 million and $20.4 million for the three- and nine-months ended September 30, 2024, respectively. As of September 30, 2024, the Company has an accumulated deficit of $135.1 million and cash of $2.1 million. We do not believe our cash 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.

The Company's need for additional capital will depend in part on the scope and costs of its development activities. Through September 30, 2024, the Company generated approximately $0.1 million in revenue as a result of the commencement of commercial sales of the Company's pediatric SCD devices during the three-months ended September 30, 2024. The Company's ability to generate sufficient product revenue to generate positive operating cash flows will depend on continued commercialization of the Company's pediatric SCD and FDA approval and commercialization of its adult SCD devices. Until such time, if ever, the Company expects to finance its operations through the sale of its pediatric SCD, equity or debt, borrowing under credit facilities, through potential collaborations, other strategic transactions or grants. Adequate capital may not be available to the Company 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, the success of its clinical trials, new medical and technological innovations, dependence on key personnel, supply of key components, 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 (i) revenue recognition, (ii) the valuation of the liability classified warrants, (iii) prepaid forward purchase agreement derivative liability, (iv) provision for income taxes, (v) convertible debt measured at fair value, and (vi) 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 statements 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 the fair value of liability classified 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 in each reporting period is recorded to the change in fair value of warrants liability in the consolidated statements of operations.

Revenue Recognition

Overall

Under ASC Topic 606, the Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of Topic 606, the Company evaluates the following criteria: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) performance obligations are satisfied.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised goods and services until a distinct combined performance obligation is identified. The Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied. The estimate of the transaction price for each contract includes all variable consideration to which the Company expects to be entitled, subject to the constraint on variable consideration. The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. Variable consideration is not constrained if the potential reversal of cumulative revenue recognized at the contract level is not significant.

The Company records any payments received from customers prior to the Company fulfilling its performance obligation(s) as contract obligations. Amounts expected to be recognized as revenue within the one year following the balance sheet date are classified as current contract obligations. Amounts not expected to be recognized as revenue within the one year following the balance sheet date are classified as contract obligations, net of current portion. See Note 3 – Revenue and Contract Obligations for further details.

Product Sales Revenue

The Company has sold and intends to continue to sell its products either through a combination of distributor(s) and/or directly to end-user qualified customers through the Company's own internal commercial/sales resources. The acting distributor during the three- and nine-months ended September 30, 2024, subsequently resold and was to continue to resell the products to present and future customers, until such time the Company terminated its agreement with the distributor (see Notes 3, 11, and 15).

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Timing of Revenue Recognition – During the brief history (commenced July 2024) of selling pediatric SCDs, revenue has been recognized based on afreight-on-board destination ("FOB Destination") requirement.

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Chargebacks, Government Rebates and Discounts – During the brief history of selling pediatric SCDs commercially, the Company has not agreed to chargebacks, government rebates or discounts.

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Returns – Returns are specific to each order, but generally the Company allows for returns of any damaged or non-conforming product within 30 days of receipt of product. Given the (i) overall rate of product shipped that is defective/damaged, (ii) overall volume of sales to individual end-user customers, (iii) expected supply in the customer channel, and (iv) expected usage by customers, the Company does not anticipate that there will be significant risk of product returns overall.

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Variable Consideration – based on the above and given the materiality of current sales (less than $0.1 million sold through the three- and nine-months ended September 30, 2024), the Company does not currently estimate a constraint on revenue recognized on product sales.

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Transaction Price – based on the above, as currently constructed, the Company's transaction price is fixed, based on the agreed-upon price per each purchase order submitted by each customer. Milestone or up-front payments unique to the distributor were disclosed in Note 3 (also see Notes 11 and 15), and are not expected to be recognized as revenue, but merely returned as a result of a settlement to cease the relationship with the distributor.

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Allocation of Consideration – each sale of a pediatric SCD is independent of any and all other sales. The entire transaction price for each pediatric SCD is allocated to the sale of that pediatric SCD.

The Company will continue to monitor all of the above as the Company continues to commercialize and increase its customer base, which could result with each distributor or end-user customer agreement resulting in its own unique terms and conditions, that will potentially impact the timing and amount of revenue recognition pursuant to US GAAP.

Cost of Goods Sold

Prior to July 2024, the Company only manufactured/assembled pediatric or adult SCDs for research oriented and/or clinical trial related activities. Accordingly, as of and during the three-and nine-months ended September 30, 2024, all inventory on-hand or utilized had $0 value, as it was expensed to research and development expense at the time of purchase. Accordingly, for pediatric SCDs sold during the three-and nine-months ended September 30, 2024, the Company recognizedno cost of goods sold, as there was no value attributed to those units sold. As the Company procures inventory in the future, the Company will place value on raw materials and component parts,, as there is the potential that the raw materials could be used either for (i) commercial purposes (pediatric SCD sales) or (ii) research and development purposes (adult SCDs used in ongoing clinical trials).

Accounts Receivable, net

The need for a credit loss allowance is evaluated each reporting period based on the Company's assessment of the credit worthiness of its customers or any other potential circumstances that could result in a credit loss. The Company uses an aging schedule method for estimating expected credit losses. As the Company just commenced commercial operations during the three-months ended September 30, 2024, with a limited customer base, the Company's estimates are based on customer specific facts, until such time that the Company has developed sufficient collection history data in which to apply a portfolio-wide expected credit loss estimate based on an aging schedule.

The Company believes that the entire accounts receivable balance as of September 30, 2024, is collectible and there isno reserve for a credit loss allowance provided as of September 30, 2024.

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

Accounting Standards Update 2023-09 —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.

Accounting Standards Update 2023-07 —In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This guidance improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses, and is effective for fiscal years beginning after December 15, 2023 on a retrospective basis. The Company is currently assessing the impact of this guidance on our disclosures, but does not expect adoption to have an impact on our consolidated financial statements.

Note 3. Revenues and Contract Obligations

In December 2022, the Company entered into a License and Distribution Agreement (the "Distribution Agreement") with Nuwellis, Inc. ("Nuwellis") granting exclusive distribution rights of the Company's pediatric SCD within the United States of America. Under the terms of the Distribution Agreement, Nuwellis would pay the Company consideration comprising both (i) a per unit sales price for each unit shipped and (ii) a royalty for all units sold to customers.

In addition, Nuwellis also agreed to pay (i) a $100 thousand upfront payment at contract inception (the "Up-front Payment"), and (ii) two contingent milestones payments consisting of (a) $450 thousand payment upon meeting the regulatory milestone of receiving HDE approval from the FDA (the "Regulatory Milestone Payment"), and (b) $300 thousand payment upon meeting a sales-based milestone (the "Sales Based Milestone Payment").

The Company had the following performance obligations within the Distribution Agreement: (i) a material right to Nuwellis consisting of an exclusive option for Nuwellis to purchase additional pediatric SCDs during the term of the Distribution Agreement for a discounted price, (ii) to provide training to Nuwellis personnel and medical professionals at end-user customers of Nuwellis and (iii) upon each receipt of a valid Nuwellis purchase order, delivery of pediatric SCDs. The transaction price for the Nuwellis material right and training is comprised of the Upfront Payment, the Regulatory Milestone Payment and the Sales Based Milestone Payment. The transaction price for each pediatric SCD device sold was the actual price for each device and the estimated royalties to be received.

As of September 30, 2024, the Company received full consideration for the Up-front Payment and the Regulatory Milestone Payment. No revenue had been recognized from this consideration as of September 30, 2024, which has been accounted for and disclosed as contract liabilities and was to be recognized over the remaining term of the Distribution Agreement beginning with the first commercial shipment to Nuwellis.

The following table summarizes the changes in the Company's contract liability balance for the nine months ended September 30, 2024 and 2023:

As of September 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was equal to the contract liability balance.

The Company and Nuwellis entered into a confidential settlement agreement on October 20, 2024 (the "Settlement Agreement"), in connection with the Company's termination of the Distribution Agreement on August 18, 2024. Under the Settlement Agreement the Company agreed to refund Nuwellis the entire $550 thousand contract liability; comprised of the Upfront Payment and Regulatory Milestone; plus an additional $350 thousand. See Note 15 to our unaudited consolidated financial statements for the three- and nine- months ended September 30, 2024, included elsewhere in this Form 10-Q for additional information.

As a result, the Company (i) was precluded from recognizing revenue of approximately $0.1 million for product shipments to Nuwellis during the three-months ended September 30, 2024, (ii) was precluded from recognizing any revenues related to contract liabilities arising the Upfront Payment and Regulatory Milestone through September 30, 2024, (see below), and (iii) does not anticipate there will be any future shipments of pediatric SCDs to Nuwellis going forward. Due to the termination of the Distribution Agreement and related Settlement Agreement, the Company will be unable to recognize any revenue from the Up-Front Payment or the Regulatory Milestone Payment already received.

Since the termination of the Distribution Agreement, the Company developed its own commercial operations and sold approximately $0.1 million of pediatric SCDs to an end-user customer during the three-months ended September 30, 2024.

The Company's sales during the three- and nine-months ended September 30, 2024, were all within the same reportable segment (the Company is a single reportable/operating segment due to its size and business operations). In addition, as the Company can only commercially sell pediatric SCDs within the United States of America. There are no sales to foreign jurisdictions.

Note 4. Trade Accounts Receivable

The table below presents the opening and closing balances of accounts receivable, on a gross and net basis, with the total change in expected credit losses.

Note 5. Accrued Expenses

Accrued expenses consisted of the following amounts as of September 30, 2024, and December 31, 2023:

(*) -The Company and Nuwellis entered into the Settlement Agreement in connection with the Company's termination of the Distribution Agreement on August 18, 2024. A contingent liability of $350,000 was recognized in connection with the Settlement Agreement to reflect that the circumstances that gave rise to this obligation existed as of September 30, 2024. See Note 15 to our unaudited consolidated financial statements for the three- and nine- months ended September 30, 2024, included elsewhere in this Form 10-Q for additional information.

Note 6. Notes Payable

Notes payable activity was as follows for the nine-month period ended September 30, 2024:

There are no future maturities of any of the above formerly existing notes payable, as further explained below.

Investor D Note

On June 28, 2024, the Company and Investor D agreed to exchange all of the remaining outstanding warrants held by Investor D, which were issued in connection with Investor D's convertible debt issued between March 2023 and January 2024, into a short-term note of approximately $0.5 million. The interest rate on the loan was 7.0% per annum and the note was paid in full during the three-months ending September 30, 2024.

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 the quarter ended March 31, 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 the quarter ended March 31,2024.

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 "Maxim Note"). The interest rate on the note was 7.0%. As a result of the Reverse Stock Split, the approximately $2.6 million remaining Maxim Note balance became due within 90 days of the June 2024 Reverse Stock Split event. The Maxim Note was paid in full during the three-months ended September 30, 2024.

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 paid the remainingtwo monthly installments of principal and interest with the last payment being made in August 2024.

Note 7. Convertible Notes

The activity for the convertible notes is disclosed in the table below for the nine month period ended September 30, 2024. See our Annual Report on Form 10-K for the year-ended for December 31, 2023, for other details relating to the Investor D convertible notes issued prior to December 31, 2023.

The Company completed additional closings related to the Second Amendment to the Investor D Securities Purchase Agreement 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 (collectively the "2024 Investor D Notes"). The 2024 Investor D Notes were to mature on April 12, 2025 and April 24, 2025, respectively. The 2024 Investor D Notes have an initial conversion price of $14.00 per share and were convertible into shares of the Company's 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. The Company also issued warrants to purchase up to 5,278 and 15,382 shares of common stock, respectively, with an exercise price of $14.00 per share, and additional warrants to purchase up to 5,278 and 15,382 shares of common stock, respectively, with an exercise price of $14.00 per share.

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 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, which as disclosed below, was ultimately either converted or redeemed by June 30, 2024.

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 loss 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.

Investor D April 2024 Side Letter

On April 1, 2024, the Company and Investor D entered into 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 and notice of default in the event of such financings. In addition, after the end to the May 30, 2024, suspension period being reached, Investor D has the right to require the Company to redeem all or a portion of any outstanding Investor D convertible notes at 200% of the conversion amount (the "Make-Whole Amount").

On June 5, 2024, Investor D completed the following two transactions, eliminating the remaining outstanding convertible debt:

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Converted approximately $0.6 million of outstanding principal and $0.7 million of accrued interest and Make-Whole Amount, by issuing 92,858 shares of the Company's common stock, resulting in a loss of approximately $0.4 million, and

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Redeemed the remaining $0.7 million of outstanding convertible debt and Make-Whole Amount, and

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As of June 30, 2024, there wereno remaining outstanding convertible debt instruments. There wereno additional issuances of convertible debt during the three-months ended September 30, 2024.

Note 8. Equity Transactions

January 2024 Offering

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 investor (the "Q1 2024 SPA"), (i) in a registered direct offering,252,182 shares of the Company’s common stock, par value $0.0001 per share, and pre-funded warrants to purchase 181,449 shares of Common Stock (the "Pre-Funded Warrants") with an exercise price of $0.0001 per share, and (ii) in a concurrent private placement, series A warrants to purchase 433,631 shares of common stock (the "Series A Common Warrants") and series B warrants to purchase 216,816 shares of common stock each with an exercise price of $20.76 (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 “January 2024 Offering".

The Company received aggregate gross proceeds from the January 2024 Offering of approximately $9.0 million, before deducting fees to the Maxim Group LLC and other estimated offering expenses payable by the Company. The Investor E Warrants became exercisable on June 4, 2024, the effective date of stockholder approval for the issuance of the shares of common stock issuable upon exercise of the Investor E Warrants (the "Stockholder Approval Date"). 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 twelve-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 Maxim Group LLC and issued 21,682 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 $22.83 per share and the warrants become exercisable on July 30, 2024, expiring five years after the closing date.

July 2024 Offering

On July 10, 2024, the Company entered into a securities purchase agreement (the “Q3 2024 SPA”) with certain institutional investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market: (i)947,868 shares of the Company’s common stock, $0.0001 par value per share and (ii) Common Stock purchase warrants to purchase up to 947,868 shares of Common Stock (the “July 2024 Investor Warrants”) in a concurrent private placement (together the "July 2024 Offering"). The July 2024 Investor Warrants were immediately exercisable, expire five years following the issuance date and have an exercise price of $10.55 per share. The Company agreed to register the shares of Common Stock underlying the Common Warrants within 30 days of the date of the Purchase Agreement. The combined purchase price of each share of Common Stock and July 2024 Investor Warrant is $10.55. The gross proceeds to the Company from the Offering were approximately $10.0 million, before deducting placement agent fees and other offering expenses payable by the Company.

On May 17, 2024, the Company entered into an engagement letter with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which Wainwright agreed to serve as the exclusive placement agent for the Company, on a reasonable best-efforts basis, in connection with the offering. The Company paid Wainwright an aggregate cash fee equal to (i)6.4% and 1% management fee of the gross proceeds of the July 2024 Offering and (ii) for certain expenses incurred by Wainwright totaling approximately $0.8 million. Additionally, the Company has agreed to issue to Wainwright or its designees as compensation, warrants to purchase up to 66,351 shares of Common Stock, equal to 7.0% of the aggregate number of Shares placed in the Offering (the “July 202 4 PA Warrants”, which combined with the July 2024 Investor Warrants are herein referred to as the "July 2024 Warrants"). The Placement Agent Warrants have a term offive years from the commencement of sales under the Offering and an exercise price of $13.1875 per share of Common Stock (equal to 125% of the offering price).

August 2024 At-The-Market Offering

On August 20, 2024, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with Wainwright as sales agent, to sell shares of its common stock, from time to time, through an “at the market offering” program under which Wainwright will act as sales agent. The sales, if any, of the Company's Common Stock made under the ATM Agreement will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on or through the Nasdaq Capital Market or on any other existing trading market for the Company’s common stock (the "ATM").

Through September 30, 2024, the Company raised approximately $0.1 million utilizing the ATM, issuing 12,218 shares of the Company's Common Stock.

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 Equity Line of Credit.

Note 9. Warrants

Warrants Issued in FY 2024

July 2024 Warrants

As discussed in Note 7, as part of the Q3 2024 SPA, the Company issued on July 11, 2024 the following warrants to purchase the Company's common stock to certain institutional investors and the placement agent:

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July 2024 Investor Warrants- warrants to purchase 947,868 shares of the Company's common stock with an exercise price of $10.55, expiring July 10, 2029.

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July 2024 PA Warrants - warrants to purchase 66,351 shares of the Company's common stock, with an exercise price of $13.1875, expiring July 10, 2029.

Investor E (January 2024) Warrants

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 to Investor E:

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Pre-Funded Warrants -warrants to purchase 181,449 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 quarter ended March 31, 2024

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Series A and Series B Common Warrants -in a concurrent private placement, Series A Common Warrants to purchase 433,631 shares of Common Stock and Series B Common Warrants to purchase 216,816 shares of common stock each with an exercise price of $20.76.

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PA Warrants – in a concurrent private placement, PA Warrants to purchase 21,682 shares of common stock with an exercise price of $22.83 per share.

Investor E Warrants became exercisable on June 4, 2024, 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 June 4, 2029, and the Series B Common Warrants will expire on June 4, 2025.

Maxim Group LLC ("Maxim") 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 Maxim. On January 30, 2024, Maxim received warrants to purchase 21,682 shares of 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 became exercisable six months after the closing and will expire on January 30, 2029. 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 included on the consolidated balance sheet as a component of stockholders' equity (deficit).

Investor D Warrants

The Company, in conjunction with additional borrowing of convertible debt related to the Second Amendment to the Investor D SPA on January 12, 2024 and January 24, 2024, 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 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.

All remaining Investor D Warrants issued in connection with the Investor D SPA were exchanged for an approximately $0.5 million short-term note payable on June 28, 2024, eliminating all remaining Investor D Warrants issued in connection with the Investor D SPA as of June 30, 2024 (see Note 5).

The Investor D Warrants issued in January 2024 in connection with the Investor D SPA were determined to be liability classified. 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. Subsequent changes in fair value were recognized through earnings at each reporting period end-date or settlement date.

The Company had the following warrants outstanding at September 30, 2024, and December 31, 2023:

The following tables provides the weighted-average strike price and time to maturity for each warrant tranche as of September 30, 2024, and December 31, 2023:

(*) - The July 2024 Warrants comprise both the July 2024 Investor Warrants and the July 2024 PA Warrants. Accordingly, the reported exercise price is the weighted-average exercise price.

Below is the warrant activity for the nine-months ended September 30, 2024:

During the three months ended September 30, 2024, the Company incurred a gain of approximately $0.2 million from the mark-to-market adjustment for all remaining liability classified warrants.

During the nine months ended September 30, 2024, the Company incurred (i) a $1.6 million loss from exercises of certain Investor D Warrants, (ii) a gain of $1.3 million from the exchange of all remaining Investor D Warrants in June 2024 for an approximately $0.5 million short-term Investor D Note which was paid in full during the three-months ended September 30, 2024. and (iii) a loss of approximately $0.5 million from the periodic mark-to-market adjustments for all liability classified warrants over that period.

Note 10. Stock-Based Compensation Awards

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

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.

Stock Options

Option activity for the period ended September 30, 2024, is as follows:

2022 Omnibus Incentive Plan - Stock Options

2019 Omnibus Incentive Plan - Options

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 11. Commitments and Contingencies

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 and $24 thousand for the three- and nine- months ended September 30, 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.

2022 Demand Letter

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, and this matter has been closed.

2024 Securities Class Action Lawsuit

On July 5, 2024, Forrest A K Wells (the “Plaintiff”), a purported stockholder of the Company, filed a putative class action complaint in the United States District Court for the State of Colorado, captioned Wells v. SeaStar Medical Holding Corporation et al, Case No. 1:24-cv-0187 (D. Colorado) (the “Class Action”). The Class Action alleges that the Company, its Chief Executive Officer and former Chief Financial Officer made or caused to be made material misstatements or omissions regarding the Company’s business and operations, allegedly culminating in the Company’s restatement of its consolidated financial statements, disclosed in a Form 8-K and filed on March 27, 2024. The Class Action asserts claims pursuant to the Securities Exchange Act of 1934, including Section 10(b), Rule 10b-5 promulgated thereunder and Section 20(a). The Class Action seeks to recover, among other remedies, compensatory damages. The Company intends to vigorously defend the action.

The Company has not recognized a contingent liability for this Class Action event as it does not qualify for the recognition criteria under ASC 450 -Contingencies.

On October 20, 2024, the Company entered into the Settlement Agreement with Nuwellis whereby the Company has agreed to pay Nuwellis $0.9 million in connection with the Company's termination of the Distribution Agreement. Of the $0.9 million, $550 thousand represented contract liabilities previously recognized (see Note 3), and $350 thousand of additional consideration. See Note 15 to our unaudited consolidated financial statements for the three- and nine- months ended September 30, 2024, included elsewhere in this Form 10-Q for additional information.

Note 12. 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 September 30, 2024 and December 31, 2023, by level within 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 September 30, 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 September 30, 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 September 30, 2024 and December 31, 2023.

Note 13. 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. Except as noted below, 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 has recognized an insignificant provision for certain minimum state taxes of less than $0.1 million as of September 30, 2024, and December 31, 2023.

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 14. 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 15. Subsequent Events

In December 2022, the Company entered into the Distribution Agreement with Nuwellis, pursuant to which the Company appointed Nuwellis as its exclusive distributor for the sale and distribution of its pediatric SCD product throughout the United States. In May 2024, the Company provided notice to Nuwellis that Nuwellis had breached the Distribution Agreement and that the Distribution Agreement would terminate effective August 18, 2024.

Nuwellis disputed the validity of the termination and on October 20, 2024, the Company entered into a confidential settlement agreement and release with Nuwellis, pursuant to which the Company agreed to pay Nuwellis an aggregate of $900 thousand, payable in three installments through December 31, 2024. The Company paid the first installment of $500 thousand on October 22, 2024.

At-The-Market Offering

Subsequent to September 30, 2024 and as of November 11, 2024, the Company raised approximately $2.0 million by issuing approximately 0.6 million shares of the Company's common stock for net proceeds of approximately $1.9 million under the Company's At-the-Market offering facility which was registered on August 21, 2024.