Ocean Biomedical(US:OCEA)2025-05-15 21:22PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Unaudited Q1 2025 financial statements reveal no revenue, significant operating losses, a $92.4 million stockholders' deficit, and substantial 'going concern' uncertainties Condensed Consolidated Balance Sheets As of March 31, 2025, the company reported $1.6 million in assets, $94.0 million in liabilities, and a $92.4 million stockholders' deficit, with no cash Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash | $0 | $0 | | Total current assets | $1,492 | $812 | | Total Assets | $1,582 | $902 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $26,568 | $33,889 | | Backstop put option liability | $61,411 | $59,056 | | Total Liabilities | $93,981 | $98,518 | | Total stockholders' deficit | ($92,399) | ($97,616) | - The number of common stock shares issued and outstanding increased significantly from 34.9 million at the end of 2024 to 166.0 million as of March 31, 2025, primarily due to the conversion of debt17 Condensed Consolidated Statements of Operations Q1 2025 saw no revenue, an operating loss of $0.96 million, and a net loss of $8.24 million, a significant decline from Q1 2024's $13.0 million net income Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total operating expenses | $958 | $595 | | Operating Loss | ($958) | ($595) | | Total other (expense) income | ($7,282) | $13,594 | | Net (Loss) Income | ($8,240) | $12,999 | | Net (loss) income per share | ($0.09) | $0.48 | Condensed Consolidated Statements of Cash Flows Q1 2025 cash flows show $0.36 million used in operations, $0.91 million provided by financing, and a period-end restricted cash balance of $0.78 million Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($356) | ($485) | | Net cash provided by financing activities | $909 | $0 | | Total change in cash and restricted cash | $553 | ($485) | | Cash and restricted cash at end of period | $777 | $519 | Notes to Unaudited Condensed Consolidated Financial Statements Notes reveal 'going concern' doubt from recurring losses and a $25.1 million working capital deficiency, reliance on future financing, and ongoing legal and delisting risks - The company has substantial doubt about its ability to continue as a going concern due to its lack of cash inflows, working capital deficiency of $25.1 million, and continued operating losses32 - In January 2025, the company issued 125.9 million shares to convert approximately $7.8 million of its 2024 Convertible Notes, plus interest and a $1.7 million redemption premium, and an investor also exercised warrants for 1.3 million shares122 - The company is involved in several legal proceedings, including claims from a former employee (Heller), a financing provider (IPFS), a finder's fee dispute (Entoro), and a dispute over the Backstop Agreement (Meteora), with a probable loss of $0.5 million recorded for the Heller case125126127128 - As a subsequent event, on April 22, 2025, Nasdaq determined that the company's stock will be delisted, which the company is appealing203204 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the pre-revenue company's $8.2 million Q1 2025 net loss, critical 'going concern' risk, and reliance on external financing, with funds projected only into Q3 2025 Results of Operations Q1 2025 operating loss widened to $1.0 million, while 'Other (loss) income' swung from a $13.6 million gain to a $7.3 million loss, primarily due to fair value changes Comparison of Operations (in thousands) | Line Item | Q1 2025 | Q1 2024 | $ Change | | :--- | :--- | :--- | :--- | | Operating loss | ($958) | ($595) | ($363) | | Other (loss) income | ($7,282) | $13,594 | ($20,876) | | Net (loss) income | ($8,240) | $12,999 | ($21,239) | - General and administrative expenses increased by $0.4 million in Q1 2025 compared to Q1 2024, mainly due to costs associated with the year-end audit and Form 10-K filing230 - The $20.9 million increase in other expense was primarily driven by an $18.1 million decrease in fair value gains on financial instruments, a $2.7 million increase in transaction costs, and a $1.7 million redemption premium on debt conversions231 Liquidity and Capital Resources The company faces critical liquidity issues with no cash, a $23.1 million working capital deficiency, and funds only sufficient into Q3 2025, necessitating significant additional financing - The company has no cash and a working capital deficiency of $23.1 million as of March 31, 2025232 - Management expects current funding is only sufficient to support operations into the third quarter of 2025, and the company's ability to continue is dependent on raising additional capital233236 - The company has contingent compensation and bonuses of $16.9 million for senior management and $1.0 million in vendor payments, payable only upon a cumulative capital raise of at least $50 million246 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ocean Biomedical, Inc. is exempt from providing market risk disclosures - The company is exempt from providing disclosures about market risk because it qualifies as a smaller reporting company260 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2025, due to material weaknesses in accounting staff and valuation controls, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025261 - Material weaknesses identified include: inadequate accounting staff and lack of processes for timely financial reporting, and deficient internal controls for reviewing third-party valuations of convertible debt and warrant liabilities270 - Remediation plans include hiring additional accounting personnel (such as the new CFO), engaging consultants, and developing formal policies and procedures265266 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company refers to its Form 10-K and Note 8 of this 10-Q for details on material legal proceedings - The company refers to its Form 10-K and the notes to its financial statements for details on material legal matters, with Note 8 of this 10-Q describing ongoing litigation272 Item 1A. Risk Factors Key risks include high indebtedness ($10.5 million), limited cash, and significant dilution potential from convertible notes and warrants, impacting the company's ability to fund operations - The company's significant level of indebtedness ($10.5 million principal as of March 31, 2025) and limited cash resources pose a major risk to its financial condition and ability to fund operations275 - The ability to meet debt obligations is dependent on future cash generation or external financing, neither of which is assured276280 - Holders of common stock face significant potential dilution due to the large number of shares issuable upon conversion of outstanding notes and warrants281 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued a substantial number of unregistered equity securities in Q1 2025 and subsequently, totaling 192.3 million shares from debt conversions and warrant exercises Unregistered Equity Issuances (Q1 2025 and Subsequent) | Period | Shares Issued | Reason | | :--- | :--- | :--- | | Jan 2025 | 3,844,466 | Ayrton Convertible Note Financing amendment | | Jan 2025 | 1,332,806 | Exercise of warrant B | | Q1 2025 | 125,964,905 | Conversion of 2024 Convertible Notes | | Apr-May 2025 | 66,354,338 | Conversion of 2024 Convertible Notes | Item 6. Exhibits This section lists exhibits filed with the 10-Q, including corporate governance documents and Sarbanes-Oxley Act certifications - The report includes certifications from the Principal Executive Officer and Principal Accounting Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act289