SeaStar Medical(ICU) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis for SeaStar Medical Holding Corporation Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for SeaStar Medical Holding Corporation, including the Balance Sheets, Statements of Operations, Statements of Changes in Stockholders' Deficit, and Statements of Cash Flows, along with their accompanying notes, for the periods ended March 31, 2023, and December 31, 2022 (or March 31, 2022 for operations and cash flows) These statements are prepared in conformity with U.S. GAAP and SEC interim reporting rules Consolidated Balance Sheets (Unaudited) This section presents the unaudited consolidated balance sheets, detailing assets, liabilities, and stockholders' deficit as of March 31, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (March 31, 2023 vs. December 31, 2022) | Metric (in thousands) | March 31, 2023 | December 31, 2022 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Cash | $725 | $47 | +$678 | | Total current assets | $3,384 | $3,036 | +$348 | | Total assets | $3,386 | $4,767 | -$1,381 | | Total current liabilities | $8,036 | $5,350 | +$2,686 | | Total liabilities | $14,270 | $13,002 | +$1,268 | | Total stockholders' deficit | $(10,884) | $(8,235) | -$(2,649) | Consolidated Statements of Operations (Unaudited) This section presents the unaudited consolidated statements of operations, detailing revenues and expenses for the three months ended March 31, 2023 and 2022 Consolidated Statements of Operations Highlights (Three Months Ended March 31, 2023 vs. 2022) | Metric (in thousands) | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Research and development | $1,784 | $355 | +$1,429 | +403% | | General and administrative | $2,797 | $457 | +$2,340 | +512% | | Total operating expenses | $4,581 | $812 | +$3,769 | +464% | | Loss from operations | $(4,581) | $(812) | -$(3,769) | +464% | | Total other expense, net | $(681) | $(192) | -$(489) | +255% | | Net loss | $(5,262) | $(1,004) | -$(4,258) | +424% | | Net loss per share (basic & diluted) | $(0.40) | $(0.14) | -$(0.26) | +186% | Consolidated Statements of Changes in Stockholders' Deficit (Unaudited) This section presents the unaudited consolidated statements of changes in stockholders' deficit for the three months ended March 31, 2023 and 2022 Changes in Stockholders' Deficit Highlights (Three Months Ended March 31, 2023 vs. 2022) | Metric (in thousands) | March 31, 2023 | December 31, 2022 | March 31, 2022 | | :-------------------- | :------------- | :---------------- | :------------- | | Additional Paid-In Capital | $93,702 | $91,089 | $73,499 | | Accumulated Deficit | $(104,587) | $(99,325) | $(77,316) | | Total Stockholders' Deficit | $(10,884) | $(8,235) | $(3,816) | - The accumulated deficit increased from $99.3 million at December 31, 2022, to $104.6 million at March 31, 2023, primarily due to the net loss incurred during the period[15][88] Consolidated Statements of Cash Flows (Unaudited) This section presents the unaudited consolidated statements of cash flows, detailing operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, 2023 vs. 2022) | Cash Flow Activity (in thousands) | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | Change ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net cash used in operating activities | $(2,294) | $(587) | -$(1,707) |\n| Net cash provided by financing activities | $2,972 | $284 | +$2,688 |\n| Net increase (decrease) in cash | $678 | $(303) | +$981 |\n| Cash, end of period | $725 | $207 | +$518 | - The increase in cash used for operating activities by $1.7 million was primarily due to increased resources allocated to launching clinical trials[122] - Net cash provided by financing activities increased significantly due to proceeds from the issuance of convertible notes, new shares of common stock, and the sale of recycled shares, partially offset by payments of notes payable[123] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanatory notes accompanying the unaudited consolidated financial statements, offering context and additional information on accounting policies and transactions Note 1. Description of Business This note describes SeaStar Medical's business, its medical device technology, and the going concern considerations due to accumulated losses - SeaStar Medical Holding Corporation is a pre-revenue medical technology company focused on research, development, and commercialization of a platform medical device technology (SCD) designed to modulate inflammation, primarily targeting acute kidney injuries[20][21][86][87] - The company's accumulated deficit of $104.6 million and cash of $725 thousand as of March 31, 2023, raise substantial doubt about its ability to continue as a going concern for at least 12 months[27][88][110] - Future operations are expected to be financed through equity or debt sales, credit facilities, or strategic transactions, as adequate capital may not be available on acceptable terms[28][92] Note 2. Summary of Significant Accounting Policies This note outlines the significant accounting policies and critical estimates used in preparing the financial statements, including fair value measurements - Significant estimates in financial statements include the valuation of forward option on prepaid forward contracts, derivative liability, warrants, convertible debt at fair value, and stock-based compensation expense[32][125] - The company elected the fair value option (FVO) for its convertible notes due to operational efficiencies, with changes in fair value recognized in the consolidated statements of operations[35][36] - The fair value of forward option on prepaid forward contracts, convertible notes, and warrants liability are classified as Level 3 in the fair value hierarchy, indicating significant unobservable inputs[39] Note 3. Forward Purchase Agreements This note details transactions related to forward purchase agreements, including recycled share sales and fair value remeasurements - During Q1 2023, 374,005 recycled shares were sold by FPA Sellers for $1.87 million, resulting in a gain of $1.31 million on the sale[46] - A loss on remeasurement of $1.65 million was recorded for the change in fair value of forward option on prepaid forward contracts[46] - A Volume Weighted Average Price (VWAP) trigger event occurred in March 2023, allowing FPA Sellers to mature the agreements, though no maturity date has been specified as of the report issuance[47][133] Note 4. Accrued Expenses This note provides a breakdown of accrued expenses, including commitment fees, bonuses, and research and development costs Accrued Expenses (in thousands) | Accrued Expense Category | March 31, 2023 | December 31, 2022 | | :----------------------- | :------------- | :---------------- | | Accrued commitment fee, equity line of credit | $0 | $1,500 | | Accrued bonus | $621 | $450 | | Accrued research and development | $212 | $18 | | Accrued settlement | $200 | $0 | | Accrued director remuneration | $157 | $61 | | Accrued legal | $137 | $80 | | Accrued extension consideration to notes payable holders | $100 | $0 | | Accrued interest | $33 | $112 | | Accrued other | $71 | $24 | | Total accrued expenses | $1,531 | $2,245 | Note 5. Equity Line of Credit This note details transactions under the equity line of credit, including commitment fee payments and share sales - The company paid $1.5 million in previously accrued commitment fees during Q1 2023, with $1.0 million paid in common stock (218,842 shares) and $0.5 million in cash[49][134] - 378,006 shares of common stock were sold to Tumim Stone Capital LLC for $1.11 million as part of the equity line financing arrangement during Q1 2023[49][134] - As of March 31, 2023, $98.89 million was available to draw under the equity line[49] Note 6. Notes Payable This note details the company's notes payable, including maturity extensions and new promissory notes Notes Payable Balances (in thousands) | Note Type | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | LMFA notes payable | $443 | $968 | | LMFAO note payable | $1,758 | $2,785 | | Maxim note payable | $3,640 | $4,167 | | Insurance financing | $493 | $910 | | Total notes payable (net of deferred financing costs) | $5,745 | $7,652 | - LMFA, LMFAO, and Maxim notes' maturity dates were extended to June 15, 2024, in March 2023, in exchange for a $0.1 million cash payment to noteholders upon receipt of proceeds from the second closing of the securities purchase agreement[51][116] - A $0.1 million promissory note with LMFA, bearing 7.0% interest, was entered into on March 13, 2023, and repaid on March 24, 2023[53][117] Note 7. Convertible Notes This note describes the issuance and fair value accounting of the First Convertible Note, including its terms and warrants - On March 15, 2023, the company issued the First Convertible Note to 3i LP with a principal amount of $3.26 million, convertible into 1,207,729 shares at $2.70/share, and warrants for 328,352 shares[60][135] - The First Convertible Note was issued at an 8.0% discount, bears 7.0% interest, matures on June 15, 2024, and is carried at fair value on the balance sheet[60][61][135] - The fair value of the First Convertible Note was $2.39 million at March 31, 2023, resulting in a difference of $0.86 million from the unpaid principal balance[62] Note 8. Warrants This note details the issuance and fair value classification of Convertible Note Warrants and other outstanding warrants - 328,352 Convertible Note Warrants were issued on March 15, 2023, with an exercise price of $2.97 per share, expiring in five years, and valued at $0.5 million at issuance[65][136] - These warrants are classified as a liability and measured at fair value due to potential cash settlement under the exchange cap provision[66] Outstanding Warrants | Warrant Type | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | Public Stockholders' Warrants | 10,350,000 | 10,350,000 | | Private Placement Warrants | 5,738,000 | 5,738,000 | | PIPE Investor Warrants | 700,000 | 700,000 | | Convertible Note Warrants | 328,352 | — | | SeaStar Warrants | 69,714 | 69,714 | | Total | 17,186,066 | 16,857,714 | Note 9. Common Stock This note details stock-based compensation expenses and changes in common stock Stock-Based Compensation Expense (in thousands) | Expense Category | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | | :------------------------ | :-------------------------- | :-------------------------- | | Research and development | $39 | $0 | | General and administrative | $466 | $4 | | Total | $505 | $4 | - Total stock-based compensation expense significantly increased from $4 thousand in Q1 2022 to $505 thousand in Q1 2023[68] Note 10. Commitments and Contingencies This note outlines the company's contractual commitments, including licensing agreements and legal settlements - The company entered into an exclusive license and distribution agreement for its SCD in the U.S., receiving a $0.1 million upfront payment recorded as a liability, with potential milestone payments of $0.45 million for FDA approval and $0.35 million for initial sales[69] - A legal settlement of $0.2 million was accrued as of March 31, 2023, to be paid in four $50 thousand installments[72] Note 11. Income Taxes This note discusses the company's income tax position, including the valuation allowance against deferred tax assets - The company has recorded a full valuation allowance against its net deferred tax assets due to uncertainty of future profitable operations and taxable income[73][107] - No income tax provision or benefit was recorded for the three months ended March 31, 2023, or 2022[12][102] Note 12. Net Loss Per Share This note details the calculation of basic and diluted net loss per share, including the impact of anti-dilutive securities Net Loss Per Share (Basic and Diluted) | Metric | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | | :------------------------ | :-------------------------- | :-------------------------- | | Net loss (in thousands) | $(5,262) | $(1,004) | | Weighted average shares outstanding | 13,025,852 | 7,238,767 | | Basic and diluted net loss per share | $(0.40) | $(0.14) | - Diluted net loss per share is the same as basic net loss per share for all periods presented due to the company reporting a net loss, making potentially dilutive securities anti-dilutive[74] - The calculation of weighted average shares outstanding for Q1 2022 has been retroactively restated to reflect the Business Combination as if it occurred at the beginning of the period[77] Note 13. Subsequent Events This note discloses significant events occurring after the balance sheet date, including convertible note payments and new issuances - On April 3, 2023, the company made the first principal payment of $217 thousand and interest payment of $19 thousand on the First Convertible Note[79] - In May 2023, 3i LP converted $140 thousand of principal and $10 thousand of interest from the First Convertible Note into 123,104 shares of common stock[80] - On May 12, 2023, the company issued the Second Convertible Note with a principal amount of $2.17 million and warrants for 218,901 shares, bearing 7.0% interest and maturing August 12, 2024[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, liquidity, and capital resources, highlighting the pre-revenue stage, significant net losses, and the ongoing need for additional capital to fund its medical device development and commercialization efforts It also discusses the impact of the Business Combination and the company's going concern status Overview This overview introduces SeaStar Medical's business, its accumulated losses, and the going concern uncertainty - The company is a medical technology company developing the Selective Cytopheretic Device (SCD) to modulate hyperinflammation in acute organ injury indications, including kidneys and lungs, and aims to integrate it into existing CRRT systems[86][87] - SeaStar Medical has incurred significant net losses since inception, with an accumulated deficit of $104.6 million as of March 31, 2023, and reported a net loss of $5.3 million for Q1 2023[88] - The company's recurring losses, working capital deficiency, and need for capital raise substantial doubt about its ability to continue as a going concern[91] Key Components of Results of Operations This section outlines the key drivers of the company's operating results, including revenue expectations and expense trends - The company is pre-revenue from commercialized products, with past revenue primarily from grants, and future revenue dependent on successful product development, regulatory approval, and potential licensing/collaboration agreements[94] - Research and development expenses are expected to increase significantly as the company advances its product development and clinical trials[95] - General and administrative expenses are expected to increase due to new hires, travel, a new ERP platform, branding, and professional fees for accounting and legal services[97] Results of Operations This section analyzes the company's operating performance, focusing on changes in expenses and net loss for the period Operating Expenses Comparison (Three Months Ended March 31, 2023 vs. 2022) | Expense Category (in thousands) | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | Change ($) | Change (%) | | :------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | | Research and development | $1,784 | $355 | +$1,429 | +403% | | General and administrative | $2,797 | $457 | +$2,340 | +512% | | Total operating expenses | $4,581 | $812 | +$3,769 | +464% | - The 403% increase in R&D expenses was driven by increases in clinical trial expenses ($0.6 million), external services ($0.3 million), and payroll/personnel expenses ($0.5 million)[103] - The 512% increase in G&A expenses was primarily due to higher professional fees for SEC reporting ($0.6 million), payroll-related expenses ($0.7 million), insurance ($0.4 million), financial instrument expenses ($0.1 million), SEC reporting costs ($0.2 million), a legal settlement ($0.2 million), and marketing ($0.1 million)[104] - Net loss increased by $4.3 million to $5.3 million in Q1 2023, primarily due to increased operating expenses and a $1.7 million change in fair value of forward option-prepaid forward contracts, partially offset by a $0.1 million change in fair value of convertible notes and a $1.3 million gain on recycled share sales[108] Liquidity and Capital Resources This section discusses the company's financial liquidity, capital funding sources, and future funding requirements - The company's operations have been financed primarily through equity securities sales and convertible debt, with significant operating losses and negative cash flows since inception[109] - Existing cash of $0.7 million as of March 31, 2023, is insufficient to fund operations for at least 12 months, raising substantial doubt about the company's ability to continue as a going concern[110] - The company does not expect to rely on the cash exercise of warrants to fund operations in the near term, as the common stock trading price ($1.86) is significantly below the warrant exercise price ($11.50)[112] - Future funding requirements are substantial and depend on clinical trial progress, regulatory approvals, intellectual property costs, and public company operating expenses[118][120] Critical Accounting Policies and Estimates This section highlights the critical accounting policies and significant estimates that impact the company's financial statements - Management's preparation of financial statements involves significant estimates, assumptions, and judgments, including the valuation of forward option on forward purchase agreements, derivative liability, warrants, convertible notes at fair value, and share-based compensation expense[124][125] Emerging Growth Company Status This section explains the company's status as an Emerging Growth Company and its election to utilize certain JOBS Act exemptions - As an Emerging Growth Company (EGC), SeaStar Medical has elected to use the extended transition period for complying with new or revised accounting standards, delaying adoption until they apply to private companies[126] - The company intends to rely on other JOBS Act exemptions, including not providing an auditor's attestation report on internal controls, reduced compensation disclosure, and exemptions from mandatory audit firm rotation[127] Contractual Obligations and Commitments This section details the company's contractual obligations and commitments, including notes payable and convertible notes Contractual Obligations as of March 31, 2023 (in thousands) | Contractual Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--------------------- | :------- | :--------------- | :-------- | :-------- | :---------------- | | LMFA note payable | $443 | $0 | $443 | $0 | $0 | | LMFAO note payable | $1,758 | $0 | $1,758 | $0 | $0 | | Maxim note payable | $3,640 | $0 | $3,640 | $0 | $0 | | First Convertible Note | $3,251 | $2,599 | $652 | $0 | $0 | | Insurance Financing | $493 | $493 | $0 | $0 | $0 | | Total | $9,585 | $3,092 | $6,493 | $0 | $0 | Recent Developments This section summarizes recent significant events, including forward purchase agreement triggers and new convertible note issuances - A VWAP trigger event occurred in March 2023 for the Forward Purchase Agreements, allowing FPA Sellers to mature the agreements, but no maturity date has been specified[133] - The company paid $1.5 million in accrued commitment fees for its equity line of credit, with $1.0 million in stock and $0.5 million in cash, and sold 378,006 shares for $1.11 million to Tumim[134] - On March 15, 2023, the company issued the first of four senior unsecured convertible notes to 3i LP, with a principal amount of $3.26 million and warrants, issued at an 8% discount and bearing 7% interest[135][136] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, SeaStar Medical is not required to provide detailed quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[137] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2023, due to identified material weaknesses in financial accounting and reporting controls, stemming partly from the recent Business Combination and the preliminary stage of developing an internal control framework - Disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses in financial accounting and reporting controls[139][143] - Material weaknesses identified relate to deficiencies in the design and operation of financial accounting and reporting controls, with plans to address additional headcount for complex accounting transactions[143] - No changes in internal control over financial reporting occurred during the three months ended March 31, 2023, that materially affected or are reasonably likely to materially affect internal control over financial reporting[144] PART II. OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or results of operations, though litigation can still have an adverse impact - No current legal proceedings are expected to have a material adverse effect on the company's business, financial condition, or results of operations[146] Item 1A. Risk Factors This section updates previously disclosed risk factors, emphasizing the critical need for additional financing to fund product development and regulatory approval processes, the potential adverse effects of Forward Purchase Agreements, and the significant risks associated with obtaining FDA approval for its SCD product candidates - Failure to obtain additional financing could force delays, reductions, or elimination of product development programs, potentially leading to cessation of operations[148][150][151] - The company faces risks related to Forward Purchase Agreements, including potential adverse effects on common stock price and the obligation to pay Maturity Consideration if a VWAP Trigger Event occurs and no agreement is reached with FPA Sellers[152][153][154][155] - There is no guarantee of FDA approval for the SCD product candidates, with current HDE application for pediatric AKI not approvable in its current form and risks associated with completing the adult AKI pivotal trial[156][157][158][159][160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company entered into a Securities Purchase Agreement on March 15, 2023, to issue up to $9.8 million in senior unsecured convertible notes and warrants to an institutional investor (3i LP) in a series of closings, with the first tranche already issued Future closings are subject to conditions including SEC registration and stockholder approval - On March 15, 2023, the company issued the first tranche of senior unsecured convertible notes (principal amount $3.26 million) and warrants (328,352 shares) to 3i LP, with an 8% original issue discount and 7% interest, maturing June 15, 2024[161][165] - Future tranches of convertible notes and warrants (up to $9.8 million total principal) are subject to conditions, including SEC registration statement effectiveness and stockholder approval for issuances exceeding 19.99% of outstanding shares[162][164] - The notes and warrants were issued to an accredited investor in reliance on Regulation D exemption and have not been registered under the Securities Act[168] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not Applicable[169] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - Not Applicable[169] Item 5. Other Information This item is not applicable to the company for the reporting period - Not Applicable[169] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including forms of warrants, securities purchase agreements, registration rights agreements, convertible notes, and certifications from executive officers - Key exhibits include forms of Common Stock Purchase Warrant, Securities Purchase Agreement, Registration Rights Agreement, Senior Unsecured Convertible Note, and certifications from the Principal Executive Officer and Principal Financial Officer[171] Signatures This section contains the required signatures of the company's authorized officers and directors, affirming the filing of the Form 10-Q Signatures This section contains the required signatures of the company's authorized officers and directors, affirming the filing of the Form 10-Q - The report is signed by Eric Schlorff (CEO) and Caryl Baron (Interim CFO) on May 15, 2023, along with other directors[175][179]