SeaStar Medical Holding Corp: Form 10-Q for the period ended Sep 30, 2024

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.

In addition to historical financial analysis, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions, as described under the heading “Cautionary Note Regarding Forward Looking Statements.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, risks and uncertainties, including those set forth under “Risk Factors” included elsewhere (or incorporated by reference) in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “SeaStar Medical", “we", “us", “our,” and “the Company” are intended to mean the business and operations of SeaStar Medical Holding Corporation and its consolidated subsidiaries following the Business Combination.

Overview

On October 28, 2022, LMAO consummated a series of transactions that resulted in the combination of LMF Merger Sub, Inc. and SeaStar Medical, Inc. pursuant to an Agreement and Plan of Merger (the "Business Combination"), resulting in the formation of the Company.

We are a commercial stage medical technology company developing a proprietary platform therapy, our Selective Cytopheretic Device (“SCD”), to reduce the consequences of hyperinflammation on vital organs. We received Food and Drug Administration ("FDA") approval for our pediatric SCD on February 22, 2024, under a Humanitarian Device Exemption ("HDE"), and shipped our first commercial pediatric SCD in July 2024. A pivotal clinical trial for the SCD in adult patients with Acute Kidney Injury ("AKI") is underway with 59 patients enrolled as of November 12, 2024.

The inflammatory response is critical to fend off infections and repair damaged tissue in the body. Central to inflammation are the cells within blood and lymph circulatory systems, called white blood cells (primarily neutrophils and monocytes), also referred to commonly as “pus” cells. 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. These inflammatory cells release chemicals (cytokines) that trigger the immune system to eliminate foreign pathogens or damaged tissue, enhancing the immune response.

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.

Based on clinical and preclinical studies conducted over the last 15 years, our technology has shown promise in modulating the degree of activity of proinflammatory cells to help reduce tissue damage and speed the repair and recovery of organ function. We believe this approach, if successful, will transform the ability of clinicians to treat acute organ failure in the intensive care unit (“ICU”) and to improve organ function in hospitalized patients.

Currently, few therapeutics are available to clinicians to address hyperinflammation and for those options that do exist, such options are either immunosuppressive or only target one cytokine. We believe our technology has the potential to overcome limitations in existing anti-inflammatory treatments and address the challenge of selectively targeting activated neutrophils and monocytes.

We are leveraging our patent protected and scalable SCD technology platform to develop proprietary therapies that are organ agnostic and target both acute and chronic indications. Preclinically, our SCD was tested in various animal models, which include acute myocardial infarction, intracranial hemorrhage, chronic heart failure, sepsis, and acute respiratory distress syndrome. The animal models demonstrated the inflammatory response and how it was modified by our SCD. We will continue to explore the application of our SCD technology across a broad range of markets and indications where proinflammatory activated neutrophils and monocytes may contribute to disease progression or severity in both acute and chronic indications.

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 in adults on CRRT. In addition, we are developing our SCD to address inflammation associated with liver disease, acute respiratory distress syndrome, chronic dialysis and chronic heart failure in adult populations.

We have incurred net losses in each year since our inception in 2007. As of September 30, 2024 and December 31, 2023, we had an accumulated deficit of $135.2 million and $114.7 million, respectively. Our net losses were $20.4 million and $16.8 million for the nine months ended September 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.

As of September 30, 2024, and December 31, 2023, we had cash of $2.1 million and $0.2 million, respectively.

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.

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 nine- months ended September 30, 2024, included elsewhere in this Form 10-Q for additional information on our assessment.

Our need for additional capital will depend in part on the scope and costs of our development activities. To date, we have generated revenue of approximately $0.1 million from the sale of commercialized pediatric SCD products. Our ability to generate product revenue in the future will depend on the successful roll-out of our QUELIMMUNE pediatric SCD to hospitals and the development and eventual successful commercialization of our adult SCD. Until such time we are able to generate significant revenue from product sales, 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 and 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.

Key Components of Results of Operations

Recent Developments

Confidential Settlement Agreement

In December 2022, we entered into a license and distribution agreement (the “Distribution Agreement”) with Nuwellis, Inc. (“Nuwellis”), pursuant to which we appointed Nuwellis as our exclusive distributor for the sale and distribution of its pediatric SCD throughout the United States. In May 2024, we 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 (the "Settlement Agreement"), pursuant to which the Company agreed to pay Nuwellis an aggregate of $900,000 payable in three installments through December 31, 2024. The Company made the first payment of $0.5 million on October 22, 2024.

Revenue

Our pediatric SCD received HDE approval from the FDA in February 2024. Since that time, we have begun to build out our commercial operations, develop our customer base and initiate commercial sales of QUELIMMUNE. We shipped our first commercial QUELIMMUNE units in July 2024. Through September 30, 2024, we have recognized approximately $0.1 million of revenue from the sale of QUELIMMUNE. Historically, prior period revenue has been primarily derived from government and other grants. We will continue to focus our efforts on generating revenue in the future based on product sales of QUELIMMUNE, as well as potential future payments from license or collaboration agreements and government and other grants. We expect that any revenue we generate will fluctuate from quarter to quarter as we introduce QUELIMMUNE to pediatric hospital customers. We also continue to develop our adult SCD for which we are enrolling patients in a pivotal study to support a FDA approval. If we fail to complete the development of, or fail to obtain regulatory approval for commercialization of our adult SCD in a timely manner, our ability to generate future revenue, and our results of operations and financial position, could be materially adversely affected.

Research and Development Expenses

Since inception, we have focused our resources on research and development activities, including conducting preclinical studies and clinical trials, and developing our process and activities related to regulatory filings for our products. Subject to the availability of additional funding, we plan to further increase our research and development expenses for the foreseeable future as we continue the development of our SCD as well as a next generation SCD.

Research and Development expenses also include salaries and related costs for employees in clinical and medical affairs roles, which include stock-based compensation expenses and benefits for such employees .

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for employees in executive and finance roles, which also include stock-based compensation expenses and benefits for such employees.

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, an enterprise resource planning platform, and branding.

Other Income (Expense), Net

Total other income (expense), net primarily consists of interest expense relating to interest incurred on our notes, interest incurred on our convertible notes, change in the fair value of warrants liability, change in fair value of convertible notes, gain on issuance of convertible notes, change in fair value of forward-option forward contracts, and gain on sale of recycled shares.

Net Loss

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

Factors Affecting Operating Results

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges. Please see the factors discussed elsewhere in this Form 10-Q, including those discussed in Part II, Item 1A, “Risk Factors,” for additional information.

Results of Operations

Comparison of the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023

The following table sets forth a summary of our results of operations. This information should be read together with our unaudited consolidated financial statements and related Notes included elsewhere in this Form 10-Q.

($ in thousands)

Revenue

Revenue increased $0.1 million for the three-months ended September 30, 2024 compared to the three-months ended September 30, 2023, as the Company commenced commercial sales in July 2024. This was made possible because the Company obtained an HDE for the pediatric SCD in February 2024, and final regulatory clearance to sell commercially from the FDA under this HDE in July 2024.

Research and Development Expenses

The following table discloses the breakdown of research and development expenses:

($ in thousands)

Research and development expenses for the three months ended September 30, 2024 and 2023 were $2.3 million and $1.1 million, respectively. The increase in research and development expenses of approximately $1.2 million, or 115%, was primarily driven by (i) a $0.7 million increase in clinical trial costs due to the Company's increased efforts related to patient treatments and obtaining regulatory approval to commercially market and sell its adult SCD devices, (ii) a $0.4 million increase in personnel costs related to increased headcount during the three-months ended September 30, 2024 compared to this same period ended September 30, 2023, and (iii) $0.2 million increase in external costs due to the use of certain 3rd party vendors in conjunction with the Company's regulatory compliance and maintenance efforts.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2024 and 2023 were $2.2 million and $1.9 million, respectively. The increase in general and administrative expenses of approximately $0.3 million was the result of (i) $0.3 million increases in fees, primarily related to the settlement for contract termination with Nuwellis, Inc., (ii) $0.1 million increase professional services, driven primarily by increased accounting, investor relations related expenses, and employee training, and (iii) and approximately $0.1 million in compensation expense. This was offset by (i) a decline in insurance expense of approximately $0.1 million, and (ii) a $0.1 million decline in marketing expenses.

Other Income (Expense)

Other expenses (net) decreased approximately $4.3 million, or close to an 100% decline for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The key drivers for this decrease were the following: (i) $1.3 million loss on change in fair value of a forward purchase option-prepaid forward contract that occurred during the three-months ended September 30, 2023, but for which there was no activity during the three-months ended September 30, 2024, as the forward purchase option-prepaid forward contract did not exist during the three-months ended

September 30, 2024, and (ii) $5.3 million loss on the change in fair value or extinguishments of convertible notes that occurred during the three-months ended September 30, 2023, but there was no such activity for the three months ended September 30, 2024, as all convertible notes were fully redeemed or converted by June 30, 2024.

The above charges were offset by (i) $1.3 million gain from the change in fair value of forward purchase agreement derivative liabilities during the three-months ended September 30, 2023, but for which there was no activity during the three-months ended September 30, 2024, as the forward purchase agreement did not exist during the three-and-nine months ended September 30, 2024, and (ii) a $0.8 million decline in gains from the change in fair value of liability classified warrants, with $1.0 million gain recognized for the three-months ended September 30, 2023, compared to only a $0.2 million gain recognized during the same period in 2024. The reason for the decline was the number of outstanding liability classified warrants declined as all of the Investor D warrants were either exercised or exchanged for a short term note by June 30, 2024, and (iii) $0.2 million decline in other income.

Income Tax Provision (Benefit)

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

Under Accounting Standards Codification (“ASC”) 740-10-30-5, Income Taxes, deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. SeaStar Medical considers all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses. Based on operating losses reported during 2022 and 2021, the Company concluded there was not sufficient positive evidence to overcome this recent operating history. As a result, we believe that a valuation allowance continues to be necessary based on the more-likely-than-not threshold noted above.

Net Loss

During the three months ended September 30, 2024, SeaStar Medical had a net loss of $4.5 million compared to a net loss of $7.2 million for the three months ended September 30, 2023. The decreased net loss of $2.7 million has been disclosed in the above discussion.

Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023

($ in thousands)

Revenue

Revenue increased $0.1 million for the nine-months ended September 30, 2024 compared to the nine-months ended September 30, 2023, as the Company did not commence commercial sales until the three-months ended September 30, 2024. This was made possible because the Company obtained an HDE for the pediatric SCD devices in February 2024, and final regulatory clearance to sell commercially from the FDA under this HDE in July 2024.

Research and Development

The following table discloses the breakdown of research and development expenses:

($ in thousands)

Research and development expenses for the nine months ended September 30, 2024 and 2023 were $6.4 million and $4.8 million, respectively, an increase of approximately $1.6 million, or 3%. The increase in research and development expenses was primarily driven by (i) $1.3 million increase in clinical trial expense due to the ongoing efforts related to the Company's adult SCD device clinical trial and continuing additional clinical trial efforts on the pediatric SCD device, (ii) $0.5 million increase in personnel costs related to increased headcount during the nine-months ended September 30, 2024 compared to this same period ended September 30, 2023, and (iii) a $0.1 million increase in other research and development expenses primarily driven by employee training programs. These increases were offset by a $0.3 million decrease in external services as the Company invested in medical training and educational materials necessary for both clinical sites and future commercialization.

General and Administrative

General and administrative expenses for the nine months ended September 30, 2024 and 2023 were $6.8 million and $6.5 million, respectively. The increase in general and administrative was driven by (i) a $0.4 million increase in accounting, finance, legal, and SEC related fees, primarily due to the restatement of 2022 and 2023 annual and interim financial statements during 2024, (ii) a $0.1 million increase in investor relations activities, (iii) a $0.4 million increase in fees primarily related to the settlement for contract termination with Nuwellis, Inc., (iv) a $0.1 million increase in recruiting costs (vi) a $0.2 million increase in employee related expenses due to head count increases, and (v) a $0.1 million increase in all other expenses. These increases were offset by (i) an approximately $0.3 million decrease in insurance expense; (ii) a $0.3 million decrease in sales and marketing expenses as the Company reduced trade show and advertising expenses, and (iii) a $0.4 million decrease in SEC reporting and filing fees by insourcing preparation of SEC filings.

Other Income (Expense)

Other expenses increased by approximately $1.8 million, or approximately 33% for the nine-months ended September 30, 2024, compared to the nine-months ended September 30, 2023. The key drivers for this increase were the following: (i) a $5.3 million loss on the change in fair value or extinguishments of convertible notes that occurred during the nine-months ended September 30, 2023 compared to a loss of $6.1 million for the same period ended September 30, 2024, an increase in losses of approximately $0.9 million, and (ii) a $2.6 million decline in gains from the change in fair value of liability classified warrants, with $1.8 million gain recognized for the nine-months ended September 30, 2024, compared to a loss of $0.8 million recognized during the same period in 2024. This was primarily due to the losses incurred as a result of liability classified warrants exercised during the nine-months ended September 30, 2024, and net losses incurred from mark-to-market adjustments at each quarterly reporting period end date.

These increases were offset by (i) a $1.3 million loss on change in fair value of a forward purchase option-prepaid forward contract that occurred during the nine-months ended September 30, 2023, but for which there was no activity during the nine-months ended September 30, 2024, as the forward purchase option-prepaid forward contract did not exist during the nine-months ended September 30, 2024, and (ii) $0.1 million in interest income for the nine-months ended September 30, 2024 compared to $0 for the same period in 2023 due to the Company utilizing an overnight sweep option with its main commercial financial institution and (iii) $0.4 million decline in interest expense for the nine-months ended September 30, 2024, as the Company incurred $0.5 million in interest expense for the nine-months ended September 30, 2024, compared to $0.9 million in interest expense for the same period ended September 30, 2023, due to the Company's reduction of its outstanding notes to $0 as of September 30, 2024.

Income Tax Provision (Benefit)

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

Under Accounting Standards Codification (“ASC”) 740-10-30-5, Income Taxes, deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. SeaStar Medical considers all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses. Based on operating losses reported during 2022 and 2021, the Company concluded there was not sufficient positive evidence to overcome this recent operating history. As a result, we believe that a valuation allowance continues to be necessary based on the more-likely-than-not threshold noted above.

Net Loss

During the nine months ended September 30, 2024, SeaStar Medical had a net loss of $20.4 million compared to a net loss of $16.8 million for the nine months ended September 30, 2023. The increased net loss of $3.6 million has been disclosed in the above discussion.

Liquidity and Capital Resources

Sources of Liquidity

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 September 30, 2024 and December 31, 2023, we had an accumulated deficit of $135.1 million and $114.7 million, respectively.

As of September 30, 2024 and December 31, 2023, we had cash of $2.1 million and $0.2 million, respectively. Based on our results of operations and liquidity as of September 30, 2024, we believe our cash and cash equivalents, including the cash we obtained from the registered direct financing in the first quarter of 2024 and the registered direct offering in July 2024, 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 nine months ended September 30, 2024, are made available. We believe that this raises substantial doubt about our ability to continue as a going concern.

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 September 30, 2024.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures. Debt financing would also result in fixed payment obligations. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required 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 the section titled “Risk Factors” for additional risks associated with our substantial capital requirements.

We would receive the proceeds from any exercise of 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.

As of the date of this Quarterly 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.

Future Funding Requirements

We expect to incur significant expenses in connection with our ongoing activities as we seek to (i) continue clinical development of our adult SCD for approval by the FDA, invest in our commercialization of our pediatric SCD, and (ii) if regulatory approval is obtained, to launch and commercialize our adult SCD in the U.S. market, including potential subsequent launches in key international markets. We will need additional funding in connection with these activities. Our future funding requirements, both short-term and long-term, will depend on many factors, including:

• our ability to receive cash proceeds from new and existing funding sources;
• the progress and results of our clinical trials and interpretation of those results by the FDA and other regulatory authorities;
• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and
• the costs of operating as a public company, including personnel expense as well as increased director and officer insurance premiums, audit and legal fees, investor relations fees and expenses related to compliance with public company reporting requirements under the Securities Exchange Act of 1934, as amended, and rules implemented by the SEC and Nasdaq.

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 generate significant revenue from the commercialization of 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.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of September 30, 2024:

($ in thousands)

Investor D Note

On June 28, 2024, 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 is 7.00% per annum and the note is due in full during the three-months ending September 30, 2024. In August 2024, the Company paid the remaining $0.4 million and there are no further obligations.

Unsecured Maxim Note Payable

In October 2022, we entered into an unsecured promissory note with Maxim, for an aggregate principal amount of $4.2 million. The interest rate on the note is 7%. As a result of the Reverse Stock Split in June 2024, the Maxim Note became due within 90 days of the Reverse Stock Split event. In addition, the Maxim Note provides for a mandatory prepayment in connection with any subsequent financing we conduct, in an amount equal to 25% of the gross proceeds from such subsequent financing. As a result of the registered direct offering we conducted in July 2024, we were required to pay down $2.5 million of the outstanding Maxim Note in July 2024, leaving a remaining balance of approximately $0.1 million plus accrued interest that was paid down in full in August 2024. The Company has no further obligations to Maxim outstanding as of September 30, 2024.

Insurance Financing

In October 2023, we 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. We paid down the remaining principal and interest payments during the three months ended September 30, 2024.

Cash Flows

The following table shows a summary of our cash flows for each of the periods shown below:

Cash Flow from Operating Activities

($ in thousands)

Net cash used in operating activities for the nine months ended September 30, 2024 was $11.3 million compared to $5.8 million for the nine months ended September 30, 2023. The increase in cash used for operating activities of $5.5 million is primarily due to the (i) increase in operating expenditures of approximately $2.0 million, and (ii) coupled with the timing of certain payments to vendors to reduce our outstanding payables resulted in an increase in cash outflows for operating activities.

Net cash provided by financing activities for the nine months ended September 30, 2024 was $13.2 million, was primarily related to (i) $13.6 million received from the issuance of new shares of common stock, (ii) $3.8 million in proceeds from issuance of pre-funded warrants, (iii) $0.9 million from proceeds received from the exercise of warrants to purchase shares of the our common stock, and (iv) $1.0 million received from the issuance of convertible notes. This was offset by (i) $5.3 million paid to settle outstanding notes payable and (ii) $0.7 million paid to cover a redemption of certain outstanding convertible notes.

Critical Accounting Policies and Estimates

The preparation of the unaudited consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and income and expenses during the periods reported. Although actual results could materially differ from those estimates, such estimates are developed based on the best information available to management and management's best judgments at the time.

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.

Emerging Growth Company Status

We are an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups (“JOBS”) Act. The JOBS Act permits companies with EGC status to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Since we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

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

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

This Item 4 includes information concerning the controls and controls evaluation referred to in the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Exchange Act included in this Form 10-Q as Exhibits 31.1 and 31.2.

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated as of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2024, and based on this evaluation, have concluded that, as a result of the material weaknesses in internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of September 30, 2024.

Pursuant to Rule 13a-15(e), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Material Weaknesses

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

In the course of preparing the audited consolidated financial statements as of and for the year-ended December 31, 2023, our management identified material weaknesses in its internal controls over financial reporting related to a deficiency in the design and operation of our financial accounting and reporting controls.

To help address the material weaknesses, we have strengthened our accounting team with the addition of an experienced Controller and Chief Financial Officer and have added additional accounting resources that are expected to help to remediate the material weaknesses. We will also continue to review the overall internal control environment as we develop the requisite internal control framework. While we believe these efforts will remediate the material weakness, the material weakness cannot be considered fully remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

Except for the changes intended to remediate the material weakness described above, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the three-months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, we are continually evaluating its processes and controls over financial reporting in order to implement substantive changes to remediate aforementioned material weaknesses.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and our other public filings, which could materially affect our business, financial condition or future results. Except as set forth below, there has been no material changes from risk factors previously disclosed in “Risk Factors” in our Form 10-K for the year ended December 31, 2023 and our other public filings:

Risks Related to our Company

Our Common Stock may be delisted from Nasdaq if we do not maintain compliance with Nasdaq’s continued listing requirements. If our Common Stock is delisted, it could negatively impact the Company.

Continued listing of a security on Nasdaq is conditioned upon compliance with various continued listing standards. There can be no assurance that we will be able to comply with the applicable listing standards.

On June 14, 2023, we received a letter from the Nasdaq Staff notifying us that the MVLS of our Common Stock had been below the minimum $35,000,000 MVLS Requirement (the “MVLS Requirement”).

The letter also stated that we would be provided 180 calendar days, or until December 11, 2023, to regain compliance with the MVLS Requirement. On December 13, 2023, we received a notification from the Listing Qualification Department of Nasdaq that we had not regained compliance with the MVLS Requirement and that our Common Stock would be subject to delisting unless we timely requested a hearing before a panel (the “Panel”). On December 19, 2023, we submitted a hearing request to the Panel to appeal the delisting determination. On the same date, we received a notice from Nasdaq stating that its delisting action had been stayed pending a final written decision by the Panel and that a hearing would be held on March 12, 2024. On February 6, 2024, we received notification from Nasdaq that we had regained compliance with the MVLS Requirement.

On June 26, 2023, we received a letter from the Listing Qualifications Department of Nasdaq notifying us that the Company was not in compliance with the $1.00 per share minimum Bid Price Requirement for continued inclusion on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2).

This letter had no immediate effect on the listing of the Company’s Common Stock on Nasdaq and the Company had 180 calendar days from the date of the notice, or until December 26, 2023, to regain compliance with the Bid Price Requirement. On December 27, 2023, we received notification from Nasdaq that the Company had not regained compliance with the Bid Price Requirement and that the Panel would consider this matter in rendering a determination regarding the Company’s continued listing on Nasdaq. Pursuant to Listing Rule 5810(d), the Company should present its views with respect to this deficiency at its Panel hearing to be held on March 12, 2024. If we failed to address the aforementioned issue, the Panel would consider the record as presented at the hearing and would make its determination based upon that information.

On February 21, 2024, the Company made a pre-hearing submission to Nasdaq, outlining its plan to gain compliance with the minimum Bid Price Requirement. On March 6, 2024, we received a letter from the Nasdaq Staff granting the Company a temporary exception until June 24, 2024, subject to certain milestones, to regain compliance with the Bid Price Requirement by evidencing a closing bid price of $1.00 or more per share for a minimum of ten consecutive trading sessions. On June 7, 2024, the Company effected a reverse stock split to regain compliance with the Bid Price Requirement. On June 27, 2024, we received a letter from the Nasdaq Staff indicating the Company regained compliance with the minimum Bid Price Requirement for listing on Nasdaq.

On June 24, 2024, we received a letter from the Nasdaq Staff indicating the Company was no longer in compliance with the MVLS of $35 million required for listing on Nasdaq. The Company has 180 days, or until December 23, 2024, to regain compliance with the MVLS Requirement.

On July 3, 2024, the Company provided notice to the Listing Qualifications Department of Nasdaq regarding the Company’s possible violation of Nasdaq Listing Rule 5635(d)(2). The notification to Nasdaq related to the issuance of shares of the Company’s Common Stock upon conversion of certain convertible notes and upon exercise of certain warrants issued to an institutional investor in connection with a March 15, 2023 securities purchase agreement that may have required additional shareholder approval prior to the issuance of such securities.

The Company believed at the time of these issuances and adjustments that the entire transaction had been approved by shareholders. The Company requested that Nasdaq determine whether the issuance of and adjustment to the conversion price of certain of the convertible notes to a price that was lower than the floor price initially agreed to in the subject securities purchase agreement, and the issuance of certain warrants (the "Additional Transactions") did not violate Nasdaq Listing Rule 5635(d)(2).

The notification to Nasdaq was made in accordance with Nasdaq Listing Rule 5625. Pursuant to the notice, the Company committed to fully comply with all Nasdaq shareholder approval requirements, to involve certain advisers and to notify Nasdaq prior to the issuance of any securities for one year following the date of notice.

While the Additional Transactions may have violated Nasdaq Listing Rule 5635(d)(2), Nasdaq has agreed to not issue a delisting letter if the Company obtains shareholder ratification of the Additional Transactions by the end of 2024. In order to obtain such approval and ratification of the Additional Transactions, the Company will hold a special meeting of its shareholders on November 26, 2024. The Company has filed with the Securities and Exchange Commission (“SEC” ) a proxy statement on Schedule 14A that contains more information on the special meeting and the voting rights of the Company's shareholders. If shareholder approval and ratification is not obtained, the Company’s Common Stock may be delisted from Nasdaq.

If the Company’s Common Stock ultimately were to be delisted for any reason, it could negatively impact the Company by (i) reducing the liquidity and market price of the Company’s Common Stock; (ii) reducing the number of investors willing to hold or acquire the Company’s Common Stock, which could negatively impact the Company’s ability to raise equity financing; (iii) limiting the Company’s ability to use a registration statement to offer and sell freely tradable securities, thereby preventing the Company from accessing the public capital markets; and (iv) impairing the Company’s ability to provide equity incentives to its employees.

If the Company fails to obtain additional financing, it would be forced to delay, reduce or eliminate its product development program, which may result in the cessation of its operations.

Developing medical device products, including conducting preclinical studies and clinical trials, is expensive. The Company expects its research and development expenses to substantially increase in connection with its ongoing activities, particularly as it advances its clinical programs. As of September 30, 2024 and December 31, 2023, SeaStar Medical had negative working capital of $3.0 million and $10.7 million, respectively. The Company currently does not have sufficient capital to support its operations and complete its planned regulatory approval process. The Company will need to secure additional capital to continue its operation, and such funding may not be available on acceptable terms, or at all.

Even if the Company receives sufficient capital in the future, the Company will be required to raise additional funds to support its own operations and complete its planned regulatory approval process, and such funding may not be available in sufficient amounts or on acceptable terms to the Company, or at all. If it is unable to raise additional capital when required or on acceptable terms, the Company may be required to:

• significantly delay, scale back or discontinue the development or commercialization of its product candidates;
• seek corporate partners on terms that are less favorable than might otherwise be available;
• relinquish or license on unfavorable terms, its rights to technologies or product candidates that it otherwise would seek to develop or commercialize itself;

If we are unable to raise additional capital in sufficient amounts or on acceptable terms, the Company will be prevented from pursuing development and commercialization efforts, including completing the clinical trials and regulatory approval process for its SCD product candidates, which would have a material adverse impact on its business, results of operations and financial condition.

Risks Related to our Business Operations

Supply interruptions affecting the availability of components used in the Company’s SCD Clinical Kits could have an adverse effect upon its clinical trials and revenue prospects.

The Company currently outsources the manufacturing of all components used with its SCD which are then assembled (kitted) and shipped by the Company. Manufacturing of the Company’s SCD cartridge is an involved process and is currently limited to one approved supplier. Manufacturing of the Company’s SCD blood tubing set is straight-forward but is also currently limited to one approved supplier. Certain other SCD kit components are readily available from multiple sources.

To support its current clinical trial needs and its commercial sales, the Company complies with, and intends to continue to comply with, current Good Manufacturing Practice (“cGMP”) for the outsourced manufacturing and in-house kitting of its products where applicable. The Company’s ability to adequately procure the outsourced components and supply its SCD in a timely matter is dependent on the uninterrupted and efficient operation of its third-party suppliers and manufacturers, and those of the parties producing raw materials and supplies upon which it relies for the manufacturing of its products. Availability of the Company’s products may be impacted by:

• the availability of specified components, particularly those for which it has no other currently approved supplier;
• the ability of the Company to assemble and fulfill orders for pediatric and adult SCDs;
• maintenance of its quality management system and facility qualifications;
• continued compliance with regulatory requirements and cGMP;
• facility environmental contamination or catastrophic loss or damage;
• product quality success rates and yields; and
• global viruses and pandemics.

If efficient manufacture and supply of its SCD is interrupted, the Company may experience delayed shipments or supply constraints. If it is unable to provide an uninterrupted supply of its products, the Company’s ongoing clinical trials may be delayed, and/or commercial sales can be impaired, which could materially and adversely affect its business, results of operations, and financial condition.

The Company recently terminated its exclusive distribution agreement with a third-party distribution partner.

In August 2024, the Company terminated its Distribution Agreement with Nuwellis, which was the Company’s exclusive distribution agreement with a third-party distribution partner. The Company has currently elected to commercialize its FDA approved SCD-PED (SCD-pediatric, tradename ‘QUELIMMUNE’), using its own commercial resources. The Company does not have experience with selling and distributing QUELIMMUNE and its results may fall short of investors’ expectations. If the Company is unable to develop effective sales and distribution capabilities internally, we may not be able to successfully generate sales of our products, including QUELIMMUNE, and our business and results of operations may be adversely affected.