SeaStar Medical Holding Corp 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 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. 71 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 32 ) 73 Consolidated Balance Sheets as of December 31, 2022 and 2021 74 Consolidated Statements of Operations for the Years ended December 31, 2022 and 2021 75 Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Deficit for the Years ended December 31, 2022 and 2021 76 Consolidated Statements of Cash Flows for the Years ended December 31, 2022 and 2021 77 Notes to Consolidated Financial Statements 78 72 Rep ort of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of SeaStar Medical Holding Corporation Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of SeaStar Medical Holding Corporation and subsidiary (collectively the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in convertible preferred stock and stockholders' deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring significant losses that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Armanino LLP Bellevue, Washington March 30, 2023 We have served as the Company's auditor since 2021. 73 SeaStar Medical Holding Corporation Consolidated Balance Sheets As of December 31, 2022 and 2021 (in thousands, except for share and per-share amounts) 2022 2021 ASSETS Current assets Cash $ 47 $ 510 Other receivables 12 58 Prepaid expenses 2,977 33 Total current assets 3,036 601 Forward option-prepaid forward contracts, net 1,729 — Other assets 2 2 Total assets $ 4,767 $ 603 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable $ 1,927 $ 85 Accrued expenses 2,245 186 Notes payable 1,178 — Convertible notes - related party, net of discount — 2,378 Convertible notes derivative liability — 471 Total current liabilities 5,350 3,120 Notes Payable 7,652 - Government loans — 63 Convertible notes - related party, net of discount, net of current portion — 181 Convertible notes derivative liability, net of current portion — 55 Total liabilities 13,002 3,419 Commitments and contingencies (see Note 13) Stockholders' deficit (1) Class A common stock - $ 0.0001 par value per share; 100,000,000 shares authorized; 12,699,668 and 7,238,767 shares issued and outstanding at December 31, 2022 and 2021, respectively 1 1 Additional paid-in capital 91,089 73,495 Accumulated deficit ( 99,325 ) ( 76,312 ) Total stockholders' deficit (1) ( 8,235 ) ( 2,816 ) Total liabilities, convertible preferred stock and stockholders' deficit $ 4,767 $ 603 (1) Retroactively restated to give effect to the reverse recapitalization The accompanying notes are an integral part of these consolidated financial statements. 74 SeaStar Medical Holding Corporation Consolidated Statements of Operations For the Years Ended December 31, 2022 and 2021 (in thousands, except for share and per-share amounts) 2022 2021 Operating expenses Research and development $ 2,819 $ 2,766 General and administrative 6,600 1,683 Origination cost of prepaid forward contracts 2,190 - Total operating expenses 11,609 4,449 Loss from operations ( 11,609 ) ( 4,449 ) Other income (expense), net Interest expense ( 630 ) ( 212 ) Other income - 91 Change in fair value of convertible notes derivative liability ( 602 ) ( 27 ) Change in fair value of forward option-prepaid forward contracts ( 10,170 ) - Loss on sale of recycled shares ( 1 ) - Total other expense, net ( 11,403 ) ( 148 ) Loss before income tax provision (benefit) ( 23,012 ) ( 4,597 ) Income tax provision (benefit) 1 ( 1 ) Net loss $ ( 23,013 ) $ ( 4,596 ) Net loss per share of common stock, basic and diluted $ ( 2.80 ) $ ( 0.63 ) Weighted-average shares outstanding, basic and diluted (1) 8,211,256 7,238,767 (1) Retroactively restated to give effect to the reverse recapitalization The accompanying notes are an integral part of these consolidated financial statements. 75 SeaStar Medical Holding Corporation Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Deficit For the Years Ended December 31, 2022 and 2021 (in thousands, except for share and per-share amounts) Convertible Preferred Stock Stockholders' Deficit Total Series B Preferred Stock Series A-1 Preferred Stock Series A-2 Preferred Stock Common Shares Additional Accumulated Stockholders' Shares (1) Amount Shares (1) Amount Shares (1) Amount Total Shares (1) Amount Paid-In Capital Deficit Deficit Balance, January 1, 2021 426,977 $ 5,270 1,576,154 $ 19,451 784,511 $ 48,628 $ 73,349 — $ — $ 133 $ ( 71,716 ) $ ( 71,583 ) Retroactive application of recapitalization ( 426,977 ) ( 5,270 ) ( 1,576,154 ) ( 19,451 ) ( 784,511 ) ( 48,628 ) ( 73,349 ) 7,238,767 1 73,348 — 73,349 Adjusted balance, beginning of period — — — — — — — 7,238,767 1 73,481 ( 71,716 ) 1,766 Stock-based compensation — — — — — — — — — 14 — 14 Net loss — — — — — — — — — — ( 4,596 ) ( 4,596 ) Balance, December 31, 2021 — — — — — — — 7,238,767 1 73,495 ( 76,312 ) ( 2,816 ) Reverse recapitalization on October 28, 2022 4,162,040 — 3,294 — 3,294 Conversion of Convertible Notes to Class A common shares — — — — — — — 598,861 — 5,989 — 5,989 PIPE financing — — — — — — — 700,000 — 7,000 — 7,000 Stock-based compensation — — — — — — — — — 1,311 — 1,311 Net loss — — — — — — — — — — ( 23,013 ) ( 23,013 ) Balance, December 31, 2022 — $ — — $ — — $ — $ — 12,699,668 $ 1 $ 91,089 $ ( 99,325 ) $ ( 8,235 ) (1) Retroactively restated to give effect to the reverse recapitalization The accompanying notes are an integral part of these consolidated financial statements 76 SeaStar Medical Holding Corporation Consolidated Statements of Cash Flows For the Years Ended December 31, 2022 and 2021 (in thousands, except for shares and per-share amounts) 2022 2021 Cash flows from operating activities Net loss $ ( 23,013 ) $ ( 4,596 ) Adjustments to reconcile net loss to net cash used in operating activities Amortization of discount on convertible notes 242 140 Non-cash accrued interest related to convertible notes 341 72 Change in fair value of convertible notes derivative liability 602 27 Change in fair value of forward option 10,170 — Loss on sale of recycled shares 1 — PPP loan forgiveness — ( 91 ) Stock-based compensation 1,311 14 Changes in operating assets and liabilities Other receivables 4 — Inventory — 55 Prepaid expenses ( 1,073 ) 12 Accounts payable 1,548 ( 297 ) Accrued expenses and other current liabilities 2,073 ( 450 ) Net cash used in operating activities ( 7,794 ) ( 5,114 ) Cash flows from financing activities Proceeds from issuance of convertible notes 1,681 2,746 Proceeds from recapitalization 9,961 — Payment of recapitalization transaction costs ( 1,211 ) — Proceeds from PIPE investors 7,000 — Payment for forward contracts ( 11,940 ) — Proceeds from sale of recycled shares 40 — Proceeds from notes payable 1,878 — Payment of notes payable ( 15 ) Proceeds from PPP loan — 91 Repayment of Government loans ( 63 ) — Repayment of PPP loan — ( 20 ) Net cash provided by financing activities 7,331 2,817 Net decrease in cash ( 463 ) ( 2,297 ) Cash, beginning of period 510 2,807 Cash, end of period $ 47 $ 510 Supplemental disclosure of cash flow information Cash paid for income taxes $ 1 $ — Cash paid for interest $ 6 $ — Supplemental disclosure of noncash flow information Conversion of Series A-2 Preferred stock into Series B Preferred stock $ 2,400 $ 151 Conversion of Preferred stock to common stock 73,349 — Conversion of convertible notes to common stock 5,989 — Recapitalization transaction costs in accounts payable 294 — Recapitalization transaction costs in notes payable 2,209 — Value of derivative liability on issuance of convertible notes 52 499 Non-cash conversion of accrued expenses into convertible notes 96 114 Other receivables of cash in transit for convertible notes — 58 The accompanying notes are an integral part of these consolidated financial statements. 77 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) Note 1. D e scription of Business Organization and description of business SeaStar Medical, Inc. was incorporated as a Delaware corporation in June 2007, and it is headquartered in Denver, Colorado. The Company is principally engaged in the research, development, and commercialization of a platform medical device technology designed to modulate inflammation in various patient populations. The primary target of this technology is for the treatment of acute kidney injuries. SeaStar Medical, Inc. is in the pre-revenue stage focused on product development. 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 (see Note 3). Following the consummation of the Business Combination, LMAO was renamed to "SeaStar Medical Holding Corporation" ("the Company", "we", "SeaStar Medical"). Basis of presentation The accompanying 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"). The 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. Segment information The Company operates in one operating segment and, accordingly, no segment disclosures have been presented herein. Liquidity and Going Concern As of December 31, 2022, the Company has an accumulated deficit of $ 99,325 and cash of $ 47 . We do not believe that 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 consolidated financial statements. We believe that this raises substantial doubt about our ability to continue as a going concern. Our need for additional capital will depend in part on the scope and costs of our development activities. To date, we have not generated any significant revenue from the sales of commercialized products. Our ability to generate product revenue will depend on the successful development and eventual commercialization of our product. Until such time, if ever, we expect to finance our operations through the sale of equity or debt, borrowing under credit facilities, or through potential collaborations, other strategic transactions or government and other grants. Adequate capital may not be available to us when needed or on acceptable terms. If we are unable to raise capital, we could be forced to delay, reduce, suspend, or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. Risks and uncertainties The Company is subject to risks common to early-stage companies in the medical technology industry including, but 78 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) not limited to, new medical and technological innovations, dependence on key personnel, 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. The Company cannot at this time predict the specific extent, duration, or full impact that a future pandemic will have on its financial condition and operations. A future pandemic may affect our ability to initiate and complete preclinical studies, delay our clinical trials or future clinical trials, disrupt regulatory activities, or have other adverse effects on our business and operations. Note 2. Summary of Significant Accounting Policies Use of Estimates The preparation of the 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 the valuation of the forward option on prepaid forward contracts, derivative liability, warrants, tax provision, and the amount of share-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. Cash The Company maintains its cash in commercial banks in the United States ("U.S.") which are insured by the Federal Deposit Insurance Corporation up to $ 250 . Concentrations of credit risk Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash. Periodically, the Company may maintain deposits in financial institutions in excess of government insured limits. The Company has not experienced any losses on deposits since inception. Income taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates expected to apply to taxable income in the periods in which such differences are expected to reverse. A valuation allowance is provided when the realization of net deferred tax assets is not deemed more likely than not. The Company complies with the provisions of "Accounting Standards Codification ("ASC") 740, Income Taxes, which provides a comprehensive model for the recognition, measurement, and disclosure in consolidated financial statements of uncertain income tax positions that a company has taken or expects to take on a tax return. Under this guidance, a company can recognize the benefit of an income tax position only if it is more likely than not (greater than 50 %) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position; otherwise, no benefit can be recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement. Additionally, the Company accrues interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties are classified as income tax expense in the consolidated financial statements. 79 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) 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 and the convertible notes derivative liability are classified as Level 3 in the fair value hierarchy. The following table presents the changes in the forward option and the convertible notes derivative liability for the years ended December 31, 2022 and 2021 (in thousands): Forward Option Convertible Notes On Prepaid Derivative Level 3 Rollforward Forward Contracts Liability Balance December 31, 2020 $ — $ — Additions — ( 499 ) Changes in fair value — ( 27 ) Balance December 31, 2021 — ( 526 ) Additions 11,940 ( 52 ) Sale of recycled shares ( 41 ) — Changes in fair value ( 10,170 ) ( 602 ) Reclassified to additional paid-in capital — 1,180 Balance December 31, 2022 $ 1,729 $ — The forward option in the amount of $ 11,940 was recorded on October 28, 2022, for the forward option in the forward purchase agreements (see Note 4). The forward option is remeasured each reporting period using a Monte-Carlo Simulation in a risk-neutral framework (a special case of the Income Approach). Specifically, the future stock price is simulated assuming a Geometric Brownian Motion (“GBM”). For each simulated path, the forward purchase value is calculated based on the contractual terms and then discounted at the term-matched risk-free rate. Finally, the value of the forward is calculated as the average present value over all simulated paths. Convertible notes derivative liabilities in the amounts of $ 4 , $ 0 , $ 35 and $ 13 , were recorded on January 31, 2022, February 28, 2022, March 16, 2022 and March 31, 2022, respectively, for the issuance of convertible notes along with a corresponding debt discount (see Note 8). The convertible notes liabilities are remeasured each reporting period using a probability-weighted model and assumption related to the conversion price and timing of conversion. The put option liability was valued based on the calculated returns as a result of the various discounts included in the Company’s convertible notes and the related probability assessments of the various settlement scenarios. The convertible notes derivative liability was extinguished as of the c losing of the Business Combination (the"Closing"), as a result of the conversion of the convertible notes. On October 28, 2022, the put option liability was settled upon the Closing and reclassified to additional paid-in capital. Derivative liabilities in the amounts of $ 80 , $ 364 , and $ 55 were recorded on June 10, 2021, September 10, 2021 and December 31, 2021, respectively, for the issuance of convertible notes along with a corresponding debt discount. 80 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) The change in fair value of the derivative liabilities were recorded in change in fair value of convertible notes derivative liability in the consolidated statements of operations. The estimated fair value of prepaid expenses, accounts payable and accrued expenses approximate their fair value because of the short-term nature of these instruments. Stock-based compensation In accordance with ASC Topic 718, Compensation – Stock Compensation, the Company recognizes compensation expense for all stock-based awards issued to employees based on the estimated grant-date fair value, which is recognized as expense on a graded vesting approach over the requisite service period. The Company has elected to recognize forfeitures as they occur. The fair value of stock options is determined using the Black-Scholes option-pricing model. The determination of fair value for stock options on the date of grant using an option-pricing model requires management to make certain assumptions including expected volatility, expected term, risk-free interest rate and expected dividends in addition to the Company’s common stock valuation. The determination of fair value of restricted stock units is valued based on the value of the Company's common stock on the grant date (see Note 12). Prior to the Business Combination, due to the absence of an active market for the Company’s common stock, the Company utilized methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation to estimate the fair value of its common stock. In determining the exercise prices for options granted, the Company considered the fair value of the Company as of the grant date. The fair value of the Company was determined based upon a variety of factors, including the Company’s financial position, historical performance and operating results, the Company’s stage of development, the progress of the Company’s research and development programs, the prices at which the Company sold its convertible preferred stock, the superior rights, preferences and privileges of the Company’s convertible preferred stock relative to its common stock, external market conditions affecting the biotechnology industry, the lack of marketability of the Company’s common stock and the prospects of a liquidity event and the analysis of initial public offering and market performance of similar companies as well as recently completed mergers and acquisition of peer companies. Significant changes to the key assumptions underlying the factors used could result in different fair values of the Company at each valuation date. Research and development expenses Expenditures made for research and development are charged to expense as incurred. External costs consist primarily of payments for laboratory supplies purchased in connection with the company’s discovery and preclinical activities, and process development and clinical development activities. Internal costs consist primarily of employee-related costs, consultants fees and costs related to compliance with regulatory requirements. Nonrefundable advance payments for goods and services that will be used in future research and development activities are capitalized and recorded as expense in the period that the Company receives the goods or when services are performed. The Company records expenses related to external research and development services based on services received and efforts expended pursuant to invoices and contracts with consultants that supply, conduct, and manage preclinical studies and clinical trials on its behalf. 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. 81 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) Net loss per share attributable to common stockholders The Company’s basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method. Recently issued accounting standards not yet adopted In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"). ASU 2020-06 addresses issues identified as a result of the complexity associated with applying US GAAP for certain financial instruments with characteristics of liabilities and equity. In addressing the complexity, ASU 2020-06 focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for contracts in an entity’s own equity. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission ("SEC") filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. In accordance with the JOBS Act, the Company has delayed adoption of ASU 2020-06. As a result, these consolidated financial statements may not be comparable to those companies that comply with the new or revised accounting pronouncements as of public company effective dates. Note 3. Business Combination and Recapitalization 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, as described in Note 1. The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting LMAO was treated as the acquired company for financial reporting purposes. This determination is primarily based on the fact that subsequent to the Business Combination, SeaStar Medical, Inc.'s stockholders have the majority of the voting power of the combined entity, SeaStar Medical, Inc. comprised all of the ongoing operations of the combined entity, SeaStar Medical, Inc. comprised a majority of the governing body of the combined entity, and SeaStar Medical, Inc.’s senior management comprised all of the senior management of the combined entity. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of SeaStar Medical, Inc. issuing shares for the net assets of LMAO, accompanied by a recapitalization. The net assets of LMAO were stated at historical costs. No goodwill or intangibles were recorded. Operations prior to the Business Combination are those of SeaStar Medical, Inc. The aggregate consideration to the stockholders of SeaStar Medical, Inc. at the closing of the Business Combination was $ 85,406 , which consisted of shares of the Company's Class A common stock, par value $ 0.0001 per share, valued at $ 10.00 per share, resulting in the issuance of 8,540,552 shares. Upon the Closing, each of SeaStar Medical, Inc.’s outstanding convertible notes, in the amount of $ 4,636 , and related accrued interest totaling $ 341 less $ 168 in unamortized discounts converted into 598,861 shares of SeaStar Medical Holding Corporation Class A common stock valued at $ 10.00 per share. The excess fair value of shares transferred for convertible note conversion of $ 1,180 is recorded in the consolidated statement of operations for the year ended December 31, 2022. Also, upon the Closing, 633,697 shares of Series B Preferred stock, 1,576,154 shares of Series A-1 Preferred stock, and 577,791 shares of Series A-2 Preferred stock of SeaStar Medical, Inc. converted into 7,238,767 shares of SeaStar Medical Holding Corporation Class A common stock. SeaStar Medical, Inc.’s 57,942 outstanding warrants were assumed by LMAO and converted into 69,714 warrants to purchase SeaStar Medical Holding Corporation Class A common stock. SeaStar Medical, Inc.’s 271,280 outstanding options were assumed by LMAO and 82 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) converted into 326,399 options to purchase SeaStar Medical Holding Corporation Class A common stock. SeaStar Medical, Inc.’s 255,000 outstanding restricted stock unit awards were assumed by LMAO and converted into 306,811 SeaStar Medical Holding Corporation restricted stock units. The increase in the number of stock-based awards was accounted for as a modification (see Note 12). As part of the Business Combination, $ 92,137 was paid to redeem Class A shares from LMAO existing shareholders. 4,162,040 Class A shares remained unredeemed at the time of the Business Combination. LMAO had 10,350,000 public warrants and 5,738,000 private placement warrants at the time of the Business Combination. The public warrants and the private placement warrants are classified as equity. The Company received net cash consideration of $ 9,961 and net liabilities of LMAO of $ 10,882 . The net liabilities of LMAO were as follows (in thousands): Other receivables $ 16 Prepaid expenses 1,871 Accrued expenses ( 82 ) Public warrants liability ( 1,241 ) Private placement warrants liability ( 6,688 ) LMFAO note payable ( 2,785 ) Maxim note payable ( 1,973 ) $ ( 10,882 ) The table below summarizes the shares of Class A common stock issued immediately after the Closing as well as the impact of the transaction on the consolidated statements of changes in convertible preferred stock and stockholders' deficit as of October 28, 2022. Common Shares Additional ($ in thousands) Shares Amount Paid-In Capital SPAC financing 4,162,040 $ — $ ( 921 ) Public warrants liability reclassified to equity — — 1,241 Private Placement warrants liability reclassified to equity — — 6,688 Transaction costs — — ( 3,714 ) Reverse recapitalization on October 28, 2022 4,162,040 $ — $ 3,294 Note 4. Forward Purchase Agreements In October 2022, LMAO, SeaStar Medical, Inc. entered into a Forward Purchase Agreements ("FPAs") with Vellar Opportunity Fund SPV LLC – Series 4 and HB Strategies LLC (“FPA Sellers"), whereby, prior to the Business Combination, the FPA Sellers purchased 1,151,400 LMF Class A Shares from redeeming holders (the “Recycled Shares”), and an additional 200,000 LMF Class A Shares constituting share consideration, each at an average price per share of $ 10.37 . Pursuant to the FPA, the FPA Sellers waived their redemption rights under the governing documents of LMF Merger Sub, Inc. in connection with the Business Combination. At the Closing, LMAO paid to Vellar, out of funds held in the LMAO trust account, aggregate amounts of $ 14,358 , an amount equal to 1,173,400 LMF Class A Shares ("Recycled Shares"), multiplied by $ 10.37 , the redemption price, $ 2,074 for the purpose of repayment of the FPA Sellers having purchased 200,000 shares from third parties in the open market, and reimbursement of legal expenses and a commission fee in the amount of $ 116 . The FPA Sellers may, at their discretion, sell Recycled Shares, ("Terminated Shares"). The Company is entitled to proceeds from such sales of Terminated Shares equal to the number of Terminated Shares multiplied by the reset price (the "Reset Price"). The Reset Price is initially the per-share redemption price, but will be adjusted on a 83 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) monthly basis to the lower of (a) the then-current Reset Price, (b) $ 10.00 and (c) the volume weighted average price ("VWAP") price of the last ten trading days of the prior calendar month, but not lower than $ 5.00 ; provided, however, that if we offer and sell Class A common stock, or currently outstanding or future issued securities are exercised or converted, at a price lower than then then-current Reset Price, then the Reset Price shall be modified to equal such reduced price. In the event that the VWAP Price is less than $ 3.00 per share for 20 trading days during any 30 trading-day-period, then the FPA Sellers may accelerate the maturity date ("Maturity Date"), which otherwise will be the third anniversary of the Closing. Upon the occurrence of the Maturity Date, we are obligated to pay to the FPA Sellers an amount equal to the number of unsold Recycled Shares, multiplied by $ 2.50 (the "Maturity Consideration"). The Maturity Consideration shall be payable by the Company in cash, or at the Company’s option, as equity, issued in Class A common stock, with a per share issue price based on the average daily VWAP Price over 30 scheduled trading days. FPA Sellers will deliver to the Company the number of unsold Recycled Shares. During the year ended December 31, 2022, 3,995 recycled shares were sold by FPA Sellers. There were 1,147,405 recycled shares remaining at December 31,2022. In accordance with ASC 815, Derivatives and Hedging, the Company has determined that the forward option within the Forward Purchase Agreements (i) is a freestanding financial instrument (ii) does not meet the definition of a derivative, (iii) is indexed to the Company's own stock, and (iv) does not meet the requirements for equity classification. The fair value of the option is recorded as an asset or a liability on the Consolidated Balance Sheets as forward option-prepaid forward contracts. The Company has performed fair value measurements for the forward option within the FPAs as of the Closing and as of December 31, 2022, which is described in Note 2. The Company remeasures the fair value of the forward option each reporting period. The initial value of the Forward option-prepaid forward contracts was $ 11,940 at Closing. Recycled Shares with a value of $ 41 were sold by the FPA Sellers. A loss on remeasurement of $ 10,170 was recorded in Change in fair value of forward option on the consolidated statements of operations for the year ended December 31, 2022. On December 31, 2022, the value of the forward option within the FPAs was $ 1,729 and recorded as Forward option-prepaid forward contracts on the consolidated balance sheets. Note 5. Accrued Expenses Accrued expenses consisted of the following amounts as of December 31, 2022 and 2021: ($ in thousands) 2022 2021 Accrued commitment fee, equity line of credit $ 1,500 $ — Accrued bonus 450 — Accrued interest 112 72 Accrued legal 80 27 Accrued director remuneration 61 — Accrued research and development 18 58 Accrued other 24 29 Total accrued expenses $ 2,245 $ 186 Note 6. Equity Line of Credit In August 2022, SeaStar Medical, Inc., LMAO, and Tumim Stone Capital LLC ("Tumim") entered into an equity line financing arrangement through a common Stock Purchase Agreement providing the right to sell Tumim up to $ 100,000 worth of shares of common stock. The Common Stock Purchase Agreement is subject to certain limitations and conditions and provided for a $ 2,500 commitment fee payable to Tumim. The Company paid $ 1,000 of the commitment fee in cash on the closing date of the Business Combination. The Company has recorded an 84 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) accrued expense for the remaining $ 1,500 of the commitment fee as of December 31, 2022, of which $ 1,000 will be paid in newly issued shares of common stock. The $ 2,500 commitment fee was recorded in general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2022. Note 7. Notes Payable Notes payable consisted of the following on December 31: ($ in thousands) 2022 2021 LMFA notes payable $ 968 $ — LMFAO note payable 2,785 — Maxim note payable 4,167 — Insurance financing 910 — Total notes payable $ 8,830 $ — LMFA Notes Payable On September 9, 2022, SeaStar Medical, Inc. entered into a Credit Agreement (“LMFA Note”) with LM Funding America, Inc. (“LMFA”) whereby LMFA agreed to make advances to SeaStar Medical, Inc. of up to $ 700 for general corporate purposes at an interest rate of 15 % per annum. All advances made to SeaStar Medical, Inc. under the LMFA Note and accrued interest were due and payable to LMFA on the maturity date. The maturity date of the loan was the earlier of (a) October 25, 2022, (b) the consummation of the Business Combination, and (c) the termination of the Merger agreement. On October 28, 2022, SeaStar Medical Holding Corporation and LMFA entered into the First Amendment to Credit Agreement, dated September 9, 2022 between LMFA and SeaStar Medical, Inc. whereby (i) the maturity date of the loan under the LMFA Note was extended to October 30, 2023 ; (ii) the Company is required to use 5.0 % of the gross cash proceeds received from any future debt and equity financing to pay outstanding balance of LMFA Note, provided that such repayment is not required for the first $ 500 of cash proceeds; (iii) the interest rate of the LMFA Note is reduced from 15 % to 7 % per annum; and (iv) the default interest rate is reduced from 18 % to 15 %. Subsequent to December 31, 2022, the maturity date was extended to June 15, 2024 (Note 16). As such, the Company has classified the LMFA Note as long-term in the consolidated balance sheets as of December 31, 2022. The LMFA Note contains customary representations and warranties, affirmative and negative covenants, and events of default. The balance due was $ 700 as of December 31, 2022. The Company recorded interest expense of $ 19 for the year ended December 31, 2022. In addition, on October 28, 2022, the parties entered into a security agreement, pursuant to which SeaStar Medical Holding Corporation granted LMFA a security interest in substantially all of the assets and property of the Company, subject to certain exceptions, as collateral under the amended LMFA Note. In addition, the Company entered into a guaranty, dated October 28, 2022, whereby SeaStar Medical Holding Corporation unconditionally guarantees and promises to pay to LMFA the outstanding principal amount under the LMFA Note. On November 2, 2022, The Company entered into an additional promissory note in the amount of $ 268 with LMFA. The promissory note is noninterest bearing and is due on demand at any time on or after March 31, 2023. The note was paid in full in January 2023. LMFAO Note Payable On October 28, 2022, the Company entered into a consolidated amended and restated promissory note with LMFAO Sponsor, LLC, LMAO’s sponsor and the sole holder of founding shares (the “Sponsor”) as the lender, for an aggregate principal amount of $ 2,785 (the “LMFAO Note”) to amend and restate in its entirety (i) the promissory note, dated July 29, 2022, for $ 1,035 in aggregate principal amount issued by LMAO to the Sponsor and (ii) the Amended and Restated Promissory Note, dated July 28, 2022, for $ 1,750 in aggregate principal amount, issued by LMAO to the Sponsor (collectively, the “Original Notes”). The LMFAO Note amended the Original Notes to: (i) extend maturity dates of the Original Notes to October 30, 2023 ; (ii) permit outstanding amount due under the 85 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) LMFAO Note to be prepaid without premium or penalty; and (iii) require the Company to use 20.0 % of the gross cash proceeds received from any future debt and equity financing to pay outstanding balance of LMFAO Note, provided that such repayment is not required for the first $ 500 of cash proceeds. Subsequent to December 31, 2022, the maturity date was extended to June 15, 2024 (Note 16). As such, the Company has classified the LMFAO Note as long-term in the consolidated balance sheets as of December 31, 2022. The LMFAO Note carries an interest rate of 7 % per annum and contains customary representations and warranties and affirmative and negative covenants. The LMFAO Note is subject to events of default, which may result in the LMFAO Note becoming immediately due and payable, with interest of 15.0 % per annum. In addition, on October 28, 2022, the parties entered into a security agreement whereby the Company granted the Sponsor a security interest in substantially all of the assets and property of the Company, subject to certain exceptions, as collateral to secure the Company’s obligations under the LMFAO Note. The balance due was $ 2,785 as of December 31, 2022. The Company recorded interest expense of $ 35 for the year ended December 31, 2022. Maxim Note Payable Pursuant to an engagement letter between the Company and Maxim dated October 28, 2022, the Company was required to pay Maxim, as its financial advisor, an amount equal to $ 4,182 in cash as professional fees ($ 1,973 assumed from LMAO and $ 2,209 related to professional fees of the Company). Upon the Closing, the parties agreed that such amount would be paid in the form of a promissory note. Accordingly, on October 28, 2022, the Company entered into a promissory note with Maxim as the lender, for an aggregate principal amount of $ 4,182 (the “Maxim Note”). The Maxim Note had a maturity date of October 30, 2023 and outstanding amounts may be prepaid without premium or penalty. Subsequent to December 31, 2022, the maturity date was extended to June 15, 2024 (Note 16). As such, the Company has classified the Maxim Note as long-term in the consolidated balance sheets as of December 31, 2022. If the Company receives any cash proceeds from a debt or equity financing transaction prior to the maturity date, then the Company is required to prepay the indebtedness equal to 25.0 % of the gross amount of the cash proceeds, provided that such repayment obligation shall not apply to the first $ 500 of the cash proceeds received by the Company. Interest on the Maxim Note is due at 7.0 % per annum. The Maxim Note contains customary representations and warranties, and affirmative and negative covenants. The Maxim Note is subject to events of default, which may result in the Maxim Note becoming immediately due and payable, with interest of 15.0 % per annum. The balance of the Maxim Note was $ 4,167 as of December 31, 2022. The Company recorded interest expense of $ 51 for the year ended December 31, 2022. Insurance Financing In October 2022, the Company entered into a financing agreement with a lender to finance a portion of the annual premium of an insurance policy in the amount of $ 910 . Interest on the financing agreement is due at 7.35 % per annum. The balance due was $ 910 as of December 31, 2022. The Company made payments of principal and interest of $ 135 and $ 101 , in January 2023 and February 2023, respectively. Seven additional monthly installments of principal and interest of $ 101 will be made during the year ended December 31, 2023. The Company recorded interest expense of $ 7 for the year ended December 31, 2022. 86 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) Note 8. Convertible Notes Dow Notes The Company had issued convertible note agreements to the Dow Employee’s Pension Plan Trust (Dow Notes) in the following amounts (in thousands): Issue Maturity Date Amount Date June 2021 $ 300 December 2022 September 2021 840 December 2024 October 2021 240 December 2024 November 2021 240 December 2024 March 2022 120 March 2024 April 2022 480 April 2025 April 2022 120 April 2025 $ 2,340 Interest on the unpaid balances accrued at the rate of eight percent per year. At each issuance, the fair value of the conversion features was separated from the convertible notes and reported as a debt discount and derivative liability as discussed in Note 2, Recurring fair value measurements. Upon the occurrence of the Business Combination, the principal plus accrued interest was converted into shares of common stock. Union Carbide Notes The Company had issued convertible note agreements to the Union Carbide Employee Pension Plan Trust (Union Carbide Notes) in the following amounts (in thousands): Issue Maturity Date Amount Date June 2021 $ 200 December 2022 September 2021 560 December 2024 October 2021 160 December 2024 November 2021 160 December 2024 March 2022 80 March 2024 April 2022 320 April 2025 April 2022 80 April 2025 $ 1,560 Interest on the unpaid balances accrued at the rate of eight percent per year. At each issuance, the fair value of the conversion features was separated from the convertible notes and reported as a debt discount and derivative liability as discussed in Note 2, Recurring fair value measurements. Upon the occurrence of the Business Combination, the principal plus accrued interest was converted into shares of common stock. IBT Notes During the years ended December 31, 2022 and 2021, the Company converted unpaid invoices in the amounts of $ 96 and $ 114 , respectively, into convertible note agreements with IBT and David Humes (collectively the “IBT Notes”). Interest on the unpaid balances accrued at the rate of eight percent per year. At each issuance, the fair value of the conversion features was separated from the convertible notes and reported as a debt discount and derivative liability as discussed in Note 2, Recurring fair value measurements. Upon the occurrence of the Business Combination, the principal plus accrued interest was converted into shares of common stock. 87 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) Investor Notes During the years ended December 31, 2022 and 2021, the Company issued convertible notes to investors for $ 422 and $ 104 , respectively (collectively the “Investor Notes”). Interest on the unpaid balances accrued at the rate of eight percent per year. At each issuance, the fair value of the conversion features was separated from the convertible notes and reported as a debt discount and derivative liability as discussed in Note 2, Recurring fair value measurements. Upon the occurrence of the Business Combination, the principal plus accrued interest was converted into shares of common stock. The discounts recorded at the time of the above issuances were amortized to interest expense over the life of the convertible notes using the effective interest method. Amortization of the debt discounts for the years ended December 31, 2022 and 2021 was $ 242 and $ 140 , respectively. The convertible notes and debt discounts consisted of the following on December 31, 2021: December 31, ($ in thousands) 2021 Dow Notes $ 1,620 Union Carbide Notes 1,080 IBT & David Humes Notes 114 Investor Notes 104 Unamortized debt discount ( 359 ) 2,559 Less current portion ( 2,378 ) $ 181 As part of the Business Combination, the Company converted all convertible notes with a principal amount of $ 4,636 , accrued interest of $ 341 , and unamortized discount of $ 168 into 598,861 shares of common stock. The fair value of the common stock issued was $ 5,989 and the Company has recognized a loss on conversion of convertible notes of $ 1,180 in the consolidated statements of operations for the year ended December 31, 2022. The following notes were converted: ($ in thousands) Dow Notes $ 2,340 Union Carbide Notes 1,560 IBT & David Humes Notes 210 Investor Notes 526 $ 4,636 Note 9. Government Loans and PPP Loans Government Loans In June 2020, SeaStar Medical, Inc. received a loan in the amount of $ 63 from the U.S. Small Business Administration ("SBA") under the Economic Injury Disaster Loan assistance program established as part of the CARES Act. The loan called for monthly payments in the amount of $ 0.3 until maturity in May 2050 . The loan accrued interest at 3.75 %. On October 17, 2022, the Company pre-paid the full balance to the SBA in the amount of $ 63 principal and $ 6 accrued interest. Interest expense was $ 2 and $ 3 for the years ended December 31, 2022 and 2021, respectively. 88 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) PPP Loans On April 2, 2021, the Company received loan proceeds of $ 91 from a promissory note issued by Silicon Valley Bank, under the Paycheck Protection Program (“PPP”) which was established under the CARES Act. The original term on the loan was two years and the annual interest rate was 1 %. Payments of principal and interest were deferred for the first six months of the loan. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan proceeds. Such forgiveness is determined based on the use of the loan proceeds for payroll costs, rent and utility expenses and the maintenance of workforce and compensation levels with certain limitations. During the year ended December 31, 2021, the Company was granted forgiveness for the entire PPP loan. The Company recorded $ 91 to other income. In April 2020, the Company had received loan proceeds of $ 104 from a promissory note issued by Silicon Valley Bank, under the PPP. During the year ended December 31, 2020, the Company recorded $ 84 to other income for loan forgiveness and during the year ended December 31, 2021, the Company paid $ 20 for the unforgiven remaining balance of a PPP loan. Note 10. Warrants Prior to the Business Combination, SeaStar Medical, Inc. had outstanding warrants to purchase shares of SeaStar Medical, Inc.’s preferred stock which had been issued in conjunction with various debt financings. Upon effectiveness of the Business Combination, 57,942 outstanding warrants were converted into 69,714 warrants to purchase common stock of SeaStar Medical Holding Corporation (“Legacy SeaStar Warrants”) at their previous exercise prices. On December 31, 2022, there were 69,714 Legacy SeaStar Warrants outstanding, which are accounted for as equity. As part of LMAO’s initial public offering, under the Warrant Agreement dated as of January 25, 2021 and, prior to the effectiveness of the Business Combination, LMAO issued 10,350,000 warrants each of which entitled the holder to purchase one share of common stock at an exercise price of $ 11.50 per share (“Public Stockholders’ Warrants”). Simultaneously with the closing of the Initial Public Offering, LMAO completed the private sale of 5,738,000 million warrants each of which entitled the holder to purchase one share of common stock at an exercise price of $ 11.50 per share, to LMAO’s sponsor (“Private Placement Warrants”). Upon the effectiveness of the Business Combination, the outstanding Public Stockholders’ Warrants and Private Placement Warrants automatically converted into warrants of SeaStar Medical Holding Corporation. The Company has reviewed the terms of the warrants to determine whether the warrants should be classified as liabilities or stockholders' deficit in its consolidated balance sheets. In order for a warrant to be classified in stockholders' deficit, the warrant must be (a) indexed to the Company's equity and (b) meet the conditions for equity classification in ASC 815-40, Derivatives and Hedging-Contracts in an Entity's own Equity . If a warrant does not meet the conditions for equity classification, it is carried on the consolidated balance sheets as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in the consolidated statements of operations as change in fair value of warrants. The Company determined that the warrants are required to be classified as stockholders' deficit as of the date of the Business Combination. The Company has the ability to redeem outstanding Public Shareholders' Warrants at any time after they become exercisable and prior to their expiration, at a price of $ 0.01 per warrant, provided that the last reported sales price of our common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits , stock dividends, reorganizations, and the like) for any 20 trading days within a 30 day trading-day period. The Company does not have the ability to redeem the Private Placement Warrants. The Private Placement Warrants were valued a t $ 6,688 at t he date of the Business Combination date. On December 31, 2022, there were 10,350,000 Public Shareholders' Warrants outstanding and 5,738 Private placement Warrants outstanding. On October 28, 2022, the Company entered into a Private Investment in Public Equity (“PIPE”) Agreement, pursuant to which the PIPE investors purchased an aggregate of 700,000 shares of common stock at $ 10.00 per share and received 700,000 PIPE Investor Warrants, which entitled the holder to purchase one share of common stock of SeaStar Medical Holding Corporation at $ 11.50 per share, for an aggregate purchase price of $ 7,000 . At December 31, 2022, there were 700,000 PIPE Investor Warrants outstanding, which are accounted for as equity. 89 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) The Company has the following warrants outstanding on December 31, 2022 and 2021: December 31, December 31, 2022 2021 Public Stockholders' Warrants 10,350,000 — Private Placement Warrants 5,738,000 — PIPE Investor Warrants 700,000 — SeaStar Warrants 69,714 69,714 16,857,714 69,714 Note 11. Convertible Preferred Stock, Common Stock and Preferred Stock During the years ended December 31, 2022 and 2021, SeaStar Medical, Inc. converted 194,494 and 12,226 shares of Series A-2 Preferred stock, respectively, to Series B Preferred stock. Immediately prior to the Business Combination, SeaStar Medical, Inc. converted 633,697 shares of Series B Preferred stock, 1,576,154 shares of Series A-1 Preferred stock and 577,791 shares of Series A-2 Preferred stock to 7,238,767 shares of common stock. Also, during the year ended December 31, 2022, SeaStar Medical, Inc. converted Convertible Notes with a principal amount of $ 4,636 , a discount amount of $ 168 and accrued interest of $ 341 to 598,861 shares of common stock. SeaStar Medical, Inc.’s convertible preferred stock was classified as temporary equity in the accompanying consolidated balance sheets given the voting interest held by convertible preferred stockholders which could cause certain events to occur that were outside of SeaStar Medical, Inc.’s control whereby SeaStar Medical, Inc. could have been obligated to redeem the convertible preferred stock. SeaStar Medical, Inc. did not adjust the carrying values of the convertible preferred stock to the respective liquidation preferences of such shares as the instruments were not yet redeemable, and SeaStar Medical, Inc. believed it was not probable that the instruments would become redeemable. Subsequent to the Business Combination, the Company is authorized to issue 110,000,000 shares, consisting of (a) 100,000,000 shares of common stock and (b) 10,000,000 shares of preferred stock (the “Preferred Stock”). Common stock The charter of the Company (the "Charter") provides the following with respect to the rights, powers, preferences, and privileges of the common stock. Voting power Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitled to one voter per share on matters to be voted on by stockholders. The Charter does not provide for cumulative voting rights. Dividends Subject to the rights, if any, of the holders of any outstanding shares of preferred stock, under the Charter, holders of common stock will be entitled to receive such dividends, if any, as may be declared from time to time by the Board in its discretion out of funds legally available therefor. Liquidation, dissolution and winding up In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all of the 90 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) Company’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of the Preferred Stock have been satisfied and after payment or provision for payment of the Company’s debts. Preemptive or other rights There are no preemptive rights or sinking fund provisions applicable to the shares of the Company’s common stock. Preferred Stock The Charter provides that shares of preferred stock may be issued from time to time in one or more series. Our Board is authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional, or other special rights and any qualifications, limitations, and restrictions thereof, applicable to the shares of each series. We have no preferred stock outstanding at December 31, 2022. Note 12. Stock-Based Compensation Awards Equity incentive plan - stock options The Company’s board of directors adopted the SeaStar Medical, Inc.’s 2019 Stock Incentive Plan (the "Stock Incentive Plan") on February 25, 2019 to provide long-term incentive for its key employees and non-employee service providers. As of December 31, 2022 and 2021, 547,717 shares were reserved for the issuance of stock options to key employees and non-employee service providers for the purchase of SeaStar Medical, Inc.’s common stock. The vesting of stock options is stated in each individual grant agreement, which is generally four years . Options granted expire 10 years after the date of grant. There were 260,355 shares available for future grant as of December 31, 2021. Upon the Closing, the Stock Incentive Plan was terminated, and the Company will not grant any further awards under such plan. However, the outstanding awards under the Stock Incentive Plan will be assumed and continued in connection with the Business Combination. Each SeaStar Medical, Inc. Option to purchase shares of SeaStar Medical, Inc. common stock or SeaStar Medical, Inc. Preferred Stock (“SeaStar Option”) that was outstanding and unexercised immediately prior to the Business Combination converted into an option to purchase common stock, par value $ 0.0001 per share, of SeaStar Medical Holding Corporation in accordance with its terms. The increase in the number of stock options was accounted for as a modification. The incremental fair value from the stock option modification increased stock-based compensation expense by $ 134 for the year ended December 31, 2022, and increased unrecognized stock-based compensation cost by $ 223 as of December 31, 2022. The Company's Board of Directors adopted, and the shareholders approved SeaStar Medical, Inc.'s 2022 Omnibus Incentive Plan (the "Equity Incentive Plan") to provide long-term incentive for its key employees and non-employee service providers. As of December 31, 2022, 1,270,000 shares were reserved for the issuance of stock options to key employees and non-employee service providers for the purchase of the Company’s common stock. The vesting of stock options is stated in each individual grant agreement, which is generally four years . Options granted expire 10 years after the date of grant. There were 743,720 options available for future grant as of December 31, 2022. 91 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) Option activity for the years ended December 31, 2022 and 2021, are as follows: Weighted Weighted Average Average Total Remaining Exercise Intrinsic Contractual ($ in thousands) Options Price Value Life (Years) Outstanding as of December 31, 2020 141,851 $ 5.34 Granted 153,504 $ 0.55 Forfeited ( 7,973 ) $ 10.00 Outstanding as of December 31, 2021 287,382 $ 2.65 $ — 8.61 Forfeited prior to merger conversion ( 83,928 ) $ 4.63 Additional options issued in merger conversion 41,338 $ 1.84 Outstanding as of December 31, 2022 244,792 $ 1.84 $ 751,851 7.65 Options exercisable as of December 31, 2022 145,365 $ 2.46 $ 412,681 7.48 The Company recognized $ 148 and $ 14 in stock-based compensation expense in connection with the Equity Incentive Plan for the years ended December 31, 2022 and 2021. As of December 31, 2022, there was unrecognized stock-based compensation cost of $ 246 , which is expected to be recognized over a term of three years . There were no options exercised during the years ended December 31, 2022 and 2021. For options granted during the year ended December 31, 2021, the weighted-average grant date fair value was $ 0.40 per share. No options were granted during the year ended December 31, 2022, other than the additional options issued in the Business Combination. Stock-based compensation expense for options included in the consolidated statements of operations is as follows: ($ in thousands) 2022 2021 Research and development $ 7 $ 1 General and administrative 141 13 Total $ 148 $ 14 Equity incentive plan - restricted stock units In April 2022, the board of directors granted employees and members of the board restricted stock units ("RSUs"), under which the holders have the right to receive an aggregate of 255,000 shares of common stock. The majority of the RSUs granted vest 50 % on the first anniversary of the grant date, with the remaining 50 % of the awards vesting monthly over a 12 -to- 24 month period following the first anniversary of the grant date . At grant date, the fair market value of an RSU was $ 8.00 per share. Each SeaStar Medical, Inc. RSU that was outstanding immediately prior to the Business Combination converted into an RSU to receive common stock, par value $ 0.0001 per share, of SeaStar Medical Holding Corporation in accordance with its terms. The increase in the number of RSUs was accounted for as a modification. The incremental fair value from the modification increased stock-based compensation expense increased by $ 130 for the year ended December 31, 2022, and increased unrecognized stock-based compensation cost by $ 373 as of December 31, 2022. 92 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) RSU activity for the year ended December 31, 2022, was as follows: Outstanding as of December 31, 2021 — Granted 255,000 Forfeited prior to merger conversion ( 7,000 ) Additional RSUs issued in merger conversion 50,389 Outstanding as of December 31, 2022 298,389 Vested as of December 31, 2022 — Shares subject to repurchase as of December 31, 2022 298,389 The Company recognized $ 1,163 in stock-based compensation expense in connection with the RSUs for the year ended December 31, 2022. As of December 31, 2022, there was unrecognized stock-based compensation cost of $ 1,353 , which is expected to be recognized over a term of 2.2 years . For RSUs granted during the year ended December 31, 2022, the weighted-average grant date fair value was $ 8.00 per share. The weighted-average fair value of the additional RSUs issued in the Business Combination conversion was $ 10.00 per share. Stock-based compensation expense for RSUs included in the consolidated statements of operations is as follows: ($ in thousands) 2022 2021 Research and development $ 89 $ — General and administrative 1,074 — Total $ 1,163 $ — Note 13. Commitments and Contingencies License and distribution agreement On December 27, 2022, the Company entered into a license and distribution agreement (“License Agreement”) with a distributor, appointing the distributor as the exclusive distributor to promote, advertise, market, distribute and sell the Selective Cytopheretic Device (“SCD”) in the United States. The Company received an upfront payment of $ 100 on January 3, 2023. If the Company does not receive written authorization to market the SCD, prior to the first anniversary of the effective date, the Company will repay the $ 100 . The Company shall also receive milestone payments in the amounts of $ 450 and $ 350 for obtaining FDA approval and for selling the first sixty units to any third parties. The term of the agreement is three years . Lease agreements The Company is part of a membership agreement for shared office space and can cancel at any time. Rent expense was $ 32 for the years ended December 31, 2022 and 2021. 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. The Company was not subject to any material legal proceedings during the years ended December 31, 2022 and 2021 and no material legal proceedings are currently pending or threatened. 93 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) Note 14. Income Taxes The Company recorded $ 1 of current income tax expense and $ 1 of current income tax benefit for the years ended December 31, 2022 and 2021, respectively. The effective income tax rate of the Company’s provision for income taxes differed from the federal statutory rate as follows: 2022 2021 Federal tax at statutory rate 21.0 % 21.0 % State income tax 4.4 % 3.6 % Interest on convertible notes ( 0.6 )% 0.0 % Change in fair value of convertible notes derivative liability ( 0.7 )% 0.0 % Other 0.3 % ( 0.8 )% Change in valuation allowance ( 24.4 )% ( 23.8 )% Total effective income tax rate ( 0.0 )% ( 0.0 )% Significant components of deferred tax assets for federal and state income taxes were as follows: December 31, December 31, ($ in thousands) 2022 2021 Deferred tax assets: Net operating losses $ 18,627 $ 17,538 Forward option-prepaid forward contracts, net 2,585 — Finance charges and origination fees 1,028 — Accrued compensation 130 — Stock-based compensation 311 3 Section 174 research and development capitalization 434 — Tax credits 715 648 Total deferred tax assets 23,830 18,189 Valuation allowance ( 23,830 ) ( 18,189 ) Net deferred tax assets $ — $ — 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. 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. For the years ended December 31, 2022 and 2021, the net increase in the valuation allowance was $ 5,641 and $ 869 , respectively. As of December 31, 2022 and 2021, the Company had federal net operating loss carryforwards of $ 82,265 and $ 78,127 , respectively, of which $ 29,425 of federal net operating loss carryforwards post 2017 will be carried forward indefinitely. The remaining $ 52,840 of federal net operating loss carryforwards begin expiring in 2027 . The Company also had $ 28,896 of state (Colorado, California, and Florida) net operating loss carryforwards, which will begin expiring in 2039 . The Company has not used any net operating loss carryforwards to date. The Company had federal energy credit carryforwards of $ 647 as of December 31, 2022 and 2021, which will expire starting in 2027 if not utilized. The Company has federal research and development credit carryforwards of $ 68 as of December 31, 2022, which will expire starting in 2042 if not utilized. Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, the Company's ability to use NOL and research tax credit carry forwards to offset future taxable income may be limited if the Company experiences a cumulative change in ownership of more than 50 % within a three-year testing period. The Company has not completed an ownership change analysis pursuant to IRC Section 382. If ownership changes within the meaning of IRC Section 382 are identified as having occurred, the amount of NOL and research tax credit carryforwards available to offset 94 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) future taxable income and income tax liabilities in future years may be significantly restricted or eliminated. Further, deferred tax assets associated with such NOLs, and research tax credits could be significantly reduced upon realization of an ownership change within the meaning of IRC Section 382. The Company files U.S. federal and state tax returns with varying statutes of limitations. Due to net operating loss and credit carryforwards, the 2019 to 2022 tax years remain subject to examination by the U.S. federal and some state authorities. The actual amount of any taxes due could vary significantly depending on the ultimate timing and nature of any settlement. Uncertain Tax Benefits The Company uses the “more likely than not” criterion for recognizing the income tax benefit of uncertain income tax positions and establishing measurement criteria for income tax benefits. The Company had no uncertain tax benefits as of December 31, 2022 and 2021. The Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months as of December 31, 2022. Note 15. Net Loss Per Share Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the convertible preferred stock and common stock options are considered to be potentially dilutive securities. Basic and diluted net loss per share is presented in conformity with the two-class method required for participating securities as the convertible preferred stock is considered a participating security. The Company’s participating securities do not have contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. As the Company has reported net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods. 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: 2022 2021 Public Stockholders' warrants 10,350,000 — Private Placement warrants 5,738,000 — PIPE Investor warrants 700,000 — SeaStar warrants 69,714 69,714 Options to purchase common stock 244,792 345,773 Restricted stock units 298,389 — Total 17,400,895 415,487 Net loss per share is calculated using the shares in connection with the Business Combination and related transactions, assuming the shares were outstanding since January 1, 2021. As the Business Combination and related transactions are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issued in 95 SeaStar Medical Holding Corporation Notes to the Consolidated Financial Statements (in thousands, except for shares and per-share amounts) connection with the Business Combination have been outstanding for the entire period presented. Year Ended December 31: 2022 2021 Net loss $ ( 23,013 ) $ ( 4,596 ) Weighted average shares outstanding - basic 8,211,256 7,238,767 Basic net loss per share $ ( 2.80 ) $ ( 0.63 ) Weighted average shares outstanding - diluted 8,211,256 7,238,767 Diluted net loss per share $ ( 2.80 ) $ ( 0.63 ) Note 16. Subsequent Events On January 3, 2023, the Company received an upfront payment of $ 100 as part of its License Agreement (Note 13). On March 13, 2023, the Company entered into a $ 100 promissory note with LM Funding America Inc. with an interest rate of 7.0 % per annum. The promissory note was payable on demand at any time after April 13, 2023 and had no prepayment penalty. The Company repaid the loan on March 24, 2023 . On March 15, 2023, the Company entered into a securities purchase agreement with an institutional investor, whereby the Company will issue a series of four senior unsecured convertible notes, with principal amounts totaling up to $ 9,800 , and warrants to purchase shares of the Company’s common stock. On March 15, 2023, the Company issued a note, convertible into 1,207,729 shares of common stock at an initial conversion price of $ 2.70 , in a principal amount of $ 3,261 , and a warrant to purchase up to 328,352 shares of common stock. The senior unsecured convertible note was issued at an 8.0 % discount, bears interest at 7.0 % per annum, and matures on June 15, 2024 . The senior unsecured convertible notes are redeemable, in whole or in part, at any time at the discretion of the Company. The warrants have an initial exercise price of $ 2.97 per share of common stock, expire five years from their issuance date, and contain cashless exercise provisions. On March 15, 2023, the Company amended its LMFA notes, LMFAO note and Maxim note, extending their maturity dates to June 15, 2024 . In consideration for such extension, the Company agrees to pay the note holders an aggregate amount of $ 0.1 million in cash upon receipt of proceeds from the issuance of the notes at the second closing under the securities purchase agreement. In March 2023, a VWAP trigger event occurred, and the Forward Purchase Agreements could mature on the date specified by the FPA Sellers at the FPA Sellers’ discretion. The FPA Sellers have not specified the Maturity Date of the Forward Purchase Agreements as of the issuance of these consolidated financial statements. During the period from January 1, 2023 through March 30, 2023 , the Company made payments of $ 2,701 on notes payable that were outstanding as of December 31, 2022. 96 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . None.