Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Objective
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 Annual Report. 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 Annual Report.
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”, and “our”, are intended to mean the business and operations of SeaStar Medical Holding Corporation and its consolidated subsidiaries (the “Company”, “We”, “SeaStar Medical” or “Us”) following the October 28, 2022, merger between LMF Acquisition Opportunities Inc. (“LMF”), and SeaStar Medical, Inc, (the “Predecessor”) (the transaction herein defined as the “Business Combination” or “Merger”). In connection with the Business Combination, the Predecessor was determined to be the accounting acquirer.
Overview
On October 28, 2022, LMF consummated a series of transactions that resulted in the combination of LMF Merger Sub, Inc. and the Predecessor pursuant to an Agreement and Plan of Merger. Immediately upon consummation of the Business Combination, LMF was renamed SeaStar Medical Holdings Corporation (as defined above).
We are a commercial stage medical technology company developing a proprietary platform therapy, our SCD to reduce the consequences of hyperinflammation on vital organs. We received FDA approval for our pediatric SCD (“QUELIMMUNE”) on February 21, 2024, under a HDE, and shipped our first commercial pediatric SCD in July 2024. A pivotal clinical trial for the SCD in adult patients with AKI is underway with 94 patients enrolled as of March 25, 2025.
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, normal neutrophil die off may be delayed, altering feedback mechanisms that regulate the immune system. This results of 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.
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
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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 initially to clinically validate several acute organ injury indications, including kidneys 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 U.S. for premarket clearance by the FDA. The SCD for adults is designed to be easily integrated into existing CRRT systems that are commonly installed in hospitals, including in ICUs throughout the United States. Similar to our pediatric SCD (QUELIMMUNE), 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. See Part I, Item 1A “Risk Factors” for additional information.
We have incurred net losses in each year since our inception in 2007. As of December 31, 2024 and 2023, we had an accumulated deficit of approximately $139.6 million and $114.7 million, respectively. Our net losses were $24.8 million and $26.2 million for the years ended December 31, 2024 and 2023, respectively. Approximately 72% and 54% of our net losses for the years-ended December 31, 2024 and 2023, respectively, resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. The remaining net losses primarily resulted from non-cash, non-operating changes in fair value of our financial instruments recognized in our statement of operations for the same two fiscal years. For the year ended December 31, 2024, these non-cash, non-operating losses related to change in fair value of convertible notes, change in fair value of liability classified warrants, and interest expense, which were partially offset by interest income.
As of December 31, 2024 and 2023, we had cash and cash equivalents of approximately $1.8 million and $0.2 million, respectively.
Our accompanying 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 costs 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 following the issuance date for the consolidated financial statements for the year ended December 31, 2024. See Note 1 to our audited consolidated financial statements for the year ended December 31, 2024, included elsewhere in this Annual Report 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 not generated significant revenue from the sale of commercialized products. Our ability to generate product revenue will depend on the successful development of our adult SCD and eventual ongoing commercialization of QUELIMMUNE. Until such time, if ever, 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 or 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
Revenue
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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 December 31, 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 FDA approval. If we fail to complete the development of, or fail to obtain regulatory approval to commercialize 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, professional fees for accounting and legal services, sales and marketing expenses, and expenses associated with obtaining and maintaining patents and obtaining financing, and expenses related to SEC reporting and compliance. 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.
Loss from Operations and Operating Margin
Loss from operations consists of our gross profit less our operating expenses. Operating margin is loss from the operations as a percentage of our net sales.
Other Income (Expense), Net
Total other income (expense), net primarily consists of interest expense relating to interest incurred on our notes, financing fees related to our convertible notes, gain on issuance of convertible notes, change in fair value of convertible notes, change in fair value of warrants liability, termination of forward purchase agreement, gains from early extinguishments of convertible notes, changes in fair value of the derivative liability related to the conversion option of convertible notes, and interest income derived from cash balances maintained at a commercial financial institution.
Net Loss
Net loss consists of our loss from operations, less other expenses, net.
Factors Affecting Our Operating Results
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We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges. Please see the factors discussed elsewhere in this Annual Report, including those discussed in Part I, Item 1A, “Risk Factors,” for additional information.
Results of Operations
Comparison of Year Ended December 31, 2024 to Year Ended December 31, 2023
The following table sets forth a summary of our results of operations. This information should be read together with our consolidated financial statements and related Notes included elsewhere in this Annual Report.
Year Ended
December 31,
Change
($ in thousands)
2024
2023
$
%
Net Revenue
$
135
$
—
$
135
(*)
Operating expenses
Research and development
9,105
5,973
3,132
52.4
%
General and administrative
8,872
8,237
635
7.7
%
Total operating expenses
17,977
14,210
3,767
26.5
%
Loss from operations
(17,842
)
(14,210
)
(3,632
)
25.6
%
Total other income (expense)
(6,985
)
(12,022
)
5,037
-41.9
%
Loss before income tax provision
(24,827
)
(26,232
)
1,405
-5.4
%
Income tax provision (benefit)
3
—
3
(*)
Net loss
$
(24,830
)
$
(26,232
)
$
1,402
-5.3
%
(*) - revenue or expenses which were new to the year ended December 31, 2024 compared to the year ended December 31, 2023.
Revenue
Net revenue increased $0.1 million to $0.1 million for the year-ended December 31, 2024, compared to no net revenue for the year-ended December 31, 2023. The increase is attributable to the commencement of sales after receiving approval from the FDA to commercially sell our pediatric selective cytopheretic device, QUELIMMUNE, on February 21, 2024. Sales did not occur until after July 1, 2024.
Research and Development Expenses
The following table discloses the breakdown of research and development expenses:
Year Ended
December 31,
Change
($ in thousands)
2024
2023
$
%
Clinical trials
$
4,391
$
2,546
$
1,845
72.5
%
External services
1,254
1,111
143
12.9
%
Payroll and personnel expenses
3,184
2,164
1,020
47.1
%
Other research and development expenses
276
152
124
81.6
%
$
9,105
$
5,973
$
3,132
52.4
%
Research and development expenses for the years ended December 31, 2024 and 2023 were approximately $9.1 million and $6.0 million, respectively. The increase in research and development expenses of $3.1 million, or 52.4%, was primarily driven by increases in clinical trial expenses of $1.8 million and external services of $0.1 million due
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to the Neutralize-AKI Adult SCD study, in which we ended the year 2024 with 14 clinical trial sites enrolled, an increase in payroll and personnel expenses of $1.0 million due to increased head count and equity grants, and an increase in other costs of approximately $0.1 million, due to increased travel and other costs relating to increasing clinical trial site enrollees.
General and Administrative Expenses
General and administrative expenses for the years ended December 31, 2024 and 2023 were $8.9 million and $8.2 million, respectively. The increase in general and administrative expenses 7.7% is due primarily to (i) an increase in payroll and related expenses of $0.6 million, due to increased head count as we invested in our finance and commercial functions, (ii) a $0.6 million increase in accounting related costs due to the restatement of certain financial statements for the 2023 and 2022 Forms 10-K and for interim period financial statements on Forms 10-Q, (iii) a $0.1 million increase in legal expense, and (iv) a $0.2 million increase in consulting expenses for various strategic and commercial endeavors, offset by (i) a $0.6 million reduction in SEC related expenses as we transitioned from outside parties to internal resources for SEC related filings and compliance activities, and (ii) a $0.3 million decline in other activities such as public relations, investor relations and certain marketing activities.
Other Income (Expense)
Other income (expense) for the years ended December 31, 2024 and 2023 was expense of $7.0 million and $12.0 million, respectively. The decrease of approximately $5.0 million primarily resulted from (i) $4.2 million decline in the loss from the change in fair value on extinguishments of convertible notes, (ii) a decrease in interest expense of $0.8 million due to the reduction in our outstanding notes and convertible notes, (iii) interest income of $0.1 million during 2024 compared to $0.0 million for 2023, and (iv) we did not recognize a loss from the change in the fair value of forward purchase agreement derivative liabilities for 2024 as the instrument did not exist during 2024, while incurring a loss on the change in fair value of forward purchase agreement derivative liabilities of $1.3 million in 2023.
This was primarily offset by an approximately $1.2 million unfavorable impact due to the change in the fair value of liability classified warrants in 2024 compared to 2023.
Income Tax Provision (Benefit)
We recorded a provision for income taxes of $3 thousand for the year ended December 31, 2024, and did not record a provision for income taxes for the year ended December 31, 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. We consider 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 2024 and 2023, we 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. A valuation allowance of $28.5 million and $25.6 million was recorded as of and for the years ended December 31, 2024 and 2023, respectively.
Net Loss
During the year ended December 31, 2024, we had a net loss of $24.8 million compared to a net loss of $26.2 million for the year ended December 31, 2023. The decline in net loss of $1.4 million primarily resulted from a decline in other expense of $5.0 million (as discussed above in “ Other Income (Expense) ” offset by increases in general and administrative expenses of $0.6 million, and increases in research and development expenses of $3.1 million.
Liquidity and Capital Resources
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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 December 31, 2024 and December 31, 2023, we had an accumulated deficit of $139.6 million and $114.7 million, respectively.
As of December 31, 2024 and December 31, 2023, we had cash of $1.8 million and $0.2 million, respectively. We expect that our existing cash will be insufficient to fund our operations for the twelve months from filing date of our Form 10-K for the year ended December 31, 2024, including clinical trial expenses and capital expenditure requirements. We believe that this raises doubt about our ability to continue as a going concern. To finance our operations beyond that point, we would need to raise additional capital, and there is no guarantee that we will be able to secure additional funding on favorable terms, or at all. We have concluded that these circumstances raise doubt about our ability to continue as a going concern within one year after the issuance date of this Annual Report. See Note 1 to our audited consolidated financial statements for the year ended December 31, 2024.
Cash Flows
The following table shows a summary of our cash flows for each of the periods shown below:
Year Ended
December 31,
($ in thousands)
2024
2023
Statement of cash flow data:
Total cash (used in)/provided by:
Operating activities
$
(16,007
)
$
(10,285
)
Investing activities
—
—
Financing activities
17,650
10,414
$
1,643
$
129
Cash Flow from Operating Activities
Net cash used in operating activities for the fiscal year ended December 31, 2024 was $16.0 million compared to $10.3 million for the fiscal year ended December 31, 2023. The increase in cash used for operating activities of $5.7 million is primarily due to the increased activity related to clinical trial activities for the Neutralize-AKI clinical trial, and certain general and administrative costs.
Cash Flow from Financing Activities
Net cash provided by financing activities for the fiscal year ended December 31, 2024, was $17.7 million, primarily related to the issuance of new shares of common stock from the combination of certain registered direct offerings and at-the-market issuances, proceeds from convertible notes, and proceeds from the issuance of pre-funded warrants.
Cash provided by financing activity for the fiscal year ended December 31, 2023, was $10.4 million, primarily related to the issuance of new shares of common stock, proceeds from convertible notes, and the sale of recycled shares, partially offset by payments of notes payable, and payment of convertible notes
Capital Resources
Sources of Liquidity
Shelf Registrations
Shelf Registration 333-275968 - On December 8, 2023, we filed a shelf registration on Form S-3. which was declared effective by the SEC on December 22, 2023. This shelf registration statement covered the offering, issuance and sale by us of up to an aggregate of $100.0 million of its common stock, preferred stock, debt securities, warrants,
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rights and units (the “2023 Shelf”). Since the date of effectiveness, we have raised approximately $23.5 million as of December 31, 2024, through the combination of registered direct offerings and “ At-the-Market ” offerings. As of December 31, 2024, we have approximately $76.5 million remaining to for future offerings, of which, $20.5 million is currently restricted to capital raised from the “ At-the-Market ” offering.
We have raised $0.9 million from our “At-the-Market” program since January 1, 2025. On February 3, 2025, we raised approximately $6.0 million through an offering of our common stock.
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 SCD product for approval by the FDA, and (ii) if regulatory approval is obtained, to launch and commercialize our products in the U.S. 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:
• conditions in the capital markets;
• our ability to receive cash proceeds from our existing funding instruments, including a potential equity line of credit;
• 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 hiring additional personnel 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.
Until such time, if ever, as we are able to successfully develop and commercialize our products, we expect to continue financing our operations through the sale of equity, issuance of 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 when needed or on acceptable terms.
Based on our results of operations and liquidity as of December 31, 2024, we believe our cash and cash equivalents are not sufficient to meet our operations, working capital and capital expenditure requirements for a period of at least twelve months from the date of our audited consolidated financial statements for the fiscal year ended December 31, 2024. In addition, we do not expect to receive significant 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 the majority of the 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. 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.
We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of 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,
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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.
Critical Accounting Policies and Estimates
The preparation of the 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.
Significant estimates include the valuation of the (i) incurred-but-not-billed clinical trial costs, (ii) prepaid forward purchase agreement derivative liability, (iii) convertible notes (iv) liability classified warrants, (v) share-based compensation expense.
While our significant accounting policies are described in Note 2 - Summary of Significant Accounting Policies to the notes to our audited consolidated financial statements included elsewhere in the Annual Report on Form 10-K, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our annual consolidated financial statements.
Incurred-But-Not-Billed Clinical Trial Site Costs. Our Neutralize-AKI clinical trial study is conducted at 14 qualified healthcare facilities as of December 31, 2024. We are responsible to cover the costs of these clinical trial efforts, including the cost of patient care relating to the adult SCD, It is common practice that the costs incurred by the clinical trial sites are incurred, but not billed until months after the event giving rise to the unbilled activity. Accordingly, we estimate the value of these “ incurred-but-not-billed ” activities at the end of each reporting period. Any impact to the Statement of Operations is recognized as a component of research and development expense and included as a component of accrued expenses on the Balance Sheet.
Prepaid Forward Purchase Agreement Derivative Liability. The prepaid forward purchase agreement derivative liability (the “FPA Derivative Liability”) is required to be recognized as a liability as the financial instrument fails the “ Indexation Guidance” of ASC 815-10 in addition having certain settlement features that could or will require settlement in cash or shares, depending on the feature. The FPA Derivative Liability was initially recorded at $5.2 million on October 28, 2022 (see Note 5). The FPA Derivative Liability was 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. For each simulated path, the forward purchase value was calculated based on the contractual terms and then discounted at the term-matched risk-free rate. Finally, the value of the forward was calculated as the average present value over all simulated paths. Changes in the fair value of the FPA Derivative Liability are recorded each reporting period to the change in the fair value of the forward purchase agreement derivative liability in the consolidated statement of operations. This instrument no longer existed as of December 31, 2024.
Investor D Convertible Notes. The convertible notes are recorded as liabilities and are recorded at fair value based on Level 3 measurements. The estimated fair values of the convertible notes are each determined based on the aggregated, probability-weighted average of the outcomes of certain possible scenarios. The combined value of the probability-weighted average of those outcomes is then discounted back to each reporting period in which the convertible notes are outstanding, in each case, based on a risk-adjusted discount rate estimated based on the implied interest rate using the changes in observed interest rates of corporate rate debt that we believe is appropriate for those probability-adjusted cash flows. The change in fair value of the Investor D Convertible Notes each reporting period is recorded to the Change in fair value of convertible notes in the consolidated statement of operations. These notes no longer existed at December 31, 2024.
Liability Classified Warrants. We have entered into or assumed various financial instruments in the form of warrant agreements that require classification as liabilities. This classification requires us to measure the warrants at
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fair value at inception, and the remeasure the warrants. The liability classified warrants consist of the following: (see Note 10 for more information):
• Private Placement Warrants. We assumed 229,520 Private Placement warrants as part of the Business Combination.
• PIPE Warrants. The PIPE Warrants were entered into in congruence with the Business Combination, and include features similar to the Private Placement Warrants which require liability classification.
• Investor D Warrants. During the years ended December 31, 2024 and 2023, we entered into various convertible credit agreements with an institutional investor (“Investor D”) which included detachable and separately exercisable warrants to purchase shares of our common stock (the “Investor D Convertible Note Warrants”). These warrants no longer exist as of December 31, 2024.
We use a Black-Scholes option pricing model to fair value liability classified warrants, using standard option pricing inputs such as the strike price of each warrant tranche, estimated volatility, time to maturity, and the risk-free interest rate. The risk-free interest rate is the U.S. Treasury rate at the date of issuance, and the time to maturity is based on the contractual life at the date of issuance. The change in fair value of liability classified warrants each reporting period is recorded to the change in fair value of warrants liability in the consolidated statement of operations.
Share Based Compensation Expense. We estimate the grant date fair value of all grants of equity-based awards (which has historically consisted of either stock options or restricted stock units).
Emerging Growth Company Status
We are an emerging growth company (“EGC”), as defined in the 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 $1.0 billion in non-convertible debt securities during the previous three-years.
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Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2024:
($ in thousands)
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
Contractual Obligations:
Note Payable (Insurance Financing)
$
574
$
574
$
—
$
—
$
—
Total contractual obligations
$
574
$
574
$
—
$
—
$
—
Insurance Financing
In October 2024, 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. It is to be paid down in 10 monthly installments through August 2025.
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.
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