Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 the Company’s consolidated financial statements and related notes included elsewhere in this Annual Report. In connection with the Business Combination, SeaStar Medical, Inc. was determined to be the accounting acquirer.

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,” “our,” and “the Company” are intended to mean the business and operations of SeaStar Medical Holding Corporation and its consolidated subsidiaries following the Business Combination.

Overview

On October 28, 2022, LMAO consummated a series of transactions that resulted in the combination of LMF Merger Sub, Inc. and SeaStar Medical, Inc. pursuant to an Agreement and Plan of Merger.

The Company is a medical technology company developing a platform therapy to reduce the consequences of hyperinflammation on vital organs. 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. 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 in damaging hyperinflammation spreading uncontrollably to other parts of the body, often leading to acute chronic solid organ dysfunction or failure, including heart, lung, kidney and liver diseases. This hyperinflammatory response is also known as the cytokine storm, referring to the body’s reaction to the category of small-secreted proteins released by hyperinflammatory cells that affect communication between cells. The cytokine storm, when left uncontrolled, can lead to organ damage and even death.

We are initially using our proprietary SCD technology platform to clinically validate several acute organ injury indications, including kidneys and lungs. Our investigational SCD is an extracorporeal synthetic membrane device designed to be easily integrated into existing CRRT systems that are commonly installed in hospitals, including in ICUs throughout the United States. Once approved and commercialized, the SCD would initially target acute kidney injury in both the pediatric CRRT population as well as adults on CRRT. In addition, we are developing our SCD to address inflammation associated with chronic dialysis and chronic heart failure.

We have incurred net losses in each year since our inception in 2007. As of December 31, 2022 and 2021, we had an accumulated deficit of $99.3 million and $76.3 million, respectively. Our net losses were $23.0 million and $4.6 million for the years ended December 31, 2022 and 2021, respectively. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. For the year ended December 31, 2022, additional losses were related to the Business Combination, including costs to obtain the forward contracts and the change in fair value of the forward option derivatives.

As of December 31, 2022 and 2021, we had cash of $0.0 million and $0.5 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 the Company be unable to continue as a going concern.

The recurring losses, working capital deficiency, the need for capital to fund our operations, including clinical trial and regulatory approval expenses, and the amount of cash reserve are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the consolidated financial statements are made available. See Note 1 to our audited consolidated financial statements for the year ended December 31, 2022 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 any significant revenue from the sale of commercialized products. Our ability to generate product revenue will depend on the successful development and eventual commercialization of our products. 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

To date, we have not generated any revenue from the sale of commercialized products. Revenue has been primarily derived from government and other grants. We may generate revenue in the future based on payments from future license or collaboration agreements and government and other grants, and, if our products receive regulatory approval for commercialization, from product sales. We expect that any revenue we generate will fluctuate from quarter to quarter. If we fail to complete the development of or obtain regulatory approval for commercialization of our products in a timely manner, our ability to generate future revenue and our results of operations and financial position, would be materially adversely affected.

Research and Development Expenses

Since our inception, we have focused our resources on our 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 products.

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 and expenses associated with obtaining and maintaining patents. As we continue to expand and grow our operations, we expect that our general and administrative expenses will increase, including for additional expenses relating to new hires, travel, a new enterprise resource planning platform, and branding.

Origination Cost of Forward Contracts

Origination cost of forward contracts consists primarily of consideration related to the forward purchase agreements.

Loss from Operations and Operating Margin

Loss from operations consists of the Company’s gross profit less its operating expenses. Operating margin is loss from the Company’s operations as a percentage of its net sales.

Other Income (Expense), Net

Total other income (expense), net primarily consists of interest expense relating to interest incurred on our convertible notes, gains from the forgiveness of Paycheck Protection Program (“PPP”) loans under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, gains from early extinguishment of convertible notes changes in fair value of the derivative liability related to the conversion option of convertible notes and changes in fair value of the derivative liability related to the forward option on the prepaid forward agreements.

Net Loss

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

Factors Affecting the Company’s Operating Results

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

Results of Operations

Comparison of Year Ended December 31, 2022 to Year Ended December 31, 2021

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

Revenue $ — $ — $ — —

Operating expenses

Origination cost of forward contracts 2,190 — 2,190

Income tax provision (benefit) 1 (1 ) 2

Research and Development Expenses

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

Year Ended

December 31, Change

Other research and development expenses 164 146 18 12 %

General and Administrative Expenses

General and administrative expenses for the years ended December 31, 2022 and 2021 were $6.6 million and $1.7 million, respectively. The increase in general and administrative expenses of $4.9 million, or 292%, was driven by an increase in payroll expense of $1.9 million, commitment fees for equity line of credit of $2.5 million, an increase in legal fees of $0.2 million, and an increase in insurance of $0.3 million.

Other Income (Expense)

Other income (expense) for the years ended December 31, 2022 and 2021 was expense of $11.4 million and expense of $0.2 million, respectively. The increase of $11.2 million primarily resulted from a loss in change in fair value of forward option of $10.2 million, a loss in change in fair value of convertible notes derivative liability of $0.6 million, and an increase in interest expense of $0.4 million.

Income Tax Provision (Benefit)

SeaStar Medical recorded a provision for income taxes of $0.0 million for the year ended December 31, 2022, and an income tax benefit of $0.0 million for the year ended December 31, 2021.

Under Accounting Standards Codification (“ASC”) 740-10-30-5, Income Taxes, deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. SeaStar Medical considers all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses. Based on operating losses reported during 2022 and 2021, the Company concluded there was not sufficient positive evidence to overcome this recent operating history. As a result, we believe that a valuation allowance continues to be necessary based on the more-likely-than-not threshold noted above. A valuation allowance of $23.8 million and $18.2 million was recorded for the years ended December 31, 2022 and 2021, respectively.

Net Loss

During the year ended December 31, 2022, SeaStar Medical had a net loss of $23.0 million compared to a net loss of $4.6 million for the year ended December 31, 2021. The increased net loss of $18.4 million primarily resulted from increases in general and administrative expenses of $4.9 million, increases in research and development expenses of $0.1 million, origination cost of forward contracts of $2.2 million, and increases in other expense of $11.2 million during the year ended December 31, 2022.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have financed our operations primarily through the sale of equity securities and convertible debt and, to a lesser extent, through grants from governmental and other agencies. Since our inception, we have incurred significant operating losses and negative cash flows. As of December 31, 2022 and December 31, 2021, we had an accumulated deficit of $99.3 million and $76.3 million, respectively.

As of December 31, 2022 and December 31, 2021, we had cash of $0.0 million and $0.5 million, respectively. We expect that our existing cash will be insufficient to fund our operations, 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, which cannot be assured. 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 period ended December 31, 2022.

In April 2021 we received loan proceeds in the amount of $0.1 million, under the PPP as established under the CARES Act. The loan and accrued interest were forgivable as long as we used the loan proceeds for eligible

purposes, including payroll, employee benefits, rent and utilities, and maintained its payroll levels. During the year ended December 31, 2021, $0.1 million of our PPP loan was forgiven.

During the year ended December 31, 2021, we issued convertible notes totaling $2.9 million pursuant to certain note purchase agreements, including notes issued to our major stockholders, the Dow Pension Funds. During the year ended December 31, 2022, we issued convertible notes totaling $1.7 million to certain existing holders of our issued and outstanding preferred stock, including six convertible notes in the aggregate principal amount of $1.2 million to the Dow Pension Funds. The maturity dates for the convertible notes range from one to three years from their respective issuance dates. These notes are unsecured obligations of SeaStar Medical and borrowings on the convertible notes bear interest at 8.0 %. Immediately prior to the Closing, all principal amounts and accrued interest under the convertible notes were converted into shares of our Common Stock at a conversion price of $10.00 per share.

Upon consummation of the Business Combination, we received $17.0 million in cash, primarily due to $7.0 million in gross proceeds from the PIPE Investment and $10.0 million in proceeds from the trust account, partially offset by cash payments that were disbursed at the closing of the Business Combination which included Maxim’s deferred fee, professional service fees for the legal counsels, transfer agent, consultants, and auditors, a commitment fee, director and officer insurances, and prepayments to the forward purchase agreement sellers totaling approximately $16.6 million.

In connection with the Business Combination, over 8 million shares were submitted for redemption for an aggregate redemption amount of approximately $92.0 million. The proceeds we received in connection with the Business Combination were significantly less than the total potential proceeds of $103.5 million (assuming no redemptions). The reduction in available cash upon the Closing due to share redemptions has negatively impacted our growth initiatives, our revenue and net loss projections prepared in connection with LMAO’s evaluation of the Business Combination, and our liquidity, including the likelihood that holders of warrants will exercise their warrants and the Company will receive cash proceeds from the warrants.

Warrant Proceeds

We would receive the proceeds from any exercise of any warrants that are exercised for cash pursuant to their terms. Assuming the exercise in full of all of the warrants for cash, we would receive an aggregate of approximately $185.0 million, but would not receive any proceeds from the sale of the shares of common stock issuable upon such exercise. To the extent any warrants are issued on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease. We would expect to use any such proceeds received from warrants that are exercised for cash in the future for general corporate and working capital purposes, which would increase our liquidity. However, we will only receive such proceeds if and when the warrant holders exercise the warrants. The exercise of the warrants, and any proceeds we may receive from their exercise, are highly dependent on the price of our Common Stock and the spread between the exercise price of the warrant and the price of our Common Stock at the time of exercise. There is no assurance that the warrant holders will elect to exercise for cash any or all of such warrants, and we believe that any such exercise currently is unlikely to occur as described below. As of the date of this Annual Report, we have neither included nor intend to include any potential cash proceeds from the exercise of our warrants in our short-term or long-term liquidity projections. We will continue to evaluate the probability of warrant exercise over the life of our warrants and the merit of including potential cash proceeds from the exercise in our liquidity projections.

We do not expect to rely on the cash exercise of warrants to fund our operations. Instead, we intend to rely on our primary sources of cash discussed elsewhere in this Annual Report to continue to support our operations. The exercise price of the warrants is $11.50 per share and the closing price of our Common Stock was $4.10 as of December 31, 2022. Accordingly, we believe that it is currently unlikely that warrant holders will exercise their warrants. The likelihood that warrant holders will exercise the warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our Common Stock. If the trading price for our Common Stock remains less than $11.50 per share, we believe our warrant holders will be unlikely to exercise their warrants. There is no guarantee that the warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the warrants may expire worthless, and we may not receive any proceeds

from the exercise of the warrants. To the extent that any of the warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease.

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 $9.8 million, and warrants to purchase shares of the Company’s Common Stock. On March 15, 2023, the Company issued the first senior unsecured convertible note in the amount of $3.3 million and warrants to purchase 328,352 shares of Common Stock. The senior unsecured convertible notes will be issued at an 8.0% discount and bear interest at 7.0% per annum and mature 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 5 years from their issuance date, and contain cashless exercise provisions.

At the second closing, the Company will issue and sell to the Purchaser (i) an additional Note in a principal amount of $2.2 million and (ii) additional Warrants to purchase up to 218,901 shares of Common Stock. At each of the third and fourth closings, the Company may, at its option, issue and sell to the Purchaser (i) additional Notes, each in a principal amount of $2.2 million and (ii) additional Warrants to purchase shares of Common Stock equal to 25% of the shares issuable upon conversion of the Notes on the applicable closing date. Pursuant to the Securities Purchase Agreement, the Company must satisfy certain additional conditions in order to sell and issue the additional Notes and additional Warrants at the second, third and fourth closings. Such additional conditions include, but are not limited to, the effectiveness of a registration statement to be filed by the Company with the SEC to register shares of Common Stock issuable upon conversion of the Notes and exercise of the Warrants, and for the third and fourth closings, the approval by stockholders of the Company to issue more than 19.99% of issued and outstanding shares pursuant to applicable Nasdaq Rules.

The Warrants have an initial exercise price of $2.97 per share of Common Stock, are exercisable at any time before the close of business on the day five (5) years after their issuance 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. Inconsideration 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.

On March 13, 2023, the Company entered into a $0.1 millionpromissory 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.

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 FDA approval, and (ii) if regulatory approval is obtained, to launch and commercialize our product in the U.S. market, including subsequent launches in key international markets. We will need additional funding in connection with these activities. Our future funding requirements, both short-term and long-term, will depend on many factors, including:

•

our ability to receive cash proceeds from our existing funding sources, including 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

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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, debt, borrowings under credit facilities or through potential collaborations with other companies, other strategic transactions or government or other grants. Adequate capital may not be available to us when needed or on acceptable terms.

Based on our results of operations and liquidity as of December 31, 2022, we believe our cash and cash equivalents, including the cash we obtained from the Business Combination and the PIPE Investment, as well as potential proceeds available under the Purchase Agreement with Tumim and from the Forward Purchase Agreements ("FPA"), are not sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of our audited consolidated financial statements for the year ended December 31, 2022. In addition, we do not expect to receive any cash proceeds from the exercise of warrants in the near term, because the trading price of our Common Stock is currently below the exercise price of such warrants. We are seeking additional cash to fund our growth through future debt or equity financing transactions; however, there can be no assurance that we will be able to obtain additional capital on terms acceptable to us, if at all, or that we will generate sufficient future revenues and cash flows to fund our operations. 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, 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.

Cash Flows

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

Year Ended

December 31,

Statement of cash flow data:

Total cash (used in)/provided by:

Operating activities $ (7,794 ) $ (5,114 )

Investing activities — —

Cash Flow from Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $7.8 million compared to $5.1 million for the year ended December 31, 2021. The increase in cash used for operating activities of $2.7 million is primarily due to the increase of accounts payable and accrued expenses of as of December 31, 2022.

Cash Flow from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 was $7.3 million, primarily related to the Business Combination in the fourth quarter of 2022. Cash provided by financing activity for the year ended December 31, 2021 was $2.8 million, primarily from the issuance of convertible notes.

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 forward option on forward purchase agreement, derivative liability, warrants, and the amount of share-based compensation expense.

Forward Option on Forward Purchase Agreement

The forward option in the forward purchase agreements 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 Liability

The convertible notes derivative 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 is 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 Closing, as a result of the conversion of the convertible notes.

Share-Based Compensation Expense

The fair value of stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the use of the following assumptions:

The expected term is based on the “simplified method” described in the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin Topic 14 which is determined as the midpoint between the vesting date and the contractual end of the option grant. Stock Price volatility was estimated based on the estimated stock price volatility of a peer group of publicly traded companies over a similar term. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield was zero as the Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

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.

Emerging Growth Company Status

We are an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups (“JOBS”) Act. The JOBS Act permits companies with EGC status to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would 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 this offering, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 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.

Business Combination

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 further in this Annual Report. LMAO was renamed to "SeaStar Medical Holding Corporation." 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 cost. Operations prior to the Business Combination are those of SeaStar Medical, Inc.

The aggregate consideration payable to the stockholders of SeaStar Medical, Inc. at the Closing was $85.4 million. The consideration consisted of $85.0 million; minus any SeaStar Medical, Inc. indebtedness; minus SeaStar Medical, Inc. transaction expenses in excess of a cap of $0.8 million; plus the aggregate exercise price of unexercised SeaStar Medical, Inc. warrants and options issued and outstanding immediately prior to the Closing; less the value of the shares of Common Stock underlying the assumed equity (the “Closing Consideration”). The Closing Consideration was payable solely in shares of LMAO Common Stock, par value $0.0001 per share, valued at $10.00 per share, resulting in the issuance of 8,540,552 shares of Common Stock to holders of stock of SeaStar Medical, Inc., immediately prior to the Closing. At the Closing, shares of class B Common Stock, par value $0.001 per share, of LMAO (“Class B Common Stock”) automatically converted into shares of class A Common Stock, par value $0.001 per share, of LMAO (“Class A Common Stock”) on a one-to-one basis, and pursuant to the charter of LMAO after the Business Combination, Class A and Class B Common Stock was reclassified as Common Stock.

At the Closing, each of SeaStar Medical, Inc.’s issued and outstanding convertible notes automatically converted into shares of SeaStar Medical Holding Corporation Common Stock. Immediately prior to the effectiveness of the Business Combination, each share of SeaStar Medical, Inc.’s issued and outstanding preferred stock automatically converted into shares of SeaStar Medical Holding Corporation Common Stock and those SeaStar Medical, Inc. warrants that would be exercised or exchanged in connection with the Business Combination were exercised for shares of SeaStar Medical, Inc. Common Stock. At Closing, the (i) SeaStar Medical, Inc. warrants that would not be exercised or exchanged in connection with the Business Combination were assumed by LMAO and converted into warrants to purchase Common Stock, (ii) outstanding options for shares of SeaStar Medical, Inc. Common Stock under SeaStar Medical, Inc.’s equity plan were assumed by LMAO and converted into options to purchase Common Stock, and (iii) issued and outstanding restricted stock unit awards under SeaStar Medical, Inc.’s current equity plan were assumed by LMAO and converted into LMAO restricted stock units.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2022:

($ in thousands) Total Less than1 year 1-3 years 3-5 years More than5 years

Contractual Obligations:

Insurance Financing 910 910 — — —

Total contractual obligations $ 8,830 $ 1,178 $ 7,652 $ — $ —

Forward Purchase Agreements

On October 17 and October 25, 2022, LMAO and SeaStar Medical, Inc. entered into forward purchase agreements (“FPA”) with Vellar Opportunity Fund SPV LLC – Series 4 (“Vellar”) and HB Strategies LLC (“HB Strategies” and together with Vellar, the “FPA Sellers”). According to the terms of the FPAs, the FPA Sellers purchased, through a broker in the open market, shares of Class A Common Stock from holders other than LMAO or affiliates of LMAO, including from holders who had previously elected to redeem shares pursuant to the redemption rights in connection with the Business Combination (such purchased shares, the “Recycled Shares”).

The FPA Sellers were paid directly, from LMAO’s trust account, a cash amount (the “Prepayment Amount”) equal to the number of shares purchased multiplied by the per-share redemption price. In addition to the Prepayment Amount, the FPA Sellers were repaid, directly from LMAO's trust account, for the purchase of 200,000 Shares of LMAO Common Stock bought from third parties in the open market, through a broker.

The FPA Sellers may in its discretion sell Recycled Shares they purchased, (the "Terminated Shares"). The Company is entitled to proceeds from sales of Terminated Shares equal to the number of Terminated Shares multiplied by the Reset Price (the "Reset Price"). Following the closing of the Business Combination (the "Closing"), the Reset Price will initially be $10.00 per Share, but will be adjusted on the last scheduled trading day of each month commencing on the first calendar month following the Closing to the lowest of (a) the then-current Reset Price, (b) $10.00 and (c) the volume weighted average price (“VWAP Price”) of the Shares of the last ten (10) trading days of the prior calendar month, but not lower than $5.00.

The maturity date of the FPA (the “Maturity Date”) will be the earliest of (a) the third anniversary of the Closing, and (b) after any occurrence during any 30 consecutive trading-day period, the VWAP Price for 20 trading days is less than $3.00 per Share, at the FPA Seller decision.

At the Maturity Date, the FPA Sellers will be entitled to retain a cash amount equal to the number of unsold Recycled Shares multiplied by $2.50, and the FPA Sellers will deliver to the Company the unsold Recycled Shares.

As of December 31, 2022, the FPA Sellers have paid the Company proceeds from sales of Terminated Shares of $0.0 million. While the Company may receive cash proceeds from sales of Terminated Shares by FPA Sellers, the FPA Sellers may not have any incentive to sell Terminated Shares unless the trading price of our Common Stock is above the Reset Price. The Reset Price on February 10, 2023 was $5.00 per share, and there is no guarantee that the trading price of our Common Stock will equal or exceed the current Reset Price, or that the future trading price of our Common Stock may equal or exceed the Reset Price in subsequent applicable periods. In such a case, the FPA Sellers may not sell Terminated Shares, in which case we will not be able to receive any cash proceeds from the FPAs. In addition, if the FPA Sellers decide to sell their shares into the market, it may cause the trading price of our Common Stock to decline significantly.

Director Nomination Agreement

On October 28, 2022, the Sponsor and LMAO entered into the Director Nomination Agreement, providing the Sponsor certain director nomination rights, including the right to appoint or nominate for election to the Board, as applicable, two individuals, to serve as Class II directors of the Company, for a certain period following the Closing (the “Director Nomination Agreement”).

Equity Line of Credit

On August 23, 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 million worth of shares of Common Stock. The Common Stock Purchase Agreement is subject to certain limitations and conditions and provided for a $2.5 million commitment fee payable to Tumim. The Company paid $1.0 million of the commitment fee in cash at Closing. The Company has recorded an accrued expense for the remaining $1.5 million of the commitment fee as of December 31, 2022, of which $1.0 million will be paid in newly issued shares of Common Stock. The $2.5 commitment fee was recorded in general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2022.

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 $0.7 million 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, which is the earlier of (a) October 25, 2022, (b) the consummation of the Business Combination, and (c) the termination of the Merger agreement. As of December 31, 2022, the Company has borrowed $0.7 million under the LMFA Note.

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 Holding Corporation 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 $0.5 million 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.

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 $0.3 million 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 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 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 the 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.

Maxim Note Payable

On October 28, 2022, the Company entered into a promissory note with Maxim as the lender, for an aggregate principal amount of $4.2 million (the “Maxim Note”). The Maxim Note had a maturity date of October 30, 2023 and any outstanding amount may be prepaid without premium or penalty. 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 does not apply to the first $0.5 million of the cash proceeds received by the Company. 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. Interest on the Maxim Note is due at 7.0% per annum.

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 $0.9 million. Interest on the financing agreement is due at 7.35% per annum. The Company made payments of principal and interest of $0.1 million and $0.1 million in January 2023 and February 2023, respectively.

Intercreditor Agreement

On October 28, 2022, Maxim, LMFA, the Sponsor (collectively, the “Creditors”), SeaStar Medical, Inc. and the Company entered into the Intercreditor Agreement in order to set their relative rights under the LMFA Note, LMFAO Note and Maxim Note, including the payments of amounts by the Company upon an event of default under such notes. Each Creditor agrees and acknowledges that LMFA and the Sponsor have been granted liens on the collateral as set forth in the applicable LMFA security agreement and the sponsor security agreement. Each creditor also agrees and acknowledges that Maxim’s indebtedness under the Maxim Note is unsecured.

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.

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

Notes to Consolidated Financial Statements 78

Report 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.

SeaStar Medical Holding Corporation

Consolidated Balance Sheets

As of December 31, 2022 and 2021

(in thousands, except for share and per-share amounts)

ASSETS

Current assets

Other receivables 12 58

Forward option-prepaid forward contracts, net 1,729 —

Other assets 2 2

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities

Notes payable 1,178 —

Convertible notes - related party, net of discount — 2,378

Convertible notes derivative liability — 471

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

Commitments and contingencies (see Note 13)

Stockholders' deficit (1)

Total stockholders' deficit (1) (8,235 ) (2,816 )

(1) Retroactively restated to give effect to the reverse recapitalization

The accompanying notes are an integral part of these consolidated financial statements.

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)

Operating expenses

Origination cost of prepaid forward contracts 2,190 -

Other income (expense), net

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 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.

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

Stock-based compensation — — — — — — — — — 14 — 14

Net loss — — — — — — — — — — (4,596 ) (4,596 )

Stock-based compensation — — — — — — — — — 1,311 — 1,311

(1) Retroactively restated to give effect to the reverse recapitalization

The accompanying notes are an integral part of these consolidated financial statements

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)

Cash flows from operating activities

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

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, 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 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.

SeaStar Medical Holding Corporation

Notes to the Consolidated Financial Statements

(in thousands, except for shares and per-share amounts)

Note 1. Description 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

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.

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 )

Sale of recycled shares (41 ) —

Reclassified to additional paid-in capital — 1,180

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 closing 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.

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.

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

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

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 )

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

Public warrants liability reclassified to equity — — 1,241

Private Placement warrants liability reclassified to equity — — 6,688

Transaction costs — — (3,714 )

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

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:

Accrued commitment fee, equity line of credit $ 1,500 $ —

Accrued bonus 450 —

Accrued director remuneration 61 —

Accrued research and development 18 58

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

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:

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.

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

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.

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.

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

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

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.

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

Union Carbide Notes 1,080

IBT & David Humes Notes 114

Investor Notes 104

Unamortized debt discount (359 )

Less current portion (2,378 )

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)

Union Carbide Notes 1,560

IBT & David Humes Notes 210

Investor Notes 526

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.

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 at $6,688 at the 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.

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,

Public Stockholders' Warrants 10,350,000 —

Private Placement Warrants 5,738,000 —

PIPE Investor Warrants 700,000 —

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

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.

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)

Forfeited prior to merger conversion (83,928 ) $ 4.63

Additional options issued in merger conversion 41,338 $ 1.84

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:

Research and development $ 7 $ 1

General and administrative 141 13

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.

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 —

Forfeited prior to merger conversion (7,000 )

Additional RSUs issued in merger conversion 50,389

Vested as of December 31, 2022 —

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:

Research and development $ 89 $ —

General and administrative 1,074 —

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.

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:

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%

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,

Deferred tax assets:

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 —

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

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

ICU US Equity

ICU · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

ICU US Equity☆

ICU · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

ICU US Equity