UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 001-40793

OCEAN BIOMEDICAL, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		87-1309280
55 Claverick St., Room 325
Providence, Rhode Island		02903

Registrant’s telephone number, including area code: (401) 444-7375

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	OCEA	The NASDAQ Stock Market LLC
Warrants, each exercisable for one share of common stock at an exercise price of $11.50	OCEAW	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of March 31, 2025, the registrant had 166,010,805 shares of common stock outstanding and as of May 15, 2025, there are 232,365,143 shares of common stock outstanding.

TABLE OF CONTENTS

Special Note Regarding Forward-Looking Statements		3

PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Stockholders’ Deficit	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47
PART II.	OTHER INFORMATION	49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 6.	Exhibits	52
Signatures		53

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”), including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such statements are made pursuant to the safe harbor provisions contained therein. These forward-looking statements relate to current expectations and strategies, future operations, future financial positioning, future revenue, projected costs, prospects, current plans, current objectives of management and expected market growth, and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from expectations, estimates, and projections expressed or implied by these forward-looking statements and, consequently, you should not rely on these forward-looking statements as a guarantee, an assurance, a prediction, or a definitive statement of fact or probability of future events. All statements contained in this Report, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “may,” “should,” “could,” “predict,” “potential,” “plan,” “seeks,” “believe,” “will likely result,” “expect,” “continue,” “will continue,” “will,” “will be,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “outlook,” and similar expressions that convey uncertainty of future events or outcomes, or the negative version of those words or phrases or other comparable words or phrases of a future or forward-looking nature, are intended to identify forward-looking statements. The absence of such words does not mean that a statement is not forward-looking.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors including those below in this Report under the caption “Risk Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2024, under the captions “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” These factors and the other risk factors described in our periodic and current reports filed with the U.S. Securities and Exchange Commission (“SEC”) from time to time, however, are not necessarily all of the important factors that could cause our actual results, performance, or achievements to differ materially from those expressed in or implied by any of our forward-looking statements.

Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Report. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Report. And, while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Report to reflect events or circumstances after the date of this Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

Unless the context otherwise requires, the terms “Ocean Biomedical, Inc.,” “the Company,” “we,” “our,” “us,” or similar references in this Report refer to Ocean Biomedical, Inc. and its subsidiaries.

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

OCEAN BIOMEDICAL, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

	March 31, 2025			December 31, 2024
ASSETS
CURRENT ASSETS:
Cash	$	-		$	-
Restricted cash		777			224
Prepaid expenses		715			588
Total current assets		1,492			812
Investment in Virion		90			90
TOTAL ASSETS	$	1,582		$	902

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	16,387		$	15,899
Accrued expenses – related party		633			601
Short-term loans, net of issuance costs		9,350			16,300
SPA Warrant		198			1,089
Total current liabilities		26,568			33,889
NONCURRENT LIABILITIES
Fixed maturity consideration		6,002			5,573
Backstop put option liability		61,411			59,056
Total liabilities		93,981			98,518
STOCKHOLDERS’ DEFICIT:
Common stock, $0.0001 par value; 300,000,000 shares authorized as of March 31, 2025, and December 31, 2024, respectively,166,010,805 and 34,868,628 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively.		-			-
Additional paid-in capital		121,376			107,919
Accumulated deficit		(213,775	)		(205,535	)
Total stockholders’ deficit		(92,399	)		(97,616	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,582		$	902

See accompanying notes to the unaudited condensed consolidated financial statements

OCEAN BIOMEDICAL, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	2024			2023
	Three Months Ended
	March 31,
	2025			2024
OPERATING EXPENSES:
Research and development	$	18		$	26
General and administrative		940			569
Total operating expenses		958			595
OPERATING LOSS		(958	)		(595	)
OTHER INCOME (EXPENSE)
Change in fair value of 2023 Convertible Note, SPA Warrant and Ayrton Note Purchase Option		269			(1,005	)
Gain (loss) in connection with Backstop Put Option Liability and Fixed Maturity Consideration		(2,785	)		15,287
Change in fair value of stock obligations		-			(150	)
Transaction costs		(73	)		-
Loss on issuance of shares		(2,614	)		-
Interest expense, including amortization of debt issuance costs		(343	)		(637	)
Net loss attributable to equity interest in Virion		-			(2,245	)
Change in fair value of Virion Contribution Liability		-			2,344
Redemption premium on debt conversion		(1,736	)		-
Total other (expense) income		(7,282	)		13,594
NET (LOSS) INCOME	$	(8,240	)	$	12,999

Weighted average shares outstanding, basic and diluted		91,024,268			27,344,486
Net (loss) income per share, basic and diluted	$	(0.09	)	$	0.48

See accompanying notes to the unaudited condensed consolidated financial statements

OCEAN BIOMEDICAL, INC.

Condensed Consolidated Statements of Stockholders’ Deficit

(in thousands)

(unaudited)

For the Three Months Ended March 31, 2025

	Shares		Amount		Capital		Deficit			Deficit
					Additional					Total
	Common				Paid-In		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Deficit
Balances at December 31, 2024		35,468,628	$	-	$	107,919	$	(205,535	)	$	(97,616	)
Net loss		-		-				(8,240	)		(8,240	)
Stock-based compensation		-		-		186		-			186
Issuance of common stock related to amended and restated convertible note		3,844,466		-		2,614		-			2,614
Issuance of common stock for conversion of convertible debt		125,964,905		-		9,900		-			9,900
Issuance of common stock for exercise of warrants		1,332,806		-		757		-			757
Balances at March 31, 2025		166,610,805	$	-	$	121,376	$	(213,775	)	$	(92,399	)

For the Three Months Ended March 31, 2024

					Additional					Total
	Common				Paid-In		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Deficit
Balances at December 31, 2023		35,249,046	$	-	$	105,292	$	(196,055	)	$	(90,763	)
Balances		35,249,046	$	-	$	105,292	$	(196,055	)	$	(90,763	)
Net loss		-		-				12,999			12,999
Stock-based compensation		-		-		186					186
Issuance of common stock		169,582		-		1,795					1,795
Balances at March 31, 2024		35,418,628	$	-	$	107,273	$	(183,056	)	$	(75,783	)
Balances		35,418,628	$	-	$	107,273	$	(183,056	)	$	(75,783	)

See accompanying notes to the unaudited condensed consolidated financial statements

OCEAN BIOMEDICAL, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

		2025		2024
	Three Months Ended March 31,
	2025			2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(8,240	)	$	12,999
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash debt issuance costs		73			-
Redemption premium on conversion of notes		1,736			-
Stock-based compensation		186			186
Loss on issuance of shares		2,614			-
Change in fair value of stock obligations		-			150
Loss in connection with Backstop Put Option Liability and Fixed Maturity Consideration		2,785			(15,287	)
Net loss attributable to equity interest in Virion		-			2,245
Change in fair value of Virion Contribution Liability		-			(2,344	)
Change in fair value of 2023 Convertible Note, SPA Warrant, and the Ayrton Note Purchase Option		(269	)		1,005
Changes in assets and liabilities:
Prepaid expenses		(127	)		(175	)
Accounts payable and accrued expenses		854			766
Accrued expenses - related party		32			(30	)
Net cash used in operating activities		(356	)		(485	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loans, net of issuance costs		909			-
Net cash provided by financing activities		909			-
Total change in cash and restricted cash		553			(485	)
Cash and restricted cash at beginning of period		224			1,004
Cash and restricted cash at end of period	$	777		$	519

Supplemental disclosure of non-cash financing activities:
Offering costs not yet paid	$	-		$	2,048
Non-cash stock issuances	$	10,657		$	-
Common stock issued in consideration for extension of loans	$	-		$	13,953

See accompanying notes to the unaudited condensed consolidated financial statements

OCEAN BIOMEDICAL, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business and Going Concern Considerations

Description of Business

The Company is a biopharmaceutical company that is focused on discovering and developing therapeutic products in oncology, fibrosis, and infectious diseases.

Business Combination

On February 14, 2023, Aesther Healthcare Acquisition Corp. (“AHAC”) completed the acquisition of Ocean Biomedical Holdings, Inc. (“Legacy Ocean”) pursuant to a definitive agreement, as amended (the “Business Combination Agreement”). Upon closing this agreement, AHAC changed its name from “Aesther Healthcare Acquisition Corp.” to “Ocean Biomedical, Inc.” and is referred to herein as “the Company.” Unless context otherwise requires, the reference to “AHAC” refers to the Company prior to Closing.

The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Under this method of accounting, AHAC, which is the legal acquirer, is treated as the “acquired” company for financial reporting purposes and Legacy Ocean is treated as the accounting acquirer. The net assets of AHAC are stated at historical cost, with no goodwill or other intangible assets recorded. All historical financial information presented in the consolidated financial statements represents Legacy Ocean and its wholly owned subsidiaries as Legacy Ocean is the predecessor to the Company. The wholly owned subsidiaries include: (i) Ocean ChitofibroRx Inc., (ii) Ocean ChitoRx Inc., (iii) Ocean Sihoma Inc., and (iv) Ocean Promise, Inc. The Business Combination is accounted for as the equivalent of a capital transaction in which the Company has issued stock for the net assets of AHAC.

Going Concern Considerations

The accompanying condensed consolidated financial statements are prepared in accordance with U.S. GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company had no cash inflows from operating activities for the three months ended March 31, 2025. As of March 31, 2025, the Company had no cash, restricted cash of $0.8 million, and a working capital deficiency of $25.1 million. The Company’s current operating plan indicates it will continue to incur losses from operations and generate negative cash flows from operating activities, given anticipated expenditures related to research and development activities and its lack of revenue generating ability at this point in the Company’s lifecycle. These events and conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued.

The Company will need to raise additional funds in order to advance its research and development programs, operate its business, and meet its current and future obligations as they come due. Based on the Company’s current operational plans and assumptions, which may not be realized, the Company expects to use the net proceeds from the Backstop Agreement (as defined in Note 3, Business Combination and Backstop Agreement) and future debt and equity financings, including possibly under the SPA entered into in May 2023 (as defined in Note 7, Senior Secured Convertible Notes), as well as further deferrals of certain of its accrued expenses and contingency payments due upon the closing of future financings to fund operations. However, the Company’s ability to utilize certain of its in-place financing arrangements, such as the Backstop Agreement, or execute on new sources of liquidity are dependent on various factors outside of the Company’s control, including market conditions and the performance of the Company’s common stock.

There is no assurance that the Company will be successful in obtaining additional financing on terms acceptable to the Company, if at all, and the Company may not be able to enter into collaborations or other arrangements. If the Company is unable to obtain funding, the Company could be forced to delay, reduce, or eliminate its research and development programs, which could adversely affect its business prospects and its ability to continue operations.

The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Impacts of Market Conditions on Our Business

Disruption of global financial markets and a recession or market correction, including the ongoing military conflict between Russia and Ukraine and the related sanctions imposed against Russia, the effects of Hamas’ attack of Israel and the ensuing war, and other global macroeconomic factors such as inflation and rising interest rates, could reduce the Company’s ability to access capital, which could in the future negatively affect the Company’s liquidity and could materially adversely affect the Company’s business and the value of its common stock.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP and stated in U.S. dollars. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the balances and results for the periods presented. A description of the Company’s significant accounting policies is included in the Company’s audited consolidated financial statements as of December 31, 2024. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s 2024 Annual Report on Form 10-K, filed with the SEC on April 8, 2025.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all intercompany accounts and transactions. The subsidiaries were formed to organize the Company’s therapeutic programs in order to optimize multiple commercialization options and to maximize each program’s value.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of these financial statements and reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates, as applicable, including those related to the fair values of the Company’s common stock and related stock-based compensation and the valuation of (i) the Backstop Put Option Liability and Fixed Maturity Consideration (both as defined below) and (ii) the 2024 Convertible Note, SPA Warrant, and Ayrton Note Purchase Option (each as defined in Note 7, Senior Secured Convertible Notes). The Company bases its estimates using Company forecasts and future plans, current economic conditions, and information from third-party professionals that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and recorded amounts of expenses that are not readily apparent from other sources and adjusts those estimates and assumptions when facts and circumstances dictate.

The Company’s results can also be affected by economic, political, legislative, regulatory or legal actions. Economic conditions, such as recessionary trends, inflation, interest rates, changes in regulatory laws and monetary exchange rates, and government fiscal policies, can have a significant effect on operations. The Company could also be affected by civil, criminal, regulatory or administrative actions, claims, or proceedings.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value and may include money market funds, U.S. Treasury and U.S. government-sponsored agency securities, corporate debt, commercial paper, and certificates of deposit. The Company had no cash or cash equivalents as of March 31, 2025 and December 31, 2024.

Restricted Cash

The Company’s restricted cash is comprised of cash that is restricted as to withdrawal or use. Restricted cash as of March 31, 2025 and December 31,2024 was $0.8 million and $0.2 million, respectively, consisting of the portion of proceeds received from the 2024 Convertible Note, as defined in Note 7, Senior Secured Convertible Notes, that is being held in an escrow account.

Concentrations of Credit Risk, Off-balance Sheet Risk and Other Risks

The Company has held minimal cash since its inception and certain of its expenses have been primarily paid for by the proceeds from the issuance of common stock and debt.

The Company has no significant off-balance sheet arrangements, as defined in the rules and regulations of the SEC. The Company’s future results of operations involve several other risks and uncertainties. Factors that affect the Company’s future operating results and cause actual results to vary materially from expectations could include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s product candidates, uncertainty of market acceptance of the Company’s product candidates, competition from other products, securing and protecting intellectual property, strategic relationships and dependence on key employees and research partners. The Company’s product candidates require Food and Drug Administration (“FDA”) and other non-U.S. regulatory agencies approval prior to commercial sales. There can be no assurance that any product candidates will receive the necessary approvals. If the Company were denied approval, if approval were delayed, or if approval were unable to be maintained, it could have a materially adverse impact on the Company.

Revenue

The Company has not generated any revenue from any sources since its inception, including from product sales. The Company does not expect to generate any revenue from the sale of products in the foreseeable future. If the Company’s development efforts for its product candidates are successful and result in regulatory approval, or license agreements with third parties, the Company may generate revenue in the future from product sales. However, there can be no assurance as to when revenue will be generated, if at all.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for research activities, including the development of product candidates. Research and development costs are expensed as incurred. For the three months ended March 31, 2025 and 2024, research and development expenses consist of expenses incurred for initial license fees, annual maintenance license fees, and services agreements. Payments associated with licensing agreements to acquire exclusive licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are expensed as incurred.

Income Taxes and Tax Credits

Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, and net operating loss (“NOL”) carryforwards and research and development tax credit (“R&D Credit”) carryforwards. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of its deferred tax assets will not be realized. The Company has recorded a full valuation allowance to reduce its net deferred income tax assets to zero. There is no provision for income taxes because the Company has incurred operating losses and capitalized certain items for income tax purposes since its inception and maintains a full valuation allowance against its net deferred tax assets. In the event the Company were to determine that it would be able to realize some or all its deferred income tax assets in the future, an adjustment to the deferred income tax asset valuation allowance would increase income in the period such determination was made. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of March 31, 2025 and December 31, 2024, the Company had no liability for income tax associated with uncertain tax positions.

Net (Loss) Income Per Share

Net (loss) income per share is computed by dividing net (loss) income attributed to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase, and, if dilutive, the weighted-average number of potential shares of common stock. For the purposes of the diluted net loss per share calculation, common stock warrants, common stock options outstanding, and contingently issuable Earnout Shares (as defined in Note 3, Business Combination and Backstop Agreement) are considered to be potentially anti-dilutive securities for all periods presented, and as a result, diluted net loss per share is the same as basic net loss per share for those periods.

Fair Value Measurements

Certain instruments of the Company are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

	●	Level 1—Quoted prices in active markets for identical assets or liabilities.

	●	Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

	●	Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s Backstop Put Option Liability and Fixed Maturity Consideration (both as defined below), 2024 Convertible Note, SPA Warrant, and Ayrton Note Purchase Option, (each as defined and discussed in Note 7, Senior Secured Convertible Notes), are carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above (see Note 4, Fair Value Measurements). The carrying values of restricted cash, accounts payable, accrued expenses, and short-term loans approximate their fair values due to the short-term nature of these liabilities.

Backstop Put Option Liability and Fixed Maturity Consideration

Backstop Agreement

In connection with the execution of the Business Combination, AHAC and Legacy Ocean entered into an OTC Equity Prepaid Forward Transaction (as amended, the “Backstop Agreement”) with the Backstop Parties (as defined in Note 3, Business Combination and Backstop Agreement). The Backstop Agreement grants the Backstop Parties the right to purchase up to a maximum of 8,000,000 shares of the Company’s common stock on the open market for $10.56 per share (the “Redemption Price”). The Company agreed to purchase the unsold portion of the Backstop Shares from the Backstop Parties on a forward basis upon the “Maturity Date” (as amended, the third anniversary of the closing of the Business Combination, subject to certain acceleration provisions). The purchase price payable by the Company includes a prepayment in the amount of the Redemption Price per share (the “Prepayment”) from the proceeds released from the trust account related to those shares. Among the acceleration provisions is the Backstop Parties’ right to accelerate the Maturity Date if the Company’s stock price trades below a stipulated price per share for any 30 trading days during a 45 day consecutive trading-day period (in October 2023, this acceleration provision was amended with one Backstop Party providing it the right to accelerate the Maturity Date if the Company’s stock price trades below a stipulated price per share for any 20 trading days during a 30 day consecutive trading-day period). On any date following the closing of the Business Combination, the Backstop Parties also have the option to early terminate the arrangement in whole or in part by providing an optional early termination date notice to the Company (the “Optional Early Termination”). For those shares that are early terminated (the “Terminated Shares”), the Backstop Parties will owe the Company an amount equal to the product of (x) the number of Terminated Shares and (y) the Redemption Price, which may be reduced in the case of certain dilutive events (the “Reset Price”).

Upon the Maturity Date, the Company is obligated to pay the Backstop Parties an amount equal to the product of (i) the maximum number of shares of 8,000,000 less the number of Terminated Shares by (ii) $2.50 (the “Maturity Consideration”). The Company can pay the Maturity Consideration in cash or shares of the Company’s common stock if certain conditions are met.

The Backstop Parties have purchased a fixed total of 4,885,466 of the Company’s common stock, referred to herein as the “Backstop Shares.” The Backstop Parties’ Optional Early Termination economically results in the Backstop Agreement operating in substance to grant the Backstop Parties’ a put option with the right to sell all or a portion of the 4,885,466 Backstop Shares. Over the three-year maturity period, the Company is entitled to either a return of the Prepayment, the underlying shares, or a combination thereof, at the sole discretion of the Backstop Parties.

For further information regarding the Backstop Agreement, refer to Note 3, Business Combination and Backstop Agreement.

Backstop Put Option Liability and Fixed Maturity Consideration

The Backstop Agreement consists of two financial instruments that are accounted for as follows:

	(i)	The in-substance written put option which is recorded in the Company’s condensed consolidated financial statements as the “Backstop Put Option Liability” and treated as a derivative liability recorded at fair value with changes in fair value recognized in net (loss) income. The Company measures the fair value of the Backstop Put Option Liability on a recurring basis, with any fair value adjustment recorded within other income (expense) in the condensed consolidated statements of operations. Refer to Note 4, Fair Value Measurements, for further detail.

	(ii)	The “Fixed Maturity Consideration” representing the 8,000,000 in maximum shares less the 4,885,466 Backstop Shares multiplied by $2.50. The Company has elected to measure the Fixed Maturity Consideration using the Fair Value Option (“FVO”) under ASC 825, Financial Instruments. The Company measures the fair value of the Fixed Maturity Consideration on a recurring basis, with any fair value adjustment recorded within other income (expense) in the condensed consolidated statements of operations. Refer to Note 4, Fair Value Measurements, for further detail.

The Prepayment is accounted for as a reduction to equity to reflect the substance of the overall arrangement as a net purchase of the Backstop Shares and sales of shares to the Backstop Parties.

Emerging Growth Company and Smaller Reporting Company Status

We qualify as an “emerging growth company” within the meaning of the Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startup Act (“JOBS Act”) of 2012. The JOBS Act permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. The Company has elected not to “opt out” of this provision and, as a result, the Company will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company.

The Company is also a “smaller reporting company” and may continue to be a smaller reporting company if either (i) the market value of the stock held by non-affiliates is less than $250 million or (ii) the Company’s annual revenue was less than $100 million during the most recently completed fiscal year and the market value of the Company’s stock held by non-affiliates is less than $700 million. If the Company is a smaller reporting company at the time that it ceases to be an emerging growth company, the Company may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, the Company may choose to present only the two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K (which is what the Company has chosen to present) and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. ASU 2023-07 is effective for public business entities with fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has concluded that the impact of adopting ASU 2023-07 is not material to its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. This standard is effective for the Company for fiscal years beginning after December 15, 2024, and can be applied on a prospective or retrospective basis. The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.

3. Business Combination and Backstop Agreement

Business Combination

On February 14, 2023, the Company consummated its Business Combination pursuant to the terms of the Business Combination Agreement.

Earnout Shares

In addition, pursuant to Business Combination Agreement, Legacy Ocean’s stockholders prior to the Closing (the “Legacy Ocean Stockholders”) are entitled to receive from the Company, in the aggregate, up to an additional 19,000,000 shares of the Company’s common stock (the “Earnout Shares”) as follows: (a) in the event that the volume-weighted average price (the “VWAP”) of the Company’s common stock exceeds $15.00 per share for twenty (20) out of any thirty (30) consecutive trading days beginning on the Closing date until the 36-month anniversary of the Closing, the Legacy Ocean Stockholders shall be entitled to receive an additional 5,000,000 shares of the Company’s common stock, (b) in the event that the VWAP of the Company’s common stock exceeds $17.50 per share for twenty (20) out of any thirty (30) consecutive trading days beginning on the Closing date until the 36-month anniversary of the Closing, the Legacy Ocean Stockholders shall be entitled to receive an additional 7,000,000 shares of the Company’s common stock and (c) in the event that the VWAP of the Company’s common stock exceeds $20.00 per share for twenty (20) out of any thirty (30) consecutive trading days beginning on the Closing date until the 36-month anniversary of the Closing, the Legacy Ocean Stockholders shall be entitled to receive an additional 7,000,000 shares of the Company’s common stock. In addition, for each issuance of Earnout Shares, the Company will also issue to Sponsor an additional 1,000,000 shares of the Company’s common stock.

The Company has concluded that the Earnout Shares represent a freestanding equity-linked financial instrument as the arrangement (i) can be indexed to the Company’s stock and (ii) meets all of the criteria for equity classification within ASC 815-40. The Company performed the two-step analysis described within ASC 815-40-15 to determine indexation and noted that while the arrangement does contain contingencies, these contingencies are based on the market for the Company’s stock and do not preclude indexation.

Upon Closing, the fair value of the Earnout Shares was accounted for as a deemed dividend as of the Closing date. Since the entries to recognize the fair value of the Earnout Shares offset within additional paid-in capital, there is no inherent impact to the condensed consolidated financial statements. Since the Earnout Shares are contingent on the Company’s stock price, there will be no impact to outstanding shares and will not represent participating securities until the time at which the contingencies have been met.

Backstop Agreement

As discussed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, on August 31, 2022, AHAC and Legacy Ocean entered into the Backstop Agreement with Vellar in connection with the execution of the Business Combination Agreement. Pursuant to the terms of the Backstop Agreement and its subsequent amendments, Vellar agreed to purchase up to 8,000,000 shares of AHAC’s Class A common stock in the open market in exchange for up to $80.0 million, including from other stockholders that elected to redeem in connection with the Closing and subsequently revoked their prior elections to redeem their shares, following the expiration of AHAC’s redemption offer.

On February 13, 2023, AHAC, Vellar and Legacy Ocean entered into an assignment and novation agreement with Meteora Special Opportunity Fund I, LP, Meteora Select Trading Opportunities Master, LP and Meteora Capital Partners, LP (collectively “Meteora”) (the “Meteora Agreement”), pursuant to which Vellar assigned its obligation to purchase 2,666,667 shares of the Company’s common stock under the Backstop Agreement to Meteora. In addition, on February 13, 2023, AHAC, Vellar and Legacy Ocean entered into an assignment and novation agreement with Polar Multi-Strategy Master Fund (“Polar” and, collectively with Vellar and Meteora, the “Backstop Parties”) (the “Polar Agreement”), as amended on October 2, 2023, pursuant to which Vellar assigned its obligations to 2,667,667 shares of common stock of the Company to be purchased under the Backstop Agreement to Polar.

Further, the Backstop Agreement grants the Backstop Parties the right to purchase additional shares from the Company (the “Additional Shares” and, together with the Recycled Shares (defined below), the “Backstop Shares”) up to an amount equal to the difference between the number of Recycled Shares and the maximum number of shares of 8,000,000.

As further discussed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, the Company agreed to purchase the unsold portion of the Backstop Shares from the Backstop Parties on a forward basis upon the Maturity Date. The purchase price payable by the Company includes a Prepayment from the proceeds released from the trust account related to those shares. Upon the Maturity Date, the Company is obligated to pay the Backstop Parties an amount equal to the product of (i) the maximum number of shares of 8,000,000 less the number of Terminated Shares by (ii) $2.50, defined as the Maturity Consideration in the Backstop Agreement. The Company can pay the Maturity Consideration in cash or shares of the Company’s common stock if certain conditions are met.

On February 14, 2023, (i) pursuant to the Backstop Agreement, the Backstop Parties purchased 3,535,466 shares of AHAC’s Class A common stock for $10.56 per share (the “Recycled Shares”) and (ii) pursuant to Polar’s exercise of its right to purchase Additional Shares, AHAC, Legacy Ocean and Polar entered into a subscription agreement pursuant to which Polar purchased 1,350,000 newly issued shares of the Company’s common stock at a per share purchase price of approximately $10.56 (the “Polar Subscription”). Under the Backstop Agreement, the Additional Shares are subject to the same terms as the Recycled Shares, including with regard to repayment and repurchase.

Subsequent to Closing, the Prepayment amount was equal to $51.6 million, consisting of $37.3 million for the Recycled Shares and $14.3 million for the Polar Subscription shares. As the $14.3 million was a netted transaction between the Company and Polar, only $37.3 million was paid out of the funds the Company received from AHAC’s trust account. This net impact from the payment outflow to Backstop Parties for the Backstop Agreement of $51.6 million and the proceeds inflow from the issuance of common stock pursuant to the Backstop Agreement and Polar Subscription of $14.3 million are reported in the Company’s condensed consolidated statement of cash flows. The Prepayment amount was accounted for as a reduction to equity to reflect the substance of the overall arrangement as a net purchase of the Backstop Shares.

The Backstop Agreement consists of two financial instruments that are accounted for as follows:

	(i)	The in-substance written put option which is recorded in the Company’s condensed consolidated financial statements as the “Backstop Put Option Liability” and treated as a derivative liability recorded at fair value with changes in fair value recognized in net loss. The Company measures the fair value of the Backstop Put Option Liability on a recurring basis, with any fair value adjustment recorded within other income/(expense) in the condensed consolidated statements of operations. Refer to Note 4, Fair Value Measurements, for further detail.
	(ii)	The “Fixed Maturity Consideration” representing the 8,000,000 in maximum shares less the 4,885,466 Backstop Shares multiplied by $2.50. The Company has elected to measure the Fixed Maturity Consideration using the Fair Value Option (“FVO”) under ASC 825, Financial Instruments. The Company measures the fair value of the Fixed Maturity Consideration on a recurring basis, with any fair value adjustment recorded within other income/(expense) in the condensed consolidated statements of operations. Refer to Note 4, Fair Value Measurements, for further detail.

The Prepayment is accounted for as a reduction to equity to reflect the substance of the overall arrangement as a net purchase of the Backstop Shares and sales of shares to the Backstop Parties.

At any time prior to the Maturity Date, and in accordance with the terms of the Backstop Agreement, the Backstop Parties may elect an Optional Early Termination to sell some or all of the Backstop Shares. If the Backstop Parties sell any shares prior to the Maturity Date, the pro-rata portion of the Prepayment amount is due back to the Company. As of March 31, 2023, the Backstop Parties had sold 143,261 Backstop Shares, for which the Company has received net proceeds of $1.4 million, after paying related fees to the Backstop Parties. Depending on the manner in which the Backstop Agreement is settled, the Company may never have access to the full Prepayment.

On May 23, 2023 the Company received an Equity Prepaid Forward Transaction - Valuation Date Notice (“Notice”) from Vellar stating that due to the Company’s alleged failure to timely register the shares held by Vellar, Vellar had the right to terminate the Backstop Agreement as to their portion of the shares and Vellar claimed that it is entitled to receive Maturity Consideration (as defined in the Backstop Agreement) equal to $6.7 million, which at the Company’s discretion may be paid in cash or by offset to the shares currently held by Vellar. Management takes issue with multiple aspects of the Notice including, but not limited to, Vellar’s right to terminate their portion of the Backstop Agreement and their asserted Maturity Consideration calculation. As such, the Company is consulting with advisors and other parties and is considering the potential resources and remedies it may elect to pursue and intends to assert its rights should this matter not be resolved. After a review of all applicable documents related to the Backstop Agreement, the Company believes its position with respect to the terms of the Backstop Agreement and intent of the parties is supported by the Backstop Agreement and facts and circumstances under which it was entered into. Further, given the early stage of this matter and the uncertainty inherent in litigation and investigations, the Company does not currently believe it is (i) probable to incur losses or (ii) possible to develop estimates of reasonably possible losses (or a range of possible losses) for this matter.

On October 2, 2023, the Company entered into a Side Letter Agreement (the “Side Letter”) with Polar. The Side Letter amended certain terms of the Polar Agreement, as discussed in Note 3, Business Combination and Backstop Agreement. The Side Letter amended the definitions of “Seller VWAP Trigger Event” and “Reset Price” as used in the Backstop Agreement as it relates to Polar and the Polar Agreement. Per the amended definitions, the (i) “Seller VWAP Trigger Event” is an event that occurs if the VWAP price is below $2.50 per share for any 20 trading days during a 30 consecutive trading day-period thereafter and (ii) the “Reset Price” is defined as $8.00. The Side Letter did not amend any terms of the Backstop Agreement as it relates to the other Backstop Parties.

The “Seller VWAP Trigger Event” for Polar occurred in October 2023 and the other Backstop Parties in November 2023. The Company received written notice from Polar on November 6, 2023, acknowledging its right to designate any date as the Maturity Date from the date of the notice to, and including, the third anniversary of the Business Combination. As of the date of this filing, one of the Backstop Parties, Polar had not designated a Maturity Date. Refer to above in this footnote for further detail around the purported Maturity Date for Vellar.

Deferred Underwriting Commissions

At Closing, the underwriters for AHAC’s initial public offering (“IPO”) agreed to defer payment of $3.2 million of deferred underwriting discounts otherwise due to them until November 14, 2023, pursuant to the terms of a promissory note (the “Underwriter Promissory Note”). The deferred amounts bear interest at 9% per annum and 24% per annum following an event of default under the promissory note. The Company has a right to pay up to fifty percent (50%) of the principal and interest due on this promissory note using the common stock of the Company at a price per share of $10.56. The remaining fifty percent (50%) of the principal and interest due on this promissory note must be paid in cash. The Company recorded $0.1 million and $36 thousand of interest expense on the outstanding balance in the Company’s condensed consolidated financial statements for the fiscal quarters ended March 31, 2024, and 2023, respectively.

On March 4, 2024, the Company converted the convertible portion of the Underwriter Promissory Note into 169,582 restricted shares of its common stock at the conversion price of $10.56. The principal amount converted was $1.6 million, plus $0.2 million of accrued interest thereon. As of March 31, 2024, the Company had not repaid any of the remaining principal balance of $1.6 million, which is recorded as a short-term loan in the condensed consolidated balance sheets.

On November 13, 2024, the Company received a notice of default with regard to its 2023 promissory note with EF Hutton, which alleges that $2.1 million is due under the promissory note, consisting of the unpaid principal balance of $1.6 million, plus accrued and unpaid interest of $0.5 million.

4. Fair Value Measurements

Financial liabilities measured at fair value during the year on a recurring basis consisted of the following as of March 31, 2025:

(in thousands)	Level 1		Level 2		Level 3			Total
	Fair Value Hierarchy
(in thousands)	Level 1		Level 2		Level 3			Total
Financial liabilities:
Backstop Put Option Liability	$	-	$	-	$	(61,411	)	$	(61,411	)
Fixed Maturity Consideration		-		-		(6,002	)		(6,002	)
2024 Convertible Note ⁽¹⁾		-		-		(4,425	)		(4,425	)
SPA Warrant		-		-		(198	)		(198	)
Ayrton Note Purchase Option		-		-		-			-
Total financial liabilities	$	-	$	-	$	(72,036	)	$	(72,036	)

⁽¹⁾

Refer to Note 6, Short-Term Loan Agreements, for a reconciliation of the fair value of the 2023 Convertible Note to the total short-term loans, net of issuance costs in the Company’s condensed consolidated balance sheets.

Financial liabilities measured at fair value during the year on a recurring basis consisted of the following as of December 31, 2024:

(in thousands)	Level 1		Level 2		Level 3			Total
	Fair Value Hierarchy
(in thousands)	Level 1		Level 2		Level 3			Total
Financial liabilities:
Backstop Put Option Liability	$	-	$	-	$	(59,056	)	$	(59,056	)
Fixed Maturity Consideration		-		-		(5,753	)		(5,573	)
2024 Convertible Note ⁽¹⁾		-		-		(11,375	)		(11,375	)
Convertible Note ⁽¹⁾		-		-		(11,375	)		(11,375	)
SPA Warrant		-		-		(1,089	)		(1,089	)
Ayrton Note Purchase Option		-		-		-			-
Total financial liabilities	$	-	$	-	$	(77,093	)	$	(77,093	)

⁽¹⁾

Refer to Note 6, Short-Term Loan Agreements, for a reconciliation of the fair value of the 2024 Convertible Note to the total short-term loans, net of issuance costs in the Company’s condensed consolidated balance sheets.

During the three months ended March 31, 2025 and 2024, there were no transfers between Level 1, Level 2, and Level 3.

Valuation of Backstop Put Option Liability and Fixed Maturity Consideration

The Company utilized a Monte-Carlo simulation to value the Backstop Put Option Liability and Fixed Maturity Consideration. The key inputs and assumptions used in the Monte-Carlo simulation, including volatility, expected term, expected future stock price, and various simulated paths, were utilized to estimate the fair value of the associated derivative liabilities. The value of the Backstop Put Option Liability and Fixed Maturity were calculated as the average present value over 50,000 simulated paths. The Company measures the fair value at each reporting period, with subsequent fair values to be recorded within other income (expense) in its condensed consolidated statements of operations.

Backstop Put Option Liability and Fixed Maturity Consideration

Estimated

volatility

Expected future stock price

Risk-free rate

March 31, 2025

130.0

$0.03 - 0.05

4.08

March 31, 2024

137.5

$1.95 – $13.93

4.80

Valuation of the 2024Convertible Note and SPA Warrant

The Company utilized a Monte-Carlo simulation at inception to value the 2023 Convertible Note and SPA Warrant. The Monte-Carlo simulation is calculated as the average present value over all simulated paths. The key inputs and assumptions used in the Monte-Carlo simulation, including volatility, estimated market yield, risk-free rate, the probability of various scenarios, including subsequent placement and change in control, and various simulated paths, were utilized to estimate the fair value of the associated liabilities. The value of the 2023 Convertible Note and SPA Warrant was calculated as the average present value over 50,000 simulated paths. The Company will continue to measure the fair value at each reporting period, with subsequent fair values to be recorded within other income (expense) in the Company’s condensed consolidated statements of operations.

The following table summarizes some of the significant inputs and assumptions used in the Monte-Carlo simulation:

	Estimated volatility			Range of probabilities			Risk-free rate
2023 Convertible Note		100.0	%		0%-65	%		4.35	%
SPA Warrant		130.0	%		0%-65	%		3.90	%

Valuation of the Ayrton Note Purchase Option

The Company utilized the Black-Scholes Merton model to value the Ayrton Note Purchase Option. The key inputs and assumptions used in the Black-Scholes Merton model, including volatility and risk-free rate, were utilized to estimate the fair value of the associated liability. The Company will continue to measure the fair value at each reporting period, with subsequent fair values to be recorded within other income (expense) in the Company’s condensed consolidated statements of operations.

The following table summarizes some of the significant inputs and assumptions used in the Black-Scholes Merton model:

		Estimated volatility				Risk-free rate
Ayrton Note Purchase Option			13	%			4.8	%

The following table provides a roll forward of the aggregate fair values of the Company’s Fixed Maturity Consideration, Backstop Put Option Liability, the 2023 Convertible Note, SPA Warrant, and Ayrton Note Purchase Option for which fair value is determined using Level 3 inputs:

Level 3 Rollforward (in thousands)

Backstop Put Option Liability

Fixed Maturity Consideration

2023 Convertible Note

SPA

SEC Form 10-Q filed by Ocean Biomedical Inc.