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 June 30, 2024
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File No. 001-40877
CERO THERAPEUTICS HOLDINGS, INC.
(Exact name of registrant as specified in its
charter)
Delaware | | 87-1088814 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
201 Haskins Way, Suite 230, South San Francisco,
CA 94080
(Address of Principal Executive Offices, including
zip code)
(215) 731-9450
(Registrant’s telephone number, including
area code)
N/A
(Former name, former address and former fiscal
year, if changed since last report)
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 | | CERO | | NASDAQ Global Market |
Warrants, each whole warrant exercisable for one share of Common Stock | | CEROW | | NASDAQ Capital Market |
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 August 13, 2024, there were 50,739,552 shares
of Common Stock, par value $0.0001 per share, issued and outstanding.
CERO THERAPEUTICS HOLDINGS, INC.
FORM 10-Q FOR THE QUARTER ENDED June 30, 2024
TABLE OF CONTENTS
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Page |
PART 1 - FINANCIAL INFORMATION |
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1 |
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Item 1. |
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Financial Statements (Unaudited) |
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1 |
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Condensed Consolidated Balance Sheets as of June 30, 2024 (Successor) and December 31, 2023 (Predecessor) |
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1 |
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Condensed Consolidated Statement of Operations for the Three Months Ended June 30, 2024 (Successor), Periods from February 14, 2024 through June 30, 2024 (Successor), January 1, 2024 through February 13, 2024 (Predecessor) and for the Three and Six Months Ended June 30, 2023 (Predecessor) |
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2 |
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Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit for the three months ended June 30, 2024 (Successor), Periods from February 14, 2024 through June 30, 2024 (Successor), January 1, 2024 through February 13, 2024 (Predecessor) and for the Three and Six Months Ended June 30, 2023 (Predecessor) |
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3 |
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Condensed Consolidated Statements of Cash Flows for the Period from February 14, 2024 through June 30, 2024 (Successor), January 1, 2024 through February 13, 2024 (Predecessor) and for the Six Months Ended June 30, 2023 (Predecessor) |
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5 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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6 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
Item 3. |
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Quantitative and Qualitative Disclosures about Market Risk |
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33 |
Item 4. |
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Controls and Procedures |
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33 |
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PART II - OTHER INFORMATION |
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34 |
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Item 1. |
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Legal Proceedings |
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34 |
Item 1A. |
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Risk Factors |
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34 |
Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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38 |
Item 3. |
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Defaults Upon Senior Securities |
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38 |
Item 4. |
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Mine Safety Disclosures |
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38 |
Item 5. |
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Other Information |
|
38 |
Item 6. |
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Exhibits |
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39 |
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SIGNATURES |
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40 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on
Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of 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”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding
our future results of operations and financial position, business strategy, drug candidates, planned preclinical studies and clinical
trials, results of preclinical studies, clinical trials, research and development (“R&D”) costs, regulatory approvals,
timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements.
These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control
and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking
statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,”
“anticipate,” “could,” “intend,” “target,” “project,” “believe,”
“estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other
similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:
| ● | our financial performance; |
| ● | our ability to obtain additional
cash and the sufficiency of our existing cash, cash equivalents and marketable securities to fund our future operating expenses and capital
expenditure requirements, including the development and, if approved, commercialization of our product candidates; |
| ● | our ability to realize the
benefits expected from the business combination (the “Merger”) pursuant to the Business Combination Agreement, dated as of
June 4, 2023, as amended from time to time (as amended, the “Business Combination Agreement”), by and among CERo Therapeutics,
Inc. (“Predecessor”), Phoenix Biotech Acquisition Corp. (“PBAX”) and PBCE Merger Sub, Inc. (“Merger Sub”); |
| ● | successfully defend litigation
that may be instituted against us in connection with the Merger; |
| ● | the accuracy of our estimates
regarding expenses, future revenue, capital requirements, and needs for additional financing; |
| ● | the scope, progress, results
and costs of developing CER-1236 or any other product candidates we may develop, and conducting preclinical studies and clinical trials; |
| ● | the timing and costs involved
in obtaining and maintaining regulatory approval of CER-1236 or any other product candidates we may develop, and the timing or likelihood
of regulatory filings and approvals, including our expectation to seek special designations or accelerated approvals for our drug candidates
for various indications; |
| ● | current and future agreements
with third parties in connection with the development and commercialization of CER-1236 or any other future product candidate; |
| ● | our ability to advance product
candidates into and successfully complete clinical trials; |
| ● | the ability of our clinical
trials to demonstrate the safety and efficacy of CER-1236 and any other product candidates we may develop, and other positive results; |
| ● | the size and growth potential
of the markets for our product candidates, and our ability to serve those markets; |
| ● | the rate and degree of market
acceptance of our product candidates; |
| ● | our plans relating to commercializing
CER-1236 and any other product candidates we may develop, if approved, including the geographic areas of focus and our ability to grow
a sales team; |
| ● | the success of competing drugs,
therapies or other products that are or may become available; |
| ● | developments relating to our
competitors and our industry, including competing product candidates and therapies; |
| ● | our plans relating to the further
development and manufacturing of CER-1236 and any other product candidates we may develop, including additional indications that we may
pursue for CER-1236 or other product candidates; |
| ● | existing regulations and regulatory
developments in the United States and other jurisdictions; |
| ● | our potential and ability to
successfully manufacture and supply CER-1236 and any other product candidates we may develop for clinical trials and for commercial use,
if approved; |
| ● | the rate and degree of market
acceptance of CER-1236 and any other product candidates we may develop, as well as the pricing and reimbursement of CER-1236 and any
other product candidates we may develop, if approved; |
| ● | our expectations regarding
our ability to obtain, maintain, protect and enforce intellectual property protection for CER-1236 and for any other product candidate; |
| ● | our ability to operate our
business without infringing, misappropriating or otherwise violating the intellectual property rights of third parties; |
| ● | our ability to realize the
anticipated benefits of any strategic transactions; |
| ● | our ability to attract and
retain the continued service of our key personnel and to identify, hire, and then retain additional qualified personnel and our ability
to attract additional collaborators with development, regulatory and commercialization expertise; |
| ● | our ability to maintain proper
and effective internal controls; |
| ● | the ability to obtain or maintain
the listing of our Common Stock and public warrants on the NASDAQ Stock Market; |
| ● | the impact of macroeconomic
conditions and geopolitical turmoil on our business and operations; |
| ● | our expectations regarding
the period during which we will qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012 and as a
smaller reporting company under the federal securities laws; and |
| ● | our anticipated use of our
existing cash, cash equivalents and marketable securities. |
We have based these forward-looking
statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends
that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements
are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly
Report and are subject to a number of risks, uncertainties and assumptions described in “Risk Factors” and elsewhere in this
Quarterly Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted
or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected
in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the
forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements
contained herein until after we distribute this Quarterly Report, whether as a result of any new information, future events or otherwise.
In addition, statements
that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based
upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis
for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted
an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and
you are cautioned not to unduly rely upon these statements.
This Quarterly Report includes
trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames
referred to in this Quarterly Report appear without the ® and ™ symbols, but those references are not intended to indicate,
in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert
its rights, to these trademarks and tradenames.
Unless the context otherwise
requires, all references herein to “we,” “us,” or “our” refer to the business and operations of CERo
Therapeutics Holdings, Inc. (“Successor” or the “Company”). CERo Therapeutics, Inc. prior to consummation of the
Merger is referred to as “Predecessor”. “PBAX” refers to Phoenix Biotech Acquisition Corp.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CERO THERAPEUTICS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June 30,
2024
(Successor) |
|
|
December 31,
2023
(Predecessor) |
|
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
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|
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Cash, restricted cash, and cash equivalents |
|
$ |
3,647,026 |
|
|
$ |
1,601,255 |
|
Other receivables |
|
|
87,429 |
|
|
|
- |
|
Prepaid expenses and other current assets |
|
|
511,456 |
|
|
|
368,780 |
|
Total current assets |
|
|
4,245,911 |
|
|
|
1,970,035 |
|
|
|
|
|
|
|
|
|
|
Deferred offering costs |
|
|
550,000 |
|
|
|
- |
|
Operating lease right-of-use assets |
|
|
1,836,099 |
|
|
|
2,189,565 |
|
Property and equipment, net |
|
|
738,755 |
|
|
|
966,702 |
|
Total assets |
|
$ |
7,370,765 |
|
|
$ |
5,126,302 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
6,347,348 |
|
|
$ |
1,671,745 |
|
Accrued liabilities |
|
|
1,157,483 |
|
|
|
144,633 |
|
Common stock subscription deposit |
|
|
- |
|
|
|
1,875 |
|
Operating lease liability |
|
|
821,318 |
|
|
|
769,092 |
|
Short-term notes payable, net |
|
|
253,174 |
|
|
|
599,692 |
|
Earnout liability |
|
|
200,000 |
|
|
|
- |
|
Common stock warrant liability |
|
|
- |
|
|
|
320,117 |
|
Total current liabilities |
|
|
8,779,323 |
|
|
|
3,507,154 |
|
|
|
|
|
|
|
|
|
|
Operating lease liability, net of current portion |
|
|
1,073,310 |
|
|
|
1,575,499 |
|
Total liabilities |
|
|
9,852,633 |
|
|
|
5,082,653 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.0001 par value per share, issuable in series: |
|
|
|
|
|
|
|
|
Series Seed: 5,155,703 shares authorized, issued and outstanding at December 31, 2023; aggregate liquidation preference of $4,154,981 at December 31, 2023 |
|
|
- |
|
|
|
4,077,560 |
|
Series A: 24,614,402 shares authorized, 22,764,764 shares issued and outstanding at December 31, 2023; aggregate liquidation preference of $39,999,967 at December 31, 2023 |
|
|
- |
|
|
|
38,023,784 |
|
Total convertible preferred stock |
|
|
- |
|
|
|
42,101,344 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit |
|
|
|
|
|
|
|
|
Series A Convertible Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 10,039 issued and outstanding at June 30, 2024 |
|
|
8,939,727 |
|
|
|
- |
|
Series B Convertible Preferred stock, $0.0001 par value; 626 shares authorized; 626 issued and outstanding at June 30, 2024 |
|
|
500,000 |
|
|
|
- |
|
Class A common stock; $0.0001 par value; 1 billion shares authorized; 22,737,764 shares issued and outstanding at June 30, 2024 |
|
|
2,273 |
|
|
|
- |
|
Common stock, $0.0001 par value, 45,350,000 shares authorized, 9,068,899 shares issued and outstanding at December 31, 2023 |
|
|
- |
|
|
|
907 |
|
Additional paid-in capital |
|
|
57,632,881 |
|
|
|
1,031,219 |
|
Stock subscription receivable |
|
|
(2,194,971 |
) |
|
|
- |
|
Accumulated deficit |
|
|
(67,361,778 |
) |
|
|
(43,089,821 |
) |
Total stockholders’ deficit |
|
|
(2,481,868 |
) |
|
|
(42,057,695 |
) |
Total liabilities, convertible preferred stock and stockholders’ deficit |
|
$ |
7,370,765 |
|
|
$ |
5,126,302 |
|
See accompanying notes to the condensed consolidated
financial statements.
CERO THERAPEUTICS HOLDINGS,
INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(Unaudited)
| |
For the three months ended
June 30, | | |
For the period from February 14, 2024
through June 30, | | |
For the period from January 1, 2024 through February 13, | | |
For the six months ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2024 | | |
2023 | |
| |
(Successor) | | |
(Predecessor) | | |
(Successor) | | |
(Predecessor) | | |
(Predecessor) | |
Operating expenses: | |
| | |
| | |
| | |
| | |
| |
Research and development | |
$ | 2,714,344 | | |
$ | 1,193,087 | | |
$ | 3,618,359 | | |
$ | 764,192 | | |
$ | 2,994,528 | |
General and administrative | |
| 2,433,893 | | |
| 1,220,659 | | |
| 5,184,815 | | |
| 132,941 | | |
| 1,857,563 | |
Total operating expenses | |
| 5,148,237 | | |
| 2,413,746 | | |
| 8,803,174 | | |
| 897,133 | | |
| 4,852,091 | |
Loss from operations | |
| (5,148,237 | ) | |
| (2,413,746 | ) | |
| (8,803,174 | ) | |
| (897,133 | ) | |
| (4,852,091 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Gain from settlement of liabilities with vendors | |
| 447,335 | | |
| - | | |
| 589,223 | | |
| - | | |
| - | |
Other expense | |
| (630,775 | ) | |
| - | | |
| (630,775 | ) | |
| - | | |
| - | |
Change in fair value of derivative liabilities | |
| 2,900,000 | | |
| 261,822 | | |
| 4,700,000 | | |
| 320,117 | | |
| 225,165 | |
Interest expense, net | |
| (16,977 | ) | |
| 59,417 | | |
| (31,411 | ) | |
| 4,805 | | |
| 96,089 | |
Total other income | |
| 2,699,583 | | |
| 321,239 | | |
| 4,627,037 | | |
| 324,922 | | |
| 321,254 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (2,448,654 | ) | |
$ | (2,092,507 | ) | |
$ | (4,176,137 | ) | |
$ | (572,211 | ) | |
$ | (4,530,837 | ) |
Net loss per share: | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.15 | ) | |
$ | (0.23 | ) | |
$ | (0.27 | ) | |
$ | (0.06 | ) | |
$ | (0.50 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding: | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 16,198,929 | | |
| 9,063,377 | | |
| 15,718,888 | | |
| 9,068,899 | | |
| 9,061,657 | |
See accompanying notes to the condensed consolidated
financial statements.
CERO THERAPEUTICS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE
PREFERRED
STOCK AND STOCKHOLDERS’ DEFICIT
(Unaudited)
| |
Convertible Preferred Stock | | |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Series Seed | | |
Series A | | |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance at December 31, 2022 (Predecessor) | |
| 5,155,703 | | |
$ | 4,077,560 | | |
| 22,764,764 | | |
$ | 38,023,784 | | |
| 9,044,733 | | |
$ | 904 | | |
$ | 928,560 | | |
$ | (35,800,244 | ) | |
$ | (34,870,780 | ) |
Issuance of common stock from exercise of stock options | |
| - | | |
| - | | |
| - | | |
| - | | |
| 16,666 | | |
| 2 | | |
| 5,165 | | |
| - | | |
| 5,167 | |
Stock based compensation expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 28,144 | | |
| - | | |
| 28,144 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,438,330 | ) | |
| (2,438,330 | ) |
Balance at March 31, 2023 (Predecessor) | |
| 5,155,703 | | |
$ | 4,077,560 | | |
| 22,764,764 | | |
$ | 38,023,784 | | |
| 9,061,399 | | |
$ | 906 | | |
$ | 961,869 | | |
$ | (38,238,574 | ) | |
$ | (37,275,799 | ) |
Issuance of common stock from exercise of stock options | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,500 | | |
| 1 | | |
| 599 | | |
| - | | |
| 600 | |
Stock based compensation expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 27,276 | | |
| - | | |
| 27.276 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,092,507 | ) | |
| (2,092,507 | ) |
Balance at June 30, 2023 (Predecessor) | |
| 5,155,703 | | |
$ | 4,077,560 | | |
| 22,764,764 | | |
$ | 38,023,784 | | |
| 9,068,899 | | |
$ | 907 | | |
$ | 989,744 | | |
$ | (40,331,081 | ) | |
$ | (39,340,430 | ) |
| |
Convertible Preferred Stock | | |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Series Seed | | |
Series A | | |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance at December 31, 2023 (Predecessor) | |
| 5,155,703 | | |
$ | 4,077,560 | | |
| 22,764,764 | | |
$ | 38,023,784 | | |
| 9,068,899 | | |
$ | 907 | | |
$ | 1,031,219 | | |
$ | (43,089,821 | ) | |
$ | (42,057,695 | ) |
Stock based compensation expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,431 | | |
| - | | |
| 4,431 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (572,211 | ) | |
| (572,211 | ) |
Balance at February 13, 2024 (Predecessor) | |
| 5,155,703 | | |
$ | 4,077,560 | | |
| 22,764,764 | | |
$ | 38,023,784 | | |
| 9,068,899 | | |
$ | 907 | | |
$ | 1,035,650 | | |
$ | (43,662,032 | ) | |
$ | (42,625,475 | ) |
| |
Convertible Preferred Stock | | |
Series A | | |
Additional | | |
Stock | | |
| | |
| |
| |
Series A | | |
Series B | | |
Common Stock | | |
Paid-in | | |
Subscriptions | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Receivable | | |
Deficit | | |
Total | |
Balance at February 14, 2024 (Successor) | |
| 10,039 | | |
$ | 8,937,852 | | |
| - | | |
$ | - | | |
| 14,531,847 | | |
$ | 1,452 | | |
$ | 53,898,434 | | |
$ | (2,000,000 | ) | |
$ | (63,185,641 | ) | |
$ | (2,347,903 | ) |
Issuance of Series B shares sold to investors | |
| - | | |
| - | | |
| 626 | | |
| 500,000 | | |
| - | | |
| - | | |
| - | | |
| (500,000 | ) | |
| - | | |
| - | |
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 96,289 | | |
| - | | |
| - | | |
| 96,289 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,727,483 | ) | |
| (1,727,483 | ) |
Balance at March 31, 2024 (Successor) | |
| 10,039 | | |
$ | 8,937,852 | | |
| 626 | | |
$ | 500,000 | | |
| 14,531,847 | | |
$ | 1,452 | | |
$ | 53,994,723 | | |
$ | (2,500,000 | ) | |
$ | (64,913,124 | ) | |
$ | (3,979,097 | ) |
Cash received for Series B stock subscription | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 500,000 | | |
| - | | |
| 500,000 | |
Issuance of Series A shares for rounding purchases | |
| 3 | | |
| 1,875 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 128 | | |
| - | | |
| - | | |
| 2,003 | |
Issuance of common stock for Arena Equity Line of Credit (ELOC) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 345,566 | | |
| 35 | | |
| 499,965 | | |
| - | | |
| - | | |
| 500,000 | |
Purchases of Common Stock under Keystone ELOC, net of issuance costs of $933,345 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,860,351 | | |
| 786 | | |
| 1,699,327 | | |
| (194,971 | ) | |
| - | | |
| 1,505,142 | |
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,388,738 | | |
| - | | |
| - | | |
| 1,388,738 | |
Net Loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,448,654 | ) | |
| (2,448,654 | ) |
Balance at 6/30/2024 (Successor) | |
| 10,042 | | |
$ | 8,939,727 | | |
| 626 | | |
$ | 500,000 | | |
| 22,737,764 | | |
$ | 2,273 | | |
$ | 57,582,881 | | |
$ | (2,194,971 | ) | |
$ | (67,361,778 | ) | |
$ | (2,531,868 | ) |
See accompanying notes tothe condensed consolida58ted financial statements.
CERO THERAPEUTICS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
| |
For the period from February 14, 2024 through June 30, 2024 (Successor) | | |
For the period from January 1, 2024 through February 13, 2024 (Predecessor) | | |
For the six months ended June 30, 2023 (Predecessor) | |
Cash flows from operating activities: | |
| | |
| | |
| |
Net loss | |
$ | (4,176,137 | ) | |
$ | (572,211 | ) | |
$ | (4,530,837 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | | |
| | |
Gain from settlement of liabilities with vendors | |
| (589,223 | ) | |
| - | | |
| - | |
Depreciation expense | |
| 190,591 | | |
| 37,356 | | |
| 230,776 | |
Stock-based compensation expense | |
| 1,485,027 | | |
| 4,431 | | |
| 55,420 | |
Amortization of right-to-use operating lease asset | |
| 237,607 | | |
| 115,859 | | |
| 320,259 | |
Amortization of debt discount | |
| - | | |
| (1,875 | ) | |
| - | |
Non-cash interest expense | |
| - | | |
| - | | |
| 10,865 | |
Gain on revaluation of derivative liabilities | |
| (4,700,000 | ) | |
| (320,117 | ) | |
| (225,165 | ) |
Change in assets and liabilities: | |
| | | |
| | | |
| | |
Prepaid expenses and other current assets | |
| (411,224 | ) | |
| 142,687 | | |
| 14,959 | |
Accounts payable | |
| (679,928 | ) | |
| 128,429 | | |
| 686,870 | |
Accrued liabilities | |
| 991,399 | | |
| (50,370 | ) | |
| 249,523 | |
Operating lease liability | |
| (328,374 | ) | |
| (121,589 | ) | |
| (323,588 | ) |
Net cash used in operating activities | |
| (7,979,885 | ) | |
| (637,400 | ) | |
| (3,510,918 | ) |
| |
| | | |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | | |
| | |
Proceeds from issuance of convertible notes | |
| - | | |
| - | | |
| 605,230 | |
Issuance costs for convertible notes | |
| - | | |
| - | | |
| (41,193 | ) |
Common stock subscription deposit | |
| - | | |
| - | | |
| 1,875 | |
Cash proceeds from exercise of common stock options | |
| - | | |
| - | | |
| 5,767 | |
Proceeds from share purchases under ELOC, net of issuance costs of $933,345 | |
| 2,238,488 | | |
| - | | |
| - | |
Proceeds from issuance of Series A Preferred Stock, net | |
| 6,757,700 | | |
| - | | |
| - | |
Proceeds received from sale of Series B shares
| |
| 500,000 | | |
| - | | |
| - | |
Payment of sponsor loans | |
| (19,715 | ) | |
| - | | |
| - | |
Advances from shareholder | |
| 13,731 | | |
| - | | |
| - | |
Payments for short term borrowings | |
| (149,340 | ) | |
| | | |
| - | |
Proceeds from short term borrowings | |
| 408,052 | | |
| - | | |
| - | |
Net cash provided by financing activities | |
| 9,748,916 | | |
| - | | |
| 571,679 | |
Net increase (decrease) in cash and cash equivalents | |
| 1,769,031 | | |
| (637,400 | ) | |
| (2,939,239 | ) |
Cash, restricted cash and cash equivalents at beginning of period | |
| 1,877,995 | | |
| 1,601,255 | | |
| 6,819,564 | |
Cash, restricted cash and cash equivalents at end of period | |
$ | 3,647,026 | | |
$ | 963,855 | | |
$ | 3,880,325 | |
| |
| | | |
| | | |
| | |
Supplemental cash flow information: | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
$ | 3,567,270 | | |
$ | 884,099 | | |
$ | 3,800,569 | |
Restricted cash | |
| 79,756 | | |
| 79,756 | | |
| 79,756 | |
Cash, restricted cash and cash equivalents | |
$ | 3,647,026 | | |
$ | 963,855 | | |
$ | 3,880,325 | |
Non-cash financing activities: | |
| | | |
| | | |
| | |
Issuance of common shares to Keystone Capital LLC for equity line of credit | |
$ | 250,000 | | |
$ | - | | |
$ | - | |
Issuance of common shares to Arena Investors LP for equity line of credit | |
$ | 500,000 | | |
$ | - | | |
$ | - | |
See accompanying notes to the condensed consolidated
financial statements.
CERO THERAPEUTICS HOLDINGS, INC.
Notes to Condensed CONSOLIDATED Financial Statements
NOTE 1 –
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations – CERo Therapeutics
Holdings, Inc. F/K/A Phoenix Biotech Acquisition Corp. (NASDAQ: PBAX, “PBAX”) was incorporated in Delaware on June 8, 2021.
PBAX was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar
business combination with one or more businesses (a “business combination”).
Business Combination Agreement - On June
6, 2023, CERo Therapeutics, Inc. (“Predecessor”), which was incorporated in Delaware on September 23, 2016, and based in South
San Francisco, California, entered into a Business Combination Agreement and Plan of Reorganization (the “BCA”) with PBCE
Merger Sub, Inc., a wholly-owned subsidiary of PBAX, and PBAX, with the surviving operating entity being named CERo Therapeutics Holdings,
Inc. (“Successor” or the “Company”), and such transaction, the “Merger”.
The Company is focused on genetically engineering
human immune cells to fight cancer. The Predecessor focused on developing the CERo therapeutic platform and had not yet begun clinical
development or product commercialization. The Company’s efforts will focus on continued product development, including clinical
development, to support regulatory approval to commercialize and subsequent product commercialization.
The BCA was amended on February 5, 2024 and again
on February 13, 2024. The Merger closed on February 14, 2024 (the “Closing”), at which time the following occurred:
| 1. | The outstanding shares of Predecessor’s Preferred Stock were converted into 4,415,495 shares of Common Stock, par value $0.0001 per share (the “Common Stock”), valued at $21,635,926. |
| | |
| 2. | The outstanding shares of Predecessor’s common stock were converted into 584,505 of shares of Common Stock, valued at $2,864,074. |
| | |
| 3. | Each holder of Predecessor’s common stock received a pro rata portion of up to 1.2 million earnout shares of restricted Common Stock (the “BCA Earnout shares”), valued at $5,880,000, 1,000,000 of which are subject to vesting upon the achievement of certain stock price-based earnout targets and 200,000 of which are subject to vesting upon a change of control, respectively. |
| | |
| 4. | Certain holders of Predecessor’s common stock received a pro rata portion of 875,000 earnout shares of Common Stock (the “Reallocation shares”), valued at $4.29 million, which became fully vested upon the Closing. |
| | |
| 5. | Certain holders of Predecessor’s common stock and convertible bridge notes received a pro rata portion of 1.0 million earnout shares (the “IND Earnout shares”) of restricted Common Stock, valued at $4,900,000, which are subject to vesting upon the Company’s filing an investigational new drug (“IND”) application with the Food and Drug Administration (“FDA”). The earning of these shares will be accompanied by a forfeiture of 1,000,000 restricted shares of Common Stock held by the sponsor upon receipt of an acknowledgement notice by the Sponsor. |
| | |
| 6. | Each outstanding Predecessor option was converted into an option to purchase a number of shares of Common Stock, equal to the Predecessor’s common stock underlying the option multiplied by the Exchange Ratio, at an exercise price per share equal to the Predecessor option exercise price divided by the Exchange Ratio. |
| | |
| 7. | Each warrant to purchase the Predecessor’s preferred stock was converted into a warrant to acquire a number of shares of Common Stock obtained by dividing the warrant as-if-exercised liquidation preference by $10.00, with the exercise price equal to the total Predecessor warrant exercise amount divided by the number of shares of Common Stock issuable upon exercise. |
| | |
| 8. | The Predecessor’s bridge notes automatically converted into shares of the Company’s Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), at a conversion price equal to $750 per share of Series A Preferred Stock. |
The Company issued, transferred from the Sponsor,
or reserved for issuance an aggregate of 8.4 million shares of Common Stock to the holders of Predecessor common stock and Predecessor
preferred stock or reserved for issuance upon exercise of rollover (from Predecessor to Successor) options and warrants as consideration
in the Merger.
Asset Acquisition
Method of Accounting - The Merger was accounted for using the asset acquisition method in accordance with U.S. GAAP. Under this method
of accounting, PBAX was considered to be the accounting acquirer based on the terms of the Merger. Upon consummation of the Merger, the
cash on hand resulted in the equity at risk being considered insufficient for Predecessor to finance its activities without additional
subordinated financial support. Therefore, Predecessor was considered a Variable Interest Entity (“VIE”) and the primary beneficiary
of Predecessor was treated as the accounting acquirer. PBAX holds a variable interest in Predecessor and owns 100% of Predecessor’s
equity. PBAX was considered the primary beneficiary as it has the decision-making rights that gives it the power to direct the most significant
activities. Also, PBAX retained the obligation to absorb the losses and/or receive the benefits of Predecessor that could have potentially
been significant to Predecessor. The Merger was accounted for as an asset acquisition as substantially all of the fair value was concentrated
in IPR&D, an intangible asset. Predecessor’s assets (except for cash) and liabilities were measured at fair value as of the
transaction date. Consistent with authoritative guidance on the consolidation of a VIE that is not considered a business, differences
in the total purchase price and fair value of assets and liabilities are recorded as a gain or loss to the condensed consolidated statement
of operations. The loss reflected below on the consolidation of the VIE is reflected “on the line” (defined below) in the
Company’s opening accumulated deficit.
Costs incurred in obtaining
technology licenses are charged to research and development expense as IPR&D if the technology licensed has not reached technological
feasibility and has no alternative future use. The IPR&D recorded at the Closing of $45.6 million is reflected “on the
line” in the Company’s opening accumulated deficit. To estimate the value of the acquired IPR&D, the Company used the
avoided cost method, which calculates a present value of a 45% return on research and development effort applied to research and development
expenditures over the life of Predecessor. The determination of the fair value requires management to make a significant estimate of the
return on research and development expenditures. Changes in these assumptions could have a significant impact on the fair value of the
IPR&D. The estimate of the return on research and development expenditures was based on multiple
published studies analyzing actual returns of research and development expenditures.
The
following is a summary of the purchase price calculation (unaudited).
Number of shares of Common Stock | |
| 5,000,000 | |
Multiplied by PBAX’s share price, as of the Closing | |
$ | 5.85 | |
Total | |
$ | 29,250,000 | |
Fair value of PBAX founder’s shares converted to shares of Common Stock and transferred to Predecessor stockholders | |
$ | 5,118,750 | |
Fair value of contingent Common Stock consideration | |
$ | 12,870,000 | |
Total Common Stock consideration | |
$ | 47,238,750 | |
Assumed liabilities | |
| 3,311,153 | |
Total purchase price | |
$ | 50,549,903 | |
The allocation of the purchase
price was as follows (unaudited).
Cash | |
$ | 963,855 | |
Net working capital (excluding cash and cash equivalents) | |
| (1,819,514 | ) |
Fixed assets | |
| 929,346 | |
Acquired in-process research and development | |
| 45,640,000 | |
Net assets acquired | |
| 45,713,687 | |
Loss on consolidation of VIE | |
| 4,836,216 | |
Total purchase price | |
$ | 50,549,903 | |
In connection with the Merger, the transactions
that occurred concurrently with the closing date of the Merger were reflected “on the line”. “On the line” describes
those transactions triggered by the consummation of the Merger that are not recognized in the consolidated financial statements of the
Predecessor nor the Company as they are not directly attributable to either period but instead were contingent on the Merger. The opening
cash balance in the condensed consolidated statement of cash flow of $1.88 million consists of $0.92 million from PBAX and $0.96 million
from Predecessor. The number of shares of Common Stock issued and amounts recorded on the line within stockholders’ deficit are
reflected below to arrive at the opening consolidated balance sheet of the Company.
| |
Convertible Preferred Stock | | |
Series A | | |
Additional | | |
Stock | | |
| | |
| |
| |
Series A | | |
Common Stock | | |
Paid-in | | |
Subscription | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Receivable | | |
Deficit | | |
Total | |
PBAX Closing Equity as of February 13, 2024 | |
| - | | |
$ | - | | |
| 5,481,250 | | |
$ | 547 | | |
$ | - | | |
$ | - | | |
$ | (12,709,426 | ) | |
$ | (12,708,879 | ) |
Forfeiture of founders shares | |
| - | | |
| - | | |
| (875,000 | ) | |
| (88 | ) | |
| 88 | | |
| - | | |
| - | | |
| - | |
Adjusted shares outstanding | |
| - | | |
| - | | |
| 4,606,250 | | |
| 459 | | |
| 88 | | |
| - | | |
| (12,709,426 | ) | |
| (12,708,879 | ) |
Shares issued as consideration in the Merger | |
| - | | |
| - | | |
| 8,075,000 | | |
| 808 | | |
| 47,237,942 | | |
| - | | |
| - | | |
| 47,238,750 | |
Loss on VIE consolidation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,836,215 | ) | |
| (4,836,215 | ) |
Expense IPR&D | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (45,640,000 | ) | |
| (45,640,000 | ) |
Reclassification of public shares | |
| - | | |
| - | | |
| 82,047 | | |
| 8 | | |
| 911,349 | | |
| - | | |
| - | | |
| 911,357 | |
Issuance of common stock as payment to vendors | |
| - | | |
| - | | |
| 1,649,500 | | |
| 165 | | |
| 3,182,385 | | |
| - | | |
| - | | |
| 3,182,550 | |
Elimination of deferred underwriting fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,690,000 | | |
| - | | |
| - | | |
| 5,690,000 | |
Reclassification of earnout liability | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,900,000 | ) | |
| - | | |
| - | | |
| (4,900,000 | ) |
Conversion of CERo bridge notes and accrued interest into Series A preferred stock | |
| 630 | | |
| 627,154 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 627,154 | |
Conversion of working capital loan into Series A preferred stock | |
| 1,555 | | |
| 1,555,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,555,000 | |
Issuance of Series A shares sold to investors | |
| 7,854 | | |
| 6,755,698 | | |
| - | | |
| - | | |
| (856,663 | ) | |
| - | | |
| - | | |
| 5,899,035 | |
Issuance of Series A Warrants | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,000,000 | | |
| (2,000,000 | ) | |
| - | | |
| - | |
Issuance of common shares to Keystone Capital LLC for equity line of credit | |
| - | | |
| - | | |
| 119,050 | | |
| 12 | | |
| 633,333 | | |
| - | | |
| - | | |
| 633,345 | |
Opening Equity at February 14, 2024 (Successor) | |
| 10,039 | | |
$ | 8,937,852 | | |
| 14,531,847 | | |
$ | 1,452 | | |
$ | 53,898,434 | | |
$ | (2,000,000 | ) | |
$ | (63,185,641 | ) | |
$ | (2,347,903 | ) |
Going concern – The accompanying
unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s ability to
continue as a going concern is dependent on its ability to raise additional capital to fund its research and development (“R&D”)
activities and meet its obligations on a timely basis. As of June 30, 2024, the Company reported $3.6 million of cash, restricted cash
and cash equivalents, with an accumulated deficit of $66.4 million. Additional funds are necessary to maintain current operations and
to continue R&D activities. The Company expects to seek additional funding in the form of equity financings or debt, however, there
can be no assurance that sufficient funding will be available to allow the Company to successfully continue its R&D activities and
planned regulatory filings with the Food and Drug Administration (the “FDA”). If the Company is unable to obtain necessary
funds, significant reductions in spending and the delay or cancellation of planned activities may be necessary. These actions would have
a material adverse effect on the Company’s business, results of operations, and prospects. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern within one year from the date these financial statements are issued.
The accompanying unaudited 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.
Risks and uncertainties – The Company
is subject to all of the risks inherent in an early-stage biotechnology company. These risks include, but are not limited to, limited
management resources, intense competition, and dependence upon the availability of cash to sustain operations. The Company’s operating
results may be materially affected by the foregoing factors.
The Company’s research also requires approvals
from the FDA prior to beginning clinical trials and prior to product commercialization. There can be no assurance that the Company’s
current ongoing research and future clinical development will result in the granting of these required approvals. If the Company is denied
such approvals or such approvals are substantially delayed, they could have a material adverse effect upon the Company’s future
financial results and cash flows.
NOTE 2 –
Significant Accounting Policies
Basis of presentation – The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q
and Article 8-03 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared
in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting.
Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results
of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include
all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating
results and cash flows for the periods presented.
On February 14, 2024, the Company completed the
Merger with CERo Therapeutics, Inc., with CERo Therapeutics, Inc., surviving the Merger as a wholly-owned subsidiary of the Company, the
accounting acquirer. The transaction was accounted for as a forward Merger asset acquisition.
Unless the context otherwise requires, the “Company,”
for periods prior to the Closing, refers to CERo Therapeutics, Inc. (“Predecessor”), and for the periods after the Closing,
refers to CERo Therapeutics Holdings, Inc. (“Successor” or the “Company”). As a result of the Merger, the results
of operations, financial position and cash flows of the Predecessor and the Company are not directly comparable. CERo Therapeutics, Inc.
was deemed to be the predecessor entity. Accordingly, the historical financial statements of CERo Therapeutics, Inc. became the historical
financial statements of the combined Company, upon the consummation of the Merger. As a result, the financial statements included in this
report reflect (i) the historical operating results of CERo Therapeutics, Inc. prior to the Merger and (ii) the combined results of the
Company, CERo Therapeutics Holdings, Inc., following the Closing. The accompanying unaudited condensed consolidated financial statements
include a Predecessor period, which includes the period through February 13, 2024 concurrent with the Merger, and a Successor period from
February 14, 2024 through June 30, 2024. A black line between the Successor and Predecessor periods has been placed in the condensed consolidated
financial statements and in the tables to the notes to the condensed consolidated financial statements to highlight the lack of comparability
between these two periods.
Use of estimates- The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenses incurred
during the reporting period. Items subject to such estimates and assumptions include the estimates of the fair values of acquired in-process
research and development, convertible preferred stock, common stock, earnout share liabilities, stock-based compensation expense, the
present value of right-to-use assets and lease liabilities, and the valuation allowance associated with deferred tax assets. Actual results
could differ from those estimates.
Cash, restricted cash, and cash equivalents
– The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or
less to be cash equivalents. As of June 30, 2024 for the Company and December 31, 2023 for Predecessor, cash and cash equivalents
consist of cash deposited with banks, including a money market sweep account. Restricted cash for Predecessor and the Company consists
of $79,756 held on account by a financial institution as collateral for a demand letter of credit issued as a real estate security deposit.
Concentration of credit risk – Financial
instruments that potentially subject the Company to credit risk consist primarily of cash, cash equivalents, and restricted cash. The
Company’s cash, cash equivalents, and restricted cash are on deposit with two financial institutions that management believes are
of sufficiently high credit quality. Deposits at any of the Company’s financial institutions may, at times, exceed federal insured
limits.
Property and equipment – Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets, generally three to five years or the remaining lease term for leasehold improvements, if shorter.
Expenditures for repairs and maintenance are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation
are removed from the accounts and the resulting gain or loss is reflected in the statements of operations.
Impairment of long-lived assets –
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. When such an event occurs, management determines whether there has been an impairment by comparing the
anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset
is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of
the asset. Through June 30, 2024, the Predecessor and the Company have not experienced any impairment losses on its long-lived assets.
Leases – The Company determines if
an arrangement is, or contains, a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use
an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising
from the lease. ROU assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid
lease payments over the lease term using the Company’s incremental borrowing rate applicable to the underlying asset unless the
implicit rate is readily determinable. The Company determines the lease term as the noncancellable period of the lease and may include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term
of 12 months or less are not recognized on the balance sheets.
Certain leases include variable lease costs to
reimburse the lessor for real estate tax and insurance expenses, and certain non-lease components that transfer a distinct service to
the Lessee, such as common area maintenance services. The Company has elected to separate the accounting for fixed lease components and
variable and non-lease components for real estate and equipment leases. The variable lease costs are recorded on the consolidated statement
of operations as rent expense, within general and administrative expenses. The Company has no financing leases.
Derivative Financial Instruments- The Company
evaluates financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives
in accordance with ASC Topic 815, “Derivatives and Hedging”. Derivative instruments are initially recorded at fair value on
the grant date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative
assets and liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion
of the instrument could be required within 12 months of the balance sheet date.
Fair value measurements – Fair value
is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
on the measurement date. In determining fair value, the assumptions that market participants would use in pricing an asset or liability
(the inputs) are based on a tiered fair value hierarchy consisting of three levels, as follows:
|
Level 1 |
– |
Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. |
|
Level 2 |
– |
Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
|
Level 3 |
– |
Unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market participants would price the asset or liability. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
The categorization of a financial instrument within
the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The carrying amounts of cash, restricted cash,
and cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate fair value due
to their relatively short-term maturities.
Research and development – R&D
costs consist primarily of salaries and benefits, including stock-based compensation, occupancy, materials and supplies, contracted research,
consulting arrangements, and other expenses incurred in the pursuit of R&D programs. R&D costs are expensed as incurred.
Stock-based compensation – The Company
periodically issues Common Stock and stock options to officers, directors, and consultants for services rendered. The Company accounts
for stock-based compensation as measured at grant date, based on the fair value of the award. The Company uses a Black-Scholes option
pricing model (“Black-Scholes”) to estimate option award fair value, which requires the input of subjective assumptions, including
the expected volatility of the Company’s Common Stock, expected risk-free interest rate, and the option’s expected life. The
Company also evaluates the impact of modifications made to the original terms of equity awards when they occur. The fair value of restricted
stock awards is based upon the share price of the Common Stock on the date of grant.
The fair value of equity awards that are expected
to vest is amortized on a straight-line basis over the requisite service period. Stock-based compensation expense is recognized net of
actual forfeitures when they occur, as an increase to additional paid-in capital in the condensed consolidated balance sheets and in research
and development or, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.
All stock-based compensation costs are recorded in the condensed consolidated statements of operations based upon the underlying employee’s
role within the Company.
Income taxes – The Company accounts
for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
The Company follows tax accounting requirements
for the recognition, measurement, presentation, and disclosure in the financial statements of any uncertain tax positions that have been
taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the financial statements.
It is the Company’s policy to include penalties and interest expense related to income taxes as a component of income tax expense,
as necessary. The Company has not recorded any interest or penalties associated with income tax since inception. Tax years subsequent
to 2020 are subject to examination by federal and state authorities.
NOTE 3 –
NET LOSS PER SHARE OF COMMON STOCK
The accounting standards require the presentation
of both basic and diluted earnings per share on the face of the statements of operations. The Company’s basic net loss per share
is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding for the period. If there are dilutive
securities, diluted income per share is computed by including Common Stock equivalents which includes shares issuable upon the exercise
of stock options, warrants, and conversion of preferred stock into shares of Common Stock, net of any shares assumed to have been purchased
with the proceeds, using the treasury stock method. In periods for which the Company reports a net loss, the Common Stock equivalents
are not included, as they would be anti-dilutive.
The following table summarizes the number of shares
of Common Stock issuable upon conversion or exercise, as applicable, of convertible securities, stock options, and warrants that were
not included in the calculation of diluted net loss per share because such shares are antidilutive:
| |
June 30, 2024 | | |
June 30, 2023 | |
| |
(Successor) | | |
(Predecessor) | |
Conversion of convertible preferred stock issued and outstanding | |
| 1,054,100 | | |
| 27,920,467 | |
Conversion of convertible preferred stock underlying convertible preferred stock warrants | |
| 237,400 | | |
| 1,849,638 | |
Exercise of common warrants into common stock | |
| 10,160,249 | | |
| - | |
Common stock reserved for employee stock option plan (ESPP) | |
| 527,182 | | |
| - | |
Common stock underlying outstanding options | |
| 5,039,721 | | |
| 894,500 | |
| |
| 17,018,652 | | |
| 30,664,605 | |
NOTE 4 –
PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
| |
June 30,
2024 | | |
December 31, 2023 | |
| |
(Successor) | | |
(Predecessor) | |
Laboratory equipment | |
$ | 2,507,839 | | |
$ | 2,507,839 | |
Computers | |
| 38,323 | | |
| 38,323 | |
Furniture | |
| 8,429 | | |
| 8,429 | |
Less: Accumulated depreciation | |
| (1,815,836 | ) | |
| (1,587,889 | ) |
| |
$ | 738,755 | | |
$ | 966,702 | |
Depreciation expense for the period from February
14, 2024 through June 30, 2024 for Successor was $190,591. Predecessor depreciation expense for the period January 1, 2024 through February
13, 2024 and for the six months ended June 30, 2023 was $37,356 and $230,776, respectively. The Company’s depreciation expense for
the three months ended June 30, 2024 and the Predecessor’s depreciation expense for the three months ended June 30, 2023 was $114,304
and $115,388, respectively.
NOTE 5 –
ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
| |
June 30,
2024 | | |
December 31, 2023 | |
| |
(Successor) | | |
(Predecessor) | |
Employee-related liabilities | |
$ | 243,122 | | |
$ | 68,697 | |
Accrued taxes | |
| 78,448 | | |
| - | |
Accrued legal expenses | |
| 20,000 | | |
| 46,466 | |
Accrued interest | |
| - | | |
| 27,637 | |
Penalty for late S-1 filing and effectiveness | |
| 645,693 | | |
| - | |
Accrued research and development | |
| 144,619 | | |
| - | |
Other accrued expenses | |
| 25,601 | | |
| 1,833 | |
| |
$ | 1,157,483 | | |
$ | 144,633 | |
NOTE
6 – Leases
The Company holds a five-year lease for laboratory
and office space. The lease has escalating contractual rent and variable rent components and the Company elected to separate the contractual
and variable elements for valuing the lease liability and right-to-use asset. The lease does not have any options for extension or expansion.
The Company recorded the following lease costs:
| |
For the three months
ended June 30, | | |
For the period from February 14, 2024 through June 30, | | |
For the period from January 1, 2024 through February 13, | | |
For the six months
ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2024 | | |
2023 | |
| |
(Successor) | | |
(Successor) | | |
(Successor) | | |
(Predecessor) | | |
(Predecessor) | |
Operating leases: | |
| | |
| | |
| | |
| | |
| |
Operating lease cost | |
$ | 237,925 | | |
$ | 230,995 | | |
$ | 356,371 | | |
$ | 110,885 | | |
$ | 461,991 | |
Variable operating lease cost | |
| 174,349 | | |
| 147,962 | | |
| 264,504 | | |
| 84,401 | | |
| 340,925 | |
Total lease cost | |
$ | 412,274 | | |
$ | 378,957 | | |
$ | 620,875 | | |
$ | 195,286 | | |
$ | 802,916 | |
| | June 30, 2024 | | | December 31, 2023 | |
| | (Successor) | | | (Predecessor) | |
Right-of-use assets, net | | $ | 1,836,099 | | | $ | 2,189,565 | |
Operating lease liabilities, current | | $ | 821,318 | | | $ | 769,092 | |
Operating lease liabilities, non-current | | | 1,073,310 | | | | 1,575,499 | |
Total operating lease liabilities | | $ | 1,894,628 | | | $ | 2,344,591 | |
| | | | | | | | |
Weighted-average remaining lease term of operating leases (in years) | | | 2.25 | | | | 2.75 | |
Weighted-average discount rate for operating leases | | | 9.60 | % | | | 9.60 | % |
The following table reconciles the undiscounted
future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one
year to the total operating lease liabilities recognized on the Company’s condensed consolidated balance sheets as of June 30, 2024:
Maturity of the Company’s lease liabilities
as of June 30, 2024:
Remainder of 2024 | |
$ | 406,059 | |
2025 | |
| 990,055 | |
2026 | |
| 726,394 | |
Total lease payments | |
| 2,122,508 | |
Less: imputed interest | |
| (227,880 | ) |
Total lease liabilities | |
$ | 1,894,628 | |
NOTE
7 – STOCKHOLDERS’ DEFICIT
Successor Series A Convertible Preferred
Stock
The Company designated 12,580 shares of its authorized
preferred stock as the Series A Preferred Stock and the rights, preferences and privileges of the Series A Preferred Stock are summarized
below.
Each share of Series A Preferred Stock has a stated
value of $1,000 per share and, when issued, the Series A Preferred Stock was fully paid and non-assessable. The Series A Preferred Stock,
ranks senior to all other Company capital stock unless required holder votes are obtained to create a class of stock senior to Series
A Preferred Stock.
Dividend and Participation Rights: The
holders of Series A Preferred Stock will be entitled to dividends, on an as-if converted basis, equal to and in the same form as dividends
actually paid on shares of Common Stock, when and if actually paid. Series A Preferred Stockholders will be entitled to participate pro
rata in any purchase rights extended to holders of Common Stock on an as-converted basis.
Conversion: Each holder of Series A Preferred
Stock may convert at any time, all, or any part, of the outstanding Series A Preferred Stock into shares of the Common Stock at the initial
“Conversion Price” of $10.00, which is subject to customary adjustments for stock splits. The Company’s Board of Directors
has the right, at any time, with the written consent of the Required Holders (as defined in the Certificate of Designation of Preferences,
Rights and Limitations of the Series A Convertible Preferred Stock (the “Series A Certificate of Designations”)), to lower
the fixed conversion price to any amount and for any period of time. If 90 days or 180 days following the occurrence of the effective
date of the registration statement filed pursuant to the PIPE Registration Rights Agreement, the Conversion Price then in effect is greater
than the greater of $1.00 and the Market Price then in effect (the “Adjustment Price”), the Conversion Price shall automatically
lower to the Adjustment Price.
Alternate Conversion: Following the occurrence
and during the continuance of a Trigger Event (as defined below), each holder may alternatively elect to convert the Series A Preferred
Stock at the “Alternate Conversion Price” equal to the lesser of the Conversion Price and the greater of $1.00 (the “Conversion
Price Floor”) or 80% of the 5-day volume weighted average price of a share of Common Stock. Trigger events include customary terms
related to exchange listing, registration rights, failure to deliver shares on conversion or exercise of derivative instruments, or insolvency.
Notwithstanding the Conversion Price Floor, if the Conversion Price Floor is greater than 80% of the 5-day volume weighted average price
of a share of Common Stock, then the Conversion Amount (as defined in the Certificates of Designations, (as defined below) is increased
by a multiplier resulting in the convertibility of the shares of Series A Preferred Stock into the number of shares of Common Stock that
would have been issuable if the Alternate Conversion Price had been equal to such lower volume weighted average price.
Redemptions: Upon bankruptcy or liquidation,
Series A Preferred Stock will be redeemed at a 25% premium (50% premium after 180 days after issuance) to the greater of the conversion
amount or the number of shares multiplied by the highest closing price within the preceding 20 days. Additionally, the Company may voluntarily
redeem the Series A Preferred Stock as at 20% premium to the greater of the conversion amount or the number of shares multiplied by the
highest closing price within the preceding 20 days.
The holders of the Series A Preferred Stock have
no voting rights.
In February 2024, The Company consummated a private
placement (the “Series A PIPE Financing”) of 10,039 shares of Series A Preferred Stock, warrants to purchase 612,746 shares
of Common Stock (the “Common Warrants”) and warrants to purchase 2,500 shares of Series A Preferred Stock (the “Preferred
Warrants”) (See Note 8 below), pursuant to the Amended and Restated Securities Purchase Agreement, dated February 14, 2024, by and
among the Company, PBAX and certain accredited investors (the “Initial Investors”) for aggregate cash proceeds to the Company
of approximately $10.0 million.
A portion of such Series A Preferred Stock was
issued as consideration for the cancellation of outstanding indebtedness, including a promissory note of PBAX amounting to $1,555,000
and the Predecessor’s convertible notes amounting to $627,154.
The Company accounts for preferred stock as either
equity or debt-like securities based on an assessment of the Preferred Stock rights and preferences and applicable authoritative guidance
in ASC 480 and ASC 815, Derivatives and Hedging. The Company has concluded that the Series A Preferred Stock, which has no cash redemption
features outside of the Company’s control and therefore, Series A and Series B Preferred Stock are treated as equity.
Due to delayed filing and declaration of effectiveness
relative to the deadlines defined in the Registration Rights Agreement, the Company accrued for an aggregate $608,363 penalty as of June
30, 2024, payable in cash to the holders of Series A Preferred Stock.
Successor Series B Convertible Preferred
Stock
The Company designated 626 shares of our authorized preferred
stock as Series B Preferred Stock and established the rights, preferences and privileges of the Series B Preferred Stock pursuant to
the Certificate of Designation of Preferences, Rights and Limitations of the Series B Convertible Preferred Stock (the “Series
B Certificate of Designations” and, together with the Series A Certificate of Designations, the “Certificates of
Designations”), as summarized below. Except as set forth below, the Series B Preferred Stock has terms and provisions that are
identical to those of the Series A Preferred Stock.
On April 1, 2024, we consummated a private placement
of 626 shares of the Company Series B Preferred Stock, pursuant to the Securities Purchase Agreement, dated March 28, 2024, by and among
us and certain accredited investors (the “Additional Investors” and, together with the Initial Investors, the “PIPE
Investors”), for aggregate cash proceeds to us of approximately $0.5 million. Such private placement closed on April 1, 2024.
The holders of the Series B Preferred Stock have
no voting rights.
The Series B Preferred Stock ranks pari passu
with the Series A Preferred Stock.
Due to delayed filing and declaration of effectiveness
relative to the deadlines defined in the Registration Rights Agreement, the Company accrued for an aggregate $37,330 penalty as of June
30, 2024, payable in cash to the holders of Series B Preferred Stock.
Predecessor Preferred Stock Conversion to
Common Stock
At December 31, 2023, Predecessor had 75,120,105
shares of capital stock authorized, consisting of 45,350,000 shares of Predecessor common stock and 29,770,105 shares of Predecessor convertible
preferred stock. All classes of the Predecessor’s stock had a par value of $0.0001. On February 14, 2024, on the close of the Merger,
the Predecessor’s outstanding convertible preferred stock converted to Common Stock at a conversion ratio of 0.0806 and 0.1757 shares
of Common Stock for each share of Predecessor Series Seed Convertible Preferred Stock and Predecessor Series A Convertible Preferred
Stock, respectively. This resulted in the issuance of 415,498 and 3,999,997 shares of Common Stock for the Predecessor’s Series
Seed Preferred Stock and Predecessor Series A Preferred Stock, respectively.
Predecessor’s Series Seed and Series A Preferred
Stock had cash redemption features outside of its control, and therefore were classified in a mezzanine section presented on the balance
sheets between liabilities and stockholders’ deficit.
Purchase of Common Stock by Keystone Capital
Partners under the Equity Line of Credit (“ELOC”)
On February 14, 2024, in conjunction with, and as a condition to the
closing of the Series A PIPE Financing, the Company entered into a common stock purchase agreement (the “Keystone Purchase Agreement”)
with Keystone Capital Partners, L.P. (“Keystone”), pursuant to which we may sell and issue, and Keystone is obligated to purchase,
up to 25,000,000 shares subject to the Company obtaining all necessary stockholder approvals to issue the shares to Keystone. The price
of the shares purchased by Keystone under the ELOC is 90% of various volume-weighted average price (“VWAP”) and closing price-based formulae, and requires a waiver, should the selling price be below $1.00 per share. As consideration for Keystone’s commitment
to purchase shares of Common Stock pursuant to the Keystone Purchase Agreement, we issued 119,050 shares of Common Stock to Keystone.
In addition, we have agreed to issue an additional $250,000 in shares of Common Stock to Keystone at each of the 90- and 180-day anniversaries
of the May 1, 2024, effectiveness of the registration statement under which the shares were registered, with the number of such shares
determined based upon the average of the daily VWAP for each of the five trading days immediately prior to such 90- or 180-day anniversary.
In the three months ended June 30, 2024, the Company
sold approximately 7.6 million shares for gross proceeds of approximately $2.5 million under the Keystone ELOC. The Company sought and
received a waiver to sell the shares below $1.00 per share. The Company also issued 250,351 and 369,401 shares of common stock to Keystone
as consideration for the ELOC in the three-month period ended June 30, 2024 and the period from February 14, 2024 to June 30, 2024, respectively.
The $2.5 million gross proceeds included $0.2 million of Stock Subscription Receivable for end of period purchases for which the Company
had not yet received cash payment by June 30, 2024, and 1.0 million of issuance costs, including issuances of Common Stock as consideration
for the ELOC.
Issuance
of Common Stock to Arena Business Solutions Global SPC II, Ltd. (“Arena”) for
the Arena ELOC
On February 23, 2024, the Company entered into a
common stock purchase agreement (the “Arena Purchase Agreement”) with Arena, pursuant to which we may sell and issue,
and Arena is obligated to purchase, up to $25,000,000 of Common Stock. The price of the shares purchased by Arena under the ELOC is
90% of various volume-weighted average price (“VWAP”) and closing price-based formulae, and requires a waiver, should
the selling price be below $0.25 per share. As consideration for Arena commitment to purchase shares of Common Stock pursuant to the
Arena Purchase Agreement, the Company issued 345,566 shares of Common Stock to Arena during the three-month period ended June 30,
2024. The Company has sold no shares of Common Stock to Arena under the Arena ELOC in the six-month period ended June 30, 2024.
IND Submission and IND Earnout Shares
On June 28, 2024, the Company submitted its
IND for CER-1236 to the FDA, thereby triggering the 1,000,000 IND earnout shares to be fully earned. A corresponding 1,000,000
restricted shares of Common Stock were held by Phoenix Biotech Sponsor, LLC (the “Sponsor”). The restrictions upon such
shares of Common Stock held by Predecessor’s stockholders and bridge note investors will be removed and the shares of Common
Stock held by the Sponsor will be retired on receipt of written acknowledgement by Sponsor.
NOTE
8 – WarrantS
Accounting for warrants
The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance
in ASC 480 and ASC 815, Derivatives and Hedging. The assessment considers whether the instruments are free standing financial instruments
pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements
for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own common stock and whether
the instrument holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control,
among other conditions for equity classification. This assessment, which requires the use of professional judgment, was conducted at the
time of warrant issuance and as of each subsequent period end date while the instruments are outstanding.
Public Warrants
At June 30, 2024, there were 9,192,500 Public
Warrants outstanding. The Public Warrants became exercisable 30 days after the Merger. No warrants will be exercisable for cash unless
the Company has an effective and current registration statement covering the Common Stock issuable upon exercise of the warrants and a
current prospectus relating to such Common Stock.
Notwithstanding the foregoing, if a registration
statement covering the Common Stock issuable upon exercise of the Public Warrants is not effective within a specified period following
the consummation of a business combination, warrant holders may, until such time as there is an effective registration statement and during
any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant
to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another
exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. The Public Warrants will expire
five years after the Merger or earlier upon redemption or liquidation.
Once the warrants became exercisable, the Company
may, with 30 days prior notice, redeem the Public Warrants in whole and not in part, at a price of $0.01 per warrant if the shares underlying
the warrants are registered and if the closing price of Common Stock equals or exceeds $18.00 for 20 of the prior 30 trading days. If
the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the
Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
The exercise price and number of shares of Common
Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary
dividend or recapitalization, reorganization, merger, or consolidation. However, the warrants will not be adjusted for issuances of Common
Stock at a price below their respective exercise prices. Additionally, in no event will the Company be required to net cash settle the
warrants.
As discussed above, the Company accounts for warrants
as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable
authoritative guidance in ASC 480 and ASC 815, Derivatives and Hedging. Management has concluded that the Public Warrants and Private
Placement Warrants issued pursuant to the warrant agreement qualify for equity accounting treatment.
Conversion warrants
On November 14, 2019, Predecessor issued warrants
to purchase a total of 1,849,638 shares of Predecessor Series A Preferred Stock at a price of $1.7571 per share. The warrants were exercisable
into shares of Predecessor Series A Preferred Stock at the discretion of the holder, at any time in the five years after issuance.
The warrants were analyzed and determined to be freestanding instruments issued in a transaction including the conversion or sale of the
Series A Preferred Stock. A warrant to purchase up to 426,839 shares of Series A Preferred Stock was issued in a transaction that included
the conversion of 100 shares of Series 1 Preferred Stock into 2,845,597 shares of Predecessor Series A Preferred Stock. Another warrant
to purchase up to 1,422,799 shares of Series A Preferred Stock was issued concurrent with the purchase of 2,845,597 shares of Series A
Preferred Stock. These warrants are collectively referred to as the “Predecessor preferred stock warrants.” On February 14,
2024, the Predecessor preferred stock warrants were converted into warrants to purchase up to 324,999 shares of Common Stock (“Conversion
Warrants”).
The Conversion Warrants will initially be exercisable
for Common Stock at an exercise price equal to $10.00. The exercise price is subject to adjustment for stock splits, combinations and
similar events, and, in the event of stock dividends and splits, the number of shares of Common Stock issuable upon the exercise of the
Conversion Warrant will also be adjusted so that the aggregate exercise price shall be the same immediately before and immediately after
any such adjustment.
The Conversion Warrants will expire five years
after the original Predecessor warrants were issued, or November 14, 2024. The Conversion Warrants will automatically convert at the end
of the exercise period if the fair market value (as determined in the Conversion Warrants) of a share of Common Stock underlying the Conversion
Warrants is greater than the exercise price in effect on such date.
As discussed above, Predecessor accounts for warrants
as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable
authoritative guidance in ASC 480 and ASC 815, Derivatives and Hedging. Based on the exercisability of the Predecessor Preferred Warrants
into Series A Preferred Stock, which had a cash redemption feature outside of the control of Predecessor, the Predecessor warrants were
recorded as a derivative liability and were revalued at each reporting period, with the change in value being recorded on the Statement
of Operations.
The Company’s Conversion Warrants are exercisable
into Common Stock, which has no cash redemption features that require liability treatment and the Company recorded the Conversion Warrants
as equity.
Common Warrants (Successor)
The Company’s Common Warrants are initially
exercisable for cash at an exercise price equal to the greater of (x) $9.20 (as adjusted for stock splits, stock dividends, stock combinations,
recapitalizations and similar events) and (y) the closing price of the Common Stock on the trading day immediately prior to the Subscription
Date (as defined in the Common Warrant). The exercise price is subject to adjustment for stock splits, combinations and similar events,
and, in the event of stock dividends and splits, the number of shares of Common Stock issuable upon the exercise of the Common Warrant
will also be adjusted so that the aggregate exercise price shall be the same immediately before and immediately after any such adjustment.
The Common Warrants will be exercisable beginning
six months after the issuance date (the “Initial Exercisability Date”) and expiring on the third anniversary of the Initial
Exercisability Date. The Common Warrants require “buy-in” payments to be made by us for failure to deliver any shares of Common
Stock issuable upon exercise.
If at the time of exercise of the Common Warrants,
there is no effective registration statement registering the shares of the Common Stock underlying the Common Warrants, such warrants
may be exercised on a cashless basis pursuant to their terms.
If we issue options, convertible securities, warrants,
shares, or similar securities to holders of Common Stock, each holder of Common Warrants has the right to acquire the same as if the holder
had exercised its Common Warrant. The holders of Common Warrants are entitled to receive any dividends paid or distributions made to our
holders of Common Stock on an “as if converted” basis.
The Common Warrants prohibit us from entering
into specified fundamental transactions unless the successor entity assumes all of our obligations under the Common Warrants under a written
agreement before the transaction is completed. Upon specified corporate events, a holder of Common Warrants will thereafter have the right
to receive upon an exercise such shares, securities, cash, assets or any other property whatsoever which the holder would have been entitled
to receive upon the happening of the applicable corporate event had the Common Warrant been exercised immediately prior to the applicable
corporate event. When there is a transaction involving specified changes of control, a holder of Common Warrants will have the right to
force us to repurchase the holder’s Common Warrant for a purchase price in cash equal to the Black-Scholes value, as calculated
under the Common Warrants, of the then unexercised portion of the Common Warrant.
The Company’s Common Warrants are exercisable
into Common Stock, which has no cash redemption features that require liability treatment. The Company has recorded the Common Warrants
as equity.
Preferred Warrants
The Preferred Warrants will initially be exercisable
for cash at an exercise price equal to $1,000. The exercise price is subject to adjustment for stock splits, combinations and similar
events, and, in the event of stock dividends and splits, the number of shares of Series A Preferred Stock issuable upon the exercise of
the Preferred Warrant will also be adjusted so that the aggregate exercise price shall be the same immediately before and immediately
after any such adjustment.
The Preferred Warrants will expire on the first
anniversary of the closing of the Merger, or February 14, 2025.
We have the right, conditional upon the share
price of CERO stock to be trading above $1.00 per share, to require the holders of Preferred Warrants to exercise such Preferred Warrants
into up to an aggregate number of shares of Preferred Stock equal to the holder’s pro rata amount of 2,000 shares of Preferred Stock.
The Preferred Warrants prohibit us from entering
into specified fundamental transactions unless the Successor assumes all of our obligations under the Preferred Warrants under a written
agreement before the transaction is completed. Upon specified corporate events, a holder of the Preferred Warrants will thereafter have
the right to receive upon an exercise such shares, securities, cash, assets or any other property whatsoever which the holder would have
been entitled to receive upon the happening of the applicable corporate event had the Preferred Warrant been exercised immediately prior
to the applicable corporate event.
The Company’s Preferred Warrants are exercisable
into Series A Preferred Stock, which has no cash redemption features that require liability treatment. The Company has recorded the Preferred
Warrants as equity.
The Company warrants outstanding at June 30, 2024
are presented below:
| | | | Preferred Warrants (Predecessor) | | | Public Warrants (Successor) | | | Conversion Warrants (Successor) | | | Common Warrants (Successor) | | | Series A Preferred Warrants (Successor) | | | Weighted average exercise price | | | Weighted average remaining life | |
| | | | | | | | | | | | | | | | | | | | | | | |
6/30/2024 | | Balance June 30, 2024 | | | - | | | | 9,222,504 | | | | 324,999 | | | | 612,746 | | | | 2,500 | | | $ | 11.56 | | | | 4.40 | |
NOTE
9 – FAIR VALUE MEASUREMENTS
Predecessor estimated the fair value of the Predecessor
Series A Preferred Stock Warrants at December 31, 2023, using Black-Scholes with the following assumptions:
| |
December 31, | |
| |
2023 | |
| |
(Predecessor) | |
Risk-free interest rate | |
| 5.40 | % |
Expected life (in years) | |
| 0.25 | |
Expected dividend yield | |
| - | % |
Expected volatility | |
| 65.90 | % |
The Company initially recorded the Earnout liability
at estimated fair value using a Monte Carlo analysis and has revalued the Earnout liability at each subsequent period. The Monte Carlo
analysis used the following assumptions:
| | June 30, | | | February 14 | |
| | 2024 | | | 2024 | |
| | (Successor) | | | (Successor) | |
Starting share price | | $ | 0.30 | | | $ | 4.90 | |
Tranche 1 trigger price | | $ | 1.25 | | | $ | 3.20 | |
Tranche 2 trigger price | | $ | 1.50 | | | $ | 3.85 | |
Contractual term | | | 3.6 | | | | 4.0 | |
Volatility | | | 90 | % | | | 90 | % |
Risk-free interest rate | | | 4.33 | % | | | 4.20 | % |
At June 30, 2024 for the Successor and December 31,
2023 for the Predecessor, the fair value of derivative liabilities were classified as follows:
The classification of the fair value of
derivative liabilities and the change in the fair value measurement using significant inputs (Level 3) for the period from
December 31, 2022 through June 30, 2023 and December 31, 2023 through February 14, 2024 for Predecessor and February 14, 2024
through June 30, 2024 for the Company is presented below:
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| |
| | |
| | |
| | |
| |
Preferred stock warrant liability (Predecessor): | |
| | |
| | |
| | |
| |
Balance at January 1, 2024 | |
$ | - | | |
$ | - | | |
$ | 320,117 | | |
$ | 320,117 | |
Reclassification of warrant liability to equity | |
| - | | |
| - | | |
| (320,117 | ) | |
| (320,117 | ) |
Balance at February 13, 2024 | |
| - | | |
| - | | |
| - | | |
| - | |
Earnout liability (Successor): | |
| | | |
| | | |
| | | |
| | |
Balance at February 14, 2024 | |
| - | | |
| - | | |
| 4,900,000 | | |
| 4,900,000 | |
(Gain) on revaluation of earnout liability | |
| - | | |
| - | | |
| (1,800,000 | ) | |
| (1,800,000 | ) |
Balance at March 31, 2024 | |
| - | | |
| - | | |
| 3,100,000 | | |
| 3,100,000 | |
(Gain) on revaluation of earnout liability | |
| - | | |
| - | | |
| (2,900,000 | ) | |
| (2,900,000 | ) |
Balance at June 30, 2024 | |
$ | - | | |
$ | - | | |
$ | 200,000 | | |
$ | 200,000 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Preferred stock warrant liability (Predecessor): | |
| | |
| | |
| | |
| |
Balance at January 1, 2023 | |
$ | - | | |
$ | - | | |
$ | 610,381 | | |
$ | 610,381 | |
Loss on revaluation of warrant liability | |
| - | | |
| - | | |
| 36,657 | | |
| 36,657 | |
Balance at March 31, 2023 | |
| - | | |
| - | | |
| 647,038 | | |
| 647,038 | |
Change in fair value | |
| - | | |
| - | | |
| (261,822 | ) | |
| (261,822 | ) |
Balance at June 30, 2023 | |
$ | - | | |
$ | - | | |
$ | 385,216 | | |
$ | 385,216 | |
NOTE
10 – STOCK-BASED COMPENSATION
In October 2016, Predecessor’s Board of
Directors approved the adoption of an Equity Incentive Plan (“Predecessor EIP”). As amended, the Predecessor EIP permits Predecessor
to grant awards allowing for the issuance of up to 4,888,402 shares of Predecessor’s common stock. On close of the Merger, outstanding
awards issued for the Predecessor EIP were converted to options to purchase a number of shares of the Company’s Common Stock equal
to the number of Predecessor shares multiplied by the Merger conversion ratio of 0.064452 at a price of the Predecessor option strike
price divided by the Merger conversion ratio. The Predecessor EIP was then cancelled.
Predecessor’s Stock option activity for
the period from December 31, 2022 through June 30, 2023 and December 31, 2023 through February 14, 2024 and the Company’s stock
option activity for the period from February 14, 2024 through June 30, 2024, was as follows:
| | Outstanding Shares | | | Weighted Average Exercise Price Per Share | | | Weighted Average Remaining Contractual Life (in years) | |
Balance, December 31, 2023 (Predecessor) | | | 782,499 | | | $ | 0.27 | | | | 6.86 | |
Options cancelled (Predecessor) | | | (782,499 | ) | | $ | 0.27 | | | | | |
Balance, February 14, 2024 (Predecessor) | | | - | | | $ | - | | | | - | |
| | | | | | | | | | | | |
Balance, February 14, 2024 (Predecessor) | | | - | | | $ | - | | | | - | |
Options granted (Successor) | | | 5,039,721 | | | $ | 1.68 | | | | | |
Balance, June 30, 2024 (Successor) | | | 5,039,721 | | | $ | 1.68 | | | | 9.81 | |
The intrinsic value of Predecessor options exercised
during the six-month period ended June 2023 was $8,491. No options were exercised in the six-month period ended June 30, 2024.
On March 25, 2024, the Company’s Board adopted,
and its stockholders approved, an Equity Incentive Plan (the “2024 Plan”). The 2024 Plan provides for the granting of stock
options, restricted stock and stock appreciation rights to employees, members of the Board of Directors and non-employee consultants.
Stock options granted generally expire ten years after their original date of grant and generally vest 25% on the first anniversary
of the grant, then monthly to the fourth anniversary of the date of grant, subject to continued service through the applicable vesting
date. The plan allows for the issuance of up to 5,172,590 shares of Common Stock. On April 30, 2024, the 2024 Plan was amended to
include 2,000,000 additional shares of Common Stock in the pool available for future grant awards.
The Company estimated the fair value of stock
options granted during the period February 14, 2024 through June 30, 2024 using Black-Scholes with the following weighted average assumptions:
| ● | The Common Stock expected dividend
yield assumption of 0.0% is based on the expectation of no dividend payouts to Common Stock. |
| ● | The risk-free interest rate
assumption is based on the U.S. Department of Treasury instruments whose term was most consistent with the expected life of the Company’s
stock options. |
| ● | The expected stock price volatility
assumption was determined by examining the historical volatilities for industry peers, as the Company does not have sufficient public
trading history for the Company’s Common Stock. The Company will continue to analyze the historical stock price volatility and
expected term assumption as more historical price data for the Company’s Common Stock becomes available. |
| ● | The expected lives of the Company’s
stock options are estimated based on the type of award issued using approaches that do not rely on the historical data of the Company,
as management has concluded there is insufficient data to provide a reasonable forward-looking estimate. The expected life of an incentive
stock option is estimated using the simplified method described in Staff Accounting Bulletin Topic 14 – Share-Based Payment. All
incentive stock options awarded by the Company have terms consistent with this approach, which is to calculate the weighted average midpoint
between the vesting date of each vesting tranche and the termination date of the option. Non-qualified stock options are valued using
the contractual life as the expected term. |
For the period from February 14, 2024 through June
30, 2024, the Company recorded stock-based compensation expense of $1.5 million, of which $0.9 million was related to research and development
and $0.6 million was related to general and administrative. For the period from January 1, 2024 through February 13, 2024, Predecessor
recorded an immaterial amount of stock-based compensation expense. For the three-month period ended June 30, 2024, the Company recorded
stock-based compensation expense of $1.4 million, of which $0.8 million was related to research and development and $0.6 million was
related to general and administrative.
For the six-month period ended June 30, 2023,
Predecessor recorded stock-based compensation expense of $0.06 million, of which $0.05 million was related to research and development
and $0.01 million was related to general and administrative. For the three-month period ended June 30, 2023, the Predecessor recorded
stock-based compensation expense of $0.03 million, of which $0.03 million was related to research and development and $0 was related to
general and administrative.
As of June 30, 2024, the Company had $3.8 million
of unamortized stock-based compensation cost related to unvested stock options, which is expected to be recognized over a weighted average
period of 2.1 years. The weighted average grant date calculated fair value per share of the Company’s options granted during the
period from February 14, 2024, through June 30, 2024, was $1.76.
There were no Predecessor options granted in the
six-month period ended June 30, 2023.
NOTE
11 – 401(k) RETIREMENT SAVINGS PLAN
The Company sponsors a 401(k) defined contribution
plan covering eligible employees who elect to participate. The Company is allowed to make discretionary profit sharing and 401(k) matching
contributions as defined in the plan and as approved by the board of directors. The Company’s contributions for the period from
February 14, 2024 through June 30, 2024, was $23,760 and Predecessor contributions during the period from January 1, 2024 through February
13, 2024 was $0. The Company’s contributions for the three-months ended June 30, 2024 was $15,907. The Predecessor made no contributions
in the three- or six-months ended June 30, 2023.
NOTE
12 – Subsequent Events
On July 5, 2024, the resale registration
statement on Form S-1, which included the shares of Common Stock underlying the conversion of the Series A Preferred Stock and
Series B Preferred Stock, was declared effective. On the effectiveness of this S-1, the conversion price of the Preferred Stock
reset to $1.00 per share. The Certificates of Designations define a number of conditions that trigger an Alternate Conversion Right,
such right extending from the onset of the condition to 20 trading days after the condition is cured. Due to late registration, the
period of Alternate Conversion Right was from July 5, 2024 to August 2, 2024. The Alternate Conversion Right triggered by late
registration resulted in a 25% premium added to the conversion amount. At the time of Alternate Conversion, the Alternate Conversion
Price is the lowest of (a) the Conversion Price and (b) the greater of i) the floor price and ii) 80% of the lowest daily VWAP of
the Common Stock during the five trading days immediately preceding the date of conversion notice submission. However, because the
floor price was greater than 80% of the five-day volume-weighted average price of a share of Common Stock, the conversion amount was
further increased by a multiplier resulting in the convertibility of the shares of Series A Preferred Stock and Series B Preferred
Stock into the number of shares of Common Stock that would have been issuable if the Alternate Conversion Price had been equal to
such lower volume weighted average price.
As of August 13, 2024, warrants to purchase 38
shares of Series A Preferred A Stock converted into shares of Common Stock after being exercised, 2,777 shares of Series A Preferred Stock
were converted into shares of Common Stock, and 140 shares of Series B Preferred Stock were converted into shares of Common Stock, for
an aggregate of approximately 26.9 million shares of Common Stock.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations provides information which CERo Therapeutics Holdings, Inc. (“the
Company”) management believes is relevant to an assessment and understanding of its results of operations and financial condition.
The discussion should be read together with the Company’s financial statements and related notes that are presented above.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements
based upon current expectations that involve risks and uncertainties. Actual results may differ materially from those anticipated in these
forward-looking statements resulting from various factors. Please see “Cautionary Note Regarding Forward Looking Statements”
and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023), filed with the
Securities and Exchange Commission (the “SEC”). Unless the context otherwise requires, references in this section to “Predecessor”
is intended to mean the business and operations of CERo Therapeutics, Inc. prior to the Merger.
Overview
CERo Therapeutics, Inc. (Predecessor) was incorporated
in Delaware on September 23, 2016, and is based in South San Francisco, California. Predecessor was focused on developing its therapeutic
platform to genetically engineer human immune cells to fight cancer and did not begin clinical development or product commercialization.
The Company’s efforts will focus on continued product development, including clinical development, to support regulatory approval
to commercialize and subsequent product commercialization.
On February 5, 2024, Predecessor, PBAX and PBCE
Merger Sub, Inc. (“Merger Sub”) entered into Amendment No. 1 to the Business Combination Agreement (the “First BCA Amendment”)
to, among other things, (i) remove the minimum cash condition, (ii) modify the stock-price based milestones such that (a) the trading
price condition for the First Level Earnout Target (as defined in the First BCA Amendment) shall be reset from $12.50 to 125% of the Conversion
Price (as defined in the First BCA Amendment) of the Company’s Series A convertible preferred stock, par value $0.0001 per share
(“Series A Preferred Stock”) upon the reset of such Conversion Price as described below and (b) the trading price condition
for the Second Level Earnout Target (as defined in the First BCA Amendment) shall be reset from $15.00 to 150% of the Conversion Price
of the Series A Preferred Stock upon reset of such Conversion Price as described below, and (iii) increase the aggregate number of shares
of PBAX Class A Common Stock, par value $0.0001 per share (“PBAX Class A Common Stock”) issuable to the stockholders of Predecessor
in connection with Merger Sub merging with and into Predecessor, with Predecessor surviving as a wholly-owned subsidiary of the Company
(the “Merger”), from 4,651,704 shares to 5,000,000 shares of PBAX Class A Common Stock. Such number of shares of PBAX Class
A Common Stock is in addition to up to 1,200,000 shares of PBAX Class A Common Stock issuable upon satisfaction of certain earn-out conditions
and 382,651 shares of PBAX Class A Common Stock issuable upon exercise of rollover options or warrants.
On February 13, 2024, Predecessor, PBAX and Merger
Sub entered into Amendment No. 2 to the Business Combination Agreement to create two additional pools of earnout shares (the “Earnout
Shares”) of PBAX Class A Common Stock (one pool of which contains 875,000 shares, and one pool of which contains 1,000,000 shares
of PBAX Class A Common Stock) and make certain other technical changes to the timing and process for issuance of the 1,200,000 shares
of PBAX Class A Common Stock subject to the other earnout conditions set forth in the Business Combination Agreement.
On February 14, 2024, the Merger between Predecessor
and PBAX was consummated pursuant to the Business Combination Agreement, dated as of June 4, 2023, as amended from time to time (as amended,
the “Business Combination Agreement”) by and among Predecessor, PBAX and Merger Sub. In connection with the consummation of
the Merger, PBAX changed its corporate name to “CERo Therapeutics Holdings, Inc.”
At the effective time of the Merger, (i) each
outstanding share of Predecessor common stock, was cancelled and converted into the right to receive shares of Common Stock; (ii) each
outstanding option to purchase Predecessor common stock was converted into an option to purchase shares of Common Stock, par value $0.0001
per share; (iii) each outstanding share of Predecessor preferred stock, was converted into the right to receive shares of Common Stock,
and (iv) each outstanding warrant to purchase Predecessor preferred stock was converted into a warrant to acquire shares of Common Stock.
In addition, each outstanding Predecessor convertible bridge note was exchanged for shares of Series A Preferred Stock.
In addition, the holders of Predecessor common
stock and Predecessor preferred stock have the contingent right to receive the Earnout Shares. At the Closing, the Company issued three
pools of shares of Common Stock subject to forfeiture if the applicable conditions to transferability thereof are not satisfied: (i) 1,200,000
shares of Common Stock, which will be fully vested upon the achievement of certain adjusted stock price-based earnout targets or upon
a qualifying transaction (ii) 875,000 shares of Common Stock, pursuant to a Letter Agreement, dated as of February 14, 2024 which were
fully vested at Closing of the Merger and which were issued as an offset to the Sponsor Share Forfeiture Agreement, and (iii) 1,000,000
shares of Common Stock, which were fully vested upon the June 28, 2024 achievement of certain regulatory milestone-based earnout targets.
As consideration for the Merger, the Company issued
to Predecessor stockholders an aggregate of 7,597,638 shares of Common Stock, including 2,200,000 Earnout Shares and 382,651 shares issuable
upon exercise of rollover options or warrants.
PIPE Financing
In February 2024, the Company consummated the
first tranche of a private placement of 10,039 shares of the Series A Preferred Stock, issuance of common warrants to purchase 612,746
shares of Common Stock and warrants to purchase 2,500 shares of Series A Preferred Stock, pursuant to the Amended and Restated Securities
Purchase Agreement, dated February 14, 2024, by and among Predecessor, PBAX and certain accredited investors for aggregate cash proceeds
to the Company of approximately $10.0 million. On April 1, 2024, the Company consummated a private placement of 626 shares of the Series
B Preferred Stock, pursuant to the Securities Purchase Agreement, dated March 28, 2024, by and among the Company and certain accredited
investors, for aggregate cash proceeds to the Company of approximately $0.5 million. A portion of the Series A Preferred Stock was issued
as consideration for the cancellation of outstanding indebtedness or securities of Predecessor or PBAX, including a promissory note of
PBAX and certain convertible bridge notes of Predecessor. Such transactions collectively are referred to as the “PIPE Financing.”
Recent Developments
Investigational New Drug Application Submission
On June 28, 2024, the Company submitted an Investigational
New Drug Application (“IND”) for its product candidate, CER-1236, to the Food and Drug Administration (the “FDA”).
On July 26, 2024, the Company was informed by the FDA that it has placed a clinical hold on the IND. The FDA indicated that the clinical
hold has been placed as a result of insufficient data provided with regard to two issues within pharmacology and toxicology of CER-1236.
The FDA indicated that, within 30 calendar days, it would provide a detailed official hold letter and requested that the Company hold
its response until after receipt of such letter (the “Hold Letter”). The Company plans to work expeditiously to resolve this
clinical hold so that CER-1236 may proceed to the clinic, including by beginning scientific experimental activities to address the two
issues based upon the FDA communication, as well as earlier discussions with the FDA. Notwithstanding the FDA Communication and pending
receipt of the Hold Letter, the Company continues to believe that it will be able to initiate the planned clinical trial by the end of
2024.
Nasdaq Notices of Non-compliance
On July 19, 2024, the Company received a letter
(the “Bid Price Requirement Letter”) from the staff at The Nasdaq Global Market (“Nasdaq”) notifying the Company
that, for the 30 consecutive trading days prior to the date of the Bid Price Requirement Letter, the closing bid price for the Common
Stock has been below the minimum $1.00 per share required for continued listing on Nasdaq set forth in Nasdaq Listing Rule 450(a)(1),
which is required for continued listing of the Common Stock on Nasdaq (the “Bid Price Requirement”).
On July 19, 2024, the Company also received a
letter (the “MVPHS Letter”) from Nasdaq notifying the Company that the “Market Value of Publicly Held Shares”
(the “MVPHS”) of the Common Stock had been below the minimum of $15,000,000 for the last 30 consecutive business days prior
to the date of the MVPHS Letter, which is required for continued listing of the Common Stock on Nasdaq (the “MVPHS Requirement”).
Such letters are in addition to the letter from
Nasdaq received by the Company on May 2, 2024 (the “MVLS Letter” and, together with the Bid Price Letter and the MVPHS Letter,
the “Letters”) notifying the Company that, for the 30 consecutive trading days prior to the date of such MVLS Letter, the
Common Stock had traded at a value below the minimum $50,000,000 “Market Value of Listed Securities” (“MVLS”)
requirement set forth in Nasdaq Listing Rule 5450(b)(2)(A), which is required for continued listing of the Common Stock on Nasdaq (the
“MVLS Requirement” and, together with the Bid Price Requirement and the MVPHS Requirement, the “Requirements”).
The Letters are only notifications of deficiency,
not of imminent delisting, and have no current effect on the listing or trading of the Company’s securities on Nasdaq.
In accordance with Nasdaq listing rules 5810(c)(3)(C)
and 5810(c)(3)(D), respectively, the Company has 180 calendar days, or until January 15, 2025, to regain compliance with the Requirements,
except for the MVLS Requirement, with respect to which such deadline is October 29, 2024. To regain compliance with the Bid Price Requirement,
the bid price of the Company’s common stock must close at $1.00 per share or more for a minimum of ten consecutive business days.
To regain compliance with the MVPHS Requirement, the Company’s common stock must trade at or above a level such that the Company’s
MVPHS closes at or above $15,000,000 for a minimum of ten consecutive business days. If the Company does not regain compliance with the
Bid Price Requirement by January 15, 2025, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify,
the Company would be required to meet the MVPHS Requirement and all other initial listing standards for The Nasdaq Global Market, except
for the Bid Price Requirement. In addition, the Company would be required to notify Nasdaq of its intent to cure the deficiency during
the second compliance period. In order to regain compliance with the MVPHS Requirement, the Common Stock must trade at or above a level
such that the Company’s MVLS closes at or above $50,000,000 for a minimum of ten consecutive business days during the compliance
period. If the Company is unable to satisfy the MVLS requirement prior to such date, the Company may be eligible to transfer the listing
of its securities to The Nasdaq Capital Market (provided that it then satisfies the requirements for continued listing on that market).
The Company intends to actively monitor the closing
bid price for its common stock, its MVPHS and its MVLS and may, if appropriate, evaluate available options to resolve these deficiencies
and regain compliance with the Requirements. Such options may include seeking to qualify for continued listing under a different continued
listing standard of the Nasdaq Global Market or Nasdaq Capital Market, in lieu of the MVPHS and MVLS requirements, including the Equity
Standard, if the Company has sufficient stockholders’ equity at such time. While the Company is exercising diligent efforts to maintain
the listing of its securities on Nasdaq, there can be no assurance that the Company will be able to regain or maintain compliance with
Nasdaq listing standards.
Factors Affecting Our Performance
The Company believes that its performance and
future success depend on several factors that present significant opportunities for the Company but also pose risks and challenges. These
include, among others:
| ● | the extent to which the Company
develops, in-licenses or acquires other product candidates and technologies in its product candidate pipeline; |
| ● | the costs and timing of process
development and manufacturing scale-up activities associated with the Company’s product candidates and other programs as the Company
advances them through preclinical and clinical development; |
| ● | the number and development
requirements of product candidates that the Company may pursue; |
| ● | the costs, timing and outcome
of regulatory review of the Company’s product candidates; |
| ● | the Company’s headcount
growth and associated costs as it expands its R&D capabilities, establishes and maintains the administrative functions required for
a publicly traded company, and establishes and expands its commercial infrastructure and operations; |
| ● | the costs and timing of future
commercialization activities, including product manufacturing, marketing, sales and distribution, for any of the Company’s product
candidates for which the Company receives market approval; |
| ● | the revenue, if any, received
from commercial sales of the Company’s product candidates for which it receives marketing approval; and |
| ● | competition from other similar
product candidates. |
Components of Results of Operations
Revenue
Predecessor and the Company have not recognized
any revenue from any sources, including from product sales, and the Company does not expect to generate any revenue from the sale of products
in the foreseeable future. If the development efforts for the Company’s product candidates, each of which is a specific product
and indication combination, are successful and result in regulatory approval, or if the Company executes license agreements with third
parties, the Company may generate revenue from R&D services, from the achievement of development milestones or from milestones and
royalties related to product sales. However, there can be no assurance as to when any revenues will be generated, if at all.
Operating Expenses
Research and Development Expenses
R&D expenses consist of discovery activities,
manufacturing development and production, preclinical and clinical development, and regulatory filing for product candidates. R&D
expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in R&D are capitalized
until the goods or services are received. Costs incurred in obtaining technology licenses through asset acquisitions, if incurred, will
be charged to R&D expense if the licensed technology has not reached technological feasibility and has no alternative future use.
R&D expenses include or could include:
| ● | employee-related expenses,
including salaries, bonuses, benefits, stock-based compensation and other related costs for those employees involved in R&D efforts; |
| ● | external R&D expenses incurred
under agreements with pre-clinical research organizations, clinical research organizations, investigative sites, centralized clinical
laboratories, and consultants to conduct preclinical and clinical studies; |
| ● | costs related to manufacturing
material for preclinical studies and clinical trials, including fees paid to contract development and manufacturing organizations; |
| ● | product-liability insurance
for clinical development product(s); |
| ● | laboratory supplies and research
materials; |
| ● | software and systems related
to R&D activities; |
| ● | costs related to regulatory
filing and compliance; and |
| ● | facilities, depreciation and
other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, and equipment. |
Product candidates in later stages of development
generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and
duration of later-stage clinical trials. The Company plans to substantially increase its R&D expenses for the foreseeable future as
it continues the development of its product candidates through clinical development. The Company cannot determine with certainty the timing
of initiation, the duration or the costs of current or future preclinical studies and clinical trials required for regulatory approval
due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the
probability of success and development costs can differ materially from expectations. The Company anticipates that it will make determinations
as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the
results of ongoing and future preclinical studies and clinical trials, regulatory developments and ongoing assessments as to each product
candidate’s commercial potential. The Company will need to, and plans to, raise substantial additional capital in the future. Future
R&D expenses may vary significantly between periods and from current expectations based on factors such as:
| ● | expenses incurred to conduct
preclinical studies required to advance product candidates into clinical trials; |
| ● | per patient clinical trial
costs based on a number of factors, including number of patient clinical visits, clinical laboratory testing, and potential medical imaging; |
| ● | the number of clinical trials
required for approval, the number of patients who enroll in each clinical trial, and the number and geographic locations of sites included
in the clinical trials; |
| ● | the length of time required
to screen and enroll eligible patients, screen-failure rate, or the discontinuation rates of enrolled patients; |
| ● | potential additional safety
monitoring requested by regulatory agencies; |
| ● | the cost of insurance, including
product liability insurance, in connection with clinical trials; and |
| ● | suspension or termination of
clinical development activities by regulators or institutional review boards for various reasons, including regulatory noncompliance
or a finding that the participants are being exposed to unacceptable health risks. |
General and Administrative Expenses
General and administrative expenses consist principally
of salaries and related costs for personnel in executive and administrative functions, including stock-based compensation, travel expenses
and recruiting expenses. Other general and administrative expenses include professional fees for legal, accounting and tax-related services
and insurance costs.
The Company anticipates that its general and administrative
expenses will increase in the future as the Company increases headcount and contracted services for operational support for expanded operations
and infrastructure. The Company also anticipates that general and administrative expenses will increase as a result of expenses for accounting,
audit, legal and consulting services, as well as costs associated with maintaining compliance with Nasdaq listing rules and SEC requirements,
director and officer liability insurance, investor and public relations activities and other expenses associated with operating as a public
company.
Interest and Other Income, Net
Interest and other income, net consists predominantly
of interest income from interest bearing bank accounts, interest expense on payables, and the gain or loss on the revaluation of derivative
liabilities, which represents the change in fair value of earnout liabilities or outstanding warrants between periods.
Results of Operations for the three-months
ended June 30, 2024 and 2023
CERO THERAPEUTICS HOLDINGS, INC.
Condensed
Consolidated STATEMENTS OF OPERATIONS
(Unaudited)
| |
For the three months ended June 30, | | |
| |
| |
2024 | | |
2023 | | |
| |
| |
(Successor) | | |
(Predecessor) | | |
Difference | |
Operating expenses: | |
| | |
| | |
| |
Research and development | |
$ | 2,714,344 | | |
$ | 1,193,087 | | |
$ | 1,521,257 | |
General and administrative | |
| 2,433,893 | | |
| 1,220,659 | | |
| 1,213,234 | |
Total operating expenses | |
| 5,148,237 | | |
| 2,413,746 | | |
| 2,734,491 | |
Loss from operations | |
| (5,148,237 | ) | |
| (2,413,746 | ) | |
| (2,734,491 | ) |
| |
| | | |
| | | |
| | |
Gain from settlement of liabilities with vendor | |
| 447,335 | | |
| - | | |
| 447,335 | |
Other expense | |
| (630,775 | ) | |
| - | | |
| (630,775 | ) |
Change in fair value of derivative liabilities | |
| 2,900,000 | | |
| 261,822 | | |
| 2,638,178 | |
Interest income (expense), net | |
| (16,977 | ) | |
| 59,417 | | |
| (76,394 | ) |
Total other income | |
| 2,699,583 | | |
| 321,239 | | |
| 2,378,344 | |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (2,448,654 | ) | |
$ | (2,092,507 | ) | |
$ | (356,147 | ) |
General and Administrative Expenses
General and administrative expenses were
$2.4 million for the three-month period ended June 30, 2024 compared to $1.2 million for the three-month period ended June 30, 2023,
reflecting an increase of $1.3 million. The increase in the three-month period ended June 30, 2024, over the three-month period
ended June 30, 2023, was predominantly due to the expenses associated with operating as a publicly traded company. The hiring of
senior management in G&A resulted in an increase of $0.9 million the three-month period ended June 30, 2024, versus the
three-month period ended June 30, 2023, while reduction of business consulting expense offset $0.2 million of the increase. Expenses
related to services required for SEC compliance, such as printing and transfer agency fees, totaled $0.1 million and public company
insurance coverage increased insurance expenses $0.1 million in the three-month period ended June 30, 2024, versus the three-month
period ended June 30, 2023. Corporate communications and website development increased $0.1 million and legal expenses increased
$0.1 million in the three-month period ended June 30, 2024, versus the three-month period ended June 30, 2023, due to increased
requirements of a public company. Public company director fees were $0.1 million in the three-month period ended June 30, 2024,
versus no fees as a private company in the three-month period ended June 30, 2023.
Research and Development Expenses
Research and development expenses were $2.7
million for the three-month period ended June 30, 2024 compared to $1.2 million for the three-month period ended June 30, 2023,
reflecting an increase of $1.5 million. The increase was related to increased research and development activity as the Company
prepared and filed the IND for CER-1236. Compensation increased $0.6 million in the three-month period ended June 30, 2024, over the
three-month period ended June 30, 2023, due to increases in compensation, bonus accruals, and increased stock-based compensation
expense for employees. Multiple manufacturing runs were necessary to complete the IND application, increasing manufacturing costs by
$0.3 million in the three-month period ended June 30, 2024, over the three-month period ended June 30, 2023. Additionally, clinical
and regulatory consultants were required to complete and file the IND application, resulting in an increase in scientific consulting
of $0.5 million in the three-month period ended June 30, 2024, over the three-month
period ended June 30, 2023. The remaining $0.1 million increase in the three-month period ended June 30, 2024, over the three-month
period ended June 30, 2023, was related to lab supplies and expenses, additional pre-clinical work and
facilities rent escalation.
The Company anticipates that its R&D expenses
will significantly increase in the future as the Company increases headcount, compensation expense, and contracted services for preclinical
and clinical development of its product candidates, as well as for manufacturing of clinical product to be used in clinical development.
Interest and Other Income, Net
Interest and other income, net was $2.7 million for
the three-month period ended June 30, 2024 compared to $0.3 million for the three-month period ended June 30, 2023, reflecting an increase
of $2.4 million. The increase in the three-month period ended June 30, 2024, over the three-month period ended June 30, 2023, was predominantly
due to the $2.9 million change in value of the Company’s Earnout Liability. Settlement of vendor liabilities in the three-month
period ended June 30, 2024, resulted in a $0.4 million increase in income in the three-month period ended June 30, 2024 versus the three-month
period ended June 30, 2023, offset by the $0.6 million other expense for the delayed S-1 penalty and a 0.3 million decrease in other income
the three-month period ended June 30, 2024, related to the elimination of the gain on the revaluation of warrants in the three-month period
ended June 30, 2023, and reduced interest income, net in the three-month period ended June 30, 2024.
Results of Operations for the six-months ended
June 30, 2024 and 2023
The Results of Operations for the six-month period
ended June 30, 2024 are pro forma as the period presented in the following table and discussion includes the Predecessor for the
period from January 1, 2024 through February 13, 2024 and the Company for the period from February 14, 2024 through June 30, 2024. This
pro forma period from January 1, 2024 to June 30, 2024 does not include the Merger transactions that occurred on-the-line.
CERO THERAPEUTICS HOLDINGS, INC.
Condensed
Consolidated STATEMENTS OF OPERATIONS
(Unaudited)
| |
For the six months ended June 30, | | |
| |
| |
2024 | | |
| | |
| |
| |
(Pro forma, Predecessor and Successor) | | |
2023 (Predecessor) | | |
Difference | |
Operating expenses: | |
| | |
| | |
| |
Research and development | |
$ | 4,382,551 | | |
$ | 2,994,528 | | |
$ | 1,388,023 | |
General and administrative | |
| 5,317,756 | | |
| 1,857,563 | | |
| 3,460,193 | |
Total operating expenses | |
| 9,700,307 | | |
| 4,852,091 | | |
| 4,848,216 | |
Loss from operations | |
| (9,700,307 | ) | |
| (4,852,091 | ) | |
| (4,848,216 | ) |
| |
| | | |
| | | |
| | |
Gain from settlement of liabilities with vendor | |
| 589,223 | | |
| - | | |
| 589,223 | |
Other expense | |
| (630,775 | ) | |
| - | | |
| (630,775 | ) |
Change in fair value of derivative liabilities | |
| 5,020,117 | | |
| 225,165 | | |
| 4,794,952 | |
Interest expense, net | |
| (26,606 | ) | |
| 96,089 | | |
| (122,695 | ) |
Total other income | |
| 4,951,959 | | |
| 321,254 | | |
| 4,630,705 | |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (4,748,348 | ) | |
$ | (4,530,837 | ) | |
$ | (217,511 | ) |
General and Administrative Expenses
General and administrative expenses were $5.3
million for the six-month period ended June 30, 2024, compared to $1.9 million for the six-month period ended June 30, 2023, reflecting
an increase of $3.4 million. The increase in the six-month period ended June 30, 2024, over the six-month period ended June 30, 2023,
was predominantly due to a $1.8 million expense consisting of the remaining underwriting fees from the PBAX initial public offering, which
were earned on the consummation of the business combination. Additionally, the hiring of senior management in G&A resulted in an increase
of $1.1 million, including recruiting fees, offset by $0.2 million less in business consulting as functions were brought in house in the
six-month period ended June 30, 2024. Legal fees declined $0.1 million in the six-month period ended June 30, 2024, versus the six-month
period ended June 30, 2023. Expenses related to services required for SEC compliance, such as printing and transfer agency fees, increased
$0.3 million and public company insurance coverage increased insurance expenses $0.2 million in the six-month period ended June 30, 2024,
compared to the six-month period ended June 30, 2023. Corporate communications and website development, accounting and director fees each
increased $0.1 million in the six-month period ended June 30, 2024 compared to the six-month period ended June 30, 2023, for an aggregate
$0.3 million due to increased requirements of a public company.
Research and Development Expenses
Research and development expenses were $4.4 million
for the six-month period ended June 30, 2024, compared to $3.0 million for the six-month period ended June 30, 2023, reflecting an increase
of $1.4 million. The increase was related to increased R&D activity as the Company prepared and filed the IND for CER-1236. Compensation
increased $0.3 million in the six-month period ended June 30, 2024, versus the six-month period ended June 30, 2023, due to increases
in compensation, bonus accruals, and increased stock-based compensation expense for employees. To complete the IND application, multiple
manufacturing runs were necessary, increasing manufacturing costs by $0.1 million in the six-month period ended June 30, 2024, versus
the six-month period ended June 30, 2023. Additionally, clinical and regulatory consultants were required to complete and file the IND
application, resulting in an increase in scientific consulting of $0.6 million in the six-month period ended June 30, 2024, versus the
six-month period ended June 30, 2023. The remaining $0.4 million increase in the six-month period ended June 30, 2024, versus the six-month
period ended June 30, 2023, was related to lab supplies and expenses, additional pre-clinical work and facilities rent escalation.
The Company anticipates that its R&D expenses
will significantly increase in the future as the Company increases headcount, compensation expense, and contracted services for preclinical
and clinical development of its product candidates, as well as for manufacturing of clinical product to be used in clinical development.
Interest and Other Income, Net
Interest and other income, net was $5.0 million for
the six-month period ended June 30, 2024, compared to $0.3 million for the six-month period ended June 30, 2023, reflecting an increase
of $4.7 million. The increase in 2024 relative to 2023 was predominantly due to the $4.7 million change in value of the Company’s
Earnout Liability in the six-month period ended June 30, 2024. Settlement of vendor liabilities in 2024 resulted in a $0.6 million increase
in income in 2024, offset by the $0.6 million other expense for the delayed S-1 penalty.
Liquidity and Capital Resources
Capital Requirements
Predecessor and the Company have not generated
any revenue from any source and the Company does not expect to generate revenue for at least the next few years. If the Company fails
to complete the timely development of, or fails to obtain regulatory approval for, its product candidates, the ability of the Company
to generate future revenue will be adversely affected. The Company does not know when, or if, it will generate any revenue from its product
candidates, and does not expect to generate revenue unless and until the Company obtains regulatory approval and commercialization of
its product candidates.
The Company expects its expenses to increase significantly
in connection with its ongoing activities, particularly as it continues and expands research, preclinical development, and clinical development
to support marketing approval for its product candidates. In addition, if the Company obtains approval for any of its product candidates,
the Company expects to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. Furthermore,
the Company expects to incur additional costs associated with operating as a public company.
The Company, therefore, anticipates that substantial
additional funding will be needed in connection with its continuing operations. At June 30, 2024, the Company had $3.6 million in
cash, restricted cash and cash equivalents. The Company intends to devote most of the available cash to the preclinical and clinical development of its
product candidates and public company compliance costs. Based on current business plans, the Company believes that the cash available
at June 30, 2024 will not fund its operating expenses and capital requirements for 12 months after the filing of the unaudited financial
statements for the six-month period ended June 30, 2024. The Company has arranged two equity lines of credit, one providing for the sale
of up to 25,000,000 newly issued shares of Common Stock and the other providing for the purchase of up to $25 million of Common Stock
on the satisfaction of certain conditions. At June 30, 2024, the Company had 17.5 million shares remaining in the first ELOC and $25 million
remaining in the second ELOC. The Company has no guarantee that the conditions will be satisfied to require the purchase of all, or any
additional amount, of the Equity Line of Credit (“ELOC”) funds. Any estimate as to how long the Company expects the net proceeds
from the ELOC funding may fund the Company’s operations is based on assumptions that may prove to be wrong, and the Company could
use its available capital resources sooner than its current expectations. Changing circumstances, some of which may be beyond the Company’s
control, could result in less cash and cash equivalents available to fund operations or cause the Company to consume capital significantly
faster than currently anticipated, and the Company may need to seek additional funds from additional sources sooner than planned.
Because of the numerous risks and uncertainties
associated with research, development and commercialization of pharmaceutical drug products, the Company is unable to estimate the exact
amount of its operating capital requirements. The Company’s future funding requirements will depend on many factors, including,
but not limited to those listed under “Factors Affecting Our Performance” above.
Identifying potential
product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes
many years to complete, and the Company may never generate the necessary data or results required to obtain marketing approval and achieve
product sales. In addition, the Company‘s product candidates, if approved, may not achieve commercial success. Commercial revenues,
if any, will be derived from sales of product candidates that the Company does not expect to be commercially available in the near term,
if at all. Accordingly, the Company will need to continue to rely on additional financing to achieve its business objectives. Adequate
additional financing may not be available to the Company on acceptable terms, or at all. To the extent that the Company raises additional
capital through the sale of equity or convertible debt securities, the terms of these equity securities or this debt may restrict the
Company’s ability to operate. Any future debt financing and equity financing, if available, may involve covenants limiting and restricting
the ability to take specific actions, such as incurring additional debt, making capital expenditures, entering into profit-sharing or
other arrangements or declaring dividends. If the Company raises additional funds through collaborations, strategic alliances or marketing,
distribution or licensing arrangements with third parties, it may be required to relinquish valuable rights to its technologies, future
revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to the Company. If the
Company is unable to raise capital when needed or on acceptable terms, the Company could be forced to delay, reduce or eliminate its R&D
programs or future commercialization efforts.
Cash Flows
| |
For the six months ended
June 30, | | |
| |
| |
2024 | | |
| | |
| |
| |
(Pro forma, Predecessor and Successor) | | |
2023
(Predecessor) | | |
Difference | |
| |
| | |
| | |
| |
Net cash used in operating activities | |
$ | 8,860,512 | | |
$ | 3,510,918 | | |
$ | (5,349,594 | ) |
Net cash provided by financing activities: | |
| 9,992,143 | | |
| 571,679 | | |
| 9,420,464 | |
Net increase (decrease) in cash and cash equivalents | |
$ | 1,131,631 | | |
$ | (2,939,239 | ) | |
$ | 4,070,870 | |
Net cash used in operating activities
Net cash used in operating activities increased
$5.4 million from $3.5 million to $8.9 million in the six-month period ended June 30, 2023 and 2024 respectively. The increase in cash
used was largely related to having a $4.8 million increase in the adjustment to net loss related to the gain on the revaluation of derivative
liabilities. The difference in net loss reflected $0.3 million more cash being used in the six-month period ended June 30, 2024 versus
2023. The difference of $1.3 million of cash used to pay down accounts payable and accruals, $0.6 million in vendor settlements, and $0.4
more cash consumed on prepaid expenses in the six-month period ended June 30, 2024 versus 2023 was offset by $0.7 million in accrued expense
addition, and $1.4 million less in cash adjustments due to stock-based compensation expense in the six-month period ended June 30, 2024
versus 2023. The remaining difference was an additional $0.1 million in adjustment to lease liability due to rent escalation.
Net cash provided by financing activities
Net cash provided by financing activities increased
$9.1 million from $0.6 million in the three-month period ended June 30, 2023 to $9.7 million in the three-month period ended June 30,
2024. The increase was related to the net proceeds of $7.3 million from the issuance of Series A and B Preferred Stock, the net proceeds
of $1.7 million for the sale of common stock under the ELOC, $0.8 million from the issuance of ELOC commitment shares to compensate the
ELOC investor, and $0.2 million related to net insurance financing. These increases in cash were partially offset by the $0.6 million
borrowing under the bridge loan in 2023, for which there was no equivalent in the six-month period ended June 30, 2024.
Contractual Obligations and Other Commitments
None.
Critical Accounting Policies and Significant
Judgments and Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America (“U.S.”) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial
statements, and the reported amounts of expenses incurred during the reporting period. Significant items subject to such estimates and
assumptions include the estimates of the fair values of convertible preferred stock, earnout-related Common Stock, and preferred stock
warrant liability, stock-based compensation expense, the fair value of right-to-use assets and lease liabilities, and the valuation allowance
associated with deferred tax assets. Actual results could differ from those estimates.
Predecessor and the Company define its critical
accounting policies as those accounting principles that require it to make subjective estimates and judgments about matters that are uncertain
and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which
it applies those principles. While significant accounting policies are more fully described in Note 2 to the Company’s unaudited
financial statements appearing elsewhere in this Form 10-Q, the Company believes the following are the critical accounting policies used
in the preparation of its financial statements that require significant estimates and judgments.
Fair value measurements – Fair value is the amount
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement
date. In determining fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are
based on a tiered fair value hierarchy consisting of three levels, as follows:
|
Level 1 |
– |
Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. |
|
Level 2 |
– |
Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
|
Level 3 |
– |
Unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market participants would price the asset or liability. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
The categorization of a financial instrument within
the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The carrying amounts of cash, restricted cash,
and cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate fair value due
to their relatively short-term maturities.
Research and development – R&D
costs consist primarily of salaries and benefits, including stock-based compensation, occupancy, materials and supplies, contracted research,
consulting arrangements, and other expenses incurred in the pursuit of R&D programs. R&D costs are expensed as incurred.
Stock-based compensation – The Company
periodically issues Common Stock and stock options to officers, directors, and consultants for services rendered. The Company accounts
for stock-based compensation as measured at grant date, based on the fair value of the award. The Company uses a Black-Scholes option
pricing model (“Black-Scholes”) to estimate option award fair value, which requires the input of subjective assumptions, including
the expected volatility of Common Stock, expected risk-free interest rate, and the option’s expected life. The Company also evaluates
the impact of modifications made to the original terms of equity awards when they occur. The fair value of restricted stock awards is
based upon the share price of the Common Stock on the date of grant.
The fair value of equity awards that are expected
to vest is amortized on a straight-line basis over the requisite service period. Stock-based compensation expense is recognized net of
actual forfeitures when they occur, as an increase to additional paid-in capital in the condensed consolidated balance sheets and in research
and development or, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.
All stock-based compensation costs are recorded in the condensed consolidated statements of operations based upon the underlying employee’s
role within the Company.
Income taxes – The Company accounts
for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
The Company follows tax accounting requirements
for the recognition, measurement, presentation, and disclosure in the financial statements of any uncertain tax positions that have been
taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the financial statements.
It is the Company’s policy to include penalties and interest expense related to income taxes as a component of income tax expense,
as necessary. The Company has not recorded any interest or penalties associated with income tax since inception. Tax years subsequent
to 2020 are subject to examination by federal and state authorities.
There were no material changes in critical accounting
estimates during the period covered by this quarterly report on Form 10-Q.
Recent Accounting Pronouncements
The Company has concluded that there are no recent
accounting pronouncements expected to have a material impact on the Company’s financial statements.
Qualitative and Quantitative Disclosures About
Market Risk
The Company’s primary exposure to market
risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because of the
Company’s investments, including cash equivalents, which may be in the form of a money market fund.
In the future, the Company may contract with vendors
invoicing in a foreign denominated currency. As a result, the Company may be subject to fluctuations in foreign currency rates in connection
with certain of these agreements. Transactions denominated in currencies other than the United States dollar will be recorded based on
exchange rates at the time such transactions arise. As of June 30, 2024, all transactions have been denominated in U.S. dollars.
Inflation will generally affect the Company by
increasing the cost of labor and costs associated with preclinical and clinical trials and future manufacturing and commercialization
activities as well as general corporate costs. The Company does not believe that inflation had a material effect on the Company’s
business, financial condition or results of operations for the period ended June 30, 2024, but increased inflation may materially impact
the Company in later periods of 2024 and beyond.
Emerging Growth Company and Smaller Reporting
Company Status
In April 2012, the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth
company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933,
as amended, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. PBAX previously elected the extended transition
period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would
be applicable to private companies. The Company expects to continue to take advantage of the benefits of the extended transition period.
In addition, as an emerging growth company, the
Company may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies.
These provisions include:
| ● | being permitted to present
only two years of audited financial statements in addition to any required unaudited interim financial statements, with correspondingly
reduced disclosure in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; |
| ● | an exception from compliance
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended; |
| ● | reduced disclosure about the
Company’s executive compensation arrangements in its periodic reports, proxy statements and registration statements; |
| ● | exemptions from the requirements
of holding non-binding advisory votes on executive compensation or golden parachute arrangements; and |
| ● | an exemption from compliance
with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s
report on financial statements. |
The Company will cease to qualify as an emerging
growth company on the date that is the earliest of: (i) the last day of the fiscal year following the fifth anniversary of the date
of the first sale of shares of PBAX Class A Common Stock in its initial public offering, (ii) the last day of the fiscal year in
which the Company has more than $1.07 billion in total annual gross revenues, (iii) the date on which the Company is deemed
to be a “large accelerated filer” under the rules of the SEC, which means the market value of the Common Stock that is held
by non-affiliates exceeds $700.0 million as of the prior June 30th, or (iv) the date on which the Company has issued more than
$1.0 billion of non-convertible debt over the prior three-year period. The Company may choose to take advantage of some but not all
of these reduced reporting burdens. The Company has taken advantage of certain reduced reporting requirements in this Form 10-Q. Accordingly,
the information contained herein may be different than you might obtain from other public companies.
Item 3. Quantitative and Qualitative Disclosures
about Market Risk
As a smaller reporting company, we are not required
to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure controls are procedures that are designed
with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed,
summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with
the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the
Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of June 30, 2024. Based upon their evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) were effective.
Changes in Internal Control Over Financial
Reporting
During the most recently completed fiscal quarter,
there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1a. Risk Factors
Except as set forth below, there have been no
material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the
SEC on April 2, 2024. Any of these factors could result in a significant or material adverse effect on our results of operations or financial
condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results
of operations .
The issuance of shares of our Common Stock
upon conversion or exercise of our outstanding Series A Preferred Stock, Series B Preferred Stock, Common Warrants and other securities
that we may issue in future financing transactions may result in substantial dilution to our stockholders.
As of the date of this report,
the Company currently has outstanding 7,406 shares of Series A Preferred Stock with a stated value of approximately 7.4 million, convertible into
shares of Common Stock at a conversion rate of the stated value thereof divided by a conversion price of $1.00, 486 shares of Series
B Preferred Stock with a stated value of approximately $0.49 million, convertible into shares of Common Stock at a conversion rate of the stated value thereof
divided by a conversion price of $1.00, and 0.5 million Common Warrants to purchase shares of Common Stock at an exercise price of $1.40.
Since the closing of the Business Combination through the date of this report, holders of 2,634 shares of Series A Preferred Stock
and 140 shares of Series B Preferred Stock converted such shares into an aggregate of approximately 25.0 million shares of Common Stock.
Although each of the conversion
price of the Series A Preferred Stock and the Series B Preferred Stock and the exercise price of the Common Warrants are above the trading
price of our Common Stock as of the date of this report, if such trading price increases, such conversion prices and exercise price will
not change as a result thereof and could be below the trading price of our Common Stock as of the date of any future conversion or exercise
thereof, resulting in dilution to our stockholders. In addition, the terms of the Series A Preferred Stock and the Series B Preferred
Stock contain certain penalties and adjustments to the amount included in determination of the conversion rate following certain breaches
of the Company’s obligations thereunder, including, among other things, as a result of a failure to file or cause the SEC to declare
one or more registration statements relating to the resale of the shares of Common Stock issuable upon conversion thereof by specified
deadlines, certain defaults under indebtedness of the Company or judgments against the Company and failure to deliver shares of Common
Stock upon conversion in a timely manner. The penalties and adjustments include a 25% premium added to the stated value for determining
the conversion rate in connection with breaches other than the breach of the requirement to redeem the shares of Series A Preferred Stock
and Series B Preferred Stock by August 14, 2025, which results in a 50% premium, and the addition to the stated value of an amount equal
to the value of the shares of Common Stock into which the Series A Preferred Stock or Series B Preferred Stock would have been convertible
if the conversion price were equal to 80% of the lowest volume weighted average price during the five trading days immediately prior to
conversion. Such penalties and adjustments, which applied during the period when all of the conversions since the Business Combination
described in the preceding paragraph occurred as a result of a failure to file and cause the SEC to declare a registration statement with
respect to the resale of the underlying shares in a timely manner, have resulted and may in the future result in the issuance of shares
of Common Stock at an effective conversion price below the trading price of our Common Stock at the time of such conversion.
We cannot assure you that
we will remain in compliance with all of the terms of the Series A Preferred Stock or Series B Preferred Stock and that such penalties
and adjustments will not apply in the future. In addition, we cannot assure you that we will not issue additional convertible or other
derivative securities with highly dilutive penalty or adjustment provisions. As described elsewhere in this report, the Company needs
to obtain financing to fund its research and development activities and, if the IND is accepted, clinical trials, as well as other operations.
Under challenging conditions in the equity capital markets, particularly for pre-commercialization biotech companies, we may have no viable
alternatives to agreeing to inclusion of such provisions in the terms of future financings.
Clinical development and the regulatory
approval process involve a lengthy and expensive process with an uncertain outcome and results of earlier studies and preclinical data,
and trials may not be predictive of future clinical trial results. If our preclinical studies and clinical trials are not sufficient to
support regulatory approval of any of our product candidates, we may incur additional costs or experience delays in completing, or ultimately
be unable to complete, the development of such product candidate.
The research, testing, manufacturing,
labeling, licensure, sale, marketing and distribution of biological products are subject to extensive regulation by the FDA and other
regulatory authorities in the United States and other countries, and such regulations differ from country to country. We are not permitted
to market our product candidates in the United States or in any foreign countries until they receive the requisite licensure from the
applicable regulatory authorities of such jurisdictions. We have not previously submitted a BLA to the FDA or similar licensure applications
to comparable foreign regulatory authorities. A BLA must include extensive preclinical and clinical data and supporting information to
establish the product candidate’s safety, purity and potency for each desired indication. The BLA must also include significant
information regarding the manufacturing controls for the product. We expect the novel nature of our product candidates to create further
challenges in obtaining regulatory approval. Accordingly, the regulatory approval pathway for our product candidates may be uncertain,
complex, expensive and lengthy, and licensure may not be obtained.
We cannot be certain that
our preclinical studies and clinical trial results will be sufficient to support regulatory approval of our product candidates. Clinical
testing is expensive and can take many years to complete and its outcome is inherently uncertain. Human clinical trials are expensive
and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Failure or delay can occur
at any time during the clinical trial process.
We may experience delays
in obtaining the FDA’s authorization to initiate clinical trials under future INDs and completing ongoing clinical studies of our
product candidates due to a variety of factors. Additionally, we cannot be certain that preclinical studies or clinical trials for our
product candidates will begin on time, not require redesign, enroll an adequate number of subjects on time, or be completed on schedule,
if at all. Clinical trials can be delayed or terminated for a variety of reasons, including
delays or failures related to:
| ● | the
availability of financial resources to commence and complete the planned trials |
| ● | the
FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical trials; |
| ● | delays
in obtaining regulatory approval to commence a clinical trial; |
| ● | our
inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory authority that any of our product candidates
are safe, potent and pure; |
| ● | the
FDA’s or the applicable foreign regulatory agency’s disagreement with our trial protocol or the interpretation of data from
preclinical studies or clinical trials; |
| ● | our
inability to demonstrate that the clinical and other benefits of any of our product candidates outweigh any safety or other perceived
risks; |
| ● | the
FDA’s or the applicable foreign regulatory agency’s requirement for additional preclinical studies or clinical trials; |
| ● | the
results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities
for licensure; |
| ● | the
data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign
regulatory authorities to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain licensure
of our product candidates in the United States or elsewhere; |
| ● | reaching
agreement on acceptable terms with prospective CDMOs and clinical trial sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CDMOs and clinical trial sites; |
| ● | obtaining
IRB or ethics committee approval at each clinical trial site; |
| ● | recruiting
an adequate number of suitable patients to participate in a clinical trial; |
| ● | having
subjects complete a clinical trial or return for post-treatment follow-up; |
| ● | clinical
trial sites deviating from clinical trial protocol or dropping out of a clinical trial; |
| ● | addressing
subject safety concerns that arise during the course of a clinical trial; |
| ● | adding
a sufficient number of clinical trial sites; |
| ● | obtaining
sufficient product supply of product candidate for use in preclinical studies or clinical trials from third-party suppliers; |
| ● | the
FDA’s or the applicable foreign regulatory agency’s findings of deficiencies or failure to approve the manufacturing processes
or facilities of third-party manufacturers upon which we rely; or |
| ● | the
approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering
our clinical data insufficient for approval. |
| ● | We
may experience numerous adverse or unforeseen events during, or as a result of, preclinical studies and clinical trials that could delay
or prevent our ability to receive marketing approval or commercialize our product candidates, including: |
| | |
| ● | we
may receive feedback from regulatory authorities that requires us to modify the design of our clinical trials; |
| | |
| ● | we
may obtain a result from preclinical studies such as a binder specificity study or a safety toxicology study that require us to modify
the design of our clinical trials, abandon our research efforts for product candidates, or result in delays; |
| ● | clinical
trials of our product candidates may produce negative or inconclusive results and we may decide, or regulators may require us, to conduct
additional clinical trials or abandon our research efforts for our other product candidates; |
| ● | the
number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical
trials may be slower than we anticipate or participants may drop out of our clinical trials at a higher rate than we anticipate; |
| ● | our
third-party contractors may fail to comply with regulatory requirements, fail to maintain adequate quality controls or be unable to provide
us with sufficient product supply to conduct and complete preclinical studies or clinical trials of our product candidates in a timely
manner, or at all; |
| ● | we
or our investigators might have to suspend or terminate clinical trials of our product candidates for various reasons, including non-compliance
with regulatory requirements, a finding that our product candidates have undesirable side effects or other unexpected characteristics
or a finding that the participants are being exposed to unacceptable health risks; |
| ● | the
cost of clinical trials of our product candidates may be greater than we anticipate; |
| ● | the
quality of our product candidates or other materials necessary to conduct preclinical studies or clinical trials of our product candidates
may be insufficient or inadequate; |
| ● | regulators
may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate; and |
| ● | future
collaborators may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us. |
If we are required to conduct
additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to
successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive
or are only moderately positive or if there are safety concerns, our business and results of operations may be adversely affected and
we may incur significant additional costs. In addition, costs to treat patients with relapsed or refractory cancer and to treat potential
side effects that may result from our product candidates can be significant. Accordingly, our clinical trial costs are likely to be significantly
higher than those for more conventional therapeutic technologies or drug product candidates.
We could also encounter delays
if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such clinical trials are being conducted,
by the Data Safety Monitoring Board for such clinical trial or by the FDA or other regulatory authorities. Such authorities may suspend
or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory
requirements or our clinical trial protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory
authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a
benefit from the product candidates, changes in governmental regulations or administrative actions or lack of adequate funding to continue
the clinical trial. For example, in July 2024, we announced a clinical hold as a result of insufficient data provided with regard to two
issues within pharmacology and toxicology of CER-1236. We plan to work expeditiously to resolve this clinical hold so that CER-1236 may
proceed to the clinic, but there is no guarantee that we will be able to address the clinical hold issues to FDA’s satisfaction
or in a timely manner to resume development.
Any delay in obtaining, or
inability to obtain, applicable regulatory approval would delay or prevent commercialization of our product candidates and would materially
adversely impact our business and prospects and our ability to generate revenues from any of these product candidates will be delayed
or not realized at all. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical
trials may also ultimately lead to the denial of regulatory approval of our product candidates. If one or more of our product candidates
generally prove to be ineffective, unsafe or commercially unviable, our CER-T cell platform would have little, if any, value, which would
have a material and adverse effect on our business, financial condition, results of operations and prospects.
Any of these factors, many
of which are beyond our control, may result in our failing to obtain regulatory approval to market any of our product candidates, or a
delay in such approval, which would significantly harm our business, results of operations, and prospects. Of the large number of biological
products in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized.
Even if we eventually complete clinical testing and receive licensure from the FDA or applicable foreign regulatory authorities for any
of our product candidates, the FDA or the applicable foreign regulatory may license our product candidates for a more limited indication
or a narrower patient population than we originally requested, and the FDA, or applicable foreign regulatory agency, may not license our
product candidates with the labeling that we believe is necessary or desirable for the successful commercialization of such product candidates.
The FDA has placed a clinical hold on
CER-1236. If the FDA does not remove the clinical hold in a timely basis, or at all, our development timelines and our business may be
adversely affected, and our stock price may decline.
As previously announced by
the Company in July 2024, the FDA placed a full clinical hold on CER-1236 as a result of insufficient data provided with regard to two
issues within pharmacology and toxicology of CER-1236. We plan to work expeditiously to resolve this clinical hold so that CER-1236 may
proceed to the clinic, but there is no guarantee that we will be able to address the clinical hold issues to FDA’s satisfaction
or in a timely manner to resume development. If the FDA does not lift the clinical hold in a timely manner, or at all, our long-term
development timeline for CER-1236 and our business, financial condition or results of operations, may be adversely affected.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
Between June 5, 2024 and
August 13, 2024, the Company issued approximately 25.4 million shares of our common stock to accredited investors in connection with the
conversion of an aggregate of 2,777 shares of our Series A Preferred Stock, which were previously issued in a private placement exempt
from registration under Section 4(a)(2) of the Securities Act, at a weighted average effective conversion price equal to $0.11 The issuance
was exempt from registration under Section 3(a)(9) of the Securities Act.
Between June 5, 2024 and
August 13, 2024, the Company issued approximately 1.2 million shares of our Common Stock to accredited investors in connection with the
conversion of an aggregate of 140 shares of our Series B Preferred Stock, which were previously issued in a private placement exempt from
registration under Section 4(a)(2) of the Securities Act, at a weighted average effective conversion price equal to $0.11 Each issuance
of shares of Common Stock upon conversion was exempt from registration under Section 3(a)(9) of the Securities Act.
On June 10, 2024, the
Company issued 254,351 shares of our common stock to an accredited investor in connection with an exercise of warrants to purchase
38 shares of Series A Preferred Stock, which were immediately converted to common shares, which were
previously issued in a private placement exempt from registration under Section 4(a)(2) of the Securities Act, at an effective
exercise price equal to $1,000 and a conversion price of $0.15. The issuance was exempt from registration under Section 3(a)(9) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None of our directors or “officers,” as defined in Rule
16a-1(f) under the Securities Exchange Act of 1934, adopted or terminated a Rule 10b5-1 trading plan or arrangement or a non-Rule 10b5-1
trading plan or arrangement, as defined in Item 408(c) of Regulation S-K, during the fiscal quarter covered by this report.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference
into, this Quarterly Report on Form 10-Q.
No. |
|
Description of Exhibit |
3 |
|
Second Amended and Restated Certificate of Incorporation of CERo Therapeutics Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K/A filed by CERo Therapeutics Holdings, Inc. with the Securities and Exchange Commission on February 27, 2024). |
|
|
|
3.2 |
|
Second Amended and Restated Bylaws of CERo Therapeutics Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K/A filed by CERo Therapeutics Holdings, Inc. with the Securities and Exchange Commission on February 27, 2024). |
|
|
|
31.1* |
|
Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2* |
|
Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1^ |
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2^ |
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
101.INS* |
|
Inline XBRL Instance Document |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data File-the cover page interactive data is embedded within the Inline XBRL document or included within the Exhibit 101 attachments. |
SIGNATURES
In accordance with the requirements
of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CERO THERAPEUTICS HOLDINGS, INC. |
|
|
|
Date:
August 14th, 2024 |
By: |
/s/ Brian
G. Atwood |
|
Name: |
Brian G. Atwood |
|
Title: |
Chairman, Chief Executive Officer and Director |
|
|
(Principal Executive Officer) |
|
|
|
Date:
August 14th, 2024 |
By: |
/s/ Charles
R. Carter |
|
Name: |
Charles R. Carter |
|
Title: |
Chief Financial Officer, Treasurer and Secretary |
|
|
(Principal Financial and Accounting Officer) |
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In connection with the Quarterly Report of CERo
Therapeutics Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2024, as filed with the Securities
and Exchange Commission (the “Report”), I, Brian Atwood, Chairman, Chief Executive Officer, and President of the Company,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
In connection with the Quarterly Report of CERo
Therapeutics Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2024, as filed with the Securities
and Exchange Commission (the “Report”), I, Charles Carter, Chief Financial Officer and Corporate Secretary, certify, pursuant
to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: