UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 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 Global 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 May 10, 2024, there were 15,062,258 shares
of Common Stock, par value $0.0001 per share, issued and outstanding.
CERO
THERAPEUTICS HOLDINGS, INC.
FORM
10-Q FOR THE QUARTER ENDED MARCH 31, 2024
TABLE
OF CONTENTS
|
|
|
|
Page |
PART 1 - FINANCIAL INFORMATION |
|
|
|
|
|
|
|
Item 1. |
|
Financial Statements (Unaudited) |
|
1 |
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets as of March 31, 2024 (Successor)
and December 31, 2023 (Predecessor) |
|
1 |
|
|
Condensed
Consolidated Statement of Operations for the periods from February 14, 2024 through March 31, 2024 (Successor), the period from
January 1, 2024 through February 13, 2024 (Predecessor) and for the Three Months Ended March 31, 2023 (Predecessor) |
|
2 |
|
|
Condensed
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit Stockholders’ Deficit for the periods from
February 14, 2024 through March 31, 2024 (Successor), the period from January 1, 2024 through February 13, 2024 (Predecessor) and for
the Three Months Ended March 31, 2023 (Predecessor) |
|
3 |
|
|
Condensed
Consolidated Statements of Cash Flows for the periods from February 14, 2024 through March 31, 2024 (Successor),
the period from January 1, 2024 through February 13, 2024 (Predecessor) and for the Three Months Ended March 31, 2023 (Predecessor) |
|
4 |
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited) |
|
5 |
|
|
|
|
|
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
21 |
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risk |
|
30 |
Item 4. |
|
Controls and Procedures |
|
30 |
|
|
|
|
|
PART II - OTHER INFORMATION |
|
|
|
|
|
|
|
Item 1. |
|
Legal Proceedings |
|
31 |
Item 1A. |
|
Risk Factors |
|
31 |
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
|
31 |
Item 3. |
|
Defaults Upon Senior Securities |
|
31 |
Item 4. |
|
Mine Safety Disclosures |
|
31 |
Item 5. |
|
Other Information |
|
31 |
Item 6. |
|
Exhibits |
|
32 |
|
|
|
|
|
SIGNATURES |
|
33 |
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 its 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 its 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
| |
March 31,
2024
(Successor) | | |
December 31,
2023
(Predecessor) | |
| |
(unaudited) | | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
Cash, restricted cash, and cash equivalents | |
$ | 4,593,103 | | |
$ | 1,601,255 | |
Other receivables | |
| 162,057 | | |
| - | |
Prepaid expenses and other current assets | |
| 746,045 | | |
| 368,780 | |
Total current assets | |
| 5,501,205 | | |
| 1,970,035 | |
| |
| | | |
| | |
Deferred offering costs | |
| 683,345 | | |
| - | |
Operating lease right-of-use assets | |
| 2,015,047 | | |
| 2,189,565 | |
Property and equipment, net | |
| 853,059 | | |
| 966,702 | |
Total assets | |
$ | 9,052,656 | | |
$ | 5,126,302 | |
| |
| | | |
| | |
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Accounts payable | |
$ | 7,059,695 | | |
$ | 1,671,745 | |
Accrued liabilities | |
| 294,343 | | |
| 144,633 | |
Common stock subscription deposit | |
| - | | |
| 1,875 | |
Operating lease liability | |
| 794,893 | | |
| 769,092 | |
Short-term notes payable, net | |
| 402,514 | | |
| 599,692 | |
Earnout liability | |
| 3,100,000 | | |
| - | |
Common stock warrant liability | |
| - | | |
| 320,117 | |
Total current liabilities | |
| 11,651,445 | | |
| 3,507,154 | |
| |
| | | |
| | |
Advance from shareholder | |
| 13,723 | | |
| - | |
Operating lease liability, net of current portion | |
| 1,366,585 | | |
| 1,575,499 | |
Total liabilities | |
| 13,031,753 | | |
| 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 March 31, 2024 | |
| 8,937,852 | | |
| - | |
Series B Convertible Preferred stock, $0.0001 par value; 626 shares authorized; 626 issued and outstanding at March 31, 2024 | |
| 500,000 | | |
| - | |
Class A common stock; $0.0001 par value; 60,000,000 shares authorized; 14,706,847 shares issued and outstanding | |
| 1,452 | | |
| - | |
Class B common stock; $0.0001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding | |
| - | | |
| - | |
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 | |
| 53,994,723 | | |
| 1,031,219 | |
Stock subscription receivable | |
| (2,500,000 | ) | |
| - | |
Accumulated deficit | |
| (64,913,124 | ) | |
| (43,089,821 | ) |
Total stockholders’ deficit | |
| (3,979,097 | ) | |
| (42,057,695 | ) |
Total liabilities, convertible preferred stock and stockholders’ deficit | |
$ | 9,052,656 | | |
$ | 5,126,302 | |
See accompanying notes to the consolidated financial statements.
CERO THERAPEUTICS HOLDINGS,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
| |
For the period from February 14, 2024 through March 31, 2024 | | |
For the period from January 1, 2024 through February 13, 2024 | | |
For the Three months ended March 31, 2023 | |
| |
(Successor) | | |
(Predecessor) | | |
(Predecessor) | |
Operating expenses: | |
| | |
| | |
| |
Research and development | |
$ | 904,015 | | |
$ | 764,192 | | |
$ | 1,799,996 | |
General and administrative | |
| 2,750,922 | | |
| 132,941 | | |
| 638,350 | |
Total operating expenses | |
| 3,654,937 | | |
| 897,133 | | |
| 2,438,346 | |
Loss from operations | |
| (3,654,937 | ) | |
| (897,133 | ) | |
| (2,438,346 | ) |
| |
| | | |
| | | |
| | |
Gain from settlement of liabilities with vendor | |
| 141,888 | | |
| - | | |
| - | |
Change in fair value of derivative liabilities | |
| 1,800,000 | | |
| 320,117 | | |
| - | |
Interest expense, net | |
| (14,434 | ) | |
| 4,805 | | |
| 16 | |
Total other income | |
| 1,927,454 | | |
| 324,922 | | |
| 16 | |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (1,727,483 | ) | |
$ | (572,211 | ) | |
$ | (2,438,330 | ) |
Net loss per share: | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.12 | ) | |
$ | (0.06 | ) | |
$ | (0.27 | ) |
| |
| | | |
| | | |
| | |
Shares used in computing net loss per share: | |
| | | |
| | | |
| | |
Basic and diluted | |
| 14,112,530 | | |
| 9,068,899 | | |
| 9,059,732 | |
See accompanying notes to the 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 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
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 | | |
| | |
| | |
| |
| |
Series A | | |
Series B | | |
Common Stock | | |
Paid-in | | |
Stock | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
subscription | | |
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 | ) |
See accompanying notes to the consolidated financial statements.
CERO THERAPEUTICS HOLDINGS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
| |
For the period from February 14, 2024 through March 31, 2024 (Successor) | | |
For the period from January 1, 2024 through February 13, 2024 (Predecessor) | | |
For the Three months ended March 31, 2023 (Predecessor) | |
Cash flows from operating activities: | |
$ | (1,727,483 | ) | |
$ | (572,211 | ) | |
$ | (2,438,330 | ) |
Net loss | |
| | | |
| | | |
| | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | | |
| | |
Gain from settlement of liabilities with vendor | |
| (141,888 | ) | |
| - | | |
| - | |
Depreciation expense | |
| 76,287 | | |
| 37,356 | | |
| 115,388 | |
Stock-based compensation | |
| 96,289 | | |
| 4,431 | | |
| 28,144 | |
Amortization of right-to-use operating lease asset | |
| 58,659 | | |
| 115,859 | | |
| 158,196 | |
Amortization of debt discount | |
| - | | |
| (1,875 | ) | |
| - | |
Gain on revaluation of derivative liability | |
| (1,800,000 | ) | |
| (320,117 | ) | |
| 36,657 | |
Change in assets and liabilities: | |
| | | |
| | | |
| | |
Prepaid expenses and other current assets | |
| (670,064 | ) | |
| 142,687 | | |
| 90,100 | |
Accounts payable | |
| (414,916 | ) | |
| 128,429 | | |
| 477,677 | |
Accrued liabilities | |
| 141,982 | | |
| (50,370 | ) | |
| 255,350 | |
Operating lease liability | |
| (61,524 | ) | |
| (121,589 | ) | |
| (159,860 | ) |
Net cash used in operating activities | |
| (4,442,658 | ) | |
| (637,400 | ) | |
| (1,436,678 | ) |
| |
| | | |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | | |
| | |
Proceeds from the exercise of stock options | |
| - | | |
| - | | |
| 5,167 | |
Proceeds from issuance of Series A Preferred Stock | |
| 6,755,698 | | |
| - | | |
| - | |
Advances from shareholder | |
| 13,731 | | |
| - | | |
| - | |
Payment of sponsor loans | |
| (19,715 | ) | |
| - | | |
| - | |
Net proceeds from short term borrowings | |
| 408,052 | | |
| - | | |
| - | |
Net cash provided by financing activities | |
| 7,157,766 | | |
| - | | |
| 5,167 | |
Net increase (decrease) in cash and cash equivalents | |
| 2,715,108 | | |
| (637,400 | ) | |
| (1,431,511 | ) |
Cash and cash equivalents at beginning of period | |
| 1,877,995 | | |
| 1,601,255 | | |
| 6,819,564 | |
Cash and cash equivalents at end of period | |
$ | 4,593,103 | | |
$ | 963,855 | | |
$ | 5,388,053 | |
| |
| | | |
| | | |
| | |
Non-cash financing activities: | |
| | | |
| | | |
| | |
Issuance of common shares to Keystone Capital LLC for equity line of credit | |
$ | 633,345 | | |
$ | - | | |
$ | - | |
Issuance of Series B shares under subscription agreements | |
$ | 500,000 | | |
$ | - | | |
$ | - | |
See accompanying notes to the consolidated financial statements.
CERO
THERAPEUTICS HOLDINGS, INC.
Notes
to Condensed CONSOLIDATED Financial Statements
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. | Each outstanding share of Predecessor’s Preferred Stock was converted into 4,415,495 shares of Common Stock, par value $0.0001 per share (the “Common Stock”), valued at $21,635,926. |
| | |
| 2. | Each outstanding share of Predecessor’s common stock was 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”). A corresponding 1,000,000 shares of Common Stock held by Phoenix Biotech Sponsor, LLC (the “Sponsor”) were restricted. Upon the filing of an IND application with the FDA, 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. Should the Company fail to file an IND with the FDA, the shares of Common Stock issued to such Predecessor stockholders and bridge note investors will be retired and the restrictions on the Sponsor’s Common Stock will be removed. |
| | |
| 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 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, in thousands).
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 | | |
| | |
| | |
| |
| |
Series A | | |
Common Stock | | |
Paid-in | | |
Stock | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
subscription | | |
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 March 31, 2024, the Company reported $4.6 million of cash and accumulated
deficit of $64.9 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 (“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 March 31, 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, and earnout share liability, 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 March 31, 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, restricted cash, and cash equivalents. The
Company’s cash, restricted cash, and cash equivalents are on deposit with two financial institutions that management believe 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 March 31, 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, and warrants that were not included in
the calculation of diluted net loss per share because such shares are antidilutive:
| |
For the period from February 14, 2024 through | | |
For the period from January 1, 2024 through | | |
For the Three months ended | |
| |
March 31, 2024 | | |
February 13, 2024 | | |
March 31, 2023 | |
| |
(Successor) | | |
(Predecessor) | | |
(Predecessor) | |
Conversion of convertible preferred stock issued and outstanding | |
| 1,054,100 | | |
| 27,920,467 | | |
| 27,920,467 | |
Conversion of convertible preferred stock underlying convertible preferred stock warrants | |
| 237,400 | | |
| 1,849,638 | | |
| 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 | |
| 4,619,425 | | |
| 782,499 | | |
| 902,000 | |
| |
| 16,598,356 | | |
| 30,552,604 | | |
| 30,672,105 | |
NOTE
4 – PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
| |
March 31, 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 | |
| (1,701,532 | ) | |
| (1,587,889 | ) |
| |
$ | 853,059 | | |
$ | 966,702 | |
Depreciation
expense for the period from February 14, 2024 through March 31, 2024 for Successor was $76,287. Predecessor depreciation expense for
the period January 1, 2024 through February 13, 2024 and for the three months ended March 31, 2023 was $37,356 and $115,388, respectively.
NOTE
5 – ACCRUED LIABILITIES
Accrued liabilities consisted of the following3
| |
March 31, 2024 | | |
December 31, 2023 | |
| |
(Successor) | | |
(Predecessor) | |
Employee-related liabilities | |
$ | 123,020 | | |
$ | 68,697 | |
Accrued taxes | |
| 78,448 | | |
| - | |
Accrued legal expenses | |
| - | | |
| 46,466 | |
Accrued interest | |
| - | | |
| 27,637 | |
Other accrued expenses | |
| 92,875 | | |
| 1,833 | |
| |
$ | 294,343 | | |
$ | 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 period from February 14, 2024 through March 31, 2024 (Successor) | | |
For the period from January 1, 2024 through February 13, 2024 (Predecessor) | | |
For the Three months ended March 31, 2023 (Predecessor) | |
Operating leases: | |
| | |
| | |
| |
Operating lease cost | |
$ | 118,446 | | |
$ | 110,885 | | |
$ | 229,331 | |
Variable operating lease cost | |
| 90,155 | | |
| 84,401 | | |
| 147,962 | |
Total lease cost | |
$ | 208,601 | | |
$ | 195,286 | | |
$ | 377,293 | |
| |
March 31, 2024 | | |
December 31, 2023 | |
| |
(Successor) | | |
(Predecessor) | |
Right-of-use assets, net | |
$ | 2,015,047 | | |
$ | 2,189,565 | |
Operating lease liabilities, current | |
$ | 794,893 | | |
$ | 769,092 | |
Operating lease liabilities, non-current | |
| 1,366,585 | | |
| 1,575,499 | |
Total operating lease liabilities | |
$ | 2,161,478 | | |
$ | 2,344,591 | |
| |
| | | |
| | |
Weighted-average remaining lease term of operating leases (in years) | |
| 2.50 | | |
| 2.75 | |
Weighted-average discount rate for operating leases | |
| 9.60 | % | |
| 9.60 | % |
The Company’s interest expense for the period
from February 14, 2024 through March 31, 2024 was $26,503. Predecessor’s interest expense for the period from January 1, 2024 through
February 13, 2024 and for the three months ended March 31, 2023, was $28,310 and $71,135, respectively.
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 March 31,
2024:
Maturity of the Company’s lease liabilities
as of March 31, 2024:
Remainder of 2024 | |
| 723,293 | |
2025 | |
| 990,055 | |
2026 | |
| 726,394 | |
Total lease payments | |
| 2,439,742 | |
Less: imputed interest | |
| (278,264 | ) |
Total lease liabilities | |
$ | 2,161,478 | |
NOTE
7 – STOCKHOLDERS’ DEFICIT
Successor Series A Convertible Preferred
Stock
The Company designated 12,580 shares of our 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 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), 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 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.
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 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.
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, 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.
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, therefore were classified in a mezzanine section presented on the balance sheets
between liabilities and stockholders’ deficit.
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 March 31, 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-day 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 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 was revalued at each reporting period,
with the change in value being recorded on the Statement of Operations.
The
Company’s Preferred Warrants are exercisable into Common Stock, which has no cash redemption features that require liability treatment
and the Company recorded the Preferred 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 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 entity 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
Predecessor warrants outstanding at the beginning and end of the three-month period ending March 31, 2023 and the beginning and end of
the period from January 1, 2023 to February 14, 2024, and the Company warrants outstanding at the beginning and end of the period from
February 14, 2023 to March 31, 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 | |
12/31/2022 | |
Balance December 31, 2022 | |
| 1,849,638 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 1.76 | | |
| 1.87 | |
3/31/2023 | |
Balance March 31, 2023 | |
| 1,849,638 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 1.76 | | |
| 1.63 | |
12/31/2023 | |
Balance December 31, 2023 | |
| 1,849,638 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 1.76 | | |
| 0.87 | |
2/13/2024 | |
Balance February 13, 2024 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 1.76 | | |
| 0.75 | |
2/14/2024 | |
Balance February 14, 2024 | |
| - | | |
| 9,222,504 | | |
| 324,999 | | |
| 612,746 | | |
| 2,500 | | |
$ | 11.56 | | |
| 4.78 | |
3/31/2024 | |
Balance March 31, 2024 | |
| - | | |
| 9,222,504 | | |
| 324,999 | | |
| 612,746 | | |
| 2,500 | | |
$ | 11.56 | | |
| 4.65 | |
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. The Monte Carlo analysis used
the following assumptions:
| |
March 31, | | |
February 14 | |
| |
2024 | | |
2024 | |
| |
(Successor) | | |
(Successor)
| |
Starting share price | |
$ | 3.07 | | |
$ | 4.90 | |
Tranche 1 trigger price | |
$ | 3.91 | | |
$ | 3.20 | |
Tranche 2 trigger price | |
$ | 4.70 | | |
$ | 3.85 | |
Contractual term | |
| 3.9 | | |
| 4.0 | |
Volatility | |
| 90 | % | |
| 90 | % |
Risk-free interest rate | |
| 4.21 | % | |
| 4.20 | % |
At March 31, 2024 for the Successor and December 31,
2023 for the Predecessor, the fair value of derivative liabilities (see Note 7 for details) were classified as follows:
| |
March 31, 2024 (Successor) | | |
Value at
February 14, | | |
Change in | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | | |
2024
| | |
fair value | |
Liabilities: | |
| | |
| | |
| | |
| | |
| | |
| |
Earnout liability | |
| - | | |
| - | | |
$ | 3,100,000 | | |
$ | 3,100,000 | | |
$ | 4,900,000 | | |
$ | (1,800,000 | ) |
| |
$ | - | | |
$ | - | | |
$ | 3,100,000 | | |
$ | 3,100,000 | | |
$ | 4,900,000 | | |
$ | (1,800,000 | ) |
| |
December 31, 2023 (Predecessor) | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Preferred stock warrant liability | |
$ | - | | |
$ | - | | |
$ | 320,117 | | |
$ | 320,117 | |
The
change in the fair value measurement using significant inputs (Level 3) for the period from December 31,2022 through March 31,2023
and December 31, 2023 through February 14, 2024 for Predecessor and February 14, 2024 through March 31, 2024 for the Company is summarized
below:
Balance at December 31, 2022 (Predecessor) |
|
$ |
610,381 |
|
Loss on revaluation of warrant liability |
|
|
36,657 |
|
Balance at March 31, 2023 (Predecessor) |
|
$ |
647,038 |
|
|
|
|
|
|
Balance at December 31, 2023 (Predecessor) |
|
$ |
320,117 |
|
Reclassification of warrant liability to equity |
|
|
320,117 |
|
Balance at February 13, 2024 (Predecessor) |
|
$ |
- |
|
|
|
|
|
|
Balance at February 14, 2024 (Successor) |
|
$ |
4,900,000 |
|
Loss on revaluation of earnout liability |
|
|
(1,800,000 |
) |
Balance at March 31, 2024 (Successor) |
|
$ |
3,100,000 |
|
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 March 31, 2023 and December 31, 2023 through February 14, 2024 and
the Company’s stock option activity for the period from February 14, 2024 through March 31, 2024, was as follows:
| |
Outstanding
Shares | | |
Weighted
Average
Exercise
Price Per
Share | | |
Weighted
Average
Remaining
Contractual
Life
(in years) | |
Balance, December 31, 2022 (Predecessor) | |
| 1,138,110 | | |
$ | 0.28 | | |
| 8.18 | |
Options exercised (Predecessor) | |
| (16,666 | ) | |
$ | 0.31 | | |
| | |
Options cancelled (Predecessor) | |
| (219,444 | ) | |
$ | 0.31 | | |
| | |
Balances, March 31, 2023 (Predecessor) | |
| 902,000 | | |
$ | 0.28 | | |
| 7.77 | |
| |
| | | |
| | | |
| | |
Balance, December 31, 2023 (Predecessor) | |
| 782,499 | | |
$ | 0.27 | | |
| 6.86 | |
Options cancelled (Predecessor) | |
| (782,499 | ) | |
$ | 0.27 | | |
| 6.74 | |
Balance, February 14, 2024 (Predecessor) | |
| - | | |
$ | - | | |
| - | |
| |
| | | |
| | | |
| | |
Balance, February 14, 2024 (Predecessor) | |
| - | | |
$ | - | | |
| - | |
Options granted (Successor) | |
| 4,619,425 | | |
$ | 1.80 | | |
| | |
Balances, March 31, 2024 (Successor) | |
| 4,619,425 | | |
$ | 1.80 | | |
| 9.99 | |
The intrinsic value of Predecessor options exercised
during the three-month period ended March 31, 2023 was $4,666. No options were exercised in the three-month period ended March 31, 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 March 31, 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 March 31, 2024, the Company recorded stock-based compensation expense of $0.09 million,
of which $0.03 million was related to R&D and $0.06 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 March 31,
2023, Predecessor recorded stock-based compensation expense of $28,144, of which $24,148 was related to R&D and $3,995 was related
to general and administrative.
As
of March 31, 2024, the Company had $4,799,501 of unamortized stock-based compensation cost related to unvested stock options, which
is expected to be recognized over a weighted average period of 2.37 years. The weighted average grant date calculated fair value per
share of the Company’s options granted during the period February 14, 2024, through March 31, 2024, was $1.06.
There were no Predecessor options granted in the
three-month period ended March 31, 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 March 31, 2024, was $7,956 and Predecessor Contributions
during the period from January 1, 2024 through February 13, 2024 and for the three months ended March 31, 2023 were $4,685 and $0, respectively.
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 proxy statement/prospectus, dated January 22, 2024 (the “Proxy Statement/Prospectus”),
and 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
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 will contain 875,000
shares, which will be fully vested at Closing and which are being issued as an offset to the agreement by Phoenix Biotech Sponsor, LLC
to forfeit an offsetting number of shares of PBAX Class A Common Stock, and one pool of which will contain 1,000,000 shares of PBAX Class
A Common Stock, which will be fully vested upon the achievement of certain regulatory milestone-based earnout targets 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
earn-out 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 will be fully vested upon to 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.”
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 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 the warrant
liability, which represents the change in fair value of outstanding warrants between periods.
Results of Operations
The
Results of Operations for the three-month period ended March 31, 2024 are pro forma as the period presented in 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 March 31, 2024. This pro forma period from January 1, 2024 to March 31, 2024 does not include the Merger
transactions that occurred On-The-Line.
CERO THERAPEUTICS HOLDINGS, INC.
Condensed
Consolidated STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the three-month periods ended March 31, |
|
|
|
2024 |
|
|
|
|
|
|
|
|
|
Pro-forma (Predecessor and Successor) |
|
|
2023
Predecessor |
|
|
Difference |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
1,668,207 |
|
|
$ |
1,799,996 |
|
|
$ |
(131,789 |
) |
General and administrative |
|
|
2,883,863 |
|
|
|
638,350 |
|
|
|
2,245,513 |
|
Total operating expenses |
|
|
4,552,070 |
|
|
|
2,438,346 |
|
|
|
2,113,724 |
|
Loss from operations |
|
|
(4,552,070 |
) |
|
|
(2,438,346 |
) |
|
|
(2,113,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
141,888 |
|
|
|
- |
|
|
|
141,888 |
|
Change in fair value |
|
|
2,120,117 |
|
|
|
- |
|
|
|
2,120,117 |
|
Interest expense, net |
|
|
(9,629 |
) |
|
|
16 |
|
|
|
(9,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,299,694 |
) |
|
$ |
(2,438,330 |
) |
|
$ |
138,636 |
|
General
and Administrative Expenses
General and administrative expenses were $2.88
million for the three-month period ended March 31, 2024 compared to $0.63 million for the three-month period ended March 31, 2023, reflecting
an increase of $2.25 million. The increase in 2024 over 2023 was predominantly due to the expenses associated with expenses necessary
to comply with NASDAQ and SEC requirements. Business consulting increased $0.17 million for expenses related to business services and
consulting related to the financing and for general management. Investment banking success fees were $1.75 million in support of the PIPE
that closed concurrently with the Merger. Services related to printing, filing, and transfer agency increased $0.13 million in support
of the regulatory requirements associated with the Merger and public reporting. Recruiting increased $0.24 million related to executive
hiring after the Merger. Director and officer liability insurance expenses increased $0.11 million and other various expenses represented
an additional increase of $0.06 million. These increases were offset by reduced legal fees as fees associated with the Merger and financing
were capitalized and there were $0.10 million less general corporate and IP-related legal fees.
Research and Development Expenses
Research and development expenses were $1.67 million for the three-month
period ended March 31, 2024 compared to $1.80 million for the three-month period ended March 31,2023, reflecting a decrease of $0.13 million.
The decrease in 2024 relative to 2023 was predominantly due to product manufacturing costs declining from 0.25 million in 2023 to 0.03
million in 2024 as the engineering runs were completed. This decrease was partially offset by an increase associated with reducing headcount
and outsourcing essential work.
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 $1.93 million
for the three-month period ended March 31, 2024 compared to $(0.01) million for the three-month period ended March 31,2023, reflecting
an increase of $1.94 million. The increase in 2024 relative to 2023 was predominantly due to the reclass of the Predecessor preferred
stock warrants to equity and the change in value of the Company’s Earnout Liability between February 14, 2024 and March 31, 2024.
Settlement of vendor liabilities of $0.14 million resulted in an additional gain.
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 March 31, 2024, the Company had $4.6 million in
cash and cash equivalents. The Company intends to devote most of the net proceeds from Merger and PIPE 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 March 31, 2024 will not fund its operating expenses and capital requirements for 12 months after the filing of the
financial statements for the three-month period ended March 31, 2024. The Company has arranged two equity lines of credit, one providing
for the sale of up to 2,977,070 shares of 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. The Company has no guarantee that the conditions will be satisfied to require
the purchase of all, or any, 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 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
Net
cash used in operating activities
Net cash used in operating activities increased
$3.64 million from $1.44 million to $5.08 million in the three-month period ended March 31, 2023 and 2024 respectively. The increase in
cash used was largely related to having a $0.14 million decrease in net loss and a ($2.1) million cash adjustment due to the non-cash
adjustment for the gain resulting from derivative liability revaluation. Changes in cash used for net working capital represented an increase
in cash used of $1.57 million.
Net cash provided by financing activities
Net cash provided by financing activities increased
$7.16 million from an immaterial amount in the three-month period ended March 31, 2023 to $7.16 million in the three-month period ended
March 31, 2024. The increase was related to the $6.76 million provided by the sale of Series A Preferred Stock and $0.41 million related
to insurance financing.
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 audited 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.
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.
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 shares 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.
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 March 31, 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. Predecessor does not believe that inflation had a material effect on Predecessor’s
business, financial condition or results of operations for the period from January 1, 2024 through February 14, 2024 and for the three-month
period ending March 31, 2023. 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 from February 14, 2024 through March 31, 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
Companymay 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 aboutthe 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 March 31, 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
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.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not
applicable.
Item 5.
Other Information
None.
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 |
|
|
|
10.1 |
|
Purchase Agreement, dated as of February 23, 2024, by and between CERo Therapeutics Holdings, Inc. and Arena Business Solutions Global SPC II, Ltd on behalf of and for the account of Segregated Portfolio #13 - SPC #13. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by CERo Therapeutics Holdings, Inc. with the Securities and Exchange Commission on February 28, 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: May 17, 2024 |
By: |
/s/ Brian
G. Atwood |
|
Name: |
Brian G. Atwood |
|
Title: |
Chairman, Chief Executive Officer and Director |
|
|
(Principal Executive Officer) |
|
|
|
Date: May 17, 2024 |
By: |
/s/ Charles
R. Carter |
|
Name: |
Charles R. Carter |
|
Title: |
Chief Financial Officer, Treasurer and Secretary |
|
|
(Principal Financial and Accounting Officer) |
33
0.0001
0.06
0.12
0.27
14112530
9059732
9068899
0.06
false
--12-31
Q1
0001870404
0001870404
2024-02-14
2024-03-31
0001870404
cero:CommonStockParValue00001PerShareMember
2024-02-14
2024-03-31
0001870404
cero:WarrantsEachWholeWarrantExercisableForOneShareOfCommonStockMember
2024-02-14
2024-03-31
0001870404
2024-05-10
0001870404
2024-03-31
0001870404
2023-12-31
0001870404
cero:SeriesSeedMember
2024-03-31
0001870404
cero:SeriesSeedMember
2023-12-31
0001870404
us-gaap:SeriesAMember
2024-03-31
0001870404
us-gaap:SeriesAMember
2023-12-31
0001870404
cero:SeriesAConvertiblePreferredStockMember
2024-03-31
0001870404
cero:SeriesAConvertiblePreferredStockMember
2023-12-31
0001870404
cero:SeriesBConvertiblePreferredStockMember
2024-03-31
0001870404
cero:SeriesBConvertiblePreferredStockMember
2023-12-31
0001870404
us-gaap:CommonClassAMember
2024-03-31
0001870404
us-gaap:CommonClassAMember
2023-12-31
0001870404
us-gaap:CommonClassBMember
2024-03-31
0001870404
us-gaap:CommonClassBMember
2023-12-31
0001870404
2024-01-01
2024-02-13
0001870404
2023-01-01
2023-03-31
0001870404
cero:PredecessorMember
cero:SeriesSeedMember
cero:ConvertiblePreferredStocksMember
2022-12-31
0001870404
cero:PredecessorMember
cero:SeriesAConvertiblePreferredStockMember
cero:ConvertiblePreferredStocksMember
2022-12-31
0001870404
cero:PredecessorMember
us-gaap:CommonStockMember
2022-12-31
0001870404
cero:PredecessorMember
us-gaap:AdditionalPaidInCapitalMember
2022-12-31
0001870404
cero:PredecessorMember
us-gaap:RetainedEarningsMember
2022-12-31
0001870404
cero:PredecessorMember
2022-12-31
0001870404
cero:PredecessorMember
us-gaap:CommonStockMember
2023-01-01
2023-03-31
0001870404
cero:PredecessorMember
us-gaap:AdditionalPaidInCapitalMember
2023-01-01
2023-03-31
0001870404
cero:PredecessorMember
2023-01-01
2023-03-31
0001870404
cero:PredecessorMember
cero:SeriesSeedMember
cero:ConvertiblePreferredStocksMember
2023-01-01
2023-03-31
0001870404
cero:PredecessorMember
cero:SeriesAConvertiblePreferredStockMember
cero:ConvertiblePreferredStocksMember
2023-01-01
2023-03-31
0001870404
cero:PredecessorMember
us-gaap:RetainedEarningsMember
2023-01-01
2023-03-31
0001870404
cero:PredecessorMember
cero:SeriesSeedMember
cero:ConvertiblePreferredStocksMember
2023-03-31
0001870404
cero:PredecessorMember
cero:SeriesAConvertiblePreferredStockMember
cero:ConvertiblePreferredStocksMember
2023-03-31
0001870404
cero:PredecessorMember
us-gaap:CommonStockMember
2023-03-31
0001870404
cero:PredecessorMember
us-gaap:AdditionalPaidInCapitalMember
2023-03-31
0001870404
cero:PredecessorMember
us-gaap:RetainedEarningsMember
2023-03-31
0001870404
cero:PredecessorMember
2023-03-31
0001870404
cero:PredecessorMember
cero:SeriesSeedMember
cero:ConvertiblePreferredStocksMember
2023-12-31
0001870404
cero:PredecessorMember
cero:SeriesAConvertiblePreferredStockMember
cero:ConvertiblePreferredStocksMember
2023-12-31
0001870404
cero:PredecessorMember
us-gaap:CommonStockMember
2023-12-31
0001870404
cero:PredecessorMember
us-gaap:AdditionalPaidInCapitalMember
2023-12-31
0001870404
cero:PredecessorMember
us-gaap:RetainedEarningsMember
2023-12-31
0001870404
cero:PredecessorMember
2023-12-31
0001870404
cero:PredecessorMember
cero:SeriesSeedMember
cero:ConvertiblePreferredStocksMember
2024-01-01
2024-02-13
0001870404
cero:PredecessorMember
cero:SeriesAConvertiblePreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-01-01
2024-02-13
0001870404
cero:PredecessorMember
us-gaap:CommonStockMember
2024-01-01
2024-02-13
0001870404
cero:PredecessorMember
us-gaap:AdditionalPaidInCapitalMember
2024-01-01
2024-02-13
0001870404
cero:PredecessorMember
us-gaap:RetainedEarningsMember
2024-01-01
2024-02-13
0001870404
cero:PredecessorMember
2024-01-01
2024-02-13
0001870404
cero:PredecessorMember
cero:SeriesSeedMember
cero:ConvertiblePreferredStocksMember
2024-02-13
0001870404
cero:PredecessorMember
cero:SeriesAConvertiblePreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-02-13
0001870404
cero:PredecessorMember
us-gaap:CommonStockMember
2024-02-13
0001870404
cero:PredecessorMember
us-gaap:AdditionalPaidInCapitalMember
2024-02-13
0001870404
cero:PredecessorMember
us-gaap:RetainedEarningsMember
2024-02-13
0001870404
cero:PredecessorMember
2024-02-13
0001870404
cero:SuccessorMember
us-gaap:SeriesAPreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-02-13
0001870404
cero:SuccessorMember
us-gaap:SeriesBPreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-02-13
0001870404
cero:SuccessorMember
us-gaap:CommonClassAMember
us-gaap:CommonStockMember
2024-02-13
0001870404
cero:SuccessorMember
us-gaap:AdditionalPaidInCapitalMember
2024-02-13
0001870404
cero:SuccessorMember
cero:StockSubscriptionMember
2024-02-13
0001870404
cero:SuccessorMember
us-gaap:RetainedEarningsMember
2024-02-13
0001870404
cero:SuccessorMember
2024-02-13
0001870404
cero:SuccessorMember
us-gaap:SeriesAPreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorMember
us-gaap:SeriesBPreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorMember
cero:StockSubscriptionMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorMember
us-gaap:CommonClassAMember
us-gaap:CommonStockMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorMember
us-gaap:AdditionalPaidInCapitalMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorMember
us-gaap:RetainedEarningsMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorMember
us-gaap:SeriesAPreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-03-31
0001870404
cero:SuccessorMember
us-gaap:SeriesBPreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-03-31
0001870404
cero:SuccessorMember
us-gaap:CommonClassAMember
us-gaap:CommonStockMember
2024-03-31
0001870404
cero:SuccessorMember
us-gaap:AdditionalPaidInCapitalMember
2024-03-31
0001870404
cero:SuccessorMember
cero:StockSubscriptionMember
2024-03-31
0001870404
cero:SuccessorMember
us-gaap:RetainedEarningsMember
2024-03-31
0001870404
cero:SuccessorMember
2024-03-31
0001870404
us-gaap:PreferredStockMember
2024-02-14
2024-03-31
0001870404
us-gaap:CommonStockMember
2024-02-14
2024-03-31
0001870404
cero:NewCERoMember
2024-02-14
2024-03-31
0001870404
cero:INDEarnoutMember
2024-02-14
2024-03-31
0001870404
us-gaap:WarrantMember
2024-03-31
0001870404
cero:NewCERoMember
us-gaap:SeriesAPreferredStockMember
2024-03-31
0001870404
us-gaap:SeriesAPreferredStockMember
2024-03-31
0001870404
us-gaap:OverAllotmentOptionMember
2024-02-14
2024-03-31
0001870404
cero:IPRDMember
2024-03-31
0001870404
srt:MaximumMember
2024-02-14
2024-03-31
0001870404
srt:MinimumMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorActivityMember
us-gaap:SeriesAPreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-02-13
0001870404
cero:SuccessorActivityMember
us-gaap:CommonClassAMember
us-gaap:CommonStockMember
2024-02-13
0001870404
cero:SuccessorActivityMember
cero:StockSubscriptionMember
2024-02-13
0001870404
cero:SuccessorActivityMember
us-gaap:RetainedEarningsMember
2024-02-13
0001870404
cero:SuccessorActivityMember
2024-02-13
0001870404
cero:SuccessorActivityMember
us-gaap:SeriesAPreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorActivityMember
us-gaap:CommonClassAMember
us-gaap:CommonStockMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorActivityMember
us-gaap:AdditionalPaidInCapitalMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorActivityMember
cero:StockSubscriptionMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorActivityMember
us-gaap:RetainedEarningsMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorActivityMember
2024-02-14
2024-03-31
0001870404
cero:SuccessorActivityMember
us-gaap:SeriesAPreferredStockMember
cero:ConvertiblePreferredStocksMember
2024-03-31
0001870404
cero:SuccessorActivityMember
us-gaap:CommonClassAMember
us-gaap:CommonStockMember
2024-03-31
0001870404
cero:SuccessorActivityMember
us-gaap:AdditionalPaidInCapitalMember
2024-03-31
0001870404
cero:SuccessorActivityMember
cero:StockSubscriptionMember
2024-03-31
0001870404
cero:SuccessorActivityMember
us-gaap:RetainedEarningsMember
2024-03-31
0001870404
cero:SuccessorActivityMember
2024-03-31
0001870404
srt:MinimumMember
2024-03-31
0001870404
srt:MaximumMember
2024-03-31
0001870404
cero:ConversionOfConvertiblePreferredStockIssuedAndOutstandingMember
2024-02-14
2024-03-31
0001870404
cero:ConversionOfConvertiblePreferredStockIssuedAndOutstandingMember
2024-01-01
2024-02-13
0001870404
cero:ConversionOfConvertiblePreferredStockIssuedAndOutstandingMember
2023-01-01
2023-03-31
0001870404
cero:convertiblePreferredStockWarrantsMember
2024-02-14
2024-03-31
0001870404
cero:convertiblePreferredStockWarrantsMember
2024-01-01
2024-02-13
0001870404
cero:convertiblePreferredStockWarrantsMember
2023-01-01
2023-03-31
0001870404
cero:ExerciseOfCommonWarrantsIntoCommonStockMember
2024-02-14
2024-03-31
0001870404
cero:ExerciseOfCommonWarrantsIntoCommonStockMember
2024-01-01
2024-02-13
0001870404
cero:ExerciseOfCommonWarrantsIntoCommonStockMember
2023-01-01
2023-03-31
0001870404
cero:CommonStockReservedForEmployeeStockOptionPlanMember
2024-02-14
2024-03-31
0001870404
cero:CommonStockReservedForEmployeeStockOptionPlanMember
2024-01-01
2024-02-13
0001870404
cero:CommonStockReservedForEmployeeStockOptionPlanMember
2023-01-01
2023-03-31
0001870404
cero:CommonStockUnderlyingOutstandingOptionsMember
2024-02-14
2024-03-31
0001870404
cero:CommonStockUnderlyingOutstandingOptionsMember
2024-01-01
2024-02-13
0001870404
cero:CommonStockUnderlyingOutstandingOptionsMember
2023-01-01
2023-03-31
0001870404
2024-02-14
2024-02-14
0001870404
cero:LaboratoryEquipmentMember
2024-03-31
0001870404
cero:LaboratoryEquipmentMember
2023-12-31
0001870404
us-gaap:ComputerEquipmentMember
2024-03-31
0001870404
us-gaap:ComputerEquipmentMember
2023-12-31
0001870404
us-gaap:FurnitureAndFixturesMember
2024-03-31
0001870404
us-gaap:FurnitureAndFixturesMember
2023-12-31
0001870404
cero:SuccessorMember
2024-02-14
2024-03-31
0001870404
2023-03-31
0001870404
us-gaap:SeriesAPreferredStockMember
us-gaap:PreferredStockMember
2024-03-31
0001870404
us-gaap:SeriesAPreferredStockMember
2024-03-31
0001870404
us-gaap:SeriesAPreferredStockMember
2024-02-14
2024-03-31
0001870404
us-gaap:SeriesAPreferredStockMember
2024-02-14
2024-03-31
0001870404
2024-02-29
0001870404
cero:PublicWarrantsMember
cero:EventTriggeringAdjustmentToExercisePriceOfWarrantsMember
us-gaap:CommonClassAMember
2024-02-29
0001870404
cero:NewCERoMember
2024-02-01
2024-02-29
0001870404
us-gaap:SeriesAPreferredStockMember
2024-02-01
2024-02-29
0001870404
2024-02-01
2024-02-29
0001870404
us-gaap:SubsequentEventMember
2024-04-01
2024-04-01
0001870404
us-gaap:CommonStockMember
2023-12-31
0001870404
cero:PredecessorPreferredStockConversionToSuccessorCommonStockMember
2024-02-14
2024-02-14
0001870404
cero:PredecessorPreferredStockConversionToSuccessorCommonStockMember
us-gaap:ConvertiblePreferredStockMember
2024-02-14
2024-02-14
0001870404
us-gaap:SeriesAPreferredStockMember
2024-02-14
0001870404
2024-02-14
0001870404
us-gaap:WarrantMember
2024-02-14
2024-03-31
0001870404
us-gaap:WarrantMember
us-gaap:SeriesAPreferredStockMember
2019-11-14
0001870404
2019-11-14
0001870404
us-gaap:WarrantMember
2019-11-14
0001870404
2019-11-14
2019-11-14
0001870404
us-gaap:SeriesAPreferredStockMember
2019-11-14
0001870404
srt:ScenarioForecastMember
2024-11-14
2024-11-14
0001870404
cero:PreferredWarrantsMember
2024-03-31
0001870404
cero:December312022Member
2024-02-14
2024-03-31
0001870404
cero:December312022Member
2024-03-31
0001870404
cero:March312023Member
2024-02-14
2024-03-31
0001870404
cero:March312023Member
2024-03-31
0001870404
cero:December312023Member
2024-02-14
2024-03-31
0001870404
cero:December312023Member
2024-03-31
0001870404
cero:February132024Member
2024-02-14
2024-03-31
0001870404
cero:February132024Member
2024-03-31
0001870404
cero:February142024Member
2024-02-14
2024-03-31
0001870404
cero:February142024Member
2024-03-31
0001870404
cero:March312024Member
2024-02-14
2024-03-31
0001870404
cero:March312024Member
2024-03-31
0001870404
us-gaap:MeasurementInputRiskFreeInterestRateMember
2023-12-31
0001870404
us-gaap:MeasurementInputExpectedTermMember
2023-12-31
0001870404
us-gaap:MeasurementInputExpectedDividendRateMember
2023-12-31
0001870404
us-gaap:MeasurementInputPriceVolatilityMember
2023-12-31
0001870404
cero:EarnoutLiabilityMember
us-gaap:FairValueInputsLevel1Member
2024-03-31
0001870404
cero:EarnoutLiabilityMember
us-gaap:FairValueInputsLevel2Member
2024-03-31
0001870404
cero:EarnoutLiabilityMember
us-gaap:FairValueInputsLevel3Member
2024-03-31
0001870404
cero:EarnoutLiabilityMember
2024-03-31
0001870404
cero:EarnoutLiabilityMember
2024-02-14
2024-03-31
0001870404
us-gaap:FairValueInputsLevel1Member
2024-03-31
0001870404
us-gaap:FairValueInputsLevel2Member
2024-03-31
0001870404
us-gaap:FairValueInputsLevel3Member
2024-03-31
0001870404
cero:PreferredStockWarrantLiabilityMember
us-gaap:FairValueInputsLevel1Member
2023-12-31
0001870404
cero:PreferredStockWarrantLiabilityMember
us-gaap:FairValueInputsLevel2Member
2023-12-31
0001870404
cero:PreferredStockWarrantLiabilityMember
us-gaap:FairValueInputsLevel3Member
2023-12-31
0001870404
cero:PreferredStockWarrantLiabilityMember
2023-12-31
0001870404
us-gaap:FairValueInputsLevel3Member
cero:PredecessorMember
2022-12-31
0001870404
us-gaap:FairValueInputsLevel3Member
cero:PredecessorMember
2023-01-01
2023-03-31
0001870404
us-gaap:FairValueInputsLevel3Member
cero:PredecessorMember
2023-03-31
0001870404
us-gaap:FairValueInputsLevel3Member
cero:PredecessorMember
2023-12-31
0001870404
us-gaap:FairValueInputsLevel3Member
cero:PredecessorMember
2024-01-01
2024-02-13
0001870404
us-gaap:FairValueInputsLevel3Member
cero:PredecessorMember
2024-02-13
0001870404
us-gaap:FairValueInputsLevel3Member
cero:SuccessorMember
2024-02-13
0001870404
us-gaap:FairValueInputsLevel3Member
cero:SuccessorMember
2024-02-14
2024-03-31
0001870404
us-gaap:FairValueInputsLevel3Member
cero:SuccessorMember
2024-03-31
0001870404
us-gaap:CommonStockMember
2016-10-31
0001870404
2024-03-25
2024-03-25
0001870404
cero:EquityIncentivePlanMember
2024-03-25
2024-03-25
0001870404
2024-03-25
0001870404
us-gaap:SubsequentEventMember
2024-04-01
2024-04-20
0001870404
us-gaap:ResearchAndDevelopmentExpenseMember
2024-02-14
2024-03-31
0001870404
us-gaap:ResearchAndDevelopmentExpenseMember
2024-01-01
2024-02-13
0001870404
us-gaap:ResearchAndDevelopmentExpenseMember
2023-01-01
2023-03-31
0001870404
us-gaap:GeneralAndAdministrativeExpenseMember
2023-01-01
2023-03-31
0001870404
2022-12-31
0001870404
2022-12-31
2022-12-31
0001870404
2023-12-31
2023-12-31
0001870404
2024-02-13
0001870404
2024-02-13
2024-02-13
xbrli:shares
iso4217:USD
iso4217:USD
xbrli:shares
xbrli:pure
In connection with the Quarterly Report of CERo
Therapeutics Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 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 March 31, 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: