PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for CERO Therapeutics Holdings, Inc. and its Predecessor, reflecting financial position and performance - The financial statements are unaudited and prepared in accordance with GAAP and SEC regulations84 - The Company completed a merger on February 14, 2024, with CERo Therapeutics, Inc. (Predecessor) surviving as a wholly-owned subsidiary, and PBAX as the accounting acquirer8586 - All historical share and per share information has been retroactively adjusted for 1-for-100 (Jan 8, 2025) and 1-for-20 (June 13, 2025) reverse stock splits7778 Condensed Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and stockholders' deficit at specific dates Condensed Consolidated Balance Sheets Highlights | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | Change | | :--------------------------------- | :------------------------ | :---------------- | :------- | | Total Assets | $6,202,322 | $6,206,929 | $(4,607) | | Total Liabilities | $7,836,223 | $8,101,492 | $(265,269) | | Total Stockholders' Deficit | $(1,633,901) | $(1,894,563) | $260,662 | | Cash, restricted cash, and cash equivalents | $3,302,674 | $3,327,060 | $(24,386) | | Accounts payable | $6,213,045 | $4,507,318 | $1,705,727 | | Series D convertible preferred stock | $7,240,180 | $- | $7,240,180 | Condensed Consolidated Statements of Operations This section outlines the Company's financial performance, including operating expenses, net loss, and earnings per share for the reported periods Condensed Consolidated Statements of Operations Highlights (Successor) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :----------- | :------------- | | Research and development | $2,753,963 | $2,714,344 | $39,619 | 1.5% | | General and administrative | $1,969,828 | $2,433,893 | $(464,065) | (19.1)% | | Total operating expenses | $4,723,791 | $5,148,237 | $(424,446) | (8.2)% | | Loss from operations | $(4,723,791) | $(5,148,237) | $424,446 | (8.2)% | | Total other income (expenses), net | $(693,524) | $2,699,583 | $(3,393,107) | (125.7)% | | Net loss | $(5,417,315) | $(2,448,654) | $(2,968,661) | 121.2% | | Deemed dividend on Series A, B and C Preferred Stock | $(24,700,374) | $- | $(24,700,374) | 100.0% | | Net loss attributable to common shareholders | $(30,117,689) | $(2,448,654) | $(27,669,035) | 1,130.0% | | Net loss per common share (Basic and diluted) | $(61.71) | $(302.32) | $240.61 | (79.6)% | | Weighted average common shares outstanding | 488,076 | 8,099 | 479,977 | 5926.4% | Condensed Consolidated Statements of Operations Highlights (Successor & Predecessor) | Metric | 6 Months Ended June 30, 2025 (Successor) | 6 Months Ended June 30, 2024 (Pro forma) | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :------------- | | Research and development | $5,661,790 | $4,382,551 | $1,279,239 | 29.2% | | General and administrative | $4,012,532 | $5,317,756 | $(1,305,224) | (24.5)% | | Total operating expenses | $9,674,322 | $9,700,307 | $(25,985) | (0.3)% | | Loss from operations | $(9,674,322) | $(9,700,307) | $25,985 | (0.3)% | | Total other income (expense), net | $(848,924) | $4,951,959 | $(5,800,883) | (117.1)% | | Net loss | $(10,523,246) | $(4,748,348) | $(5,774,898) | 121.6% | | Deemed dividend on Series A, B and C Preferred Stock | $(24,964,518) | $- | $(24,964,518) | 100.0% | | Deemed dividend related to Series C Common Warrants | $(84,083) | $- | $(84,083) | 100.0% | | Net loss attributable to common stockholders | $(35,571,847) | $(4,748,348) | $(30,823,499) | 649.1% | | Net loss per common share (Basic and diluted) | $(107.60) | $(604.19) | $496.59 | (82.2)% | | Weighted average common shares outstanding | 330,603 | 7,859 | 322,744 | 4106.6% | Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit This section details changes in convertible preferred stock and stockholders' deficit, reflecting equity transactions and accumulated losses - The Company's total stockholders' deficit improved from $(1,894,563) at December 31, 2024, to $(1,633,901) at June 30, 20256566 - Issuance of Series D Preferred Stock for cash and equity securities contributed $7,240,180 to preferred stock66 - Significant deemed dividends were recorded due to preferred stock conversions and warrant adjustments, increasing net loss attributable to common shareholders6566 Condensed Consolidated Statements of Cash Flows This section presents the Company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights | Metric | 6 Months Ended June 30, 2025 (Successor) | 6 Months Ended June 30, 2024 (Successor & Predecessor) | Change | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------- | | Net cash used in operating activities | $(9,068,702) | $(8,617,285) | $(451,417) | | Net cash provided by financing activities | $9,044,316 | $9,748,916 | $(704,600) | | Net (decrease) increase in cash and cash equivalents | $(24,386) | $1,131,631 | $(1,156,017) | | Cash, restricted cash and cash equivalents at end of period | $3,302,674 | $3,647,026 | $(344,352) | - Financing activities in H1 2025 included $500,000 from Series A Preferred Warrants exercise, $2,426,000 from ELOC common stock sales, $2,240,000 from Series D Preferred Stock sales, and $4,273,000 from common stock and pre-funded warrants sales, offset by $395,000 for Series C Preferred Stock redemption307 Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures regarding the accounting policies, significant transactions, and financial instrument characteristics that underpin the condensed consolidated financial statements NOTE 1 – ORGANIZATION AND DESCRIPTION OF THE BUSINESS This note describes CERO Therapeutics Holdings, Inc.'s core business, clinical development progress, and going concern considerations - CERO Therapeutics Holdings, Inc. (CERO) is an innovative immunotherapy company focused on developing next-generation engineered T cell therapeutics for cancer74 - FDA cleared IND for Phase 1 clinical trial of CER-1236 in AML in November 2024, with the first patient dosed in May 2025 and second in July 202575 - A second Investigational New Drug (IND) application for CER-T cell therapy in NSCLC and ovarian cancer was accepted by the FDA on March 27, 202576 - The Company's ability to continue as a going concern is dependent on raising additional capital, with an accumulated deficit of approximately $81.4 million as of June 30, 202580 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the Company's key accounting policies, including merger accounting, segment reporting, and recent accounting pronouncements - The Merger on February 14, 2024, was accounted for using the asset acquisition method, with PBAX considered the accounting acquirer85 - The Company operates as a single operating and reporting segment, reflecting its sole focus on developing engineered T cell therapeutics for cancer113 - The Company adopted ASU 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' on January 1, 2025, with no impact on its consolidated financial statements115 - ASU 2024-03, 'Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,' is effective for fiscal years beginning after December 15, 2026, and is currently being assessed for impact116 NOTE 3 – BUSINESS COMBINATION This note details the Business Combination (Merger) on February 14, 2024, including stock conversions, earnout shares, and accounting treatment - The Business Combination (Merger) closed on February 14, 2024, with PBAX changing its name to CERo Therapeutics Holdings, Inc120 - Predecessor preferred stock converted into 2,208 shares of Common Stock ($21,635,926), and common stock into 292 shares ($2,864,074)120 - Earnout shares were issued, including 600 restricted shares subject to stock price/change of control vesting ($5,880,000), 438 shares fully vested at closing ($4,290,000), and 500 shares vested upon IND filing ($4,900,000)120 - The Merger was accounted for as an asset acquisition, with $45.6 million in In-Process Research and Development (IPR&D) recorded122123 NOTE 4 – NET LOSS PER SHARE OF COMMON STOCK This note explains the calculation of net loss per common share, including the treatment of dilutive securities - Dilutive securities, including convertible preferred stock, warrants, and stock options, are excluded from diluted EPS calculation during net loss periods as their effect would be anti-dilutive127 - As of June 30, 2025, 881,026 potential common shares from convertible securities, stock options, and warrants were anti-dilutive and excluded from EPS calculation128 NOTE 5 – PROPERTY AND EQUIPMENT This note provides details on the Company's property and equipment, including cost, accumulated depreciation, and net book value Property and Equipment, Net | Asset Category | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Laboratory equipment | $2,507,839 | $2,507,839 | | Computers | $38,323 | $38,323 | | Furniture | $8,429 | $8,429 | | Total cost | $2,554,591 | $2,554,591 | | Less: accumulated depreciation | $(2,171,785) | $(2,026,070) | | Property and equipment, net | $382,806 | $528,521 | - Depreciation expense for the six months ended June 30, 2025, was $145,715 (Successor), compared to $190,591 (Successor) for the period from February 14, 2024, through June 30, 2024129 NOTE 6 – ACCRUED LIABILITIES This note details the Company's accrued liabilities, including employee-related, legal, and consulting expenses Accrued Liabilities | Category | June 30, 2025 | December 31, 2024 | | :------- | :------------ | :---------------- | | Employee-related liabilities | $5,850 | $244,302 | | Accrued franchise taxes | $78,448 | $78,448 | | Accrued legal expenses | $- | $593,825 | | Insurance payable | $138,663 | $- | | Penalty for late S-1 filing and effectiveness | $55,000 | $55,000 | | Accrued consulting and professional services | $87,099 | $941,600 | | Total Accrued Liabilities | $365,060 | $1,913,175 | - Accrued liabilities significantly decreased by $1,548,115 from December 31, 2024, to June 30, 2025, primarily due to decreases in employee-related liabilities, accrued legal expenses, and accrued consulting/professional services130 NOTE 7 – LEASES This note describes the Company's operating lease for laboratory and office space, including lease costs and liabilities - The Company holds a five-year operating lease for laboratory and office space131 - Total lease cost for the six months ended June 30, 2025, was $871,266, compared to $620,875 for the same period in 2024 (Successor)131 - Operating lease liabilities totaled $1,152,618 as of June 30, 2025, with a weighted-average remaining lease term of 1.25 years131 NOTE 8 – STOCKHOLDERS' DEFICIT This note details changes in stockholders' deficit, including transactions related to various series of convertible preferred stock and common stock issuances Successor Series A Convertible Preferred Stock This section outlines the conversion terms and deemed dividends related to the Company's Series A Preferred Stock - The Series A Preferred Stock conversion price was reset to $2,000.00 due to adjustment provisions135 - During H1 2025, 1,090 shares of Series A Preferred Stock converted into 14,447 shares of Common Stock, including a 25% premium for penalties143 - A deemed dividend of $14,871,551 was recorded in H1 2025 due to a down-round triggering event from Series C Preferred Stock conversion, lowering Series A conversion price to $1.76 per share143 Successor Series B Convertible Preferred Stock This section details the conversion of Series B Preferred Stock into Common Stock and associated deemed dividends - During Q1 2025, 75 shares of Series B Preferred Stock converted into 2,500 Common Stock, and in Q2 2025, 198 shares converted into 42,258 Common Stock, both including a 25% premium150 - A deemed dividend of $482,953 was recorded in H1 2025 due to a down-round triggering event, lowering Series B conversion price to $1.76 per share150 Successor Series C Convertible Preferred Stock This section covers the redemption and conversion of Series C Preferred Stock, including associated premiums and deemed dividends - In March 2025, 316 shares of Series C Preferred Stock were redeemed for $395,000, including a $127,144 cash redemption premium recorded as a deemed dividend161 - In Q2 2025, 2,477 shares of Series C Preferred Stock converted into 808,444 Common Stock at conversion prices ranging from $1.76 to $5.00, triggering a stock-based inducement expense of $707,300 and a deemed dividend of $9,340,120 due to down-round events162163 Successor Series D Convertible Preferred Stock This section details the issuance and sales of Series D Preferred Stock, including exchanges for other securities and cash proceeds - Issued 6,250 shares of Series D Preferred Stock in April 2025 in exchange for Stella Diagnostics, Inc. Series D Preferred Stock, valued at $500,000, resulting in a $4.5 million decrease to additional paid-in capital186 - Sold an additional 938 shares for $750,400 (June 5, 2025) and 2,315 shares for $1,852,000 (June 25, 2025) in Fourth PIPE Financing closings187188 Purchase of Common Stock by Keystone Capital Partners under the Equity Line of Credit ("ELOC") This section reports on the Company's sales of common stock to Keystone Capital Partners under an Equity Line of Credit - Sold 14,531 common shares for $1,227,241 net proceeds in Q1 2025 and 75,064 common shares for $481,971 net proceeds in Q2 2025 under the November 2024 Keystone Purchase Agreement193194 Issuance of Common Stock to Arena Business Solutions Global SPC II, Ltd. ("Arena") for the Arena ELOC This section details the issuance of common stock to Arena as consideration for their commitment under the Arena ELOC - The Company issued 173 shares of Common Stock to Arena valued at $500,000 as consideration for Arena's commitment to purchase shares under the ELOC, recorded as deferred offering costs195 Sale of Pre-funded Warrants and Common Stock This section describes the public offering of common shares and pre-funded warrants, including net proceeds and conversion price resets - In February 2025, completed a public offering of 15,000 common shares and 112,551 pre-funded warrants, and common warrants to purchase 127,551 shares, for net proceeds of approximately $4.2 million196 - The offering triggered a reset of Series A and Series C Preferred Stock conversion prices to $39.20 per share200 NOTE 9 – WARRANTS This note explains the accounting treatment and details of various warrants issued by the Company Accounting for warrants This section outlines the Company's classification of warrants as either equity or liability instruments based on accounting guidance - The Company classifies warrants as either equity or liability instruments based on specific terms and accounting guidance (ASC 480 and ASC 815)201 Public and Private Placement Warrants (Successor) This section details the outstanding Public and Private Placement Warrants, including their exercise price and equity classification - As of June 30, 2025, there were 4,596 Public and Private Placement Warrants outstanding, each exercisable for one Common Stock share at $23,000.00, and are equity-classified202206 Series A Common Warrants (Successor) - February 2024 This section describes the Series A Common Warrants, including their adjusted exercise price and equity classification - The 306 Series A Common Warrants have an exercise price adjusted to $2,780.00 per share and are recorded as equity207212 September 2024 Series C Common Warrants (Successor) This section details the Series C Common Warrants, including their exercise price adjustment due to a down-round provision and deemed dividend - The exercise price of the 4,088 Series C Common Warrants was lowered to $0.80 per share on February 5, 2025, due to a down-round provision, resulting in an $83,083 deemed dividend213218 December 2024 and January 2025 Common Warrants (Successor) This section describes the December 2024 and January 2025 Common Warrants issued to induce preferred warrant exercises - The Company issued 4,203 December 2024 Common Warrants (exercise price $112.20) and 8,193 January 2025 Common Warrants (exercise price $116.40) to induce Series A Preferred Warrants exercise; both are equity-classified219220223 Preferred Warrants This section reports on the exercise of Series A Preferred Warrants during the six months ended June 30, 2025 - During the six months ended June 30, 2025, the 625 remaining Series A Preferred Warrants were exercised into 625 shares of Series A Preferred Stock for gross proceeds of $500,000230 February 2025 Pre-funded Warrants and February 2025 Common Warrants This section details the Pre-Funded Warrants and Common Warrants outstanding from the February 2025 Offering - As of June 30, 2025, 10,787 Pre-Funded Warrants (exercise price $0.002) and 127,551 Common Warrants (exercise price $39.20) were outstanding from the February 2025 Offering232233 NOTE 10 – FAIR VALUE MEASUREMENTS This note explains the Company's fair value measurements for equity investments and earnout liabilities, including valuation methodologies - Investment in Stella Diagnostics, Inc. Series D Preferred Stock is measured at cost ($500,000) using the measurement alternative for equity securities without readily determinable fair values234 - Earnout liability was initially $4.9 million at the February 2024 merger date, revalued to $20,000 as of June 30, 2025, with a $4.7 million gain recorded in H1 2024235237 - Fair value measurements for earnout liability use Level 3 unobservable inputs, based on Monte-Carlo simulation235237 NOTE 11 – STOCK-BASED COMPENSATION This note details the Company's stock-based compensation plan, including option grants, valuation, and expense recognition - The 2024 Equity Incentive Plan (2024 Plan) was approved in March 2024, with shares reserved increasing to 100,000 additional shares approved in May 2025238 - Stock options granted in March and May 2025 totaled 70,904 shares, valued at $488,720 and $351,862 respectively, using the Black-Scholes model240241242 - Stock-based compensation expense for the six months ended June 30, 2025, was $488,274 ($127,123 R&D, $361,151 G&A)245 - Unamortized stock-based compensation expense was approximately $1,379,000 as of June 30, 2025, expected to be recognized over a weighted average period of 1.7 years246 NOTE 12 – 401(K) RETIREMENT SAVINGS PLAN This note confirms that the Company made no contributions to its 401(k) retirement savings plan during the reported period - The Company did not make any contributions to its 401(k) retirement savings plan during the six months ended June 30, 2025247 NOTE 13 – RELATED-PARTY TRANSACTIONS This note discloses various transactions involving related parties, including participation in financings and consulting fees - Related parties participated in the February 2024 Series A PIPE Financing, purchasing Series A Preferred Stock248249 - Related parties also participated in the February 2025 public offering, purchasing 25,510 pre-funded warrants and 25,510 common warrants for $999,992250251 - A related party investor owned a portion of the Stella Diagnostics, Inc. Series D Preferred Stock exchanged for the Company's Series D Preferred Stock in April 2025252 - Consulting fees of $83,500 were incurred to board members during the six months ended June 30, 2025253 NOTE 14 – SUBSEQUENT EVENTS This note reports on significant events occurring after the reporting period, including new agreements and stock transactions - On July 11, 2025, the Company entered into a New Keystone Purchase Agreement to issue and sell 12,500,000 shares of Common Stock254 - On July 18, 2025, an additional 497 shares of Series D Preferred Stock were sold for $432,600, and 53 shares of Series C Preferred Stock converted into 10,600 Common Stock255 - On August 20, 2025, the Company sold 1,000,279 Stella D Preferred Stock for $500,000 cash, confirming its fair value at June 30, 2025256 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition, results of operations, and liquidity, highlighting key trends, uncertainties, and future outlook Overview This section provides a high-level summary of the Company's merger, strategic focus, and initial equity transactions - The Company (formerly PBAX) completed a merger with CERo Therapeutics, Inc. (Predecessor) on February 14, 2024, to focus on engineered T cell therapeutics for cancer259260 - The Merger involved conversion of Predecessor stock/options/warrants into Common Stock/options/warrants of the Successor260 - Earnout shares were issued to Predecessor stockholders, some vested at closing, others contingent on stock price or regulatory milestones261 Going concern This section addresses the Company's ability to continue operations, given its cash position, accumulated deficit, and reliance on future financing - As of June 30, 2025, the Company had approximately $3.2 million in cash and cash equivalents and an accumulated deficit of approximately $81.4 million263 - The Company received approximately $4.2 million net proceeds from a February 2025 public offering and $2.4 million from ELOC fundings and Series A Preferred Warrants exercise in H1 2025264 - Sales of Series D preferred stock generated approximately $2.2 million net proceeds in H1 2025266 - These conditions raise substantial doubt about the Company's ability to continue as a going concern within one year267 Recent Developments This section highlights recent corporate actions, including stock splits, financing activities, regulatory designations, and Nasdaq compliance updates Reverse Stock Splits This section reports on the Company's 1-for-100 and 1-for-20 reverse stock splits effected in January and June 2025 - The Company effected 1-for-100 (Jan 8, 2025) and 1-for-20 (June 13, 2025) reverse stock splits268 April 2025 PIPE Financing This section details the April 2025 PIPE Financing, including the sale of Series D Preferred Stock for cash and equity exchanges - The Company agreed to sell up to 10,000 shares of Series D Preferred Stock for up to $8 million269 - Initial closing involved exchanging 6,250 shares for Stella Diagnostics Series D Preferred Stock (valued at $500,000)269 - Subsequent closings in June 2025 raised $750,400 and $1,852,000 in cash from additional Series D Preferred Stock sales270271 July 2025 ELOC Transaction This section reports on the Company's new Equity Line of Credit agreement entered into in July 2025 - On July 11, 2025, the Company entered into a New Keystone Purchase Agreement to sell 12,500,000 shares of Common Stock272 Orphan Drug Designation This section announces the FDA Orphan Drug Designation for CER-1236 for the treatment of acute myeloid leukemia - In July 2025, CER-1236 received FDA Orphan Drug Designation for the treatment of acute myeloid leukemia273 Nasdaq Notices of Non-compliance and Nasdaq Panel Decision This section details the Company's compliance with Nasdaq's listing requirements regarding stockholders' equity and minimum bid price - The Company regained compliance with Nasdaq's $2.5 million stockholders' equity requirement by May 7, 2025275 - The Company regained compliance with Nasdaq's $1.00 minimum bid price requirement by July 7, 2025, and its Common Stock will continue to be listed276 Results of Operations This section analyzes the Company's financial performance for the three and six months ended June 30, 2025, compared to 2024, focusing on revenue, operating expenses (R&D, G&A), other income/expenses, and net loss - The Company has not recognized any revenue from product sales and does not expect to generate revenue in the foreseeable future277 - Research and development expenses are expected to increase significantly due to continued preclinical and clinical development279 - General and administrative expenses are anticipated to increase due to higher headcount, operational support, and public company compliance costs283 Revenue This section states that the Company has not generated revenue from product sales and does not anticipate doing so in the near future - The Company has not recognized any revenue from product sales and does not expect to generate revenue in the foreseeable future277 Operating Expenses This section discusses the trends and components of the Company's research and development and general and administrative expenses Research and Development Expenses This section outlines the components of R&D expenses and anticipates future increases due to clinical development - R&D expenses are expected to increase substantially in the foreseeable future as the Company continues clinical development of its product candidates279 - R&D costs include employee-related expenses, external research, manufacturing, regulatory filing, and facility costs280 General and Administrative Expenses This section describes the nature of G&A expenses and projects increases due to growth and public company requirements - General and administrative expenses are expected to increase due to higher headcount, expanded operations, and public company compliance costs283 Results of Operations for the Three Months Ended June 30, 2025 and 2024 This section provides a detailed comparison of the Company's financial performance for the three-month periods ended June 30, 2025 and 2024 Research and Development Expenses This section analyzes the changes in R&D expenses for the three months ended June 30, 2025, compared to the prior year - R&D expenses increased by $40,000 (1.5%) to $2,754,000 for the three months ended June 30, 2025, compared to $2,714,000 in 2024286 - The increase was driven by $1,056,000 in clinical expenses and $93,000 in scientific consulting fees, offset by decreases in salaries and benefits ($893,000) and lab expenses ($216,000)286 - Clinical trials related to the IND for CER-1236 began in the first quarter of 2025286 General and Administrative Expenses This section analyzes the changes in G&A expenses for the three months ended June 30, 2025, compared to the prior year - G&A expenses decreased by $464,000 (19.1%) to $1,970,000 for the three months ended June 30, 2025, compared to $2,434,000 in 2024288 - The decrease was primarily due to a $505,000 reduction in salaries and benefits, including a $478,000 decrease in stock-based compensation288 Other Income (Expense), Net This section explains the significant change in net other income (expense) for the three months ended June 30, 2025 - Net other expense was $(693,000) in Q2 2025, a negative change of $3,393,000 (125.7%) from net other income of $2,700,000 in Q2 2024289 - This change was due to the absence of a $2.9 million gain from earnout liability revaluation and a $447,000 gain from vendor settlements in Q2 2025 (present in Q2 2024)289 - Also impacted by a new $707,300 stock-based inducement expense in Q2 2025 related to Series C Preferred Stock conversion289 Net loss and net loss attributable to common stockholders This section analyzes the increase in net loss and net loss attributable to common stockholders for the three months ended June 30, 2025 - Net loss increased by $2,968,000 (121.2%) to $5,417,000 in Q2 2025 from $2,449,000 in Q2 2024290 - Net loss attributable to common stockholders increased by $27,669,035 (1,130.0%) to $30,117,000 in Q2 2025, primarily due to $24,700,000 in deemed dividends on Series A, B, and C preferred stock conversions290 - Basic and diluted net loss per common share was $(61.71) in Q2 2025, compared to $(302.32) in Q2 2024290 Results of Operations for the Six Months Ended June 30, 2025 and 2024 This section provides a detailed comparison of the Company's financial performance for the six-month periods ended June 30, 2025 and 2024 Research and Development Expenses This section analyzes the changes in R&D expenses for the six months ended June 30, 2025, compared to the prior year - R&D expenses increased by $1,279,000 (29.2%) to $5,662,000 for the six months ended June 30, 2025, compared to $4,383,000 in 2024293 - The increase was primarily due to $2,362,000 in clinical expenses and $496,000 in scientific consulting fees, as clinical trials for CER-1236 began293 - Offset by decreases in lab expenses ($461,000), R&D salaries and benefits ($989,000, including $723,000 in stock-based compensation), and other R&D costs ($129,000)293 General and Administrative Expenses This section analyzes the changes in G&A expenses for the six months ended June 30, 2025, compared to the prior year - G&A expenses decreased by $1,305,000 (24.5%) to $4,013,000 for the six months ended June 30, 2025, compared to $5,318,000 in 2024295 - Primarily due to a $1,750,000 decrease in underwriting fees from the PBAX IPO incurred in February 2024295 - Offset by a $516,000 increase in professional fees (auditing, accounting, legal) due to public company operational compliance295 Other Income (Expense), Net This section explains the significant change in net other income (expense) for the six months ended June 30, 2025 - Net other expense was $(849,000) in H1 2025, a negative change of $5,801,000 (117.1%) from net other income of $4,952,000 in H1 2024296 - This change was due to the absence of a $4.7 million gain from earnout liability revaluation and a $320,000 gain from preferred stock warrant liability revaluation in H1 2025 (present in H1 2024)296 - Also impacted by the absence of a $589,000 gain on vendor liability settlements and a new $864,000 stock-based inducement expense in H1 2025296 Net loss and net loss attributable to common stockholders This section analyzes the increase in net loss and net loss attributable to common stockholders for the six months ended June 30, 2025 - Net loss increased by $5,775,000 (121.6%) to $10,523,000 in H1 2025 from $4,748,000 in H1 2024297 - Net loss attributable to common stockholders increased by $30,823,499 (649.1%) to $35,572,000 in H1 2025297 - This was primarily due to $24,965,000 in deemed dividends on Series A, B, and C preferred stock conversions/redemptions and $84,000 in deemed dividends related to Series C Common Warrants297 - Basic and diluted net loss per common share was $(107.60) in H1 2025, compared to $(604.19) in H1 2024297 Liquidity and Capital Resources This section discusses the Company's cash position, capital requirements, and ability to fund future operations Capital Requirements This section outlines the Company's funding needs, expected expense increases, and reliance on external financing - The Company has not generated revenue and expects expenses to increase significantly due to R&D, clinical development, and public company operating costs298299 - As of June 30, 2025, cash and cash equivalents were approximately $3.2 million, which is insufficient to fund operations and capital requirements for 12 months300 - The Company relies on additional financing, including equity lines of credit (ELOCs) and preferred stock sales, but there's no assurance of sufficient funding300302 Cash Flows This section summarizes the Company's cash flows from operating, investing, and financing activities for the reported periods - Net cash used in operating activities was $(9,068,702) for H1 2025, compared to $(8,617,285) for H1 2024303 - Net cash provided by financing activities was $9,044,316 for H1 2025, compared to $9,748,916 for H1 2024303 - Net decrease in cash and cash equivalents was $(24,386) for H1 2025, a significant change from a $1,131,631 increase in H1 2024303 Critical Accounting Estimates This section describes key accounting estimates, including fair value measurements for equity investments, earnout liabilities, and stock-based compensation - Investment in equity securities is valued at cost using the measurement alternative for securities without readily determinable fair values, subject to observable price changes or impairment309 - Earnout liability is measured at fair value using a Monte-Carlo simulation with unobservable (Level 3) inputs, revalued each period with changes recognized in other income/expense310 - Stock-based compensation involves estimating the fair value of awards using the Black-Scholes model, expensed straight-line over the vesting period311 Recent Accounting Standards This section refers to Note 2 for details on recently adopted and not yet effective accounting pronouncements - Refer to Note 2 for information on recently adopted and not yet effective accounting pronouncements313 Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the Company is not required to provide disclosures about market risk - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk314 Item 4. Controls and Procedures This section reports on the effectiveness of disclosure controls and procedures, identifies material weaknesses in internal control over financial reporting, and outlines the remediation plan Evaluation of Disclosure Controls and Procedures This section states that disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting - Disclosure controls and procedures were not effective as of June 30, 2025, due to the existence of material weaknesses in internal control over financial reporting316 Material Weaknesses Identified This section identifies material weaknesses, including insufficient accounting expertise and inadequate processes for complex financial instruments - Identified material weaknesses include a lack of sufficient personnel with appropriate technical accounting expertise and inadequate processes for assessing and accounting for preferred stock conversions317 - Deficiencies in the initial recognition and valuation of investments in equity securities were also identified as a material weakness317 Remediation Plan This section outlines management's plan to remediate material weaknesses through personnel recruitment, consulting, and system enhancements - Management is developing a remediation plan including recruiting additional qualified accounting personnel, engaging third-party consultants, and implementing enhanced financial reporting systems and internal controls318 Changes in Internal Control Over Financial Reporting This section confirms no material changes in internal control over financial reporting during the most recent fiscal quarter - There has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting during the most recently completed fiscal quarter319 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company states that it is not currently party to any legal proceedings or claims that are expected to have a material adverse effect on its business - As of June 30, 2025, the Company does not believe it is party to any legal proceedings or claims that would have a material adverse effect on its business322 Item 1A. Risk Factors This section updates key risks, including orphan drug designation, potential dilution, healthcare reform, tax law changes, and internal control weaknesses - While CER-1236 received FDA Orphan Drug Designation for AML in June 2025, exclusivity may not prevent competition, and regulations could change324326327 - The issuance of shares from conversion/exercise of various preferred stocks and warrants may result in substantial dilution to stockholders, especially with penalty/adjustment provisions328329330 - Changes in healthcare spending and policy, such as the Medicare Drug Price Negotiation Program (Inflation Reduction Act) and Medicaid reforms (One Big Beautiful Bill Act of 2025), could adversely affect revenue prospects and business model331333334 - The One Big Beautiful Bill Act of 2025 (OBBBA) made significant changes to U.S. federal tax law, including R&D expense capitalization, which could adversely affect cash flow and financial performance336 - Identified material weaknesses in internal control over financial reporting (lack of expertise, inadequate processes for complex instruments) could impair timely and accurate financial reporting338340 - Failure to timely file reports can lead to ineligibility for Form S-3 registration statements, increasing transaction costs and limiting capital raising flexibility343344 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on unregistered sales of equity securities during the three months ended June 30, 2025, including conversions of Series B and Series C Preferred Stock into Common Stock, and the issuance of Series D Preferred Stock in private placements - 198 shares of Series B Preferred Stock converted into 42,258 shares of Common Stock in Q2 2025345 - 2,477 shares of Series C Preferred Stock converted into 808,444 shares of Common Stock in Q2 2025 at conversion prices ranging from $1.76 to $5.00346 - In April 2025, 6,250 shares of Series D Preferred Stock were issued in exchange for Stella Diagnostics, Inc. Series D Preferred Stock valued at $500,000347 - Additional sales of Series D Preferred Stock in June 2025 generated $750,400 and $1,852,000 in gross cash proceeds348349 Item 3. Defaults Upon Senior Securities The Company states that there were no defaults upon senior securities - There were no defaults upon senior securities350 Item 4. Mine Safety Disclosures The Company states that this item is not applicable to its operations - This item is not applicable to the Company351 Item 5. Other Information The Company reports that no officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter - No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025352 Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q - The exhibits include various corporate governance documents (Certificates of Incorporation, Bylaws), forms of warrants, securities purchase agreements, registration rights agreements, and employment agreements354355 SIGNATURES
Phoenix Biotech Acquisition (PBAX) - 2025 Q2 - Quarterly Report