Phoenix Biotech Acquisition (PBAX) - 2023 Q3 - Quarterly Report

PART 1 – FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed financial statements, including the balance sheets, statements of operations, changes in stockholders' deficit, and cash flows, along with detailed notes explaining the company's organization, accounting policies, and significant financial events up to September 30, 2023 Unaudited Condensed Balance Sheets Presents the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific reporting dates Condensed Balance Sheet Highlights | Metric | September 30, 2023 (Unaudited) ($) | December 31, 2022 ($) | | :-------------------------------- | :----------------------------- | :------------------ | | Cash | $119,014 | $475,870 | | Prepaid expenses and other assets | $21,815 | $225,188 | | Money market funds held in Trust Account | $8,329,792 | — | | Restricted cash held in Trust Account | — | $41,665,974 | | TOTAL ASSETS | $8,470,621 | $42,367,032 | | Accounts payable and accrued expenses | $3,311,098 | $1,653,120 | | Income tax payable | $28,769 | $599,159 | | Shareholder redemption liability | — | $27,842,747 | | Working capital loan – related party | $1,395,000 | $650,000 | | Deferred underwriting fee payable | $9,150,000 | $9,150,000 | | Total liabilities | $13,950,671 | $39,898,341 | | Class A Common stock subject to possible redemption | $8,287,049 | $13,468,845 | | Total stockholders' deficit | $(13,767,099) | $(11,000,154) | Unaudited Condensed Statements of Operations Details the company's financial performance over specific periods, including revenues, expenses, and net income or loss Condensed Statements of Operations Highlights | Metric | Three Months Ended Sep 30, 2023 ($) | Three Months Ended Sep 30, 2022 ($) | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | General and administrative expenses | $430,901 | $786,685 | $2,518,347 | $1,468,042 | | Loss from operations | $(429,801) | $(836,685) | $(2,563,647) | $(1,618,042) | | Interest income earned on marketable securities | $121,524 | $320,475 | $380,583 | $357,583 | | Unrealized gain on marketable securities | — | $661,176 | — | $915,859 | | Net (loss) income | $(334,028) | $84,505 | $(2,253,473) | $(405,061) | | Basic and diluted net (loss) income per share, Class A common stock | $(0.05) | $0.00 | $(0.34) | $(0.02) | Unaudited Condensed Statements of Changes in Stockholders' Deficit Outlines changes in the company's equity over time, reflecting net loss, redemptions, and stock conversions Changes in Stockholders' Deficit Highlights | Metric | December 31, 2022 ($) | September 30, 2023 ($) | | :------------------------------------------ | :------------------ | :------------------- | | Balance, Total Stockholders' Deficit | $(11,000,154) | $(13,767,099) | | Accretion for Class A Common Stock Subject to Redemption (9 months) | — | $(457,083) | | Net loss (9 months) | — | $(2,253,473) | | Conversion of Class B common stock to Class A common stock (shares) | 4,596,250 | (4,596,250) | | Excise tax liability accrued for Class A common stock redemptions | — | $(56,389) | Unaudited Condensed Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Statements of Cash Flows Highlights (Nine Months Ended September 30) | Metric | 2023 ($) | 2022 ($) | | :------------------------------------------ | :----------- | :----------- | | Net loss | $(2,253,473) | $(405,061) | | Net cash used in operating activities | $(1,336,995) | $(719,147) | | Net cash provided by investing activities | $5,874,018 | $128,489 | | Cash withdrawn from Trust Account for redemptions | $5,638,879 | — | | Net cash used in financing activities | $(4,893,879) | — | | NET CHANGE IN CASH | $(356,856) | $(590,658) | | CASH, END OF PERIOD | $119,014 | $507,915 | | Accretion of Class A common stock subject to possible redemption (non-cash) | $457,083 | $982,271 | | Excise tax liability accrued for Class A common stock redemptions (non-cash) | $56,389 | — | Notes to Condensed Financial Statements (Unaudited) Provides detailed explanations of the company's accounting policies, organization, and significant financial events Note 1 — Description of Organization and Business Operations and Liquidity Describes the company's formation as a SPAC, its IPO, trust account activities, and current liquidity challenges including going concern issues - The Company was incorporated on June 8, 2021, as a blank check company (SPAC) to effect a business combination[23] - IPO was consummated on October 8, 2021, raising $155,000,000 from 15,500,000 units at $10.00 per unit[25] - Following IPO, $178,500,000 was placed in a Trust Account, invested in U.S. government securities or money market funds[29] - Significant redemptions occurred: 16,211,702 shares by December 31, 2022, and 523,341 shares on July 18, 2023, for $5,638,879[39][44] - Trust Account balance as of September 30, 2023, is approximately $8.3 million[45] - The company faces NASDAQ listing deficiencies for Market Value of Listed Securities (cured by Class B to Class A conversion) and Minimum Public Holders Rule (plan submitted)[50][52][53] - Accrued $56,389 excise tax liability as of September 30, 2023, due to the 1% excise tax on stock repurchases under the Inflation Reduction Act of 2022[58] - As of September 30, 2023, the company had a working capital deficit of $4,624,973 and projects insufficient funds for one year, raising substantial doubt about its ability to continue as a going concern[59][60] Note 2 — Summary of Significant Accounting Policies Outlines the key accounting principles and methods used in preparing the financial statements, including cash, restricted cash, and equity classifications - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC rules[61] - The Company is an 'emerging growth company' and has elected to use the extended transition period for new accounting standards[64][65] Cash and Restricted Cash Balances | Metric | September 30, 2023 (Unaudited) ($) | December 31, 2022 ($) | | :-------------------- | :----------------------------- | :------------------ | | Cash | $119,014 | $475,870 | | Restricted cash | — | $41,665,974 | | Total cash and restricted cash | $119,014 | $42,141,844 | - Assets in the Trust Account were held in money market funds as of September 30, 2023, classified as trading securities[70] - Shareholder redemption liability of $27,842,747 as of December 31, 2022, was paid on January 3, 2023[71] - Class A common stock subject to possible redemption is classified as temporary equity, with changes in redemption value recognized immediately[78][79] Class A Common Stock Subject to Possible Redemption | Date | Amount ($) | | :------------------------------------------ | :------------- | | December 31, 2022 | $13,468,845 | | Plus: Accretion of carrying value to redemption value (9 months) | $457,084 | | Less: Redemption | $(5,638,879) | | September 30, 2023 | $8,287,049 | - Warrants are equity-classified instruments[84] - The Company adopted ASU 2016-13 on January 1, 2023, with no material impact on its financial statements[85] Note 3 — Initial Public Offering and Over-Allotment Details the initial public offering, including the number of units sold and their composition - The Company sold 17,500,000 units in its IPO (including over-allotment) at $10.00 per unit[87] - Each unit consists of one share of Class A common stock and one-half of a redeemable warrant[87] Note 4 — Private Placement Warrants Describes the private placement of units and the parties involved in their purchase - 885,000 Private Placement Units were sold at $10.00 per unit, generating $8,850,000[89] - Purchasers included the Sponsor, Cantor Fitzgerald & Co., and Cohen & Company Capital Markets[89] Note 5 — Related Party Transactions Details financial and operational arrangements with related parties, including the Sponsor and its affiliates - The Sponsor initially held 4,679,125 Founder Shares and forfeited 82,875 shares due to partial over-allotment exercise[90] - On July 3, 2023, the Sponsor converted 4,596,250 Class B common stock shares into an equal number of Class A common stock shares[92] - Working Capital Loans from the Sponsor totaled $1,395,000 outstanding as of September 30, 2023, used to fund ongoing operations and extensions[94] - Monthly consulting fees to the CEO's spouse ended on December 31, 2022, with $0 incurred for the three and nine months ended September 30, 2023[95] - Monthly support service fees of $20,000 to an affiliate of the Sponsor were suspended on December 31, 2022, and reinstated on March 31, 2023, with $60,000 incurred for the three months and $140,000 for the nine months ended September 30, 2023[96] Note 6 — Commitments and Contingencies Outlines the company's contractual obligations, potential liabilities, and the proposed business combination agreement - Holders of Founder Shares, Private Placement Warrants, and warrants from Working Capital Loans are entitled to registration rights[97] - A deferred underwriting commission of $9,150,000 is payable to the underwriter upon completion of a Business Combination[99] - On June 4, 2023, the Company entered into a Business Combination Agreement with CERo Therapeutics, Inc[100] - The Business Combination involves issuing approximately 5.0 million shares of Class A common stock to CERo holders, plus potential Earnout Shares[101] - The Sponsor and certain CERo stockholders have entered into support agreements to vote in favor of the Business Combination[102][103] Note 7 — Stockholders' Deficit Provides details on the company's common stock and warrants outstanding, including redemption terms Common Stock Outstanding (excluding redeemable shares) | Class | September 30, 2023 (shares) | December 31, 2022 (shares) | | :---------- | :----------------- | :------------------ | | Class A | 5,481,250 shares | 885,000 shares | | Class B | 0 shares | 4,596,250 shares | - As of September 30, 2023, there were 8,750,000 Public Warrants and 442,500 Private Placement Warrants outstanding[109] - Warrants become exercisable 30 days after the completion of a Business Combination at an exercise price of $11.50 per share[109] - Public Warrants may be redeemed at $0.01 per warrant if Class A common stock equals or exceeds $18.00 per share for 20 trading days within a 30-day period[111] Note 8 — Fair Value Measurements Explains the methodology for fair value measurements of financial instruments, categorizing them by input levels - The Company uses a fair value hierarchy (Level 1, 2, 3) to classify assets and liabilities based on observable inputs[116][117] Fair Value Measurements (September 30, 2023) | Asset | Level | Amount ($) | | :----------------- | :---- | :------------- | | Money Market Funds | 1 | $8,329,792 | Note 9 — Subsequent Events Reports significant events that occurred after the reporting period but before the financial statements were issued - On October 4, 2023, the Sponsor deposited an additional $22,949 into the Trust Account to extend the business combination deadline[122] 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 and operational results, detailing its status as a SPAC, recent developments including the proposed business combination with CERo Therapeutics, and critical discussions on liquidity, going concern, and accounting policies Overview Provides a brief introduction to Phoenix Biotech Acquisition Corp. as a blank check company and its primary objective - Phoenix Biotech Acquisition Corp. is a blank check company formed on June 8, 2021, to effect a business combination[125] Recent Developments Summarizes key recent events, including the proposed business combination, stock conversions, and trust account activities - The Company entered into a Business Combination Agreement with CERo Therapeutics, Inc. on June 4, 2023[127] - On July 3, 2023, the Sponsor converted 4,596,250 shares of Class B common stock into Class A common stock[129] - The business combination period was extended multiple times, with the Sponsor depositing funds into the Trust Account[130][131] - 523,341 shares of Class A common stock were redeemed on July 18, 2023, totaling $5,638,879.48[132] - The Trust Account balance as of September 30, 2023, is approximately $8.3 million[132] Results of Operations Analyzes the company's financial performance, focusing on net loss and key expense and income drivers for the reported periods Net (Loss) Income | Period | 2023 ($) | 2022 ($) | | :------------------------------ | :----------- | :----------- | | Three Months Ended Sep 30 | $(334,028) | $84,505 | | Nine Months Ended Sep 30 | $(2,253,473) | $(405,061) | - Net loss for the nine months ended September 30, 2023, was primarily due to $2,563,647 in general and administrative expenses and franchise taxes, partially offset by $380,583 in interest income[136] Liquidity and Going Concern Discusses the company's cash position, funding sources, and the assessment of its ability to meet obligations for the foreseeable future - Initial IPO proceeds and private placement funds totaling $178,500,000 were placed in the Trust Account[139] - Transaction costs amounted to $12,729,318, including $9,150,000 of deferred underwriting fees[139] Liquidity Position (September 30, 2023) | Metric | Amount ($) | | :-------------------------------- | :----------- | | Cash in operating bank accounts | $119,014 | | Money market funds in Trust Account | $8,329,792 | | Working capital deficit | $4,568,584 | | Net cash used in operating activities (9 months) | $1,336,995 | - The Company projects insufficient funds to cover expenses for one year, raising substantial doubt about its ability to continue as a going concern[146] - Working Capital Loans from the Sponsor totaled $1,395,000 outstanding as of September 30, 2023[144] Off-Balance Sheet Arrangements Confirms the absence of any off-balance sheet arrangements that could materially affect the company's financial position - The Company has no off-balance sheet arrangements as of September 30, 2023[147] Contractual Obligations Details the company's significant contractual commitments, including administrative fees and deferred underwriting commissions - The Company has an agreement to pay an affiliate of the Sponsor a monthly fee of $20,000 for office space and administrative services, with a $35,000 outstanding balance as of September 30, 2023[148] - A deferred underwriting fee of $9,150,000 is payable to the underwriter upon completion of a Business Combination[151] Critical Accounting Policies Highlights the accounting policies that require significant judgment and estimation, such as warrants and redeemable common stock - Critical accounting policies include accounting for warrants (equity-classified), common stock subject to possible redemption (temporary equity), and net (loss) income per common share[153][154][155] Recent Accounting Standards Reports on the adoption of new accounting standards and their impact on the company's financial statements - The Company adopted ASU 2016-13 on January 1, 2023, which did not have a material impact on its financial statements[156] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the Company is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing market risk disclosures as a smaller reporting company[158] Item 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures Details the assessment of the company's disclosure controls and procedures - The Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 30, 2023[160] Changes in Internal Control Over Financial Reporting Reports on any material changes in the company's internal control over financial reporting - There were no material changes in internal control over financial reporting during the most recently completed fiscal quarter[161] PART II – OTHER INFORMATION This section provides additional disclosures on legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The Company reported no legal proceedings as of the filing date - No legal proceedings were reported[164] Item 1A. Risk Factors The Company stated that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[165] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the initial public offering and private placement activities, including the gross proceeds generated, the allocation of funds to the Trust Account, and the associated offering costs Unregistered Sale of Securities Confirms no unregistered sales of securities were reported during the period - No unregistered sales of securities were reported[166] Use of Proceeds from IPO Details the application of funds generated from the initial public offering - The IPO generated gross proceeds of $155,000,000 from 15,500,000 units at $10.00 per unit[167] - Private placements generated an additional $8,450,000 from 845,000 units and $400,000 from 40,000 units[168][169] - A total of $178,500,000 was initially placed in the Trust Account[171] - Offering costs amounted to $12,729,318, including $9,150,000 of deferred underwriting fees[170] - The Trust Account balance as of September 30, 2023, is approximately $8.3 million due to redemptions and extension deposits[171] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - No defaults upon senior securities were reported[173] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[174] Item 5. Other Information The Company reported no other information - No other information was reported[175] Item 6. Exhibits This section lists all exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including various agreements and certifications - Key exhibits include the Underwriting Agreement, Business Combination Agreement, Amended and Restated Certificate of Incorporation, Investment Management Trust Agreement, Registration Rights Agreement, Promissory Note, and various certifications (e.g., 31.1, 31.2, 32.1, 32.2)[178][180]