Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations of PBAX.
The following discussion
and analysis of PBAX’s financial condition and results of operations should be read in conjunction with our audited consolidated
financial statements and the notes related thereto which are included in Item 8 of this Annual Report. Certain information contained in
the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of many factors, including those set forth under “Cautionary Note Regarding Forward-Looking
Statements,” “Risk Factors” and elsewhere in this Annual Report.
Overview
We are a blank check company
incorporated in Delaware on June 8, 2021. We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with one or more target businesses, using cash from the proceeds of our
IPO and the sale of the placement units that occurred simultaneously with the completion of our IPO, our capital stock, debt or a combination
of cash, stock and debt.
We incurred significant costs
in the pursuit of a business combination. As described below, the Business Combination was consummated on February 14, 2024, after the
date of the audited consolidated financial statements included in this Annual Report.
Recent Developments
On January 3, 2024, we held
a special meeting of stockholders (the “Third Special Meeting”). At the Third Special Meeting, our stockholders approved a
proposal to amend the Investment Management Trust Agreement (the “IMTA”), dated as of October 5, 2021, as amended by the Amendment
No. 1 dated December 20, 2022 and Amendment No. 2 dated July 7, 2023, by and between us and Continental Stock Transfer and Trust Company
(“Continental”), to extend the business combination period up to three times for one month each time from January 8, 2024
to February 8, 2024, March 8, 2024 or April 8, 2024 (the “Third IMTA Amendment”). On January 3, 2024, we entered into the
Third IMTA Amendment with Continental. Our stockholders also approved an amendment (the “Third Charter Amendment”) to our
amended and restated certificate of incorporation, as amended by the First Amendment dated December 20, 2022 and the Second Amendment
dated July 7, 2023 (as amended by the Third Charter Amendment, the “PBAX Charter”) the to provide its board of directors the
ability to extend the date by which we have to consummate a business combination up to three times for one month each time, for a maximum
of three additional months. On January 3, 2024, we filed the Third Charter Amendment with the Secretary of State of the State of Delaware,
which was subsequently corrected by a Certificate of Correction (the “Certificate of Correction”) dated January 4, 2024 to
correct certain scrivener’s errors in the Third Charter Amendment.
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In connection with the approval
of the Third Charter Amendment, holders of 11,625 shares of our Class A common stock, exercised redemption rights. As a result, following
satisfaction of such redemptions, we had 6,234,582 shares of Class A common stock outstanding, of which (i) 753,332 were shares of Class
A common stock issued to the public in our IPO, which shares of Class A common stock were entitled to receive a pro rata portion of the
remaining funds in our trust account (the “Trust Account”) in connection with our initial business combination, a liquidation
or certain other events, (ii) 4,596,250 were shares of Class A common stock issued upon the conversion of an equal number of shares of
our Class B common stock, par value $0.0001 per share (“Class B common stock”), acquired by Phoenix Biotech Sponsor, LLC (“Sponsor”)
prior to our IPO, which shares of Class A common stock did not have redemption rights, and (iii) 885,000 were shares of Class A common
stock included in the private placement units acquired in the private placement by the Sponsor and other investors concurrent with our
IPO, which shares of Class A common stock did not have redemption rights.
On January 4, 2024, the Sponsor
deposited $22,600 in the Trust Account in connection with the extension of the business combination deadline. On January 4, 2024, we made
a series of payments of an aggregate of $128,133 to holders of redeemed Class A common stock (an aggregate of $11.02 per redeemed share).
On
February 5, 2024, the parties entered into Amendment No. 1 to the Business Combination Agreement 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 shall be reset from $12.50 to 125% of the Conversion Price of the Series A Preferred Stock (in each case, as defined below) upon
the reset of such Conversion Price as described below and (b) the trading price condition for the Second Level Earnout Target 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 Class A common stock issuable to the stockholders of CERo in connection with the
Business Combination from 4,651,704 shares to 5,000,000 shares. Such number of shares is in addition to up to 1,200,000 shares issuable
upon satisfaction of certain earn-out conditions and 382,651 shares issuable upon exercise of rollover options or warrants.
On February 8, 2024, we
held a special meeting of stockholders (the “Fourth Special Meeting”). At the Fourth Special Meeting, our stockholders
adopted and approved: (i) the Business Combination Agreement, pursuant to which Merger Sub merged with and into CERo, with CERo
surviving the merger as a wholly-owned subsidiary of PBAX and approved the Business Combination and the other transactions and
ancillary documents contemplated by and required for the Business Combination; (ii) on a non-binding advisory basis, certain changes
to the PBAX Charter, including the name change to CERo Therapeutics Holdings, Inc., share authorizations, and others; (iii) the
issuance of Class A common stock to CERo stockholders pursuant to the Business Combination Agreement; (iv) the election of five
directors; and (v) the 2024 Equity Incentive Plan and the 2024 Employee Stock Purchase Plan, contingent of the consummation of the
Business Combination.
In connection with the approval
of the Business Combination, holders of 671,285 shares of Class A common stock, exercised redemption rights. As a result, following satisfaction
of such redemptions, we had 5,563,297 shares of Class A common stock outstanding, of which (i) 82,047 were shares of Class A common stock issued
to the public in our IPO, which shares of Class A common stock were entitled to receive a pro rata portion of the remaining funds in our
Trust Account in connection with its initial business combination, a liquidation or certain other events, (ii) 4,596,250 were shares of
Class A common stock issued upon the conversion of an equal number of shares of our Class B Shares acquired by Sponsor prior to our IPO,
which shares of Class A common stock did not have redemption rights, and (iii) 885,000 were shares of Class A common stock included in
the private placement units acquired in the private placement by the Sponsor and other investors concurrent with our IPO, which shares
of Class A common stock did not have redemption rights. On February 14, 2024, we made a series of payments of an aggregate of $7,456,463.30
to holders of redeemed Class A common stock (an aggregate of $11.11 per redeemed share).
On February 13, 2024, the parties entered into Amendment No. 2 to the
Business Combination Agreement to create two additional pools of Earnout Shares of Class A common stock, one pool of which contained 875,000
shares, which were fully vested at closing of the Business Combination and which were issued as an offset to the agreement by Sponsor
to forfeit an offsetting number of shares, and one pool of which will contain 1,000,000 shares, 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 Class A common stock subject to the other earn-out conditions set forth in the Business Combination Agreement.
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On February 14, 2024, the
Business Combination between Legacy CERo and PBAX was consummated pursuant to the Business Combination Agreement.
At the effective time of
the Business Combination (the “Effective Time”), (i) each outstanding share of Legacy CERo common stock, (the “Legacy
CERo common stock”), was cancelled and converted into the right to receive shares of Common Stock of PBAX; (ii) each outstanding
option to purchase Legacy CERo common stock was converted into an option to purchase shares of Common Stock; (iii) each outstanding share
of CERo preferred stock, was converted into the right to receive shares of Common Stock, and (iv) each outstanding warrant to purchase
CERo preferred stock (the “Legacy CERo warrants”) was converted into a warrant to acquire shares of Common Stock. In addition,
each outstanding Legacy CERo convertible bridge note was exchanged for shares of Series A Preferred Stock.
In addition, the holders
of Legacy CERo common stock and Legacy CERo preferred stock have the contingent right to receive additional shares of Common Stock (the
“Earnout Shares”). At the closing of the Business Combination (the “Closing”), we issued three pools of shares
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 (the “Sponsor Share Forfeiture
Agreement”) which were fully vested at Closing of the Business Combination 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
Business Combination, we issued to Legacy CERo 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.
On February 14, 2024, we
sold 10,080 shares of Series A Preferred Stock, 612,746 Common Warrants and 2,500 Preferred Warrants pursuant to the Amended and Restated
Securities Purchase Agreement, dated February 14, 2024, by and among the Company, CERo and certain accredited investors (the “Initial
Investors”) for aggregate cash proceeds of approximately $9.98 million. A portion of the issued Series A Preferred Stock were issued
as condition for extinguishment of indebtedness.
On February 14, 2024, we
entered into a common stock purchase agreement (the “First ELOC”) with an investor which allows us to elect at our sole discretion
to sell and issue, up to the lesser of $25 million or a limit determined by maximum ownership percentages. As consideration for executing
this agreement, we refunded $1 million of the proceeds of the Series A financing to the investor and $150,000 to investor counsel.
On February 23, 2024, we
entered into a purchase agreement (the “Second ELOC”) with an investor which allows us to elect at our sole discretion to
sell and issue, up to the lesser of $25 million or a limit determined by maximum ownership percentages following the termination of the
First ELOC, including as a result of the sale of the maximum amount permitted under such First ELOC or the expiration of the First ELOC
at the end of its three-year term. As consideration for executing this agreement, we will issue $500,000 of Common Stock with a per share
price determined by the five-day volume weighted average daily common share price on the five days preceding the effectiveness of the
registration statement that includes the shares pursuant to the purchase agreement.
On April 1, 2024, we sold
626 shares of Series B Preferred Stock pursuant to the Securities Purchase Agreement, dated March 28, 2024, by and among us and certain
accredited investors for aggregate cash proceeds of approximately $0.5 million.
Results of Operations
As of December 31, 2023,
we had not commenced any operations. All activity through December 31, 2023 relates to our formation, the IPO, and since the IPO, the
search for a prospective initial business combination. We will not generate any operating revenues until after the completion of a business
combination, at the earliest. We generate non-operating income in the form of interest income from the proceeds derived from the IPO placed
in the Trust Account.
For the year ended December 31, 2023, we had a net loss of $2,536,233,
which primarily consists of operating expenses of $2,892,935 and Delaware franchise taxes of $40,050, partially offset by the interest
earned on marketable securities held in Trust Account of $491,571.
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For the year ended December
31, 2022, we had a net loss of $667,736, which primarily consists of operating expenses of $2,841,391 and Delaware franchise taxes of
$64,050, partially offset by the interest earned on marketable securities held in Trust Account of $2,836,864.
Liquidity and Going Concern
On October 8, 2021,
we consummated the IPO of 17,500,000 units (“Units”), at a price of $10.00 per Unit, which included the partial exercise by
the underwriter of its over-allotment option in the amount of 2,000,000 Units, generating gross proceeds of $175,000,000. Simultaneously
with the closing of the IPO, we consummated the sale of 885,000 units (the “Private Placement Units”) to the Sponsor, Cantor
Fitzgerald & Co. (“Cantor”) and Cohen & Company Capital Markets, a division of J.V.B. Financial Group, LLC (“CCM”)
at a price of $10.00 per Private Placement Unit, generating gross proceeds of $8,850,000.
Following the IPO, the partial
exercise of the over-allotment option and the sale of the Private Placement Units, a total of $178,500,000 was placed in the Trust Account
($10.20 per Unit). We incurred $12,729,318 in transaction costs, including $2,635,000 of underwriting fees, $9,150,000 of deferred underwriting
fees and $944,318 of other offering costs.
As of December 31, 2023,
we had $96,873 in our operating bank accounts, $8,436,311 in money market funds held in Trust Account to be used for a business combination
or to repurchase or redeem our Public Shares in connection therewith and a working capital deficit of $5,049,122.
For the year ended December 31, 2023, there was $1,523,604 of cash
used in operating activities.
For the year ended December
31, 2022, there was $1,092,247 of cash used in operating activities.
We used substantially all
of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less taxes payable),
to complete our Business Combination, including the payment of transaction costs.
In order to finance transaction
costs in connection with a business combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may,
but are not obligated to, loan us funds as may be required. If we complete a business combination, we may repay such loaned amounts out
of the proceeds of the Trust Account released to us. In the event that a business combination does not close, we may use a portion of
the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used
for such repayment. Up to $1,500,000 of such loans may be converted into units of the post business combination entity, at a price of
$10.00 per unit, at the option of the lender. The units would be identical to the Private Placement Units. On December 13, 2022,
we entered into a promissory note with the Sponsor. In order to fund ongoing operations, the Sponsor will loan up to $1,500,000 to us.
On December 8, 2023, the Promissory Note was amended to increase the aggregate amount from $1,500,000 to $1,600,00. As of December 31,
2023 and 2022, there was $1,555,000 and $650,000 of outstanding borrowings under the working capital loan arrangement, respectively. On
February 14, 2024, the Sponsor surrendered the Promissory Note to us in payment of its subscription price for Series A Preferred Stock
in the financing transaction described above.
Our ability to continue as
a going concern is dependent on its ability to raise additional capital to fund its R&D activities and meet its obligations on a timely
basis. Since inception, we have incurred net losses and operating cash flow deficits, resulting in an accumulated deficit of $43.3 million
as of December 31, 2023. On February 14, 2024, we acquired the assets of CERo Therapeutics, Inc., closed a private placement with
gross proceeds of $9.8 million, and assumed the R&D operations of Legacy CERo. Additional funds are necessary to maintain current
operations and to continue R&D activities. However, there can be no assurance that sufficient funding will be available to allow us
to successfully continue its R&D activities and planned regulatory filings with the FDA. If we are 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 our business, results of operations, and prospects. These conditions raise substantial doubt about our ability to continue
as a going concern within one year from the date this Annual Report is issued. The accompanying 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.
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Contractual Obligations
We do not have any long-term
debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the Sponsor or an
affiliate of the Sponsor a monthly fee of $20,000 for office space, administrative and shared personnel support services to us. We began
incurring these fees on October 6, 2021 and incurred these fees monthly through December 31, 2022. The payment of these fees
was suspended on December 31, 2022 and reinstated on March 31, 2023. As of December 31, 2023, there was a $75,000 outstanding
balance owed to the Sponsor.
We entered into an agreement,
commencing on the date of our listing on Nasdaq, to pay the spouse of our Chief Executive Officer a monthly consulting fee of $15,000
for assisting us in identifying and evaluating potential acquisition targets. Payment of the consulting fees ended on December 31,
2022 as part of the First Charter Amendment approval.
In addition, we have an agreement
to pay the underwriter a deferred fee of $9,150,000. The deferred fee will become payable to the representative from the amounts held
in the Trust Account solely in the event that we complete a business combination, subject to the terms of the underwriting agreement.
Prior to Closing the Business Combination, we entered into a fee modification agreement with the underwriter, pursuant to which the underwriter
received shares of Common Stock in lieu of certain cash payments.
Critical Accounting Policies
The preparation of financial
statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially
differ from those estimates. We have identified the following critical accounting policies:
Accounting for Warrants
We account 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 (“ASC 815”). 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 our own Common
Stock and whether the instrument holders could potentially require “net cash settlement” in a circumstance outside of our
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. Management has concluded
that the Private Warrants and Private Placement Warrants issued pursuant to the warrant agreement qualify for equity accounting treatment.
Common Stock Subject to Possible Redemption
We account for our Common
Stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.”
Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable
common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock
is classified as stockholders’ equity. Our Common Stock features certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events. Accordingly, Common Stock subject to possible redemption is presented
as temporary equity, outside of the stockholders’ deficit section of our balance sheets. We recognize changes in redemption value
immediately as they occur and adjust the carrying value of redeemable common stock to equal the redemption value at the end of each reporting
period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid in capital
and accumulated deficit.
Net Loss per Common Share
Net loss per share is computed
by dividing net loss by the weighted average number of shares of common stock outstanding during the period. At December 31, 2023, we did not have any dilutive securities and/or other contracts that
could, potentially, be exercised or converted into shares of common stock and then share in our earnings. As a result, diluted net loss
per share is the same as basic net loss per share for the period presented.
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Recent Accounting Standards
In December 2023,
the Financial Accounting Standard Board (“FASB”) FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income
Tax Disclosures (“ASU 2023-09”), which requires disclosure of incremental income tax information within the rate reconciliation
and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning
after December 15, 2024. Early adoption is permitted. Management does not believe the adoption of ASU 2023-09 will have a material impact
on its consolidated financial statements and disclosures.
In June 2016, the FASB issued Accounting Standards Update (“ASU
2016-13”) Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). This update requires financial assets measured at amortized cost basis to be presented at the net amount
expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical
experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Since
June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies.
The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with
early adoption permitted. We adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have an impact
on our financial statements.
Management does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying
financial statements.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
We are a smaller reporting company as defined
by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 8. Financial Statements and Supplementary
Data.
Our consolidated financial statements for the
year ended December 31, 2023, together with the reports of our independent registered public accounting firm, appear beginning on page
F-1 of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure 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.
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 December 31, 2023. 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.
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(b) Management’s Report on Internal Control
over Financial Reporting
As required by SEC rules
and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes
in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). Our internal control
over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company;
(2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that
our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect
on the consolidated financial statements.
In the Form 10-Q for each
of the three quarters in 2023, we discovered an error in the cash flow statement for the presentation of restricted cash. Due to this
error a significant deficiency in internal controls was identified. To correct this, we have revised our cash flow statement for the December
31, 2023 audited financial statements. These errors had no impact on the balance sheets or statements of operations in those periods.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness
of our internal control over financial reporting at December 31, 2023. In making these assessments, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated
Framework (2013). Based on our assessments and those criteria, management determined that, except for the significant deficiency described
above, we maintained effective internal control over financial reporting as of December 31, 2023.
This Annual Report does not
include an attestation report of our independent registered public accounting firm due to our status as an emerging growth company under
the JOBS Act.
(c) Changes in Internal Control over Financial
Reporting
There were no changes in
our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during
the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. The assessment of our disclosure controls and internal control over financial reporting was conducted as of December
31, 2023 with respect to PBAX and does not reflect any changes resulting from the subsequent consummation of the Business Combination.
(d) Inherent Limitations on Effectiveness of
Controls
Our
disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of
achieving the desired control objectives. Our management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Similarly, an evaluation of controls cannot provide absolute assurance
that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
Item 9B. Other Information.
(a) On April 1, 2024, we consummated a private placement of 626 shares
of 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.
(b) During the three-month
period ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934,
as amended) adopted, terminated or modified a Rule 10b5-1 trading arrangement or any “non-Rule 10b5-1 trading agreement” (as
defined in Item 408(c) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign
Jurisdictions that Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers
and Corporate Governance.
Executive Officers and Directors
As of April 1, 2024, our
directors and executive officers were as follows:
Name Age Title
Executive Officers:
Brian G. Atwood 71 Chief Executive Officer, Chairman and Director
Charles R. Carter 57 Chief Financial Officer, Treasurer and Secretary
Daniel Corey, M.D. 45 Chief Technology Officer, Director and Founder
Directors:
Chris Ehrlich 55 Vice Chairman
Michael Byrnes 47 Director
Kathleen LaPorte 62 Director
Robyn Rapaport 31 Director
Lindsey Rolfe, M.D. 56 Director
Executive Officers
Brian G. Atwood has
served as Chairman and Chief Executive Officer since February 2024, and previously served as Chairman of PBAX from October 2021 the Closing
of the Business Combination in February 2024. Mr. Atwood serves as a Managing Director for Versant Ventures, a healthcare-focused
venture capital firm that he co-founded in 1999. In 2015, Mr. Atwood co-founded Cell Design Labs, Inc., a biotechnology
company focused on developing human cell engineering technology for the treatment of multiple diseases, including cancer, where he served
as President and Chief Executive Officer until 2017, when it was acquired by Gilead Sciences. Mr. Atwood serves on the board
of directors of Clovis Oncology, Inc. (Nasdaq: CLVS), and Atreca, Inc. (Nasdaq: BCEL), where he is Chairman. He also served on the
board of directors of Immune Design Corp. from May 2008 until June 2016 (acquired by Merck in 2019), Veracyte, Inc., from its founding
in 2008 until December 2016, OpGen Inc., from July 2007 until December 2017, Five Prime Therapeutics, from 2002 until March 2016,
Cadence Pharmaceuticals, Inc. from March 2006 until its acquisition in March 2014, Helicos Biosciences from 2003 until September
2011, Pharmion Corporation from 2000 until its acquisition in March 2008, Trius Therapeutics, Inc. from February 2007 until its acquisition
in September 2013 and Locust Walk Acquisition Corp. (Nasdaq: LWAC) from January 2021 until the consummation of its business combination
in August 2021. Mr. Atwood holds a B.S. in Biological Sciences from the University of California, Irvine, a M.S. in Ecology from
the University of California, Davis, and a M.B.A. from Harvard Business School.
Mr. Atwood was selected
to serve on our board of directors because of his experience in the biotechnology industry, his years of business and leadership experience
and his financial sophistication and expertise.
Charles Carter has
served as Chief Financial Officer and Secretary since February 2024. Prior to the business combination, Mr. Carter served as a consulting
finance executive for Legacy CERo through Danforth Advisors, LLC (“Danforth”) since February 2023, and a consultant for Danforth
since May 2022. Prior to rejoining Danforth, Mr. Carter was Chief Financial Officer and Secretary of iCAD, Inc. (Nasdaq: ICAD) from May
2021 to May 2022. Previously, Mr. Carter was Chief Financial Officer of GI Dynamics, Inc. (“GI Dynamics”), a medical device
company (ASX: GID, delisted July 2020) from December 2018 to April 2021. Prior to joining GI Dynamics in 2019, Mr. Carter was a finance
consultant with Danforth from March 2018 to September 2019. Mr. Carter has also been the Chief Financial Officer of The Guild for Human
Services, a not-for-profit community-based residential school and program for special needs students and adults, the Chief Financial Officer
for Aeris Therapeutics, Inc. and Intelligent Medical Devices, Inc. and held senior finance leadership positions at Adnexus Therapeutics,
Inc. and Transkaryotic Therapies, Inc./Shire, PLC. (Nasdaq: TKT; Nasdaq: SHPG) (“TKT”). Prior to TKT, Mr. Carter was a partner
with Mercer Management Consulting, Inc. Mr. Carter holds an M.B.A. and an M.S. in Molecular Genetics from the University of Chicago and
a B.A. in Biology from Colgate University.
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Daniel Corey, M.D.,has
served as our Chief Technology Officer since February 2024, and previously served as Chief Executive Officer, Chief Scientific Officer,
a member of the board of directors of Legacy CERo from its inception in 2018 until the Closing of the Business Combination of February
2024. Prior to founding Legacy CERo, from June 2012 to June 2018, Dr. Corey was a senior follow in the Division of Hematology at
Stanford University, and from June 2010 to June 2012, Dr. Corey was a fellow at Stanford University’s Institute of Stem Cell
Biology and Regenerative Medicine, where he was awarded a career development award from the National Heart Lung and Blood Center (“NHLBI”)
for work studying hematopoiesis. Dr. Corey is a member of various medical-related societies, has eight U.S. patent applications
outstanding and has written extensively in various medical publications. Dr. Corey has received various honors during his education
and career, which, among others, include the Johnson and Johnson Innovation Award; the Siebel Stem Cell Scholar, Stanford University;
the Stanford University Molecular Immunology Training Award; the NHLBI K12 Career Development Award, Stanford University; the NHLBI National
Service Research Award, Duke University. Dr. Corey received a B.A. with honors from Brown University, received his M.D. from University
of Washington School of Medicine and served as a fellow and a resident at Duke University.
Dr. Corey was selected
to serve on our board of directors based on his substantial medical and scientific experience, and, in particular, his history with Legacy
CERo and the creation of CER-T cells.
Directors
Chris Ehrlich has
served as Vice Chairman of our board of directors since February 2024, and previously served as the Chief Executive Officer of PBAX from
October 2021 until the Closing of the Business Combination in February 2024. From January 2021 to August 2021, he served as the Chief
Executive Officer of Locust Walk Acquisition Corp (Nasdaq: LWAC) until it merged with eFFECTOR Therapeutics, Inc., where he currently
serves on the board of directors. He is also the Principal of Ehrlich Bioventures, LLC, a consultancy working with emerging biopharma
companies. He previously served as Senior Managing Director and the Global Head of Strategic Transactions at Locust Walk Partners from
2013 to 2021. He brings significant biotechnology industry, business development, venture capital experience, investment banking and SPAC
experience. While at Locust Walk Partners, Mr. Ehrlich was involved with sourcing and leading multiple transactions for emerging
biopharmaceutical companies, including the sale of Xyphos Biosciences, Inc. to Astellas in 2019 and the sale of Thar Pharmaceuticals to
Grunenthal in 2018. Prior to Locust Walk Partners, he was a Managing Director at InterWest Partners (“InterWest”), a
venture capital firm. At InterWest, he served on the boards of KAI Pharmaceuticals, a privately held pharmaceutical company (acquired
by Amgen in 2012), Biomimetic Therapeutics, Inc., a biotechnology company (acquired by Wright Medical Technologies in 2013), Invuity,
Inc., a medical technology company acquired by Stryker in 2018) and Xenon Pharmaceuticals, a biopharmaceutical company (Nasdaq: XENE).
Prior to joining InterWest, Mr. Ehrlich worked as the Director of Licensing and Business Development at Purdue Pharma, in business
development at Genentech, in venture capital at the U.S. Russia Investment Fund, and in biotechnology strategy development at L.E.K. Consulting.
Mr. Ehrlich also currently serves on the board of directors of Prostate Management Diagnostics, Inc., on the advisory board of the
Peter Michael Foundation, where he is a Senior Advisor, and on the healthcare at Kellogg advisory board at Northwestern University. Mr. Ehrlich
has a B.A. in Government from Dartmouth College and an M.B.A. from the Kellogg Graduate School of Management at Northwestern University,
where he is a frequent lecturer.
Mr. Ehrlich was selected
to serve on our board of directors based on his substantial investment and acquisition experience in the biotechnology and biopharmaceutical
industries and his experience serving as a director for various public and private companies.
Michael Byrnes has
served as a member of our board of directors since February 2024. Mr. Byrnes has served as the Chief Financial Officer of eFFECTOR Therapeutics
since December 2020. Previously, Mr. Byrnes was Senior Vice President of Finance at Principia Biopharma, Inc. from January 2020 until
its acquisition by Sanofi in September 2020. Prior to that, Mr. Byrnes served as the Chief Financial Officer of Alkahest, Inc. from May
2018 to January 2020 and Chief Financial Officer of Ocera Therapeutics, Inc., from December 2014 until its acquisition by Mallinckrodt
Pharmaceuticals in December 2017. Mr. Byrnes served as Corporate Controller of Maxygen, Inc. from March 2010 to December 2014 and prior
to that, held finance positions of increasing responsibility from 2000 to 2010 with NeurogesX, Inc., Lipid Sciences, Inc. and ADAC Laboratories,
Inc., a Philips Medical Systems company. Mr. Byrnes received his B.S.C. in Finance from Santa Clara University and an M.B.A. from California
State University, Hayward.
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Mr. Byrnes was selected to
serve on our board of directors based on his substantial leadership and management experience in the biopharmaceutical industry.
Kathleen LaPorte
has served as a member of our board of directors since February 2024, and previously served a member of PBAX’s board of
directors from October 2021 until the Closing of the Business Combination in February 2024. Ms. LaPorte is an experienced executive,
founder and board member, focused on life sciences. She co-founded New Leaf Ventures, served as a General Partner of The Sprout
Group, and was Chief Business Officer and Chief Executive Officer of Nodality Inc. Ms. LaPorte has served on sixteen public company
boards and fourteen public company audit committees and numerous private company boards. Ms. Laporte currently serves as an
independent director for Bolt Biotherapeutics (Nasdaq: BOLT), Precipio Diagnostics (Nasdaq: PRPO), 89Bio (Nasdaq: ENTB), Elysium
Therapeutics, and Q32 Bio Inc. (Nasdaq: QTTB). Ms. LaPorte serves as the chair of the audit committees of Bolt Biotherapeutics,
Precipio Diagnostics and Q32 Bio Inc. and as the chair of the compensation committee of 89Bio. She previously served on the
California Institute for Regenerative Medicine, a state agency board. Ms. LaPorte has a B.S. degree in Biology from Yale University
and a M.B.A. from the Stanford University Graduate School of Business.
Ms. LaPorte was selected
to serve on our board of directors based on her extensive leadership and management experience in the life sciences industry.
Robyn Rapaport has
served as a member of our board of directors since February 2024. Ms. Rapaport has served a principal overseeing alternative investments
at Rapaport Capital since November 2021. Prior to that, Ms. Rapaport was an entrepreneur at the University of California, Los Angeles
Anderson Venture Accelerator, from June 2019 to December 2020. Ms. Rapaport holds an M.B.A. from the University of California, Los Angeles
and a B.A. from the University of Pennsylvania in history and consumer psychology.
Ms. Rapaport was selected
to serve our board of directors based on her financial and operational experience.
Lindsey Rolfe, M.D.,
has served as a member of our board of directors since February 2024. Dr Rolfe has served as Chief Medical Officer at 3B Pharmaceuticals
GmbH since August 2023 and previously served as Chief Medical Officer at Clovis Oncology Inc. from August 2015 to June 2023, and served
as Senior Vice President of Clinical Development from 2010. At Clovis, Dr. Rolfe oversaw the development team that obtained approvals
for Rubraca as an ovarian cancer treatment in the United States and Europe, and was responsible for all pre- and post-marketing medical
activities. Dr. Rolfe has more than 20 years of drug development experience and previously served in senior oncology development
roles at Celgene Corporation, Pharmion Corporation, Cambridge Antibody Technology, UCB Inc. and Celltech Group plc. In addition, Ms. Rolfe
has served as an independent director at Atreca Inc. (Nasdaq: BCEL) since August 2019. Dr. Rolfe holds a BSc Anatomy and Bachelor
of Medicine and Surgery from the University of Edinburgh, undertook post-graduate medical training in London, UK and obtained her post-graduate
internal medicine qualification as a Member of the Royal College of Physicians. She has specialist accreditation in Pharmaceutical Medicine
from the UK General Medical Council and is a Fellow of the Faculty of Pharmaceutical Medicine in the UK.
Dr. Rolfe was selected
to serve on our board of directors based on her experience in leading drug discovery and development of therapeutics.
Family Relationships
There are no family relationships
between our board of directors and any of our executive officers.
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Board of Directors
Director Independence
Nasdaq listing rules require
that a majority of the board of directors of a company listed on Nasdaq be composed of “independent directors,” which is defined
generally as a person other than an officer or employee of a company or its subsidiaries or any other individual having a relationship,
which, in the opinion of such company’s board of directors, would interfere with the director’s exercise of independent judgment
in carrying out the responsibilities of a director. Based on business and personal information provided
by each director concerning her or his background, employment, and affiliations, including family relationships, our board of directors
has determined that each of Mr. Byrnes, Mr. Ehrlich, Ms. LaPorte, Ms. Rapaport and Dr. Rolfe is an independent director under the Nasdaq
listing rules and Rule 10A-3 of the Exchange Act. In addition, we determined that each of Brian G. Atwood, Barbara A. Kosacz and
Caroline M. Loewy, who served on the board of directors during fiscal year 2023, was also an independent director under the Nasdaq
listing rules and Rule 10A-3 of the Exchange Act; provided, however, that in connection with Mr. Atwood’s appointment as our Chief
Executive Officer at the Closing, Mr. Atwood is no longer independent.
In
addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation
and nominating and corporate governance committees be independent. Under the rules of Nasdaq, a director will only qualify as an “independent
director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere
with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations,
our board of directors considered the current and prior relationships that each non-employee director has with us and all other facts
and circumstances our board of directors deemed relevant in determining independence, including the beneficial ownership of our Common
Stock by each non-employee director and relationships with each of PBAX and Legacy CERo.
Classified Board of Directors
In accordance with the terms
of our Charter, our board of directors is divided into three classes with staggered, three-year terms. At each annual meeting of stockholders,
the directors whose terms then expire will be eligible for reelection until the third annual meeting following reelection. Our directors
are divided among the three classes as follows:
Our Bylaws provide that the
number of members of our board of directors shall be fixed in accordance with our Charter. Our Charter provides that the authorized number
of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of
the directors. Our board of directors is currently fixed at seven members. The division of our board of directors into three classes with
staggered three-year terms may delay or prevent a change of our board of directors or a change in control of our company. Our directors
may be removed only for cause by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock then entitled
to vote in an election of directors.
Director Attendance at Annual Meeting of
Stockholders
We encourage our directors
to attend our annual meetings of stockholders. We did not hold an annual meeting of stockholders during the fiscal year ended December
31, 2023.
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Board and Committee Meetings
During the fiscal year
ended December 31, 2023, our board of directors met four times, our Audit Committee met four times, our Compensation Committee
and our nominating and corporate governance committee met zero times.
Each board member attended 75% or more of the aggregate number of meetings of the board of directors and meetings of the committees
on which he or she served during the fiscal year ended December 31, 2023, for which he or she was a director or committee
member.
Board Leadership Structure
Our board of directors does
not have a policy regarding separation of the roles of Chief Executive Officer and chairman of the board of directors. Our board of directors
recognizes that it is important to determine an optimal board leadership structure to ensure the independent oversight of management as
we continue to grow, and believes it is in our best interests to make determinations regarding such leadership structure based on circumstances
from time to time. Currently, our Chief Executive Officer serves as the chairman of the board of directors.
Our board of directors believe
that this leadership structure, combined with our corporate governance policies and processes, creates an appropriate balance between
strong and consistent leadership and independent oversight of our business. The chairman chairs the meetings of our board of directors
and stockholders, with input from the independent directors, and as such, our board of directors believes that a person with comprehensive
knowledge of our company is in the best position to serve such role. In making this determination, the board of directors considered,
among other matters, Mr. Atwood’s management of our business on a day-to-day basis coupled with his direct involvement in our business
operations, and believed that Mr. Atwood is highly qualified to act as both chairman and Chief Executive Officer due to his experience,
knowledge and history with both Legacy CERo and PBAX.
In addition, each of our
other directors is “independent” under Nasdaq standards. Our independent vice chairman presides over regularly-held executive
sessions of independent directors, without management present, and all of our independent directors are active in the oversight of our
company. In addition, our board of directors and each committee of board of directors has complete and open access to any member of management
and the authority to retain independent legal, financial and other advisors as they deem appropriate.
Our board of directors believe
its administration of its risk oversight function has not affected its leadership structure. Risk is inherent with every business, and
how well a business manages risk can ultimately determine its success. Our board of directors is actively involved in oversight of risks
that could affect us. This oversight is conducted primarily by our full board of directors, which has responsibility for general oversight
of risks, and the Audit Committee, which has responsibility for reviewing the adequacy of our risk management activities with management
and our independent registered public accounting firm.
At each of its meetings,
the board of directors receives business updates from various members of management. These updates may identify matters that have emerged
within that member of management’s scope of responsibility that involve operational, financial, legal or regulatory risks and, in
these cases, the board of directors provides guidance to management. Our board of directors believes that full and open communication
between management and the board of directors is essential for effective risk management and oversight.
Our board of directors has
concluded that our current leadership structure is appropriate at this time. However, our board of directors will continue to periodically
review our leadership structure and may make such changes in the future as it deems appropriate.
Role of Board in Risk Oversight
Our board of directors has
responsibility for the oversight of our risk management processes and, either as a whole or through its committees, regularly discusses
with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight
process includes receiving regular reports from board committees and members of senior management to enable our board of directors to
understand our risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including
operations, finance, legal, regulatory, strategic and reputational risk.
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The Audit Committee reviews
information regarding liquidity and operations, and oversees our management of financial risks. It also reviews information and policies
related to information technology risk, including cyber-security and incident response planning. Periodically, the Audit Committee reviews
our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the Audit Committee
includes direct communication with our external auditors, and discussions with management regarding significant risk exposures and the
actions management has taken to limit, monitor or control such exposures. The Compensation Committee is responsible for assessing whether
any of our compensation policies or programs has the potential to encourage excessive risk-taking. The nominating and corporate governance
committee manages risks associated with the independence of the board of directors, corporate disclosure practices and potential conflicts
of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire
board of directors is regularly informed through committee reports about such risks. Matters of significant strategic risk are considered
by our board of directors as a whole.
Committees of the Board of Directors
The standing committees of
our board of directors include the Audit Committee, a Compensation Committee, and a nominating and corporate governance committee, each
of which operates under a charter that has been approved by our board of directors. Such charters are available on our website at www.cero.bio/investors.
The reference to our website address does not constitute incorporation by reference of the information contained at or available through
our website. We have included our website address as an inactive textual reference only.
Audit Committee
The members of our Audit
Committee are Mr. Byrnes, Mr. Ehrlich, and Ms. Rapaport. Mr. Byrnes serves as the chairperson of the Audit Committee. All members of our
Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. Our board
of directors has determined that Mr. Byrnes is an “audit committee financial expert” as defined by applicable SEC rules and
has the requisite financial sophistication as defined under the applicable Nasdaq listing standards. Our board of directors has determined
each of Mr. Byrnes, Mr. Ehrlich and Ms. Rapaport is independent under the applicable rules of the SEC and Nasdaq and has
the requisite financial expertise required under the applicable requirements of Nasdaq. In
arriving at this determination, our board of directors has examined each Audit Committee
member’s scope of experience and the nature of their experience reading and understanding financial statements.
The Audit Committee’s
main function is to oversee our accounting and financial reporting processes and the audits of our consolidated financial statements.
The Audit Committee’s responsibilities include, among other things:
● reviewing and discussing policies on risk assessment and risk management;
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● reviewing related party transactions;
Compensation Committee
The members of our Compensation
Committee are Mr. Ehrlich, Ms. LaPorte and Dr. Rolfe. Ms. LaPorte serves as the chairperson of the Compensation Committee. Our board of
directors has determined that each of Mr. Ehrlich, Ms. LaPorte and Dr. Rolfe is independent under the applicable Nasdaq listing standards
and is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act.
Our Compensation Committee’s
main function is to oversee our compensation structure, policies and programs and to review
the processes and procedures for the consideration and determination of director and executive compensation.
The Compensation Committee’s responsibilities include, among other things:
● reviewing the policies relating to compensation and benefits of employees.
Nominating and Corporate Governance Committee
The members of our nominating