Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations of CERo.
The following discussion
and analysis of CERo’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
CERo Therapeutics, Inc. (the
“Predecessor”) was incorporated in Delaware on September 23, 2016, and is based in South San Francisco, California. Predecessor
was focused on developing its therapeutic platform to genetically engineer human immune cells to fight cancer and did not begin clinical
development or product commercialization. The Company’s efforts will focus on continued product development, including clinical
development, to support regulatory approval to commercialize and subsequent product commercialization.
On June 4, 2023, Predecessor
entered into a Business Combination Agreement (as amended by that certain Amendment No. 1 to the Business Combination Agreement, dated
as of February 5, 2024 and Amendment No. 2 to the Business Combination Agreement, dated as of February 13, 2024, the “Business Combination
Agreement”) by and among PBAX and PBCE Merger Sub, Inc., pursuant to which Merger Sub merged with and into Predecessor, with Predecessor
surviving as a wholly-owned subsidiary of PBAX (the “Merger”). In connection with the consummation of the Business Combination
on February 14, 2024, PBAX changed its corporate name to “CERo Therapeutics Holdings, Inc.”
At the effective time of
the Merger, (i) each outstanding share of Predecessor common stock, was cancelled and converted into the right to receive shares of Common
Stock; (ii) each outstanding option to purchase Predecessor common stock was converted into an option to purchase shares of Common Stock,
par value $0.0001 per share; (iii) each outstanding share of Predecessor preferred stock, was converted into the right to receive shares
of Common Stock, and (iv) each outstanding warrant to purchase Predecessor preferred stock was converted into a warrant to acquire shares
of Common Stock. In addition, each outstanding Predecessor convertible bridge note was exchanged for shares of Series A Preferred Stock.
In addition, the holders
of Predecessor common stock and Predecessor preferred stock have the contingent right to receive the Earnout Shares. At the Closing, the
Company issued three pools of shares of Common Stock subject to forfeiture if the applicable conditions to transferability thereof are
not satisfied: (i) 600 shares of Common Stock (giving retroactive effect to the Reverse Stock Splits), which will be fully vested upon
the achievement of certain adjusted stock price-based earnout targets or upon entering into a change of control agreement, (ii) 438 shares
of Common Stock (giving retroactive effect to the Reverse Stock Splits), pursuant to a Letter Agreement, dated as of February 14, 2024
which were fully vested at Closing of the Merger and which were issued as an offset to the Sponsor Share Forfeiture Agreement, and (iii)
500 shares of Common Stock (giving retroactive effect to the Reverse Stock Splits), which were fully vested upon the June 28, 2024 achievement
of certain regulatory milestone-based earnout targets.
As consideration for the
Merger, the Company issued to Predecessor stockholders an aggregate of 4,038 shares of Common Stock, including 1,100 Earnout Shares and
187 shares issuable upon exercise of rollover options or warrants (giving retroactive effect to the Reverse Stock Splits).
Going concern
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal
course of business. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital
to fund its R&D activities and meet its obligations on a timely basis. As of December 31, 2025, the Company reported approximately
$1.7 million of cash and cash equivalents, a working capital deficit of approximately $6.4 million, and an accumulated deficit of approximately
$90.8 million. Additionally, during the year ended December 31, 2025, the Company used approximately $16.1 of net cash in operating activities.
During the year ended December
31, 2025, we received net proceeds from the sale of pre-funded warrants. exercise of the remaining Series A Preferred Warrants, the collection
of stock subscriptions receivable and ELOC fundings. Furthermore, during the year ended December 31, 2025, we received net proceeds from
the sales of Series D Preferred Stock of approximately $2.6 million and the sales of Series E Preferred Stock of approximately $1.9 million.
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 the Company to successfully continue its R&D activities and planned regulatory filings
with the FDA. If the Company is unable to obtain the necessary funds, significant reductions in spending and the delay or cancellation
of planned activities may be necessary. These actions would have a material adverse effect on the Company’s business, results of
operations, and prospects. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within
one year from the date the consolidated financial statements are issued. These consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might
result from the outcome of this uncertainty.
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Recent Developments
On February 9, 2026 and on
March 6, 2026, we issued and sold Convertible Notes for an aggregate purchase price of $1,500,000 ($750,000 each), having an aggregate
principal face value of $1,875,000 ($937,500 each) to Keystone. Pursuant to the Convertible Notes, we may borrow, from time to time thereunder,
up to a maximum aggregate amount not to exceed a sum of $2,000,000. The Convertible Notes bear interest at a rate of 10% per annum, mature
on July 9, 2027 and August 6, 2027, respectively, and are convertible into shares of our Common Stock. At any time after the issuance
of the Convertible Notes, Keystone, at its option, is entitled to convert all or any lesser portion of the outstanding principal amounts
and accrued but unpaid interest into Common Stock at a conversion price equal to the lesser of (i) $0.05 and (ii) 80% of the average of
the five lowest intraday trading prices during the 20 days prior to the day that Keystone requests conversion, unless otherwise modified
by mutual agreement between the parties, subject to certain adjustments and limitations, including a beneficial ownership limitation of
4.99%.
Corporate Developments
Reverse Stock Splits
At 12:01 a.m. Eastern time
on January 8, 2025, we effected the Reverse Stock Split pursuant to which each 100 shares of our Common Stock outstanding immediately
prior thereto was converted into 1 share of our Common Stock outstanding immediately thereafter.
At 12:01 a.m. Eastern time
on June 13, 2025, we effected the Reverse Stock Split pursuant to which each 20 shares of our Common Stock outstanding immediately prior
thereto was converted into 1 share of our Common Stock outstanding immediately thereafter.
Investigational New Drug
Application
In July 2025, CER-1236 received
an FDA Orphan Drug Designation for the treatment of acute myeloid leukemia. In September 2025, the FDA granted Fast Track Designation
to our lead investigational compound, CER-1236 for acute myeloid leukemia, which is in addition to the existing Orphan Drug Designation
for the same compound. The FDA’s Fast Track Designation is designed to accelerate the development and review of therapies for serious
or life-threatening conditions with unmet medical need. The designation provides us with the opportunity for increased FDA interactions,
potential eligibility for priority review, and the ability to submit data on a rolling basis. Further, it also requires us to potentially
provide expanded access to the investigational drug on an as approved basis under pre-specified conditions.
Fifth PIPE Financing
On October 14, 2025, we entered
into the Fifth Securities Purchase Agreement, pursuant to which we agreed to issue and sell up to 9,750 shares of Series E Preferred Stock
for an aggregate purchase price of up to $7 million in one or more closings. On October 16, 2025, we and the requisite buyers party to
the Fifth Securities Purchase Agreement entered into Amendment No. 1 to the Securities Purchase Agreement (the “SPA Amendment”)
to add an additional Buyer (as defined in the Fifth Securities Purchase Agreement) and increase the size of the Initial Closing (as defined
in the Fifth Securities Purchase Agreement) by $500,000 to an aggregate of approximately $2.25 million of gross proceeds and reduce the
size of the Additional Closings (as defined in the Fifth Securities Purchase Agreement) by an offsetting amount. There was no change to
the aggregate amount of up to $7 million of proceeds to be funded pursuant to the Fifth Securities Purchase Agreement upon consummation
of all of the Closings (as defined in the Fifth Securities Purchase Agreement) provided for therein. On October 16, 2025, pursuant to
the Fifth Securities Purchase Agreement, we issued and sold, and the PIPE Investors purchased 3,816 shares of the Series E Preferred Stock
for aggregate net proceeds of approximately $1.93 million, paid in cash. Each Additional Closing under the Fifth Securities Purchase Agreement
is subject to a mutual option of the Company and certain PIPE Investors and satisfaction of customary closing conditions. The Fifth Securities
Purchase Agreement includes the consent of the holders of the Company’s outstanding Series C and Series D convertible preferred
stock to the issuance of the Series E Preferred Stock pari passu therewith, in consideration for the reduction of the conversion
price for the Company’s outstanding Series C and Series D convertible preferred stock to $1.76, effective as of the date of the
Fifth Securities Purchase Agreement.
November 2025 ELOC Transaction
On November 26, 2025, the
Company entered into an agreement to issue and sell 729,596,950 shares of Common Stock under the November 2025 Keystone Purchase Agreement.
As the November 2025 Keystone Purchase Agreement constitutes a continuation of the equity line program commenced under the February 2024
Purchase Agreement, the Commitment Shares issued to the Investor pursuant to the February 2024 Purchase Agreement shall satisfy in full
the Company’s obligation to deliver any additional shares of Common Stock to the Investor as consideration for entering into the
November 2025 Keystone Purchase Agreement.
Nasdaq Notices of Non-compliance
and Nasdaq Panel Decision
As previously disclosed,
on January 17, 2025, the Company received a letter setting forth the determination of a panel convened by Nasdaq (the “Nasdaq Panel”)
granting the Company’s request for an extension (the “Extension”) to regain compliance with certain continued listing
requirements of the Nasdaq Stock Market until April 22, 2025. The Company presented its plan (the “Plan”) for regaining compliance
with such requirements at a hearing conducted on December 17, 2024. The Company’s Plan included completion of a reverse stock split,
which occurred on January 8, 2025, and transferring the listing of its securities to the Nasdaq Capital Market, which was completed on
February 12, 2025, and certain other conditions, including the satisfaction of the $2.5 million minimum stockholders’ equity requirement
for continued listing on the Nasdaq Capital Market.
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In addition, as previously disclosed, from November 2024 through December
31, 2025, the Company raised approximately $6.2 million of net proceeds from its equity line of credit, and an additional approximately
$4.2 million of net proceeds from its public offering of shares of Common Stock, pre-funded warrants and warrants to purchase shares of
Common Stock that closed on February 7, 2025 (the “February 2025 Offering”). As a result of such capital raising activities
and the proceeds of the Private Placement received on the First Closing Date, as well as successful negotiations with certain service
providers to reduce outstanding balances payable, the Company received a notification letter from Nasdaq on May 7, 2025, stating that
the Company had regained compliance with the Nasdaq continued listing standard under Nasdaq Listing Rule 5550(b)(1), which requires, among
other things, that the Company maintain at least $2.5 million in stockholders’ equity.
On June 11, 2025, we received
a Bid Price Requirement Letter notifying us that, for the 30 consecutive business day period between April 25, 2025 through June 9, 2025,
the closing bid price for our Common Stock was below the minimum $1.00 per share required for continued listing on The Nasdaq Capital
Market set forth in Nasdaq Listing Rule 5550(a)(2), which is required for continued listing of the Common Stock on Nasdaq. We timely appealed
the delisting determination by requesting a hearing before the Nasdaq Panel. Such request for a Nasdaq Panel hearing stayed the suspension
of the Company’s securities. On July 7, 2025, Nasdaq informed us that they had determined that we have regained compliance with
the Bid Price Requirement and were therefore in compliance with the continued listing requirements. As a result, Nasdaq canceled the hearing
and the Common Stock will continue to be listed and traded on the Nasdaq Capital Market, subject to maintaining all listing standards.
On August 28, 2025, we received
a letter from the staff at the Nasdaq Listing Qualifications department notifying us that such staff had determined that we do not comply
with the Stockholders’ Equity Requirement. We previously had been out of compliance with Nasdaq continued listing requirements until,
on May 7, 2025, we received a determination of the October 2025 Panel that we had regained compliance with such requirements. Accordingly,
pursuant to Nasdaq Rule 5815(d)(4)(B), we are subject to a mandatory hearings panel monitor until one year after regaining compliance
with such requirements. As a result, Nasdaq staff lack the discretion to grant us a cure period for demonstrating regaining compliance
with the Stockholders’ Equity Requirement. The Nasdaq staff indicated that our securities would be suspended from trading on Nasdaq
and delisted on September 8, 2025, subject to our right to appeal described below.
On September 3, 2025, we
requested a hearing to appeal such determination before the October 2025 Panel. The hearing request stayed the suspension of the trading
of our Common Stock and delisting thereof pending such hearing or any extension provided by the October 2025 Panel. The hearing was held
on October 14, 2025.
On October 29, 2025, we received
the determination of the October 2025 Panel to deny our request to continue the listing of our shares of Common Stock on Nasdaq and that
the trading in our securities would be suspended at the open of trading on October 31, 2025. The Company’s shares of Common Stock
commenced trading on OTCQB as of December 2, 2025. On January 29, 2026, after considering the written record in this matter, the Nasdaq
Listing and Hearing Review Council issued its decision affirming the Panel’s decision to delist the Company’s securities from
Nasdaq.
Results of Operations
Revenue
Predecessor and the Company
have not recognized any revenue from any sources, including from product sales, and the Company does not expect to generate any revenue
from the sale of products in the foreseeable future. If the development efforts for the Company’s product candidates, each of which
is a specific product and indication combination, are successful and result in regulatory approval, or if the Company executes license
agreements with third parties, the Company may generate revenue from R&D services, from the achievement of development milestones
or from milestones and royalties related to product sales. However, there can be no assurance as to when any revenues will be generated,
if at all.
Operating Expenses
Research and Development Expenses
R&D expenses consist
of discovery activities, manufacturing development and production, preclinical and clinical development, and regulatory filing for product
candidates. R&D expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in R&D
are capitalized until the goods or services are received. Costs incurred in obtaining technology licenses through asset acquisitions,
if incurred, will be charged to R&D expense if the licensed technology has not reached technological feasibility and has no alternative
future use. R&D expenses include or could include:
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● product-liability insurance for clinical development product(s);
● laboratory supplies and research materials;
● software and systems related to R&D activities;
● costs related to regulatory filing and compliance; and
Product candidates in later
stages of development generally have higher development costs than those in earlier stages of clinical development, primarily due to the
increased size and duration of later-stage clinical trials. The Company plans to substantially increase its R&D expenses for the foreseeable
future as it continues the development of its product candidates through clinical development. The Company cannot determine with certainty
the timing of initiation, the duration or the costs of current or future preclinical studies and clinical trials required for regulatory
approval due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines,
the probability of success and development costs can differ materially from expectations. The Company anticipates that it will make determinations
as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the
results of ongoing and future preclinical studies and clinical trials, regulatory developments and ongoing assessments as to each product
candidate’s commercial potential. The Company will need to, and plans to, raise substantial additional capital in the future. Future
R&D expenses may vary significantly between periods and from current expectations based on factors such as:
● potential additional safety monitoring requested by regulatory agencies;
General and Administrative Expenses
General and administrative
expenses consist principally of salaries and related costs for personnel in executive and administrative functions, including stock-based
compensation, travel expenses and recruiting expenses. Other general and administrative expenses include professional fees for legal,
accounting and tax-related services, consulting fees, insurance costs, and investor relations fees.
The Company anticipates that
its general and administrative expenses will increase in the future as the Company increases headcount and contracted services for operational
support for expanded operations and infrastructure. The Company also anticipates that general and administrative expenses will increase
as a result of expenses for accounting, audit, legal and consulting services, as well as costs associated with maintaining compliance
with SEC requirements, director and officer liability insurance, investor and public relations activities and other expenses associated
with operating as a public company.
Other Income, Net
Other income, net consists
predominantly of interest income from interest bearing bank accounts, interest expense on payables, gains recorded on settlements reached
with vendors on payables, and the gain or loss on the revaluation of earnout and derivative liabilities, which represents the change in
fair value of earnout liabilities or outstanding warrants between periods.
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Results of Operations for the years ended December
31, 2025 and 2024
The Results of Operations
for year ended December 31, 2024 are pro forma as the period presented in the following table and discussion includes the Predecessor
for the period from January 1, 2024 through February 13, 2024 and the Company for the period from February 14, 2024 through December 31,
2024. This pro forma period from January 1, 2024 to December 31, 2024 does not include the Merger transactions that occurred on-the-line.
For the Years Ended December 31,
(Successor) (Pro forma) (Predecessor and Successor) Difference Percentage Change
Operating expenses:
Other income (expenses):
Research and Development Expenses
Research and development
expenses were $10.4 million for the year ended December 31, 2025, compared to $7.1 million for the year ended December 31, 2024, reflecting
an increase of $3.3 million. The increase was related to increased R&D activity as the Company prepared and filed the IND for CER-1236,
prepared for the clinical trial initiation, and conducted additional experiments in response to the FDA questions related to the IND.
Clinical expenses increased $3.2 million, and scientific consulting expenses increased $0.9 million in the year ended December 31, 2025,
due to activities related to preparation of the IND and responses to questions from the FDA, and the continuation of the clinical trial
for CER-1236.
The Company anticipates that
its R&D expenses will significantly increase in the future as the Company increases headcount, compensation expense, and contracted
services for preclinical and clinical development of its product candidates, as well as for manufacturing of clinical product to be used
in clinical development.
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General and Administrative Expenses
General and administrative
expenses were $8.1 million for the year ended December 31, 2025, compared to $9.1 million for the year ended December 31, 2024, reflecting
a decrease of $1.0 million. The decrease in the year ended December 31, 2025 over the year ended December 31, 2024 was partially due to
a decrease of $1.8 million in expense consisting of the remaining underwriting fees from the PBAX initial public offering, which were
earned on the consummation of the business combination in 2024. Additionally, legal and other professional fees decreased $0.5 million
in the year ended December 31, 2025, versus the year ended December 31, 2024. These decreases were offset by the following increases in
general and administrative expense in 2025 versus 2024: (i) the hiring of senior management in G&A resulted in an increase of $1.1
million, (ii) expenses related to services required for SEC compliance, such as printing and transfer agency fees, increased $0.2 million;
and (iii) public relations and communications expenses increased $0.2 million in the year ended December 31, 2025, compared to the year
ended December 31, 2024.
Other Income (Expenses), Net
Other expenses, net was $(1.5)
million for the year ended December 31, 2025, compared to other income, net of $7.9 million for the year ended December 31, 2024, reflecting
a negative change of $9.4 million. The negative change in 2025 as compared to 2024 was primarily due to the recording of a $4.9 million
gain from the change in value of the Company’s earnout liability and the $0.3 million gain recorded for the change in value of the
Predecessor’s preferred stock warrant liability in the year ended December 31, 2024 as compared to $0 in the year ended December
31, 2025. Additionally, settlement of vendor liabilities in 2024 resulted in a $3.3 million increase in other income in 2024. In 2024,
we recorded other expenses attributable to registration and other penalties of $0.6 million as compared to $0 during the year ended December
31, 2025. During the year ended December 31, 2025, we recorded a write-off of deferred offering costs of $0.6 million and recorded an
inducement expense of $0.9 million compared to $0 in the year ended December 31, 2024.
Net loss and net loss attributable to common
stockholders
For the years ended December 31, 2025 and 2024, net loss amounted to
$19.9 million and $8.3 million, respectively, an increase of $11.6 million, or 140.0%. During 2025, in connection with our Series A, Series
B, Series C, Series D and Series E preferred stock conversions and the lowering of conversion prices, the redemption of Series C Preferred
Stock at a premium and the lowering of the Series C Common Warrant exercise price, we recorded a deemed dividend of $75.6 million. Accordingly,
for the years ended December 31, 2025, net loss attributable to common stockholders amounted to $95.5 million, or $(22.58) per common
share. During 2024, in connection with our Series A and Series B preferred stock conversions and the repricing of Series A Warrants, we
recorded a deemed dividend of $2.8 million. Accordingly, for the year ended December 31, 2024, net loss attributable to common stockholders
amounted to $11.1 million, or $(1,571.00) per common share.
Liquidity and Capital Resources
Capital Requirements
Predecessor and the Company
have not generated any revenue from any source and the Company does not expect to generate revenue for at least the next few years. If
the Company fails to complete the timely development of, or fails to obtain regulatory approval for, its product candidates, the ability
of the Company to generate future revenue will be adversely affected. The Company does not know when, or if, it will generate any revenue
from its product candidates, and does not expect to generate revenue unless and until the Company obtains regulatory approval and commercialization
of its product candidates.
The Company expects its expenses
to increase significantly in connection with its ongoing activities, particularly as it continues and expands research, preclinical development,
and clinical development to support marketing approval for its product candidates. In addition, if the Company obtains approval for any
of its product candidates, the Company expects to incur significant commercialization expenses related to sales, marketing, manufacturing
and distribution. Furthermore, the Company expects to incur additional costs associated with operating as a public company.
The Company, therefore, anticipates that substantial additional funding
will be needed in connection with its continuing operations. As of December 31, 2025, the Company had approximately $1.7 million
in cash, restricted cash, and cash equivalents, a working capital deficit of approximately $6.4 million, and an accumulated deficit of
approximately $90.8 million. Additionally, during the year ended December 31, 2025, the Company used approximately $16.2 of net cash in
operating activities. The Company intends to devote most of the available cash to the preclinical and clinical development of its product
candidates and public company compliance costs. Based on current business plans, the Company believes that the cash available as of December
31, 2025 will not fund its operations and capital requirements for 12 months after the filing of these financial statements for the year
ended December 31, 2025. The Company has arranged two equity lines of credit, one providing for the sale of up to 25,000,000 newly issued
shares of Common Stock and the other providing for the purchase of up to $17.5 million of Common Stock on the satisfaction of certain
conditions. The Company has no guarantee that the conditions will be satisfied to require the purchase of all, or any additional amount,
of the ELOC funds. During the year ended December 31, 2025, we received net proceeds from the sale of pre-funded warrants, exercise of
the remaining Series A Preferred Warrants, the collection of stock subscriptions receivable and ELOC fundings. Furthermore, during the
year ended December 31, 2025, we received net proceeds from the sales of Series D Preferred Stock of approximately $2.6 million and the
sales of Series E Preferred Stock of approximately $1.9 million. 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 the Company to successfully
continue its R&D activities and planned regulatory filings with the FDA. If the Company is unable to obtain the necessary funds, significant
reductions in spending and the delay or cancellation of planned activities may be necessary. These actions would have a material adverse
effect on the Company’s business, results of operations, and prospects. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern within one year from the date these financial statements are issued. These 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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On October 14, 2025, we entered
into the Fifth Securities Purchase Agreement, pursuant to which we agree to issue and sell up to 9,750 shares of Series E Preferred Stock
for an aggregate purchase price of up to $7 million in one or more closings. On October 16, 2025, we and the requisite buyers party to
the Fifth Securities Purchase Agreement entered into Amendment No. 1 to the Securities Purchase Agreement (the “SPA Amendment”)
to add an additional Buyer (as defined in the Fifth Securities Purchase Agreement) and increase the size of the Initial Closing (as defined
in the Fifth Securities Purchase Agreement) by $500,000 to an aggregate of approximately $2.25 million of gross proceeds and reduce the
size of the Additional Closings (as defined in the Fifth Securities Purchase Agreement) by an offsetting amount. There was no change to
the aggregate amount of up to $7 million of proceeds to be funded pursuant to the Fifth Securities Purchase Agreement upon consummation
of all of the Closings (as defined in the Fifth Securities Purchase Agreement) provided for therein. On October 16, 2025, pursuant to
the Fifth Securities Purchase Agreement, we issued and sold, and the PIPE Investors purchased 3,816 shares of the Series E Preferred Stock
for aggregate net proceeds of approximately $1.93 million, paid in cash.
On February 9, 2026, the Company issued and sold
the February 2026 Note for a purchase price of $750,000, having a principal face value of $937,500 to Keystone, pursuant to which, the
Company may borrow, from time to time thereunder, up to a maximum aggregate amount not to exceed a sum of $1,000,000. The February 2026
Note bears interest at a rate of 10% per annum, matures on July 9, 2027, and is convertible into shares of the Company’s Common
Stock. On March 6, 2026, the Company issued and sold the March 2026 Note for a purchase price of $750,000, having a principal face value
of $937,500 to Keystone, pursuant to which, the Company may borrow, from time to time thereunder, up to a maximum aggregate amount not
to exceed a sum of $1,000,000. The March 2026 Note bears interest at a rate of 10% per annum, matures on August 6, 2027, and is convertible
into shares of the Company’s Common Stock. At any time after the issuance of the February 2026 Note and March 2026 Note, Keystone,
at its option, is entitled to convert all or any lesser portion of the outstanding principal amounts and accrued but unpaid interest into
Common Stock at a conversion price equal to the lesser of (i) $0.05 and (ii) 80% of the average of the 5 (five) lowest intraday trading
prices during the 20 (twenty) days prior to the day that the Lender requests conversion, unless otherwise modified by mutual agreement
between the parties, subject to certain adjustments and limitations, including a beneficial ownership limitation of 4.99%.
Any estimate as to how long
the Company expects the net proceeds from the ELOC and Series E Preferred Stock funding may fund the Company’s operations is based
on assumptions that may prove to be wrong, and the Company could use its available capital resources sooner than its current expectations.
On October 31, 2025, the Common Stock ceased trading on Nasdaq as a result of the Panel’s delisting determination. The OTC Markets
are expected to be less liquid markets for the Common Stock. Such lack of liquidity may make it more difficult for us to raise capital.
Changing circumstances, some of which may be beyond the Company’s control, could result in less cash and cash equivalents available
to fund operations or cause the Company to consume capital significantly faster than currently anticipated, and the Company may need to
seek additional funds from additional sources sooner than planned.
Because of the numerous risks
and uncertainties associated with research, development and commercialization of pharmaceutical drug products, the Company is unable to
estimate the exact amount of its operating capital requirements. The Company’s future funding requirements will depend on many factors,
including, but not limited to those listed under “Factors Affecting Our Performance” above.
Identifying potential product
candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many
years to complete, and the Company may never generate the necessary data or results required to obtain marketing approval and achieve
product sales. In addition, the Company’s product candidates, if approved, may not achieve commercial success. Commercial revenues,
if any, will be derived from sales of product candidates that the Company does not expect to be commercially available in the near term,
if at all. Accordingly, the Company will need to continue to rely on additional financing to achieve its business objectives. Adequate
additional financing may not be available to the Company on acceptable terms, or at all. To the extent that the Company raises additional
capital through the sale of equity or convertible debt securities, the terms of these equity securities or this debt may restrict the
Company’s ability to operate. Any future debt financing and equity financing, if available, may involve covenants limiting and restricting
the ability to take specific actions, such as incurring additional debt, making capital expenditures, entering into profit-sharing or
other arrangements or declaring dividends. If the Company raises additional funds through collaborations, strategic alliances or marketing,
distribution or licensing arrangements with third parties, it may be required to relinquish valuable rights to its technologies, future
revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to the Company. If the
Company is unable to raise capital when needed or on acceptable terms, the Company could be forced to delay, reduce or eliminate its R&D
programs or future commercialization efforts.
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Cash Flows
For the Years Ended December 31,
(Successor) (Pro forma, Predecessor and Successor) Difference
Net cash used in operating activities
Net cash used in operating
activities for the year ended December 31, 2025 primarily reflected a net loss of $19,920,000, adjusted for the reconciliation of non-cash
items such as depreciation expense of $282,000, stock-based compensation of $1,096,000, stock-based inducement expense of $864,000, write
off of deferred offering costs of $605,000, and amortization of right-of-use asset of $804,000, and changes in operating asset and liabilities
primarily consisting of an increase in prepaid expenses and other current assets of $797,000, an increase in accounts payable of $1,930,000,
a decrease in accrued liabilities of $406,000, an increase in insurance financing liability of $338,000, and a decrease in operating lease
liabilities of $876,000.
Net cash used in operating
activities for the year ended December 31, 2024 primarily reflected a net loss of $8.3 million, adjusted for the reconciliation of non-cash
items such as a gain on of the settlement of vendor liabilities of $3.3 million, depreciation expense of $0.4 million, stock-based compensation
of $0.9 million, amortization of right-of-use asset of $0.7 million and a gain on revaluation of derivative and earnout liabilities of
$5.2 million, and changes in operating asset and liabilities primarily consisting of an increase in prepaid expenses and other current
assets of $0.1 million, an increase in accounts payable of $0.2 million, an increase in accrued liabilities of $2.3 million, and a decrease
in operating lease liabilities of $0.8 million.
Net cash provided by investing activities
Net cash provided by investing
activities for the year ended December 31, 2025 amounted to $500,000 as compared to $0 for the year ended December 31, 2024. During the
year ended December 31, 2025, we received $500,000 from the sale of equity securities.
We did not have any investing
activities during the year ended December 31, 2024.
Net cash provided by financing activities
Net cash provided by financing
activities for the year ended December 31, 2025 amounted to $13.9 million as compared to $13.7 million for the year ended December 31,
2024.
During the year ended December
31, 2025, net cash provided by financing activities of $14,020,000 was primarily attributable to the receipt of net proceeds of $500,000
from the exercise of Series A Preferred Warrants, net proceeds of $5,156,000 from the sale of Common Stock under the ELOC and collection
of stock subscription receivables, net proceeds of $2,561,000 from the sale of Series D Preferred Stock, net proceeds of $1,926,000 from
the sale of Series E Preferred Stock and net proceeds from sale of Common Stock and pre-funded warrants of $4,273,000, offset by the cash
redemption of Series C Preferred Stock of $395,000 and the payment of offering costs of $105,000.
During the year ended December
31, 2024, net cash provided by financing activities of $13.7 million was primarily attributable to the receipt of net proceeds of $7.2
million from the issuance of Series A and B Preferred Stock, net proceeds of $0.8 million from the issuance of Series C Preferred Stock
and associated warrants, net proceeds of $4.8 million for the sale of Common Stock under the ELOC, and proceeds from the exercise of Series
A warrants of $0.9 million.
87
Critical Accounting Estimates
Stock-based compensation
– The Company periodically issues Common Stock and stock options to officers, directors, and consultants for services rendered.
Stock-based compensation accounting requires the recognition of stock-based compensation expense, using a grant date fair value-based
method, for costs related to all share-based payments including stock options and restricted stock awards granted to employees and non-employees.
Companies are required to estimate the fair value of all share-based payment awards on the date of grant using an option pricing model,
and the Company uses a Black-Scholes option pricing model (“Black-Scholes”) to estimate option award fair value. The assumptions
used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties
and the application of management’s judgment. The fair value of restricted stock awards is based upon the estimated share price
of the common shares on the date of grant. Forfeitures are accounted for as they occur, and the Company applies the simplified method
to estimate expected term of “plain vanilla” options. All options and restricted stock awards granted since inception are
expensed on a straight-line basis over the requisite service period, which is usually the vesting period, or upon the completion of certain
performance-based vesting terms and the related amounts are recognized in the statements of operations.
The accounting for stock
options granted to outside consultants is consistent with the accounting for stock-based payments to officers and directors, as described
above, by measuring the cost of services received in exchange for equity awards utilizing the grant date fair value of the awards, with
the cost recognized as stock-based compensation expense on the straight-line basis in the Company’s financial statements over the
vesting period of the awards.
Recent Accounting Standards
See the section titled in
Note 2 to the Company’s consolidated financial statements for the year ended December 31, 2025, appearing elsewhere herein.
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, as amended (the “Exchange Act”) 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, 2025, 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, 2025. Based upon their evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as a result of the material weakness in internal control over financial
reporting as described below, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
were not effective as of December 31, 2025.
88
(b) Management’s Report on Internal Control
over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. 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.
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, 2025. In making these assessments, management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on our
assessments and those criteria, management concluded that our internal control over financial reporting was not effective as of December
31, 2025 as a result of the material weakness in internal control over financial reporting as described below.
Our certifying officers concluded that the Company lacks effective
processes and controls to ensure the accuracy and completeness of its financial statements due to the lack of sufficient and qualified
resources. This includes lack of segregation of duties and monitoring controls. This material weakness led to the Company consistently
failing to meet contractual deadlines for filing its financial statements. In order to remediate the material weakness, the Company
plans to hire additional qualified accounting personnel when the Company has the financial resources to support such expenses, as well
as engage consultants and purchase software licenses, if, and to the extent, that the Company has sufficient financial resources for such
additional expenses.
Management continues to evaluate
its plan to remediate the material weakness, which will not be considered remediated until management designs and implements effective
controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective.
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
Other than described above, 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 year to which this Report relates that have materially affected or are reasonably likely to materially affect our internal
control over financial reporting.
(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.
Rule 10b5-1 Plan or non-Rule
10b5-1 Trading Arrangements
During the three-month period
ended December 31, 2025, 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.
89
PART III
Item 10. Directors, Executive Officers and
Corporate Governance.
The information required
under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement
will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2025.
We post our Code of Business
Conduct and Ethics, which applies to our directors, officers and employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar functions, in the “Governance” sub-section
of the “Investor Relations” section of our corporate website at www.cero.bio/investors. If we make any substantive amendments
to, or grant any waivers from, the code of business conduct and ethics for our principal executive officer, principal financial officer,
principal accounting officer, controller or persons performing similar functions, or any officer or director, we will disclose the nature
of such amendment or waiver on our website or in a current report on Form 8-K.
Item 11. Executive Compensation.
The information required
under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement
will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2025.
Item 12. Security Ownership of Certain Beneficial
Owners and Management Related Stockholder Matters.
The information required
under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement
will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2025.
Item 13. Certain Relationships and Related
Party Transactions, and Director Independence.
The information required
under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement
will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2025.
Item 14. Principal Accountant Fees and Services.
The information required
under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement
will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2025.
90
PART IV
Item 15. Exhibit and Financial Statement Schedules.
(3) Exhibits:
The following list of exhibits
includes exhibits submitted with this Annual Report as filed with the SEC and those incorporated by reference to other filings.
Exhibit No. Description
91
4.5* Description of Securities.
92
93
94
24.1* Power of Attorney (included on signature page).
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).
* Filed herewith.
+ Indicates management contract or compensatory plan.
Item 16. Form 10-K Summary.
None.
95
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
CERO THERAPEUTICS HOLDINGS, INC.
Date: April 15, 2026 By: /s/ Chris Ehrlich
Chris Ehrlich
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
Date: April 15, 2026 By: /s/ Andrew Kucharchuk
Andrew Kucharchuk
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE
PRESENTS, that each person whose signature appears below constitutes and appoints each of Chris Ehrlich and Andrew Kucharchuk his or her
true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent,
full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as
fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent, or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
Name Title Date
Chris Ehrlich (Principal Executive Officer)
/s/ Andrew Kucharchuk Chief Financial Officer April 15, 2026
Andrew Kucharchuk (Principal Financial and Accounting Officer)
/s/ Brian Atwood Director April 15, 2026
Brian Atwood
/s/ Michael Byrnes Director April 15, 2026
Michael Byrnes
/s/ Kathleen LaPorte Director April 15, 2026
Kathleen LaPorte
/s/ Shami Patel Director April 15, 2026
Shami Patel
/s/ Lindsey Rolfe Director April 15, 2026
Lindsey Rolfe
/s/ Eric Francois Director April 15, 2026
Eric Francois
96
CERO THERAPEUTICS HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2025 and 2024
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 106) F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 392) F-3
Financial Statements:
Consolidated Balance Sheets as of December 31, 2025 and 2024 F-4