Company: CERO
Filing Date: 2025-08-22
Form Type: 10-Q
Source: 0001213900-25-079898
Chunk: 25

Company: CERO THERAPEUTICS HOLDINGS, INC.
Filing Date: 2025-08-22
Form: 10-Q
Item: Item 1
Chunk 25
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, the cash on hand resulted in the equity at risk being considered insufficient for Predecessor to finance its activities without
additional subordinated financial support. Therefore, Predecessor was considered a Variable Interest Entity (“VIE”) and the
primary beneficiary of Predecessor was treated as the accounting acquirer. PBAX holds a variable interest in Predecessor and owns 100%
of Predecessor’s equity. PBAX was considered the primary beneficiary as it has the decision-making rights that gives it the power
to direct the most significant activities. Also, PBAX retained the obligation to absorb the losses and/or receive the benefits of Predecessor
that could have potentially been significant to Predecessor. The Merger was accounted for as an asset acquisition as substantially all
of the fair value was concentrated in IPR&D, an intangible asset. Predecessor’s assets (except for cash) and liabilities were
measured at fair value as of the transaction date. Consistent with authoritative guidance on the consolidation of a VIE that is not considered
a business, differences in the total purchase price and fair value of assets and liabilities are recorded as a gain or loss to the consolidated
statement of operations. The loss reflected below on the consolidation of the VIE is reflected “on the line” (defined below)
in the Company’s opening accumulated deficit.

Costs
incurred in obtaining technology licenses are charged to research and development expense as IPR&D if the technology licensed has
not reached technological feasibility and has no alternative future use. The IPR&D recorded at the Closing of $45.6 million is reflected
“on the line” in the Company’s opening accumulated deficit. To estimate the value of the acquired IPR&D, the Company
used the avoided cost method, which calculates a present value of a 45% return on research and development effort applied to research
and development expenditures over the life of the Predecessor. The determination of the fair value requires management to make a significant
estimate of the return on research and development expenditures. Changes in these assumptions could have a significant impact on the
fair value of the IPR&D. The estimate of the return on research and development expenditures was based on multiple published studies
analyzing actual returns of research and development expenditures.

The
following is a summary of the purchase price calculation:

    Number
    of shares of Common Stock 
     2,500 
  
    Multiplied
    by PBAX’s share price, as of the Closing