{"url_path":"/sec/cero/10-q/2026/item-1a","section_key":"item-1a","section_title":"Item 1A Risk Factors**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1870404/0001213900-26-057753-index.html","accession_number":"0001213900-26-057753","cik":"0001870404","ticker":"CERO","issuer_name":"CERO THERAPEUTICS HOLDINGS, INC.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1870404/0001213900-26-057753-index.html","primary_entity_key":"0001870404","primary_entity_name":"CERO THERAPEUTICS HOLDINGS, INC."},"word_count":2116,"has_tables":true,"body_markdown":"**Item\n1a. Risk Factors**\n\n \n\nExcept\nas set forth below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year\nended December 31, 2025, filed with the SEC on April 15, 2026. Any of these factors could result in a significant or material adverse\neffect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem\nimmaterial may also impair our business or results of operations. \n\n** **\n\n**The\nissuance of shares of our Common Stock upon conversion or exercise of our outstanding Series A Preferred Stock, Series B Preferred Stock,\nSeries C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Common Warrants and other securities that we may issue\nin future financing transactions may result in substantial dilution to our stockholders.**\n\n** **\n\nAs\nof May 14, 2026, the Company currently has outstanding: (i) 45,112,406 shares of Common Stock, (ii) 1,429 shares of Series A Preferred\nStock with a stated value of approximately $1.4 million, convertible into shares of Common Stock at a conversion rate of the stated value\nthereof divided by a current effective conversion price of $0.01 per share; (iii) no shares of Series B Preferred Stock; (iv) 7 shares\nof Series C Preferred Stock with a stated value of $7,000, convertible into shares of Common Stock at a conversion rate of the stated\nvalue thereof divided by a conversion price of $0.01 per share; (v) Series A Warrants to purchase 306 shares of Common Stock at an exercise\nprice of $2,780.00 per share; (vi) Series C Warrants to purchase 4,088 shares of Common Stock at an exercise price of $0.80 per share;\n(vii) December 2024 and January 2025 Common Warrants to purchase an aggregate of 12,396 shares of Common Stock at an exercise price ranging\nfrom $112.20 to $116.40 per share, (viii) February 2025 Common Warrants to purchase an aggregate of 127,551 shares of Common Stock at\nan exercise price of $39.20 per share, (ix) February 2025 Pre-Funded Warrants to purchase an aggregate of 10,787 shares of Common Stock\nat an exercise price of $0.002 per share, (x) Public Warrants and Private Placement Warrants to purchase an aggregate of 4,596 shares\nof Common Stock at an exercise price of $23,000.00 per share, (xi) 5,292 shares of Series D Preferred Stock with a stated value of approximately\n$5.3 million, convertible into shares of Common Stock at a conversion rate of the stated value thereof divided by a current effective\nconversion price of $0.01 per share, (xii) 3,797.64 shares of Series E Preferred Stock with a stated value of approximately $3.8 million,\nconvertible into shares of Common Stock at a conversion rate of the stated value thereof divided by a current effective conversion price\nof $0.01 per share and (xii) approximately 151,015,000 shares of Common Stock issuable upon the conversion of the Convertible Notes\nissued to Keystone.\n\n \n\nAlthough\neach of the exercise prices of the December 2024 Common Warrants, January 2025 Common Warrants, Series A Warrants, Public and Private\nPlacement Warrants, and February 2025 Common Warrants are at or above the trading price of our Common Stock as of the date of this Quarterly\nReport, if such trading price increases, such exercise prices will not change as a result thereof and could be below the trading price\nof our Common Stock as of the date of any future exercise thereof, resulting in dilution to our stockholders. In addition, the terms\nof the Series A Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock contain\ncertain penalties and adjustments to the amount included in determination of the conversion rate following certain breaches of the Company’s\nobligations thereunder, including, among other things, as a result of a failure to file or cause the SEC to declare one or more registration\nstatements relating to the resale of the shares of Common Stock issuable upon conversion thereof by specified deadlines, certain defaults\nunder indebtedness of the Company or judgments against the Company and failure to deliver shares of Common Stock upon conversion in a\ntimely manner. For example, the penalties and adjustments include a 25% premium added to the stated value for determining the conversion\nrate in connection with breaches other than the breach of the requirement to redeem the shares of Series A Preferred Stock by August\n31, 2025, which resulted in a 50% premium, and the addition to the stated value of an amount equal to the value of the shares of Common\nStock into which the Series A Preferred Stock would have been convertible if the conversion price were equal to 80% of the lowest volume\nweighted average price during the five trading days immediately prior to conversion. Such penalties and adjustments, which applied during\nthe period when substantially all of the conversions since the Business Combination occurred as a result of a failure to file and cause\nthe SEC to declare a registration statement with respect to the resale of the underlying shares in a timely manner, have resulted and\nmay in the future result in the issuance of shares of Common Stock at an effective conversion price below the trading price of our Common\nStock at the time of such conversion.\n\n** **\n\n40\n\n \n\nWe\ncannot assure you that we will remain in compliance with all of the terms of the Series A Preferred Stock, Series C Preferred Stock,\nSeries D Preferred Stock or Series E Preferred Stock and that such penalties and adjustments will not apply in the future. In addition,\nwe cannot assure you that we will not issue additional convertible or other derivative securities with highly dilutive penalty or adjustment\nprovisions. As described elsewhere in this Quarterly Report, the Company needs to obtain financing to fund its research and development\nactivities and clinical trials, as well as other operations. Under challenging conditions in the equity capital markets, particularly\nfor pre-commercialization biotech companies, we may have no viable alternatives to agreeing to inclusion of such provisions in the terms\nof future financings.\n\n \n\n**The\nimpact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending on us is currently\nunknown, and may adversely affect our business model.**\n\n \n\nOur\nrevenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly\nregulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions,\nrelated to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our\nbusiness, operations and financial condition.\n\n \n\nThere\nhave been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at\nbroadening the availability of healthcare and containing or lowering the cost of healthcare. For more information, see the section of\ntitled “*Business – Healthcare Laws and Regulations – Healthcare Reform*” in the Annual Report on Form 10-K\nfor the year ended December 31, 2025.\n\n \n\nFor\nexample, the Medicare Drug Price Negotiation Program, administered by CMS as part of the Inflation Reduction Act of 2022, commonly referred\nto as the IRA, may apply to our products if they are selected for negotiation, which could materially reduce the amount of revenue we\ncan generate from our products if they are approved. Prior to the enactment of the One Big Beautiful Bill Act of 2025 (“OBBBA”),\norphan drugs were exempt from Medicare price negotiation under the IRA only if they had received a single orphan designation and were\napproved solely for the corresponding rare disease or condition. The OBBBA amended this exemption to apply more broadly: now, any orphan-designated\ndrug is exempt from price negotiation, regardless of the number of orphan designations it has received, provided the drug’s approved\nindications are exclusively for those rare diseases. The OBBBA also included significant reforms to Medicaid, including an estimated\n$1 trillion in reduced federal Medicaid spending from 2025 through 2034, the imposition of work requirements for certain adult enrollees,\nmore frequent eligibility redeterminations, and increased cost-sharing for beneficiaries. These changes are expected to reduce overall\nMedicaid enrollment and access to care. Although the effect on our future product candidates or business is unknown, any decrease in\nthe number of insured patients or reimbursement levels for our products could adversely affect our potential for revenue and our commercial\nprospects.\n\n \n\nIn\naddition, multiple executive actions in the first half of 2025 signal the federal government’s increasing focus on lowering prescription\ndrug prices, adding to the uncertainty surrounding future drug pricing and reimbursement frameworks. For example:\n\n \n\n \n●\nOn May 12, 2025, President\nTrump signed the executive order titled “Delivering Most-Favored-Nation Prescription Drug Pricing,” which directs the\nSecretary of Health and Human Services (“HHS”) to identify and communicate most-favored-nation price targets for prescription\ndrugs and to propose a rulemaking plan to impose such pricing if “significant progress” is not made. The order also directs\nthe federal government to explore regulatory pathways that would facilitate direct-to-patient sales for manufacturers that meet these\nprice targets. Additionally, it signals potential further action against manufacturers that fail to offer most-favored-nation pricing,\nincluding evaluating whether to modify or rescind marketing approvals or allow individual drug importation waivers. In July 2025,\nPresident Trump sent letters to pharmaceutical companies demanding further reduced prices more in line with most-favored-nation pricing.\nOn September 30, 2025, the White House announced the first MFN agreement (Pfizer), and reports indicate additional negotiations are\nongoing. The scope, timing, and ultimate impact of any further actions or agreements remain uncertain. Further, in September and\nOctober 2025, multiple drug manufacturers announced plans to, for certain of their drugs, lower prices to reflect similar pricing\naround the world, and to sell these reduced-price drugs on a direct-to-consumer purchasing platform that is yet to be developed by\nthe federal government.\n\n \n\n \n●\nBy the end of 2025, 16\nmajor pharmaceutical manufacturers had entered into voluntary MFN pricing agreements with the Administration, committing to offer\nMFN-aligned pricing to state Medicaid programs and to sell certain products at discounted prices through TrumpRx.gov, a federally\noperated direct-to-consumer prescription drug platform that launched on February 5, 2026. On November 6, 2025, CMS announced the\nGENEROUS Model, a voluntary five-year CMMI initiative under which participating manufacturers would pay supplemental rebates to state\nMedicaid programs benchmarked to international pricing in eight reference countries; the manufacturer application deadline has been\nextended to April 30, 2026. On December 19, 2025, CMS published two proposed rules (the GLOBE Model (Medicare Part B) and GUARD Model\n(Medicare Part D)) which would impose mandatory MFN-based rebates on manufacturers of qualifying high-cost single-source drugs, calculated\nusing international pricing data from 19 OECD reference countries and applied to approximately 25% of Medicare beneficiaries in randomly\nselected geographic areas. The GLOBE Model performance period would begin October 1, 2026; GUARD would begin January 1, 2027. The\n60-day public comment period for both proposed rules closed on February 23, 2026. Prior efforts to implement MFN pricing during President\nTrump’s first term were enjoined by federal courts, and industry commentators widely anticipate legal challenges to the current\nproposals. If finalized and implemented, these models could materially affect the pricing, reimbursement, and commercial viability\nof our product candidates in the United States, including by linking U.S. reimbursement to prices established in foreign markets\nover which we may have limited control.\n\n \n\n \n●\nPreviously, on April 15,\n2025, President Trump issued the executive order “Lowering Drug Prices by Once Again Putting Americans First,” which\ncontains a broad set of directives aimed at reducing drug costs. Among other actions, the order directs HHS to revise guidance under\nthe Inflation Reduction Act (“IRA”) to eliminate the so-called “pill penalty,” which currently subjects small\nmolecule drugs to Medicare price negotiation four years earlier than biologics. The order also calls for a comprehensive evaluation\nof the role played by pharmacy benefit managers (“PBMs”) in drug pricing and market access.\n\n \n\n41\n\n \n\nThe\ncontinuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain\nor reduce costs of healthcare and/or impose price controls may adversely affect:\n\n \n\n \n●\nthe demand for our product candidates, if we obtain\nregulatory approval;\n\n \n\n \n●\nour ability to set a price that we believe is fair\nfor our products;\n\n \n\n \n●\nour ability to obtain coverage and reimbursement approval\nfor a product;\n\n \n\n \n●\nour ability to generate revenue and achieve or maintain\nprofitability;\n\n \n\n \n●\nthe level of taxes that we are required to pay; and\n\n \n\n \n●\nthe availability of capital.\n\n \n\nAny\nreduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors,\nwhich may adversely affect our future profitability."}