Company: CERO
Filing Date: 2025-08-22
Form Type: 10-Q
Source: 0001213900-25-079898
Chunk: 145

Company: CERO THERAPEUTICS HOLDINGS, INC.
Filing Date: 2025-08-22
Form: 10-Q
Item: Item 8
Chunk 145
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 earnout liability of approximately $4.9 million on the merger date. The earnout liability is measured using unobservable (Level
3) inputs and is included in current liabilities on the accompanying consolidated balance sheet. The Company estimated the fair value
of the earnout liability by applying a Monte-Carlo simulation method using the Company’s projection of future operating results
and the estimated probability of achievement of the earnout target metrics.  The Monte-Carlo simulation is a generally accepted
statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of the fair value
of the earnout liability. The liability is remeasured to fair value using the Monte-Carlo simulation method at each reporting period,
and the change in fair value is recognized in other income (expense) until the contingency is resolved. During the three months and six
month period ended June 30, 2024, the Company recorded a gain from change of fair value of the earnout liability of $2,900,000 and $4,700,000,
respectively, which is included in other income (expense), net on the accompanying unaudited condensed consolidated statement of operations.
During the three and six months ended June 30, 2025, the Company did not record a gain or loss from change of fair value of the earnout
liability.

8

Fair
value measurements – The Company’s assets and liabilities are carried at fair value. Fair value is the amount that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement
date. In determining fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are
based on a tiered fair value hierarchy consisting of three levels, as follows:

    Level 1
    – 
    Observable
    inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

    Level 2
    – 
    Inputs
    (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability.
    These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets
    or liabilities in markets that are not active.

    Level 3
    – 
    Unobservable
    inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market
    participants