Company: CERO
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001213900-25-044335
Chunk: 15

Company: CERO THERAPEUTICS HOLDINGS, INC.
Filing Date: 2025-05-15
Form: 10-Q
Item: Item 1
Chunk 15
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 statement of operations.
The Company has determined any warrant liability is a Level 3 instrument in the fair value measurements hierarchy. The Company has
not included the effect of preferred stock warrants in the calculation of diluted loss per share since the inclusion of such warrants
would be anti-dilutive. As of March 31, 2025 and December 31, 2024, there was no preferred stock warrant liability,

7

Earnout liability -
As a result of the Merger in February 2024, the Company recognized an initial earnout liability of $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 ended March 31, 2025 and 2024, the Company recorded a gain from change of fair value of the earnout
liability of $0 and $1,800,000, respectively, which is included in other income (expense), net on the accompanying unaudited condensed
consolidated statement of operations, respectively.

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