Company: CERO
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001213900-25-044335
Chunk: 71

Company: CERO THERAPEUTICS HOLDINGS, INC.
Filing Date: 2025-05-15
Form: 10-Q
Item: Item 1
Chunk 71
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.4 million.

During the three months ended
March 31, 2024, net cash provided by financing activities of $7.2 million was primarily attributable to the receipt of net proceeds of
$6.8 million from the sale of Series A Preferred Stock and $0.4 million from short-term borrowings.

Critical Accounting Estimates

Earnout liability
- As a result of the Merger in February 2024, the Company recognized an earnout liability of $4.9 million on the merger date. The
earnout liability is measured using unobservable (Level 3) inputs and was included in current liabilities on 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, 2024, the Company recorded a gain from change of fair value of the earnout liability of $1,800,000, which is included
in other income (expenses), net on the accompanying consolidated statement of operations.

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