Company: CERO
Filing Date: 2025-08-22
Form Type: 10-Q
Source: 0001213900-25-079898
Chunk: 286

Company: CERO THERAPEUTICS HOLDINGS, INC.
Filing Date: 2025-08-22
Form: 10-Q
Item: Item 2
Chunk 286
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 $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 and six months 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, which is included in other income (expenses), net on the accompanying consolidated statement of operations, respectively.

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 expected term of “plain vanilla” options. All options and restricted stock awards granted since inception are
expensed on a straight-line basis over the requisite service period, which is usually the vesting period, or upon the completion of certain
performance-based vesting terms and the related amounts are recognized in the consolidated statements of operations.

The
accounting for stock options granted to outside consultants is consistent with the accounting