Company: CERO
Filing Date: 2025-08-22
Form Type: 10-Q
Source: 0001213900-25-079898
Chunk: 218

Company: CERO THERAPEUTICS HOLDINGS, INC.
Filing Date: 2025-08-22
Form: 10-Q
Item: Item 8
Chunk 218
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 proceeds of $2,238,000 from the sale of common stock under the ELOC, offset by the repayment of short-term borrowings of
$149,000.

38

Critical
Accounting Estimates

Investment in equity securities
- The Company’s investment in equity securities consists of Series D Preferred Stock of Stella Diagnostics, Inc. Investments
in equity securities are initially measured at cost. Cost is based upon either the cost of the investment or the estimated market value
of the investment at the time it was acquired, whichever can be more clearly determined. The Company has elected the measurement alternative
for equity securities without readily determinable fair values. Under this alternative, if the Company identifies an observable price
change in an orderly transaction for an identical or similar investment of the same issuer, the Company measures the equity security at
fair value as of the date that the observable transaction occurred. Any adjustments resulting from observable price changes are recognized
in earnings. The Company monitors these investments for changes in observable prices from orderly transactions and assesses them for impairment.
If an equity security is deemed to be impaired, an impairment loss is recognized in earnings, measured as the difference between the investment’s
cost and its fair value at the impairment assessment date.

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 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
comp