Company: CERO
Filing Date: 2025-11-20
Form Type: 424B3
Source: 0001213900-25-113118
Chunk: 106

Company: CERO THERAPEUTICS HOLDINGS, INC.
Filing Date: 2025-11-20
Form: 424B3
Chunk 106
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 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 nine months
ended September 30, 2024, the Company recorded a gain from change of fair value of the earnout liability of $170,000 and $4,870,000, which
is included in other income (expenses), net on the accompanying condensed 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 stock 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