Company: PFSA
Filing Date: 2025-11-19
Form Type: 10-Q
Source: 0001213900-25-112723
Chunk: 152

Company: Profusa, Inc.
Filing Date: 2025-11-19
Form: 10-Q
Item: Part I, Item 8
Chunk 152
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 the Closing Date have been retrospectively decreased using the exchange ratio that was established (the “Exchange Ratio”).

All Milestones (Milestone I, II, III, and IV pass the criteria of liability
classification under ASC 480 as they are not mandatorily redeemable, it does not represent an obligation to repurchase the issuer’s
equity shares, and it is not settled by issuing a variable number of its equity shares. Milestone III however, does not pass the criteria
of liability classification under ASC 480 as the settlement condition is based partially on the occurrence of an event which fails the
index guidance for equity classification.

All four Earnouts have only two potential settlement alternatives,
i.e. either no shares are issued or 968,750 shares are issued (for each Earnout). This earnout agreement is considered indexed to the
entity’s own stock, as the earnout meets both of the following: (i) The earnout is based solely on inputs that are observable market
data or inputs that are not observable but are consistent with the entity’s own stock (e.g., stock price, strike price, number of
shares), and (ii) The earnout does not contain provisions that could require settlement in a way that is not consistent with equity classification.
These steps are satisfied for Milestones I & II, the earnout may be considered indexed to the entity’s own stock. Milestone
III does not meet the indexed guidance as it is based on an event occurring to achieve $6 million in, which is not a market data or input.
The Milestone IV Earnout does meet the scope exception ASC 815-10-15-59(d) from derivative accounting since payments under these milestones
are based on revenue amounts. Financial instruments such as these meet the “own equity” scope exception in ASC 815-10-15-74(a),
and the financial instrument would be classified as equity with no subsequent remeasurement (unless the earnout is modified). Milestone
III does not meet this own equity scope exception and is thus liability classified, valued on the Closing Date with subsequent changes
in the valuation adjusted through earnings.

The Company’s earnout Milestones I, II, and IV meet the equity
classification criteria under ASC 815-40. As there is no obligation to net cash settle, there is a fixed quantity of shares, settlement
is exclusively made in shares, and there are no downside protections or leverage features that protect the holder from a decline in price.
As these