Company: PFSA
Filing Date: 2025-11-19
Form Type: 10-Q
Source: 0001213900-25-112723
Chunk: 276

Company: Profusa, Inc.
Filing Date: 2025-11-19
Form: 10-Q
Item: Part I, Item 2
Chunk 276
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 credit risk, interest rates,
and market volatility. These estimates require significant judgment, particularly for instruments classified as Level 3 in the fair value
hierarchy. Changes in these assumptions could materially affect the reported fair values and related income or expense. We regularly review
and update our valuation to reflect current market conditions and ensure consistency with accounting standards.

Management considered various fair value instruments; however, only
the Ascent PIPE convertible note is both classified as a Level 3 fair value instrument and is considered very material, and individually
over $5.0 million. The Ascent PIPE convertible loan was valued at $14.4 million as of September 30, 2025, and is a new loan that was issued
on the Closing Date. As such, we have one critical accounting estimates to report, and have included our considerations below.

Ascent PIPE Convertible Related Party Loan

The Company has elected to account for its convertible loan from a
related party at fair value under ASC 825, “Financial Instruments.” The loan is classified as a Level 3 financial instrument
due to the absence of observable market inputs and the significant use of management judgment in determining fair value.

The fair value is estimated using a probability-weighted discounted
cash flow model that incorporates multiple scenarios, including conversion, repayment, and extension. Key inputs include the discount
rate, expected term, volatility, and conversion likelihood. Because the loan is with a related party, observable market data is limited,
and management applies significant judgment in assessing the economic substance of the arrangement.

Changes in fair value are recognized in earnings each period. The Company
considers this estimate critical due to its complexity, subjectivity, and material impact on reported results.

Valuation policies are reviewed quarterly, and inputs are updated based
on evolving market conditions and contractual developments. A change in the discount rate of +100 basis points would result in a fair
value change of approximately $17 thousand or (0.01)%, while a 10% change in volatility would impact fair value by approximately $152
thousand or 1.1%.

The Company classifies this instrument within Level 3 of the fair value
hierarchy and provides a reconciliation of beginning and ending balances in Note 4.

Recent Accounting Pronouncements

See the section titled “Recent Accounting Pronouncements”
in Note 2 of the notes to our unaudited condensed consolidated financial statements included in this Report for more information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller