Company: PFSA
Filing Date: 2025-11-19
Form Type: 10-Q
Source: 0001213900-25-112723
Chunk: 21

Company: Profusa, Inc.
Filing Date: 2025-11-19
Form: 10-Q
Item: Part I, Item 1
Chunk 21
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ation guidance and equity
classification guidance.

Earnout agreements have specific indexation requirements (ASC
815-40) to be considered indexed to the entity’s own stock, and meet the equity classification requirements. Earnout
agreements are considered indexed to the entity’s own stock when 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 indexation 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 conditions were all met, the earnout is considered both indexed to the entity’s own stock (or within the scope exception),
and meet the equity classification requirements. These earnouts were fair valued on the Closing Date and will not be remeasured. Similarly,
Milestone III was fair valued on the Closing Date and was determined to have a $0 value due to the current probability input of the event
occurring being 0%. Additionally, this Milestone III was revalued as of September 30, 2025 and continues to have a current probability
of