Company: PFSA
Filing Date: 2025-11-19
Form Type: 10-Q
Source: 0001213900-25-112723
Chunk: 264

Company: Profusa, Inc.
Filing Date: 2025-11-19
Form: 10-Q
Item: Part I, Item 2
Chunk 264
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Fair Value of Financial Instruments

The Company’s financial instruments consist of other receivables, accounts
payable, warrant liabilities, earnout, promissory notes, convertible promissory notes and senior notes. The Company states accounts payable
at their carrying value, which approximates fair value due to the short time to the expected receipt or payment. The promissory notes
are stated at amortized cost, which approximates their fair value, because the Company believes their terms approximate those that would
be available to it on a similar loan from an unrelated party.

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Earnout Arrangements

In connection with the Business Combination, the Company entered into
earnout arrangements that provide for the issuance of additional shares of the Company’s Common Stock (or cash payments, if applicable)
to certain pre-Business Combination holders upon the achievement of specified post-closing share-price or operational milestones.

The Company evaluates earnout arrangements in a de-SPAC transaction
in accordance with ASC 805, Business Combinations, and the classification guidance under ASC 480, Distinguishing Liabilities
from Equity, and ASC 815, Derivatives and Hedging. Earnouts that are contingent on future market-based or performance-based
conditions and each milestone is legally detachable and separate. Milestones I, II, and IV are equity classified contingent consideration
which were fair-valued as of the Close Date at $1.7 million and will not be subsequently remeasured. Milestone III was determined to be
liability-classified contingent consideration with no value associated due to a lack of probability. This was continue to be revalued
through the Milestone III conclusion date which is December 31, 2025 with changes in fair value recognized in earnings.

The earnouts that meet the criteria for equity classification—generally
those settled in a fixed number of shares and not requiring cash settlement—are recorded within additional paid-in capital at the
acquisition-date fair value and are not subsequently remeasured.

Warrants

The Company reviews the terms of warrants to purchase its common stock
to determine whether warrants should be classified as liabilities or stockholders’ deficit in its condensed consolidated balance
sheets. In order for a warrant to be classified in stockholders’ deficit, the warrant must be (i) indexed to the Company’s
equity and (ii) meet the conditions for equity classification.

If a warrant does not meet the conditions for stockholders’ deficit
classification, it is carried on the condensed consolidated balance sheets as