Company: PFSA
Filing Date: 2025-11-19
Form Type: 10-Q
Source: 0001213900-25-112723
Chunk: 28

Company: Profusa, Inc.
Filing Date: 2025-11-19
Form: 10-Q
Item: Part I, Item 1
Chunk 28
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). 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 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 0% and no value was associated with the milestone. On the Closing Date, Milestones I and II had a value of $1.7 million, while Milestone
IV had a value of $0 as this was also