Pulmatrix, Inc.
Annual Report 2021

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to _____________ Commission file number: 001-36199 PULMATRIX, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 99 Hayden Avenue, Suite 390 Lexington, MA (Address of principal executive offices) 46-1821392 (I.R.S. Employer Identification No.) 02421 (Zip Code) Registrant’s telephone number, including area code (781) 357-2333 Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Common Stock, par value $0.0001 per share Trading Symbol(s) PULM Name of each exchange on which registered The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Exchange Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer ☐ ☒ Accelerated filer Smaller reporting company Emerging growth company ☐ ☒ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒ The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of June 30, 2021, the last business day of registrants most recently completed second fiscal quarter, was $58,465,863. As of March 25, 2022, the registrant had 3,310,922 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Specified portions of Pulmatrix, Inc.’s Definitive Proxy Statement on Schedule 14A relating to the 2022 Annual Meeting of Stockholders are incorporated by reference into PART III. PULMATRIX, INC. TABLE OF CONTENTS Page No. Forward-Looking Statements PART I Item 1. Business. Item 1A. Risk Factors. Item 1B. Unresolved Staff Comments. Item 2. Properties. Item 3. Legal Proceedings. Item 4. Mine Safety Disclosures. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Item 6. Reserved. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Item 8. Financial Statements and Supplementary Data. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Item 9A. Controls and Procedures. Item 9B. Other Information. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules. Item 16. Form 10-K Summary Signatures i 1 2 18 37 37 37 37 38 38 38 49 49 49 50 50 50 51 51 51 51 51 52 52 57 Forward-Looking Statements PART I This Annual Report on Form 10-K contains forward-looking statements. All statements other than statements of historical fact contained herein, including statements regarding our business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings, or other aspects of our operating results, are forward-looking statements. Words such as “anticipates,” “assumes,” “believes,” “can,” “could,” “estimates,” “expects,” “forecasts,” “guides,” “intends,” “is confident that,” “may,” “plans,” “seeks,” “projects,” “targets,” and “would,” and their opposites and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will actually be achieved. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: ● the impact of the novel coronavirus (“COVID-19”) pandemic on the Company’s ongoing and planned clinical trials; ● our history of recurring losses and negative cash flows from operating activities, significant future commitments and the uncertainty regarding the adequacy of our liquidity to pursue or complete our business objectives; ● our inability to carry out research, development and commercialization plans; ● our inability to manufacture our product candidates on a commercial scale on our own or in collaborations with third parties; ● our inability to complete preclinical testing and clinical trials as anticipated; ● our collaborators’ inability to successfully carry out their contractual duties; ● termination of certain license agreements; ● our ability to adequately protect and enforce rights to intellectual property, or defend against claims of infringement by others; ● difficulties in obtaining financing on commercially reasonable terms, or at all; ● intense competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution, personnel and resources than we do; ● entry of new competitors and products and potential technological obsolescence of our products; ● adverse market and economic conditions; ● loss of one or more key executives or scientists; and ● difficulties in securing regulatory approval to market our product candidates. For a more detailed discussion of these and other risks that may affect our business and that could cause our actual results to differentiate equally from those projected in these forward-looking statements, see the risk factors and uncertainties described under the heading “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. The forward-looking statements contained in this Annual Report on Form 10-K are expressly qualified in their entirety by this cautionary statement. We do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events, except as required by law. Unless otherwise stated, references in this Annual Report on Form 10-K to “us,” “we,” “our,” or “Company” refer to Pulmatrix, Inc., a Delaware corporation. “iSPERSE™” is one of our trademarks used in this Annual Report on Form 10-K. Other trademarks appearing in this report are the property of their respective holders. Solely for convenience, these and other trademarks, trade names and service marks referred to in this report appear without the ®, TM and SM symbols, but those references are not intended to indicate, in any way, we or the owners of such trademarks will not assert, to the fullest extent under applicable law, their rights to these trademarks and trade names. 1 ITEM 1. BUSINESS. Overview We are a clinical-stage biotechnology company focused on the discovery and development of novel inhaled therapeutic products intended to prevent and treat respiratory and other diseases with significant unmet medical needs. We design and develop inhaled therapeutic products based on our proprietary dry powder delivery technology, iSPERSE™ (inhaled Small Particles Easily Respirable and Emitted), which enables delivery of small or large molecule drugs to the lungs by inhalation for local or systemic applications. The iSPERSE™ powders are engineered to be small, dense particles with highly efficient dispersibility and delivery to airways. iSPERSE™ powders can be used with an array of dry powder inhaler technologies and can be formulated with a broad range of drug substances including small molecules and biologics. We believe the iSPERSE™ dry powder technology offers enhanced drug loading and delivery efficiency that outperforms traditional lactose- blend inhaled dry powder therapies. We believe the advantages of using the iSPERSE™ technology include reduced total inhaled powder mass, enhanced dosing efficiency, reduced cost of goods, and improved safety and tolerability profiles. We were incorporated in 2013 as a Delaware corporation. Business Strategy Our goal is to develop breakthrough therapeutic products that are safe, convenient, and more effective than the existing therapeutic products for respiratory and other diseases where iSPERSE™ properties are advantageous. Our current pipeline is aligned to this goal as we develop iSPERSE™-based therapeutic candidates which target the prevention and treatment of a range of diseases. These therapeutic candidates include Pulmazole for the treatment of allergic bronchopulmonary aspergillosis (“ABPA”) in patients with asthma, and in patients with cystic fibrosis (“CF”), PUR1800 for the treatment of acute exacerbations of chronic obstructive pulmonary disease (“AECOPD”), and PUR3100 for the treatment of acute migraine. Each program is enabled by its unique iSPERSE™ formulation designed to achieve specific therapeutic objectives. We intend to capitalize on our iSPERSE™ technology platform and our expertise in inhaled therapeutics to identify new product candidates for the prevention and treatment of diseases with significant unmet medical needs and to build our product pipeline beyond our existing candidates. In order to advance clinical trials for our therapeutic candidates and leverage the iSPERSE™ platform to enable delivery of partnered compounds, we intend to form strategic alliances with third parties, including pharmaceutical and biotechnology companies or academic or private research institutes. We expect to continue to incur significant expenses and operating losses for at least the next several years based on our drug development plans. We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities, as we: ● Resume Pulmazole clinical trials focused on the development of an inhaled anti-fungal therapy to treat an allergic/hypersensitivity response to fungus in the lungs of patients with asthma and CF. We will continue to direct resources to advance the research and development of Pulmazole for ABPA in patients with asthma and CF. In 2018, we successfully conducted clinical testing of Pulmazole in normal healthy volunteers and asthma patients. In 2019, we began a Phase 2 study of Pulmazole with patients with asthma and are suffering from ABPA but stopped the Phase 2 study due to the COVID-19 pandemic and its impact on enrollment. In January 2021, we conducted a Type-C meeting with the U.S Food and Drug Administration (“FDA”) to discuss our plans for a Phase 2b study. Utilizing the FDA feedback, we now intend to advance Pulmazole into a Phase 2b efficacy study that will include a sixteen-week dosing regimen with potential registration efficacy endpoints, rather than the four weeks dosing regimen in the terminated Phase 2 safety biomarker study. The Phase 2b study is anticipated to begin dosing patients in the first quarter of 2023. 2 ● Continue to advance PUR1800, focusing on the development of an inhaled kinase inhibitor for treatment of AECOPD. We completed preclinical safety studies for our lead iSPERSE™ formulation in 2018 and advanced our formulation and process development efforts to support clinical testing in stable moderate-severe chronic obstructive pulmonary disease (“COPD”) patients. In February 2021, we successfully dosed the first patient with PUR1800, in a Phase 1b clinical study in patients with stable moderate-severe COPD. We received top-line data from the Phase 1b clinical study in the first quarter of 2022. ● Initiate and complete non-clinical and clinical studies for PUR3100, an orally inhaled dihydroergotamine (“DHE”) including planned Phase 1 and Phase 2 clinical studies for the treatment of acute migraine. We developed PUR3100, an iSPERSE™ formulation of DHE in 2020 and completed a pharmacokinetic study in dogs in January 2021. We will continue to direct resources to advance the research and development of PUR3100 in treatment of acute migraine to enable a Phase 1 clinical study start in the third quarter of 2022. ● Capitalize on our proprietary iSPERSE™ technology and our expertise in inhaled therapeutics and particle engineering to identify new product candidates for prevention and treatment of diseases with significant unmet medical needs. To add additional inhaled therapeutics to our discovery pipeline and facilitate additional discovery collaborations, we are leveraging our iSPERSE™ technology and our management’s expertise in inhaled therapeutics and particle engineering to identify potential product candidates. These potential product candidates are potentially safer and more effective than the current standard of care for prevention and treatment of diseases with significant unmet medical needs. ● Invest in protecting and expanding our intellectual property portfolio and file for additional patents to strengthen our intellectual property rights. The status of our patent portfolio changes frequently in the ordinary course of patent prosecution. As of December 31, 2021, our patent portfolio related to iSPERSE™ included approximately 130 granted patents, 18 of which are granted US patents, with expiration dates from 2024 to 2037, and approximately 54 additional pending patent applications in the US and other jurisdictions. Our in-licensed portfolio related to kinase inhibitors included approximately 269 granted patents, 32 of which are granted US patents, with expiration dates from 2029 to 2035, and approximately 31 additional pending patent applications in the US and other jurisdictions. On March 3, 2021, we filed a provisional patent application in the United States Patent and Trademark Office (“USPTO”) that discloses and claims certain formulations and methods of use relevant to our PUR3100 program. We plan to file an international patent application under the patent cooperation treaty, or PCT, based on the provisional patent application by the applicable deadline. ● Hire personnel to support our product development, commercialization, and administrative efforts. During 2021, Pulmatrix was staffed to support one active clinical program and one pre-clinical program, PUR1800 and PUR3100, respectively. With plans to advance both PUR3100 and Pulmazole into clinical trials, we plan to hire additional personnel in areas of pharmaceutical and clinical development. In first quarter of 2022, we hired our Chief Medical Officer, among other personnel, to support our two programs entering active clinical trials in the next year. iSPERSE™ Technology We use simple, safe excipients, including proprietary cationic salt formulations, to create a robust and flexible dry powder platform technology that can accommodate a wide range of drug loads in highly dispersible particles. Our initial delivery platform emerged from development of iCALM™ (inhaled Cationic Airway Lining Modulators), a non-steroidal anti-inflammatory therapy. The high degree of aerosol efficiency and the density profile of our dry powder iCALM™ formulations provided the foundation for our development of iSPERSE™ in 2012, which uses other monovalent and divalent salts. 3 iSPERSE™ particles are engineered with a small, dense and dispersible profile to exceed the performance of traditional dry powder particles as the iSPERSE™ particles have the dispersibility advantages of porous engineered particles. We believe this results in superior drug delivery compared to traditional oral and injectable forms of treatment for certain diseases. Unlike lactose-blended carrier formulations or low-density particles which disperse poorly, we believe that the iSPERSE™ technology platform offers several potential benefits, achieved through the following technological innovations: ● Flexible drug loading for delivery of a single microgram to tens of milligrams per dose. iSPERSE™ particles can be engineered to include significantly less than one percent (1%) to greater than eighty percent (80%) active pharmaceutical ingredients (“APIs”), which allows flexibility for dosing both high potency and high-drug load therapeutics. ● Superior flow rate independent lung delivery without carriers. The iSPERSE™ technology enables pulmonary delivery independent of lactose or other carriers, which results in significantly greater lung dose at a matched nominal dose of conventional lactose-based formulations. iSPERSE™ formulations are dispersible across a range of flow rates with consistent emitted dose and particle size. Performance across flow rates provides reliable dose delivery across patient populations and reduces patient-to-patient variability. ● Delivery of macromolecules and biologics. iSPERSE™ powders can be used with an array of dry powder inhaler technologies and can be formulated with a broad range of therapeutic compounds ranging from small molecules to proteins for both local and systemic drug delivery applications. ● Homogenous combinations of multiple drugs. iSPERSE™ creates homogenous particles including excipients and API, which allow for the consistent delivery of multiple APIs in a product. We have successfully formulated iSPERSE™-based products with dual and triple API combinations. ● Strong safety profile. Current iSPERSE™ products and planned clinical-stage products to be formulated in iSPERSE™ are supported by robust preclinical safety profiles. iSPERSE™ excipients include those with inhalation precedent and those that are generally regarded as safe by other routes of administration. Therapeutic Candidates Pulmazole We are developing an iSPERSE™ inhaled formulation of the anti-fungal drug itraconazole for the prevention and treatment of fungal infections and allergic/hypersensitivity reactions to fungus in patients with severe lung disease, including those with asthma and CF. On January 28, 2020, Pulmazole received Fast Track designation from the FDA for the treatment of ABPA. Aspergillus colonization and infections are likely underdiagnosed and occur frequently in patients of all ages. Colonization and infection with Aspergillus. can lead to clinical disease with differing severities and complications depending on the immune status of the host. Invasive aspergillosis is a frequently fatal disease that occurs in patients that are typically immune suppressed as a result of treatment for hematologic cancers or immunosuppression prior to solid organ transplantation. In patients with asthma and CF, Aspergillus can cause chronic infections that may be associated with worsening disease and larger declines in lung function than patients without infection. A subset of patients with asthma and CF with Aspergillus colonization and/or infection develop ABPA, which is a complex hypersensitivity reaction to fungal antigens. ABPA is a disease resulting in mucus production, wheezing, pulmonary infiltrates, worsening bronchiectasis, and fibrosis of the lung. 4 In patients with both asthma and CF, ABPA is commonly treated with oral steroids to treat inflammation and with oral antifungals to reduce fungal infection. The inhalation administration of a drug affords direct delivery of the drug to the infected parts of the lung, maximizing the dose to the affected sites and minimizing systemic exposure to the rest of the body where it could cause significant side effects. Therefore, treatment of lung infections by direct administration of anti-infective products to the lung may improve both the safety and efficacy of treatment compared to systemic administration by other routes, as well as improving patient convenience as compared to oral and injectable forms of the treatment. We believe that local lung delivery by inhalation of our iSPERSE™ formulation could provide convenient, effective and safe management of the debilitating and often life-threatening lung infections that are not currently addressed by inhaled therapies. Pulmazole is our inhaled formulation of itraconazole, an anti-fungal drug commercially available as an oral drug that we are developing to treat and prevent pulmonary fungal infections. Development of Pulmazole is focused on treatment of Aspergillus. colonization and infection in patients with asthma and CF. In a Phase 1/1b clinical trial, Pulmazole appeared to be safe and well tolerated in healthy normal volunteers (Parts 1 and 2) and in patients with asthma (Part 3). In Part 3 of the Phase 1/1b clinical study, following a single dose of Pulmazole, the pharmacokinetics (“PK”) analysis of sputum samples demonstrated ~70-fold higher maximum lung concentration of itraconazole following inhalation of Pulmazole compared to oral Sporanox® (Janssen Pharmaceuticals) despite inhaling only one tenth the dose of itraconazole (20 mg) relative to the dose of oral Sporanox® (200 mg). Lung exposure, as measured by sputum induction and analysis, was approximately 50-fold higher and plasma exposure was approximately 85-fold lower following inhalation of 20 mg of Pulmazole compared to 200 mg of oral Sporanox®. All endpoints from the Phase 1/1b clinical study were successfully met. On April 15, 2019, we entered into a Development and Commercialization Agreement (the “Cipla Agreement”) with Cipla Technologies LLC (“Cipla”) for the co-development and commercialization, on a worldwide, except for the Cipla Territory defined below, exclusive basis, of Pulmazole, our inhaled iSPERSE™ drug delivery system (the “Product”) enabled formulation of the antifungal drug, itraconazole, which is only available as an oral drug, for the treatment of all pulmonary indications, including ABPA in patients with asthma. We entered into an amendment to the Cipla Agreement on November 8, 2021 (the “Amendment”), and all references to the Cipla Agreement herein refer to the Agreement as amended. The Cipla Agreement will remain in effect in perpetuity, unless otherwise earlier terminated in accordance with its terms. In the event of circumstances affecting the continuity of development of the Product in line with the Cipla Agreement or certain development milestones are not achieved within a specified timeframe discussed in greater detail below, the joint steering committee (“JSC”) will evaluate the cause and effect and make a recommendation as to the most optimal option available to Cipla and us. In such events, the parties are not obligated to follow the recommendation of the JSC and, either party may elect to terminate (a “Terminating Party”) its obligation to fund additional costs and expenses for the development and/or commercialization of the Product. If the non-Terminating Party wishes to continue the development of the Product, it will have the right to purchase the rights of the Terminating Party in the Product at its fair market value. If both Cipla and we abandon the development program, Cipla and we shall make commercially reasonable efforts to monetize the Product and development program in connection with the Pulmonary indications. Cipla and we will equally share the proceeds. We and Cipla will each be responsible for 60% and 40%, respectively, of our overhead costs and the time spent by our employees and consultants on development of the Product (“Direct Costs”), provided, that Cipla will reimburse us an amount equal to 10% of aggregate Direct Costs upon the achievement of certain development milestones set forth in the table below. We will continue to share all other development costs with Cipla that are not Direct Costs, such as the cost of clinical research organizations, manufacturing costs and other third-party costs, on a 50/50 basis. Pursuant to the Cipla Agreement, (i) all development and commercialization activities with respect to the Product in India, South Africa, Sri Lanka, Nepal, Iran, Yemen, Myanmar and Algeria (such countries, the “Cipla Territory”) will be conducted exclusively by Cipla at Cipla’s sole cost and expense, and (ii) Cipla shall be entitled to all profits from the sale of the Product in the Cipla Territory, except that if Cipla successfully transfers manufacturing of the Product for the Cipla Territory to a manufacturing site determined by Cipla, we will become entitled to a royalty equal to 2% of net sales in the Cipla Territory. In partnership with Cipla, we initiated a Phase 2 clinical study in 2019, entitled: “A Randomized, Double-Blind, Multicenter, Placebo-Controlled, Phase 2 Study to Evaluate the Safety, Tolerability, and Pharmacokinetics of Itraconazole Administered as a Dry Powder for Inhalation (PUR1900) in Adult Asthmatic Patients with ABPA. This clinical study was terminated in July 2020 due to the ongoing impact of the COVID-19 pandemic on patient enrollment and clincal study conduct. Following termination of the Phase 2 clinical study, Pulmatrix conducted a Type C meeting with the FDA on January 27, 2021, in order to discuss the program overall development plan and the current Phase 2b clinical study design. The Phase 2b clinical study design includes a 16-week dosing regimen with an 8-week follow up and is intended to explore potential efficacy endpoints, whereas the terminated Phase 2 clinical study had comprised only a 4- week dosing regimen with safety and tolerability as its primary endpoint. The longer dosing regimen of the new Phase 2b clinical study is supported by the 6-month inhalation toxicology study in dogs completed in April 2020. The new development plan, including the planned Phase 2b clinical study, was approved on November 8, 2021. 5 In addition to the terms of the Cipla Agreement described above, if any of the below development milestones are not met by the date that is nine months after the applicable deadline for achieving such development milestone, either party may elect to terminate its obligation to fund additional development costs, in which case either (i) the non-Terminating Party can acquire the rights of the Terminating Party for fair market value or (ii) the parties will monetize the Product. The table below sets forth the development milestones. Phase 2b Development Plan – Development Milestones Development Milestone 25% of patients enrolled in Phase 2b clinical study are dosed Company delivers summary of key efficacy and safety data to include FEV1, IgE, ACQ-6, number of subjects withdrawn, any severe adverse events related to the medication and an overall summary table of adverse events (“Topline Results”) to the JSC. Phase 3 Development Plan – Development Milestones Development Milestone 25% of patients enrolled in Phase 3 clinical study dosed Company delivers Topline Results to the JSC The Prescription Drug User Fee Act (the “PDUFA”) Competition and Market Opportunities Milestone Date June 30, 2023 June 30, 2024 Milestone Date To be proposed by JSC To be proposed by JSC To be proposed by JSC Current treatments of pulmonary fungal infections highlight the limitations of oral or intravenous anti-infective treatments for lung infections. Itraconazole is one of the most commonly prescribed therapies for treating Aspergillus. infections in patients with asthma and CF. Itraconazole is available commercially as Sporanox® in both a capsule and oral solution form. Itraconazole is metabolized in the liver by CYP3A4 and coadministration with a large number of drugs is contraindicated due to the potential for severe drug-drug interactions. We have demonstrated that Pulmazole achieves higher local lung itraconazole concentrations with significantly lower systemic exposure relative to oral dosing, thus allowing for the potential to improve upon both the efficacy and safety profiles observed with oral itraconazole. Furthermore, administration by inhalation significantly reduces the exposure of the drug in the rest of the body, which may be beneficial in reducing systemic side effects and the risk of potentially toxic drug-drug interactions. There is precedent for both dry powder and nebulized inhaled anti-infective therapy to address specific pulmonary infections in patients which demonstrates potential utility of inhaled drug delivery and market opportunity. Mylan currently markets TOBI Podhaler for treatment of Pseudomonas aeruginosa infection in the United States and Forest Laboratories U.K. Limited (a subsidiary of Actavis PLC) markets inhaled colistin, Colobreathe, for the same infection in Europe. Insmed currently markets Amikacin Liposome Inhalation Suspension (Arikayce) in the United States for the treatment of lung disease caused by a group of bacteria, Mycobacterium avium complex in a limited population of patients with the disease who do not respond to conventional treatment (refractory disease). Arikayce was the first drug to be approved under the Limited Population Pathway for Antibacterial and Antifungal Drugs, or LPAD pathway, established by Congress under the 21st Century Cures Act to advance development and approval of antibacterial and antifungal drugs to treat serious or life-threatening infections in a limited population of patients with unmet need. As required for drugs approved under the LPAD pathway, labeling for Arikayce includes certain statements to convey that the drug has been shown to be safe and effective only for use in a limited population. Arikayce was also approved under the accelerated approval pathway. Under this approach, the FDA may approve drugs for serious or life- threatening diseases or conditions where the drug is shown to have an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit to patients. The approval of Arikayce was based on achieving three consecutive negative monthly sputum cultures by month six of treatment. Insmed was required by the FDA to conduct an additional, post-market study to describe the clinical benefits of Arikayce. There are currently no products specifically approved for treatment of ABPA, however, there are several inhaled anti-fungal agents currently in early stages of development for invasive aspergillosis that could also have efficacy for ABPA. 6 New methods to detect Aspergillus. infection in sputum have improved the sensitivity of diagnosis and clinical appreciation for these infections. Pulmonary Aspergillus. infections affect approximately 14 million patients worldwide according to the Global Action Fund for Fungal Infections (Improving Outcomes for Patients with Fungal Infections across the World: A Road Map for the Next Decade). The majority of these cases occur in patients with asthma who have allergic disease and also include invasive Aspergillus. infections that are associated with a high rate of mortality in immunocompromised patients. We believe that Pulmazole compares favorably to the products discussed above and has the potential to generate significant value based on treating and preventing pulmonary fungal infections in multiple patient populations. Clinical Development Pulmazole is our lead iSPERSE™ development program. We successfully completed a Phase 1/1b clinical study in 2018 which enabled us to initiate a Phase 2 clinical study in 2019, entitled: “A Randomized, Double-Blind, Multicenter, Placebo-Controlled, Phase 2 Study to Evaluate the Safety, Tolerability, and Pharmacokinetics of Itraconazole Administered as a Dry Powder for Inhalation (PUR1900) in Adult Asthmatic Patients with ABPA. This clinical study was terminated in July 2020 due to the ongoing impact of the COVID-19 pandemic on patient enrollment and clinical study conduct. The completion of a 6-month inhalation toxicology study in dogs in 2020 enables the conduct of a Phase 2b clinical study that will allow for a 16-week dosing regimen and exploration of potential endpoints. We anticipate the first patient to be dosed in this Phase 2b clinical study during the first quarter of 2023 with top-line data expected in mid-2024. This clinical study start may be affected by conditions related to the COVID-19 pandemic with respect to clinical study conduct and patient enrollment. For more discussion of risks related to the COVID-19 pandemic, please see “Item 1A. RISK FACTORS.—Risks Related to Our Business—Business interruptions could limit our ability to operate our business.” PUR1800 Reduced responsiveness to corticosteroids represents an important barrier to effective treatment of COPD and AECOPD and provides a clear rationale to seek novel medicines to treat these respiratory diseases. In addition, current treatments generally fail to treat the underlying source of the AECOPD, in particular when a viral or bacterial infection is the cause, which occurs in approximately 80% of exacerbations. RV1162, the active ingredient of PUR1800, is a novel, potent anti-inflammatory that inhibits the phosphorylation of a narrow spectrum of kinases. In pre-clinical studies, RV1162 demonstrated direct anti-inflammatory activity in a model of viral induced respiratory inflammation. RV1162 also demonstrated a reduction in corticosteroid-resistant inflammatory responses in a model of cigarette smoke induced inflammation. These findings suggested that RV1162 has the potential to deliver effective anti-inflammatory outcomes in corticosteroid-resistant patients while also reducing the underlying source of inflammation in an exacerbation, such as a viral and/or bacterial respiratory infection. Clinical studies conducted by RespiVert/Janssen with RV1162 formulated as a lactose blend for inhalation demonstrated that the molecule was well tolerated for up to 14 days of dosing in patients with COPD. Analysis of sputum collected from patients with COPD treated with RV1162 showed reduced levels of p38 phosphorylation in sputum cells and decreases in the number of neutrophils recovered in sputum after 12 days of dosing. These findings suggest that inhalation of RV1162 may confer anti-inflammatory benefits after a short dosing regimen. Long-term toxicology studies with RV1162 as a lactose blend suggested that this formulation was not suitable for chronic dosing. Based upon the clinical results generated by RespiVert/Janssen for RV1162 and the anticipated benfits of an iSPERSETM formulation of RV1162, Pulmatrix entered into a License, Development and Commercialization Agreement with RespiVert Ltd. (“RespiVert”), a wholly owned subsidiary of Janssen Biotech, Inc. on June 9, 2017. RespiVert granted Pulmatrix an exclusive, royalty-bearing license in a portfolio of narrow spectrum kinase inhibitor compounds (“NSKI”). RV1162 was subsequently formulated into PUR1800 by Pulmatrix, for development as a potential therapy for AECOPD. We conducted two 28-day good laboratory practices (“GLP”) toxicology studies in rats and dogs. Results from the two GLP toxicology studies supported the potential for PUR1800 to improve lung exposure, with reduced lung accumulation, as compared to RV1162 as a lactose blend formulation, suggesting potential for chronic dosing. 7 On December 26, 2019, Pulmatrix entered into a License, Development and Commercialization Agreement (the “JJEI License Agreement”) with Johnson & Johnson Enterprise Innovation, Inc. (“JJEI”). Under the JJEI License Agreement, Pulmatrix granted JJEI an option to acquire (1) the Company’s rights to an intellectual property portfolio of materials and technology related to NSKI and (2) an exclusive, worldwide, royalty bearing license to PUR1800. As part of the agreement, Pulmatrix was to complete chronic toxicology studies in rats and dogs, with durations of six and nine months, respectively. Pulmatrix was also to complete a Phase 1b clinical trial in stable COPD patients. JJEI had the right to execute its option for licensure (option period) any time up to three months following the later of (i) receipt of the final report for the clinical study, or (ii) receipt of the audited draft reports for the toxicology study. JJEI terminated the JJEI License Agreement effective July 6, 2021, prior to delivery of any data from the ongoing toxicology studies and ongoing Phase1b clinical study. All rights to the kinase inhibitor portfolio, including PUR1800 and PUR5700, reverted back to Pulmatrix along with all data generated from the ongoing studies predominantly funded through proceeds from the terminated JJEI License Agreement. Toxicology studies in rats and dogs, with durations of six and nine months, respectively, were then completed. The data from both studies demonstrated that PUR1800 is safe and well tolerated with chronic dosing, with no progression of findings from 28-day studies. We believe this indicates potential for chronic dosing of PUR1800, enabling Pulmatrix to explore PUR1800 therapy for chronic respiratory disease such as steroid resistant asthma, COPD, or idiopathic pulmonary fibrosis. While the program is currently in development for treatment of AECOPD, these positive toxicology study results could expand potential indications and value of the program. Clinical Development We completed the Phase 1b safety, tolerability, and pharmacokinetics of PUR1800 for patients with stable moderate-severe COPD. Topline data was delivered in the first quarter of 2022. The clinical study, performed at the Medicines Evaluation Unit in Manchester, UK, was a randomized, three-way crossover double-blind study with 14 days of daily dosing which includes placebo and one of two doses of PUR1800, and included a 28 day follow up period after each treatment period. A total of 18 adults with stable COPD were enrolled. Safety and tolerability, as well as systemic PK were evaluated. PUR1800 was well tolerated and there were no observed safety signals. The preliminary PK data indicate that PUR1800 results in low and consistent systemic exposure when administered via oral inhalation. The complete datasets will be analyzed and we expect to submit study results at a relevant medical conference later this year. This topline data, along with the results from chronic toxicology studies, support the continued development of PUR1800 for the treatment of AECOPD and other inflammatory respitory disease. Competition and Market Opportunities There are 18 million moderate-to-severe episodes of AECOPD in the U.S. each year. AECOPD are sudden onset increases in symptoms, including increased dyspnea, sputum purulence and volume, and wheezing, coughing, and shortness of breath that require medical intervention and can lead to hospitalization. The occurrence of an exacerbation greatly increases the likelihood of a further exacerbation within the following 6 months and creates a significant financial burden to healthcare systems. Steroids are standard of care for moderate-to-severe acute exacerbations, which occur across all patient severity types. We believe a significant unmet need exists in AECOPD for those patients with underlying infection and/or steroid resistance. Acumapimod (BCT-197) is an oral p38 MAP kinase inhibitor being developed by Mereo BioPharma. BCT-197 completed Phase 2 development as first- line therapy for severe AECOPD. In April 2019, Mereo BioPharma announced completion of an end of Phase 2 meeting with the FDA and stated the company is continuing discussions with potential partners for BCT-197. Pulmatrix is not aware of any further progress in either clinical development or partnership efforts on this product. PUR3100 In 2020, Pulmatrix developed PUR3100, the iSPERSE™ formulation of DHE, for the treatment of acute migraine. Over 38 million people suffer from migraine in the United States. Currently DHE is only available as intravenous infusion or intranasal delivery. If approved for commercialization, PUR3100 should be the first orally inhaled DHE treatment for acute migraine and be an alternative to other acute therapies, such as oral and intravenous triptans that currently represent the majority of the annual migraine prescriptions in the United States. Given the oral inhaled route of delivery, PUR3100 is anticipated to provide a rapid onset of migraine symptom relief with a favorable tolerability profile. 8 Competition and Market Opportunities Current treatments for migraine include oral, intranasal, intravenous (“IV”) or intramuscular (“IM”) formulations of triptans, dihydroergotamine, and calcitonin gene-related peptide (“CGRP”) antagonists. Studies show that people with migraines are underdiagnosed, undertreated, and experience substantial decreases in functioning and productivity, which translates into diminished quality of life for individuals, and financial burdens to patients, health-care systems, and employers. All current treatments suffer from limited efficacy and/or tolerability and there exists a significant unmet need for safe and effective alternatives to current treatments. DHE has been shown to be effective in the treatment of migraine and, in particular, hard to treat migraines, such as menstrual migraine, migraine upon awakening, and severe migraine. Utilization of DHE has been limited due to its poor oral bioavailability, requiring IV or intranasal dosing. IV dosing generally requires administration in a healthcare setting and the high exposure levels results in significant nausea and emesis and as such has been limited to use only in patients with severe intractable migraine. Intranasal dosing with Migranal (Bausch Health US LLC), approved in December 1997, has been poorly adopted due to poor exposure resulting in inconsistent efficacy. Trudhesa (Impel NeuroPharma, Inc.), another nasal spray utilizing DHE, was approved by the FDA in September 2021. There is precedent for an inhaled DHE therapy. MAP Pharmaceuticals, Inc. developed MAP0004, also known as Levadex or Semprana, a liquid suspension formulation of DHE, designed to be dosed via a pMDI inhalation device. Their published data indicate a safe and well tolerated formulation with rapid onset and long-lasting efficacy that compared very favorably to existing treatments. Development of MAP0004 led to a new drug application (“NDA”) but was halted after multiple complete response letters from the FDA citing Chemistry, Manufacturing and Controls (“CMC”) issues related to dose uniformity and stability issues. Regardless of the failure of MAP0004, the efficacy and tolerability of the formulation reported by MAP Pharmaceuticals provides proof of concept for an inhaled DHE formulation. PUR3100, the iSPERSE™ formulation planned by Pulmatrix is anticipated to deliver DHE to the lung with efficacy and tolerability that compares favorably with MAP0004, while avoiding the device CMC related issues of MAP0004 by delivering PUR3100 as an iSPERSETM dry powder. To the best of our knowledge, there are no other orally inhaled DHE formulations currently in development. Migranal and Trudhesa are the two currently FDA approved intranasal formulations. of DHE. Satsuma Pharmaceuticals has developed a dry powder formulation of DHE for intranasal dosing and recently completed a Phase 3 clinical study (ClinicalTrials.gov NCT03901482). Despite failure of this clinical study to achieve its primary endpoint, Satsuma announced that development of this formulation will continue and is actively enrolling patients in another Phase 3 clinical study. Clinical Development Two 14-day GLP toxicology studies have been conducted to support initial single dose clinical studies have been completed. We intend to complete an additional 14-day GLP-toxicology study in rats to fully characterize local toxicity in the lungs to enable species selection for a single species chronic toxicology study to support longer-term clinical dosing. We submitted pre-IND questions to the FDA for which we have received written responses that have confirmed and/or clarified several manufacturing, nonclinical, and clinical aspects of the PUR3100 development program. After consideration of the responses, we have updated the initial clinical study from a 2-part Phase 1/Phase 2 clinical study to a Phase 1 double-blind matching placebo (double-dummy) clinical study in which healthy volunteers will be randomized to receive either 1 of 3 doses of PUR3100 or IV DHE and a two dose Phase 2 efficacy clinical study in migraine patients. The Phase 1 clinical study is intended to assess not only safety, tolerability, and pharmacokinetics of PUR3100 in humans, but also provide preliminary comparative bioavailability data to support the use of the 505(b)(2) pathway for marketing authorization. The FDA also confirmed that long-term safety should be assessed in a minimum of one hundred patients for six months of dosing and fifty patients for twelve months of dosing. The FDA also confirmed that it will be necessary to perform a safety study administering PUR3100 to otherwise healthy patients with asthma before a NDA is submitted for PUR3100. We further conducted a Type C meeting with the FDA to add additional clarification around some of the written responses in relation to the overall nonclinical and clinical program. Pulmatrix has concluded that conducting the Phase 1 clinical study in Australia allows the Company to generate the most comprehensive dataset for inclusion in an IND for Phase 2 in the United States, while also providing the most cost and time efficient path to Phase 1 data in 2022. We anticipate initiating patient dosing for the Phase 1 clinical study in Australia in the third quarter of 2022, with top-line data anticipated in the fourth quarter of 2022. Following the Australia Phase 1 clinical study completion, we plan to open an IND and conduct a randomized placebo-controlled Phase 2 clinical study in patients with migraine to assess the safety and effectiveness of two doses of PUR3100, in which the selection of the two doses has been informed by the initial Phase 1 clinical study. We anticipate that this Phase 2 clinical study will initiate patient dosing in the second quarter of 2023 with top-line data expected in late fourth quarter of 2023. 9 Clinical study starts may be affected by conditions related to the COVID-19 pandemic with respect to clinical study conduct and patient enrollment. For more discussion of risks related to the COVID-19 pandemic, please see “Item 1A. RISK FACTORS.—Risks Related to Our Business—Business interruptions could limit our ability to operate our business.” Business Development On April 15, 2019, Pulmatrix entered into a Development and Commercialization Agreement (the “Cipla Agreement”) with Cipla Technologies LLC (“Cipla”) for the co-development and commercialization, on a worldwide exclusive basis, except for the Cipla Territory defined below, of Pulmazole, our inhaled iSPERSE™ drug delivery system enabled formulation of the antifungal drug, itraconazole, which is only available as an oral drug, for the treatment of all pulmonary indications, including ABPA in patients with asthma. We entered into an amendment to the Cipla Agreement on November 8, 2021 (the “Amendment”), and all references to the Cipla Agreement herein refer to the Agreement as amended. The Cipla Agreement will remain in effect in perpetuity, unless otherwise earlier terminated in accordance with its terms. In the event of circumstances affecting the continuity of development of the Product in line with the Cipla Agreement or certain development milestones are not achieved within a specified timeframe discussed in greater detail below, the joint steering committee (“JSC”) will evaluate the cause and effect and make a recommendation as to the most optimal option available to Cipla and us. In such events, the parties are not obligated to follow the recommendation of the JSC and, either party may elect to terminate (a “Terminating Party”) its obligation to fund additional costs and expenses for the development and/or commercialization of the Product. If the non-Terminating Party wishes to continue the development of the Product, it will have the right to purchase the rights of the Terminating Party in the Product at its fair market value. If both Cipla and we abandon the development program, Cipla and we shall make commercially reasonable efforts to monetize the Product and development program in connection with the Pulmonary indications. Cipla and we will equally share the proceeds. We and Cipla will each be responsible for 60% and 40%, respectively, of our overhead costs and the time spent by our employees and consultants on development of the Product (“Direct Costs”), provided, that Cipla will reimburse us an amount equal to 10% of aggregate Direct Costs upon the achievement of certain development milestones set forth in the table below. We will continue to share all other development costs with Cipla that are not Direct Costs, such as the cost of clinical research organizations, manufacturing costs and other third-party costs, on a 50/50 basis. Pursuant to the Cipla Agreement, (i) all development and commercialization activities with respect to the Product in India, South Africa, Sri Lanka, Nepal, Iran, Yemen, Myanmar and Algeria (such countries, the “Cipla Territory”) will be conducted exclusively by Cipla at Cipla’s sole cost and expense, and (ii) Cipla shall be entitled to all profits from the sale of the Product in the Cipla Territory, except that if Cipla successfully transfers manufacturing of the Product for the Cipla Territory to a manufacturing site determined by Cipla, we will become entitled to a royalty equal to 2% of net sales in the Cipla Territory. In partnership with Cipla, we initiated a Phase 2 clinical study in 2019, entitled: “A Randomized, Double-Blind, Multicenter, Placebo-Controlled, Phase 2 Study to Evaluate the Safety, Tolerability, and Pharmacokinetics of Itraconazole Administered as a Dry Powder for Inhalation (PUR1900) in Adult Asthmatic Patients with ABPA. This clinical study was terminated in July 2020 due to the ongoing impact of the COVID-19 pandemic on patient enrollment and clincal study conduct. Following termination of the Phase 2 clinical study, Pulmatrix conducted a Type C meeting with the FDA on January 27, 2021, in order to discuss the program overall development plan and the current Phase 2b clinical study design. The Phase 2b clinical study design includes a 16-week dosing regimen with an 8-week follow up and is intended to explore potential efficacy endpoints, whereas the terminated Phase 2 clinical study had comprised only a 4- week dosing regimen with safety and tolerability as its primary endpoint. The longer dosing regimen of the new Phase 2b clinical study is supported by the 6-month inhalation toxicology study in dogs completed in April 2020. The new development plan, including the planned Phase 2b clinical study, was approved on November 8, 2021. 10 In addition to the terms of the Cipla Agreement described above, if any of the below development milestones are not met by the date that is nine months after the applicable deadline for achieving such development milestone, either party may elect to terminate its obligation to fund additional development costs, in which case either (i) the non-Terminating Party can acquire the rights of the Terminating Party for fair market value or (ii) the parties will monetize the Product. The table below sets forth the development milestones. Phase 2b Development Plan – Development Milestones Development Milestone 25% of patients enrolled in Phase 2b clinical study are dosed Company delivers summary of key efficacy and safety data to include FEV1, IgE, ACQ-6, number of subjects withdrawn, any severe adverse events related to the medication and an overall summary table of adverse events (“Topline Results”) to the JSC. Phase 3 Development Plan – Development Milestones Development Milestone 25% of patients enrolled in Phase 3 clinical study dosed Company delivers Topline Results to the JSC The Prescription Drug User Fee Act (the “PDUFA”) Milestone Date June 30, 2023 June 30, 2024 Milestone Date To be proposed by JSC To be proposed by JSC To be proposed by JSC Pulmatrix entered into a License, Development and Commercialization Agreement with RespiVert Ltd. (“RespiVert”), a wholly owned subsidiary of Janssen Biotech, Inc. on June 9, 2017. RespiVert granted Pulmatrix an exclusive, royalty-bearing license in a portfolio of NSKI. RV1162 was subsequently formulated into PUR1800 by Pulmatrix, for development as a potential therapy for AECOPD. We conducted two 28-day GLP toxicology studies in rats and dogs. Results from the two GLP toxicology studies, supported the potential for PUR1800 to result in improved lung exposure with reduced lung accumulation as compared to RV1162 as a lactose blend formulation, suggesting potential for chronic dosing. Following completion of two 28-day GLP toxicology studies in rats and dogs, on December 26, 2019, Pulmatrix entered into a License, Development and Commercialization Agreement (the “JJEI License Agreement”) with Johnson & Johnson Enterprise Innovation, Inc. (“JJEI”). Under the JJEI License Agreement, Pulmatrix granted JJEI an option to acquire (1) the Company’s rights to an intellectual property portfolio of materials and technology related to NSKI and (2) an exclusive, worldwide, royalty bearing license to PUR1800. As part of the agreement, Pulmatrix was to complete chronic toxicology studies in rats and dogs, with durations of six and nine months, respectively. Pulmatrix was also to complete a Phase 1b clinical trial in stable COPD patients. JJEI had the right to execute its option for licensure (option period) any time up to three months following the later of (i) receipt of the final report for the clinical study, or (ii) receipt of the audited draft reports for the toxicology study. JJEI terminated the agreement effective July 6, 2021, prior to delivery of any data from the ongoing toxicology studies and ongoing Phase 1b clinical study. All rights to the kinase inhibitor portfolio, including PUR1800 and PUR5700, reverted back to Pulmatrix along with all data generated from the ongoing studies predominantly funded through proceeds from the terminated agreement. On April 9, 2020, we entered into a Collaboration and License Agreement (the “Sensory Cloud Agreement”) with Sensory Cloud, Inc. (“Sensory Cloud”). Under the terms of the Sensory Cloud Agreement, we have granted Sensory Cloud an exclusive, worldwide, royalty bearing license to PUR003 and PUR006 (the “Sensory Licensed Product”), our proprietary aerosol salt solution for delivery or administration to or through the nasal passages also known as NasoCalm, as well as related patents and know-how, for use in the field. PUR003 and PUR006, were originally developed by Pulmatrix as potential anti- infective biodefense medical countermeasure products. However, we decided to no longer develop these products and instead prioritized the development of other programs. For purposes of the Sensory Cloud Agreement, the field means the formulation and commercialization of over-the-counter products for the prophylaxis, prevention and treatment of upper and lower respiratory disease that are delivered or administered to or through the nasal passages. The license granted to Sensory Cloud does not cover the development or commercialization of any prescription products. 11 Intellectual Property Patents and Patent Applications We protect our intellectual property by filing and advancing patent applications and maintaining granted patents on our iSPERSE™ platform technology and in-licensed kinase inhibitors, which includes claims to compositions of matter and methods of use for our Pulmazole, PUR1800 and PUR3100 programs, and PUR003 and PUR006, as well as, manufacturing processes, devices and packaging relevant to our iSPERSE™ platform and product candidates. The status of our patent portfolio changes frequently in the ordinary course of patent prosecution. As of December 31, 2021, our patent portfolio related to iSPERSE™ included approximately 130 granted patents, 18 of which are granted US patents, with expiration dates from 2024 to 2037, and approximately 54 additional pending patent applications in the US and other jurisdictions. Our in-licensed portfolio related to kinase inhibitors included approximately 269 granted patents, 32 of which are granted US patents, with expiration dates from 2029 to 2035, and approximately 31 additional pending patent applications in the US and other jurisdictions. On March 3, 2021, we filed a provisional patent application in the USPTO that discloses and claims certain formulations and methods of use relevant to our PUR3100 program. We plan to file an international patent application under the patent cooperation treaty based on the provisional patent application by the applicable deadline. There can be no assurance that the patent applications will be granted. The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, the patent term of a patent that covers a FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. We plan to seek patent term extensions to extend the patent coverage of any of our products that received regulatory approval in any jurisdiction where these extensions are available. However, there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment on whether such extensions should be granted, and if granted, the length of such extensions. The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Consequently, we may not obtain or maintain adequate patent protection for any of our product candidates. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third parties. Trade Secrets We also rely on trade secret protection of our confidential and proprietary information, including the iSPERSE™ technology. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees, consultants and others, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with Pulmatrix. These confidentiality agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual’s relationship with us must be kept confidential and not disclosed to third parties except in specific circumstances. Our confidentiality agreements with our employees also provide that all inventions conceived by the employee in the course of employment with us or from the employee’s use of our confidential information are our exclusive property. 12 Manufacturing We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates. We have small-scale production capabilities and generally perform early process development for our product candidates to produce the quantities necessary to conduct preclinical studies of our investigational product candidates. We do not have, and do not currently plan to acquire or develop, the facilities or capabilities to manufacture bulk drug substance or drug product for use in human clinical studies. We rely on contract manufacturing organizations (“CMOs”) and third-party contractors to manufacture drug substance and drug product required for our clinical studies. We expect to continue to rely on CMOs to manufacture drug substances and drug products under the appropriate current Good Manufacturing Practices (“cGMP”) conditions to perform clinical studies for the foreseeable future. We also contract with CMOs for the labeling, packaging, storage and distribution of investigational drug products. These arrangements allow us to maintain a more flexible infrastructure while focusing our expertise on researching and developing our products. We expect to continue to rely on contract manufacturers to produce sufficient quantities of our product candidates in accordance with the appropriate cGMPs for the pertinent phase of clinical trials. cGMP compliance includes strict adherence to regulations for quality control, quality assurance, and the maintenance of records and documentation. The manufacturing facilities that manufacture our approved drug products, if any are approved in the future, must comply with the FDA’s cGMP regulation requirements and have acquired FDA or other regulatory approval for the manufacturing of our commercial products. Our contract manufacturers may also be subject to inspections of facilities by regulatory authorities to ensure compliance with applicable regulations. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel. We have little or no direct control over our manufacturers’ compliance with these regulations and standards. Failure to comply with applicable regulatory requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. These actions could have a material impact on the availability of products. Suppliers We also rely on third-party contract manufacturers to supply the APIs that are used to formulate our therapeutic candidates. We place purchase orders with different contract manufacturers for the APIs required for Pulmazole, PUR3100 and PUR1800. We additionally rely on third-party vendors to supply raw materials for our APIs and drug products. Research and Development For fiscal years ended December 31, 2021 and 2020, we spent approximately $15.4 million and $15.6 million, respectively, on research and development activities. Government Regulation Pharmaceutical companies are subject to extensive regulation by national, state and local agencies, such as the FDA, in the United States and the European Medicines Agency in Europe. The manufacture, distribution, marketing, and sale of pharmaceutical products are subject to government regulation in the United States and various foreign countries. Additionally, in the United States, we must follow rules and regulations established by the FDA requiring the presentation of data indicating that our products are safe and efficacious and are manufactured in accordance with cGMP regulations. If we do not comply with applicable requirements, we may be fined, the government may refuse to approve our marketing applications or allow us to manufacture or market its products, and we may be criminally prosecuted. We and our manufacturers and clinical research organizations may also be subject to regulations under other federal, state and local laws, including, but not limited to, the U.S. Occupational Safety and Health Act, the Resource Conservation and Recovery Act, the Clean Air Act and import, export and customs regulations as well as the laws and regulations of other countries. Pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act and federal healthcare fraud and abuse laws, including the False Claims Act, and the U.S. government has increased its enforcement activity regarding illegal marketing practices domestically and internationally. These regulatory requirements impact our operations and differ from one country to another, such that securing the applicable regulatory approvals of one country does not imply the approval of another country. However, securing the approval of a more stringent body, e.g. the FDA, may facilitate receiving the approval by a regulatory authority in a different country where the regulatory requirements are similar or less stringent. The approval procedures involve high costs and are manpower intensive and usually extend over many years and require highly skilled and professional resources. 13 FDA Approval Process The steps required to be taken before a new drug may be marketed in the United States generally include: ● Completion of preclinical laboratory and animal testing; ● The submission to the FDA of an IND application, which must be evaluated and found acceptable by the FDA before human clinical trials may commence; ● Performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use; and ● Submission and approval of a NDA. Clinical studies are conducted under protocols detailing, among other things, the objectives of the study, what types of patients may enter the study, schedules of tests and procedures, drugs, dosages, and length of study, as well as the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical study and any subsequent protocol amendments must be submitted to the FDA as part of the IND application. In all the countries that are signatories of the Helsinki Declaration, the prerequisite for conducting clinical trials on human subjects is securing the preliminary approval of the competent authorities of that country to conduct medical experiments on human subjects in compliance with the other principles established by the Helsinki Declaration. The clinical testing of a product candidate (also commonly referenced as a “drug product candidate” or a “therapeutic product candidate”) generally is conducted in three sequential phases prior to approval, but the phases may overlap or be combined. A fourth, or post approval, phase may include additional clinical studies. The phases are generally as follows: Phase 1. In Phase 1 clinical studies, the product is tested in a small number of patients with the target condition or disease or in healthy volunteers. These studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the product candidate in humans, side effects associated with increasing doses, and, in some cases, to gain early evidence on efficacy. The number of participants included in Phase 1 studies is generally in the range of 20 to 80. Phase 2. In Phase 2 studies, in addition to safety, the sponsor evaluates the efficacy of the product candidate on targeted indications to determine dosage tolerance and optimal dosage and to identify possible adverse effects and safety risks. Phase 2 studies typically are larger than Phase 1 but smaller than Phase 3 studies and may involve several hundred participants. Phase 3. Phase 3 studies typically involve an expanded patient population at geographically-dispersed test sites. They are performed after preliminary evidence suggesting effectiveness of the product candidate has been obtained and are designed to further evaluate clinical efficacy and safety, to establish the overall benefit-risk relationship of the product candidate and to provide an adequate basis for a potential product approval. Phase 3 studies usually involve several hundred to several thousand participants. Phase 4. Phase 4 clinical trials are post marketing studies designed to collect additional safety data as well as potentially expand a product indication. Post marketing commitments are required of, or agreed to by, a sponsor after the FDA has approved a product for marketing. These studies are used to gain additional information from the treatment of patients in the intended therapeutic indication and to verify a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement. These clinical trials are often referred to as Phase 4 post-approval or post marketing commitments. Failure to promptly conduct Phase 4 clinical trials could result in the inability to deliver the product into interstate commerce, misbranding charges, and civil monetary penalties. 14 Clinical trials must be conducted in accordance with the FDA’s good clinical practices (“GCP”), requirements. The FDA may order the temporary or permanent discontinuation of a clinical study at any time or impose other sanctions if it believes that the clinical study is not being conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable health risk. An institutional review board (“IRB”) generally must approve the clinical trial design and patient informed consent at study sites that the IRB oversees and also may halt a study, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions. Additionally, some clinical studies are overseen by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board or committee. This group recommends whether or not a trial may move forward at designated check points based on access to certain data from the study. The clinical study sponsor may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate. As a product candidate moves through the clinical testing phases, manufacturing processes are further defined, refined, controlled and validated. The level of control and validation required by the FDA would generally increase as clinical studies progress. We and the third-party manufacturers on which we rely for the manufacture of our product candidates and their respective components (including the API) are subject to requirements that drugs be manufactured, packaged and labeled in conformity with cGMP. To comply with cGMP requirements, manufacturers must continue to spend time, money and effort to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping and other requirements. Assuming completion of all required testing in accordance with all applicable regulatory requirements, detailed information on the product candidate is submitted to the FDA in the form of a NDA, requesting approval to market the product for one or more indications, together with payment of a user fee, unless waived. A NDA includes all relevant data available from pertinent nonclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information on the chemistry, manufacture, control and proposed labeling, among other things. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the product candidate for its intended use to the satisfaction of the FDA. If a NDA submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the PDUFA, the FDA’s goal is to complete its initial review and respond to the applicant within twelve months of submission, unless the application relates to an unmet medical need in a serious or life- threatening indication, in which case the goal may be within eight months of NDA submission. However, PDUFA goal dates are not legal mandates and FDA response often occurs several months beyond the original PDUFA goal date. Further, the review process and the target response date under PDUFA may be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the NDA. The NDA review process can, accordingly, be very lengthy. During its review of a NDA, the FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. Data from clinical studies are not always conclusive and the FDA and/or any advisory committee it appoints may interpret data differently than the applicant. After the FDA evaluates the NDA and inspects manufacturing facilities where the drug product and/or its API will be produced, it will either approve commercial marketing of the drug product with prescribing information for specific indications or issue a complete response letter indicating that the application is not ready for approval and stating the conditions that must be met in order to secure approval of the NDA. If the complete response letter requires additional data and the applicant subsequently submits that data, the FDA nevertheless may ultimately decide that the NDA does not satisfy its criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-marketing testing. Such post-marketing testing may include Phase 4 clinical studies and surveillance to further assess and monitor the product’s safety and efficacy after approval. Regulatory approval of products for serious or life-threatening indications may require that participants in clinical studies be followed for long periods to determine the overall survival benefit of the drug. 15 If the FDA approves one of our therapeutic candidates, we will be required to comply with a number of post-approval regulatory requirements. We will also be required to report, among other things, certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling for any of its products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive and record keeping requirements. If we seek to make certain changes to an approved product, such as certain manufacturing changes, we will need FDA review and approval before the change can be implemented. For example, if we change the manufacturer of a product or its API, the FDA may require stability or other data from the new manufacturer, which will take time and is costly to generate, and the delay associated with generating this data may cause interruptions in its ability to meet commercial demand, if any. While physicians may use products for indications that have not been approved by the FDA, we may not label or promote the product for an indication that has not been approved. Securing FDA approval for new indications is similar to the process for approval of the original indication and requires, among other things, submitting data from adequate and well-controlled studies that demonstrate the product’s safety and efficacy in the new indication. Even if such studies are conducted, the FDA may not approve any change in a timely fashion, or at all. We rely, and expect to continue to rely, on third parties for the manufacture of clinical and future commercial, quantities of its therapeutic candidates. Future FDA and state inspections may identify compliance issues at these third-party facilities that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Many of the foregoing could limit the commercial value of an approved product or require us to commit substantial additional resources in connection with the approval of a product. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of its products under development. Section 505(b)(2) New Drug Applications As an alternate path for FDA approval of new indications or new formulations of previously approved products, a company may file a Section 505(b)(2) NDA, instead of a “stand-alone” or “full” NDA. Section 505(b)(2), was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) permits the submission of a NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Some examples of products that may be allowed to follow a 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration, formulation or indication. The Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from prior review of such studies. The FDA may require companies to perform additional studies or measurements to support any changes from the approved product. The FDA may then approve the new product for all or some of the labeled indications for which the reference product has been approved, as well as for any new indication supported by the NDA. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does not have a right of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing and quality of the new product must be included in an NDA submitted under Section 505(b)(2). To the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book publication. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product has expired. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized. 16 Orphan Drug Designation The Orphan Drug Act of 1983 (the “Orphan Drug Act”) encourages manufacturers to seek approval of products intended to treat “rare diseases and conditions” with a prevalence of fewer than 200,000 patients in the United States or for which there is no reasonable expectation of recovering the development costs for the product. For products that receive Orphan Drug designation by the FDA, the Orphan Drug Act provides tax credits for clinical research, FDA assistance with protocol design, eligibility for FDA grants to fund clinical studies, waiver of the FDA application fee, and a period of seven years of marketing exclusivity for the product following FDA marketing approval. In limited circumstances, the FDA may approve a competing product if the product shows clinical superiority over a product with orphan drug designation exclusivity. Foreign Regulation In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of its products. Whether or not Pulmatrix obtains FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat acquired immunodeficiency syndrome, cancer, neurodegenerative disorders or diabetes and optional for those medicines which are highly innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. Abridged applications for the authorization of generic versions of drugs authorized by European Medicines Agency can be submitted to the European Medicines Agency through a centralized procedure referencing the innovator’s data and demonstrating bioequivalence to the reference product, among other things. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report, each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states. Reimbursement In the United States and other countries, sales of any products for which Pulmatrix receives regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payers, including government payers, managed care providers, private health insurers and other organizations. Each third-party payer may have its own policy regarding what products it will cover, the conditions under which it will cover such products, and how much it will pay for such products. Third-party payers are increasingly examining the medical necessity and cost effectiveness of medical products and services in addition to safety and efficacy and, accordingly, significant uncertainty exists as to the reimbursement status of newly approved therapeutics. Third-party reimbursement adequate to enable us to realize an appropriate return on our investment in research and product development may not be available for our products. The passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “MMA”) sets forth requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries, which may affect the marketing of our products. The MMA also introduced a new reimbursement methodology. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payers. In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. 17 We expect that there will continue to be a number of federal and state proposals to implement governmental pricing controls. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability. Compliance with Environmental Laws Compliance with applicable environmental requirements during the years ended December 31, 2021 and 2020 has not had a material effect upon our capital expenditures, earnings or competitive position. Employees As of December 31, 2021, we had 1 part-time and 24 full-time employees, 20 of whom were engaged in full-time research and development activities. None of our employees are represented by any collective bargaining unit. We believe that we maintain good relations with our employees. Properties Our corporate headquarters is located in Lexington, Massachusetts. We currently lease 22,000 square feet of office and lab space in Lexington, Massachusetts under a lease that originally expired on December 31, 2020. On April 23, 2020 and October 6, 2021, two extensions to our lease for office and lab space were signed between us and 99 Hayden LLC. As a result of the extensions to the original lease executed on May 31, 2007, the lease term now expires on June 30, 2023. On January 7, 2022, we executed a new lease with Cobalt Propco 2020, LLC for our future corporate headquarters which will be located in Bedford, Massachusetts. The future lease for approximately 20,000 square feet of office and lab space is expected to commence in May 2023, with an initial noncancellable term of ten years. We believe that our existing and future facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms for our future growth. Available Information We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission. We make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports on our website at www.pulmatrix.com as soon as reasonably practicable after those reports and other information is electronically filed with, or furnished to, the Securities and Exchange Commission. ITEM 1A. RISK FACTORS. The following risk factors, together with all of the other information included or incorporated in this Annual Report on Form 10-K, should be carefully considered. If any of the following risks, either alone or taken together, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected. If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment. Risk Factor Summary We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors contained in this Annual Report on Form 10-K in their entirety for additional information regarding the material factors that make an investment in our securities speculative or risky. These risks and uncertainties include, but are not limited to, the following: ● We have a history of net losses and may experience future losses; ● We will need to raise additional capital to meet our business requirements in the future and such capital raising may be costly or difficult to obtain and could dilute our stockholders’ ownership interests; 18 ● We are a clinical development stage biotechnology company and have never been profitable; ● All of our product candidates are still under development, and there can be no assurance of successful commercialization of any of our products; ● Drug development is a long, expensive, and inherently uncertain process with a high risk of failure at every stage of development, and results of earlier studies and trials may not be predictive of future trial results; ● If our collaborators are not successful, we may not effectively develop and market some of our therapeutic candidates; ● We may not be able to attract, retain, or manage highly qualified personnel, which could adversely impact our business; ● We face substantial competition in the development of our product candidates and may not be able to compete successfully, and our product candidates may be rendered obsolete by rapid technological change; ● If the third parties on which we rely to conduct our clinical trials, to manufacture clinical trial materials, and to assist us with preclinical development do not perform as contractually required or expected, we may not be able to obtain regulatory clearance or approval for, or to commercialize, our products; ● Our failure to successfully acquire, develop and market additional drug candidates or approved drug products could impair our ability to grow; ● We may be subject to claims that our employees, independent consultants or agencies have wrongfully used or inadvertently disclosed confidential information of third parties; ● Market and economic conditions may negatively impact our business, financial condition and share price; ● The COVID-19 pandemic has caused interruptions or delays of our clinical studies and may continue to have a significant adverse effect on our business; ● Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations; ● Our product candidates must undergo rigorous nonclinical and clinical testing, and we must obtain regulatory approvals, which could be costly and time-consuming and subject us to unanticipated delays or prevent us from marketing any products; ● We cannot be certain that any of our current and future product candidates will receive regulatory approval, and without regulatory approval we will not be able to market our product candidates; ● We have limited experience in filing and pursuing applications necessary to gain regulatory approvals, which may impede our ability to obtain timely approvals from the U.S. Food and Drug Administration (“FDA”) or foreign regulatory agencies, if at all; ● We and our third-party manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities; ● We may be unable to adequately protect or enforce our rights to intellectual property, causing us to lose valuable rights. Loss of patent rights may lead us to lose market share and anticipated profits; ● Legal proceedings or third-party claims of intellectual property infringement and other challenges may require us to spend substantial time and money and could prevent us from developing or commercializing our product candidates; ● The price of our common stock is subject to fluctuation and has been, and may, continue to be volatile; ● Financial reporting obligations of being a public company in the United States are expensive and time-consuming, and our management may be required to devote substantial time to compliance matters; 19 ● Anti-takeover provisions under Delaware corporate law may make it difficult for our stockholders to replace or remove our board of directors and could deter or delay third parties from acquiring us, which may be beneficial to our stockholders; and ● Protective provisions in our charter and bylaws could prevent a takeover which could harm our stockholders. Risks Related to Our Business We have a history of net losses and may experience future losses. We have yet to establish any history of profitable operations. We reported a net loss of $20.2 million and $19.3 million for the fiscal years ended December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $254.6 million. We expect to incur additional operating losses for the foreseeable future. There can be no assurance that we will be able to achieve sufficient revenues throughout the year or be profitable in the future. We will need to raise additional capital to meet our business requirements in the future and such capital raises may be costly or difficult to obtain and could dilute our stockholders’ ownership interests. Our current capital will be sufficient to enable us to continue operations for at least 12 months following the filing date of this Annual Report. In order to continue our operations and to fully realize all of our business objectives, absent any non-dilutive funding from a strategic partner or some other strategic transactions, we will need to raise additional capital, which may not be available on reasonable terms, or at all. For instance, we will need to raise additional funds to accomplish the following: ● advancing the research and development of our therapeutic candidates; ● investing in protecting and expanding our intellectual property portfolio, including filing for additional patents to strengthen our intellectual property rights; ● hiring and retaining qualified management and key employees; ● responding to competitive pressures; and ● maintaining compliance with applicable laws. Any additional capital raised through the sale of equity or equity backed securities will dilute our stockholders’ ownership percentages and could also result in a decrease in the market value of our equity securities. The terms of any securities issued by us in future financing transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding. Furthermore, any additional capital financing that we may need in the future may not be available on terms favorable to us, or at all. If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would receive any distribution on their shares. Further, we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business. In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition and cause further dilution to our stockholders. 20 We are a clinical development stage biotechnology company and have never been profitable. We expect to incur additional losses in the future and may never be profitable. We are a clinical development stage biotechnology company. We have not commercialized any product candidates or recognized any revenues from our product sales. All of our product candidates are still in the preclinical or clinical development stage, and none have been approved for marketing or are currently being marketed or commercialized. Our product candidates will require significant additional development, clinical studies, regulatory clearances, and additional investments of time and capital before they can be commercialized. We cannot be certain when or if any of our product candidates will obtain the required regulatory approval. We have never been profitable and have incurred net losses each year since our inception. Our losses are principally a result of research and development and general administrative expenses in support of our operations. We may incur significant additional losses as we continue to focus our resources on prioritizing, selecting and advancing our product candidates. Our ability to generate revenue and achieve profitability depends mainly upon our ability, alone or with others, to successfully develop our product candidates, obtain the required regulatory approvals in various territories and commercialize our product candidates. We may be unable to achieve any or all of these goals with regard to our product candidates. As a result, we may never be profitable or achieve significant and/or sustained revenues. All of our product candidates are still under development, and there can be no assurance of successful commercialization of any of our products. All of our research and development programs are in developmental stages. One or more of our product candidates may fail to meet safety and efficacy standards in human testing, even if those product candidates are found to be effective in animal studies. To develop and commercialize inhaled therapeutic treatment for allergic bronchopulmonary aspergillosis (“ABPA”), acute migraine, and other iSPERSE™-based product candidates, we must provide the FDA and foreign regulatory authorities with human clinical and non-clinical animal data that demonstrate adequate safety and effectiveness. To generate these data, we will have to subject our product candidates to significant additional research and development efforts, including extensive non-clinical studies and clinical testing. Our approach to drug discovery may not be effective or may not result in the development of any drug. Currently our development efforts are primarily focused on Pulmazole, PUR1800, and PUR3100. Even if Pulmazole, PUR1800, PUR3100 or our other product candidates are successful when tested in animals, such success would not be a guarantee of the safety or effectiveness of such product candidates in humans. It can take several years for a product to be approved and we may not be successful in bringing any therapeutic candidates to the market. A new drug may appear promising at an early stage of development or after clinical trials and never reach the market, or it may reach the market and not sell, for a variety of reasons. For example, the drug may: ● be shown to be ineffective or to cause harmful side effects during preclinical testing or clinical trials; ● fail to receive regulatory approval on a timely basis or at all; ● be difficult to manufacture on a large scale; ● not be economically viable; ● not be prescribed by doctors or accepted by patients; ● fail to receive a sufficient level of reimbursement from government, insurers or other third-party payors; or ● infringe on intellectual property rights of any other party. If our delivery platform technologies or product development efforts fail to generate product candidates that lead to the successful development and commercialization of products, our business and financial condition will be materially adversely affected. 21 Drug development is a long, expensive and inherently uncertain process with a high risk of failure at every stage of development, and results of earlier studies and trials may not be predictive of future trial results. We have a number of proprietary drug candidates in research and development ranging from the early discovery research phase through preclinical testing and clinical trials. Preclinical testing and clinical trials are long, expensive and highly uncertain processes. It will take us several years to complete clinical trials and we may not have the resources to complete the development and commercialization of any of our proposed drug candidates. The start or end of a clinical trial is often delayed or halted due to changing regulatory requirements, manufacturing challenges, required clinical trial administrative actions, slower than anticipated patient enrollment, changing standards of care, availability or prevalence of use of a competitor drug or required prior therapy, clinical outcomes, or financial constraints of us and our partners. Drug development is a highly uncertain scientific and medical endeavor, and failure can unexpectedly occur at any stage of preclinical and clinical development. Typically, there is a high rate of attrition for drug candidates in preclinical and clinical trials due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables. The risk of failure is heightened for our drug candidates that are based on new technologies, such as the application of our dry powder delivery platform, iSPERSE™, including Pulmazole, PUR1800, PUR3100 and other iSPERSE™-based drug candidates currently in discovery research or preclinical development. The failure of one or more of our iSPERSE™-based drug candidates could have a material adverse effect on our business, financial condition, and results of operations. In addition, the results of preclinical studies and clinical trials of previously published iSPERSE™-based products may not necessarily be indicative of the results of our future clinical trials. The design of our clinical trials is based on many assumptions about the expected effects of inhaled drugs used historically in the industry and if those assumptions are incorrect, the trials may not produce statistically significant results. Preliminary results may not be confirmed upon full analysis of the detailed results of an early clinical trial. Product candidates in later stages of clinical trials may fail to show safety and efficacy sufficient to support intended use claims despite having progressed through initial clinical trials. The data collected from clinical trials of our product candidates may not be sufficient to obtain regulatory approval in the United States or elsewhere. Because of the uncertainties associated with drug development and regulatory approval, we cannot determine if, or when, we may have an approved product for commercialization or whether we will ever achieve sales of or profits on our product candidates or those we may pursue in the future. If our collaborators are not successful, or breach their agreements with us, we may not effectively develop and market some of our therapeutic candidates. At this time, we have entered into a co-development agreement regarding one of our therapeutic candidates and, as a result, we no longer have complete control over the development of this candidate. If our collaborators do not successfully carry out their contractual duties or meet expected deadlines, or they otherwise breach their contractual obligations to us, we may be delayed or may not obtain regulatory approval for, or commercialize, our product candidates. We are also subject to the terms of such co-development agreements that may affect our ability to develop and manufacture our therapeutic candidates. For example, under the Amendment to the Cipla Agreement, if we do not meet our development milestones on time, we may be required to repurchase Cipla’s interest or may not be able to further the development program. As a result of such limitations, we may be unable to pursue the most efficient or profitable path in developing our therapeutic candidates. If our relationships with these collaborators terminate, we believe that we would be able to enter into arrangements with alternative third parties. However, replacing any collaborator could delay our clinical trials and could jeopardize our ability to obtain regulatory approvals and commercialize our product candidates on a timely basis, if at all. We may not be able to attract, retain, or manage highly qualified personnel, which could adversely impact our business. Our future success and ability to compete in the biotechnology industry is substantially dependent on our ability to identify, attract, and retain highly qualified key managerial, scientific, medical, and operations personnel. The market for key employees in the pharmaceutical and biotechnology industries is competitive. The loss of the services of any of our principal members of management or key employees without an adequate replacement or our inability to hire new employees as needed could delay our product development efforts, harm our ability to sell our products or otherwise negatively impact our business. The scientific, research and development personnel upon whom we rely to operate our business have expertise in certain aspects of drug development and clinical development, and it may be difficult to retain or replace these individuals. We conduct our operations at our facilities in Lexington, Massachusetts, within the greater Boston area, and this region is headquarters to many other biotechnology, pharmaceutical, and medical technology companies, as well as many academic and research institutions, and, therefore, we face increased competition for technical and managerial personnel in this region. 22 In addition, we have scientific, medical and clinical advisors who assist us in designing and formulating our products and with development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development of products that may compete with ours. Despite our efforts to retain valuable employees, members of our management and scientific and development teams may terminate their employment with us at any time. Although we have written employment offer letter agreements with our executive officers, our executive officers can leave their employment at any time, for any reason, with 30 days’ notice. An overall tightening and increasingly competitive labor market in the U.S. employment market generally, especially in response to the COVID-19 pandemic, has been recently observed in the U.S. A sustained labor shortage or increased turnover rates within our employee base, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our manufacturing and distribution facilities and overall business. If we are unable to hire and retain employees capable of performing at a high- level, or if mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative effects, our business could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations, liquidity or cash flows. The loss of the services of any of our executive officers or our other key employees and our inability to find suitable replacements could potentially harm our business, financial condition and prospects. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. We face substantial competition in the development of our product candidates and may not be able to compete successfully, and our product candidates may be rendered obsolete by rapid technological change. The pharmaceutical and biotechnology industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and marketing products designed to address the indications for which we are currently developing therapeutic candidates or for which we may develop product candidates in the future. Many of our existing or potential competitors have, or have access to, substantially greater financial, research and development, production, and sales and marketing resources than we do and have a greater depth and number of experienced managers. As a result, our competitors may be better equipped than us to develop, manufacture, market and sell competing products. In addition, gaining favorable reimbursement is critical to the success of our product candidates. We are aware of many established pharmaceutical companies in the United States and other parts of the world that have or are developing technologies for inhaled drug delivery for the prevention and treatment of respiratory diseases, including GlaxoSmithKline, Mereo BioPharma, Mylan, Savara, Insmed, Satsuma, Bristol-Meyers, TFF Pharmaceuticals, Zambon Pharma and Pulmocide, which we consider our potential competitors in this regard. If we are unable to compete successfully with these and other potential future competitors, we may be unable to grow or generate revenue. The rapid rate of scientific discoveries and technological changes could result in one or more of our product candidates becoming obsolete or noncompetitive. Our competitors may develop or introduce new products that render our iSPERSE™ delivery technology and other product candidates less competitive, uneconomical or obsolete. Some of these technologies may have an entirely different approach or means of accomplishing similar therapeutic effects compared to our drug candidates. Our future success will depend not only on our ability to develop our product candidates but to improve them and keep pace with emerging industry developments. We cannot assure you that we will be able to do so. We also expect to face increasing competition from universities and other non-profit research organizations. These institutions carry out a significant amount of research and development in the areas of respiratory diseases. These institutions are becoming increasingly aware of the commercial value of their findings and are more active in seeking patent and other proprietary rights as well as licensing revenues. The potential acceptance of therapeutics that are alternatives to ours may limit market acceptance of our product candidates, even if commercialized. Respiratory diseases, including our targeted diseases and conditions, can also be treated by other medication or drug delivery technologies. These treatments may be widely accepted in medical communities and have a longer history of use. The established use of these competitive drugs may limit the potential for our product candidates to receive widespread acceptance if commercialized. 23 If the third parties on which we rely to conduct our clinical trials and to assist us with preclinical development do not perform as contractually required or expected, we may not be able to obtain regulatory clearance or approval for, or to commercialize, our products. We do not have the ability to independently conduct our preclinical and clinical trials for our products and we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct such trials. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our products on a timely basis, if at all, and our business, operating results and prospects may be adversely affected. Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of our control. We rely on third party contract vendors to manufacture and supply us with high quality active pharmaceutical ingredients and manufacture our therapeutic candidates in the quantities we require on a timely basis. We currently do not manufacture any active pharmaceutical ingredients (“APIs”). Instead, we rely on third-party vendors for the manufacture and supply of our APIs that are used to formulate our therapeutic candidates. We also do not currently own or operate manufacturing facilities and therefore rely, and expect to continue to rely, on third parties to manufacture clinical and commercial quantities of our therapeutic candidates and for quality assurance related to regulatory compliance. If these suppliers or manufacturers are incapable or unwilling to meet our current or future needs at our standards or on acceptable terms, if at all, we may be unable to locate alternative suppliers or manufacturers on acceptable terms, if at all, or produce necessary materials or components on our own. While there may be several alternative suppliers of API in the market, changing API suppliers or finding and qualifying new API suppliers can be costly and can take a significant amount of time. Many APIs require significant lead time to manufacture. There can also be challenges in maintaining similar quality or technical standards from one manufacturing batch to the next. We could experience a delay in conducting clinical trials of or obtaining regulatory approval for Pulmazole, PUR1800, PUR3100 or our other drug candidates and incur additional costs if we changed API suppliers for any reason. Similarly, replacing our manufacturers could cause us to incur added costs and experience delays in identifying, engaging, qualifying and training any such replacements. If we are not able to find stable, affordable, high quality, or reliable supplies of the APIs, or if we are unable to maintain our existing or future third-party manufacturing arrangements, we may not be able to produce enough supply of our therapeutic candidates or commercialize any therapeutic candidates on a timely and competitive basis, which could adversely affect our business, financial condition or results of operations. Supply chain and shipping disruptions may result in shipping delays, a significant increase in shipping costs, and could increase product costs and result in lost sales and reputational damage, which may have a material adverse effect on our business, operating results and financial condition. Our third-party manufacturers and suppliers have experienced, and expect to continue to experience, supply chain disruption and shipping disruptions, including disruptions or delays in loading container cargo in ports of origin or off-loading cargo at ports of destination, as a result of the COVID-19 pandemic, congestion in port terminal facilities, labor supply and shipping container shortages, inadequate equipment and persons to load, dock and offload container vessels and for other reasons. These disruptions may impact our ability to receive our raw materials and certain components required for the manufacture of our clinical trial materials or products in the future, to distribute our products in a cost-effective and timely manner and to meet demand, all of which could have an adverse effect on our financial condition and results of operations. There can be no assurance that further unforeseen events impacting the supply chain will not have a material adverse effect on us in the future. Additionally, the impacts that supply chain disruptions have on our third-party manufacturers and suppliers are not within our control. It is not currently possible to predict how long it will take for these supply chain disruptions to cease or ease. Prolonged supply chain disruption that may impact us or our manufacturers and suppliers could interrupt or delay our clinical trials, product manufacturing, increase raw material and product lead times, increase raw material and product costs, impact our ability to meet customer demand and result in lost sales and reputational damage, all of which could have a material adverse effect on our business, financial condition and results of operations. 24 We may not be successful in negotiating for an appropriate price in a future sale or assignment of our rights related to our current drug candidates. We may seek to sell or assign our rights related to our current drug candidates. If completed, any such sale or assignment may be at a substantial discount, the consideration received may not accurately represent the value of the assets sold or assigned and our stockholders may not be entitled to participate in the future prospects of such drug candidates. Our failure to successfully acquire, develop and market additional drug candidates or approved drug products could impair our ability to grow. As part of our growth strategy, we may evaluate, acquire, license, develop and/or market additional product candidates and technologies, subject to the availability of adequate financing. However, our internal research capabilities are limited, and we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select and acquire promising pharmaceutical product candidates and products. The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all. Any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we develop or approved products that we acquire will be manufactured profitably or achieve market acceptance. We cannot guarantee that we will be able to successfully conduct the preclinical studies of the identified potential product candidates as anticipated. Our business strategy may include entry into additional collaborative or license agreements. We may not be able to enter into collaborative or license agreements or may not be able to negotiate commercially acceptable terms for these agreements. Our current business strategy may include the entry into additional collaborative or license agreements for the development and commercialization of our product candidates and technologies. The negotiation and consummation of these types of agreements typically involve simultaneous discussions with multiple potential collaborators or licensees and require significant time and resources. In addition, in attracting the attention of pharmaceutical and biotechnology company collaborators or licensees, we compete with numerous other third parties with product opportunities as well as the collaborators’ or licensees’ own internal product opportunities. We may not be able to consummate collaborative or license agreements, or we may not be able to negotiate commercially acceptable terms for these agreements. If we do enter into such arrangements, we could be dependent upon the subsequent success of these other parties in performing their respective responsibilities and the cooperation of our partners. Our collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to researching our product candidates pursuant to our collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us. If we do not consummate collaborative or license agreements, we may use our financial resources more rapidly on our product development efforts, continue to defer certain development activities or forego the exploitation of certain geographic territories, any of which could have a material adverse effect on our business prospects. Further, we may not be successful in overseeing any such collaborative arrangements. If we fail to establish and maintain necessary collaborative or license relationships, our business prospects could suffer. 25 We may be subject to claims that our employees, independent consultants or agencies have wrongfully used or inadvertently disclosed confidential information of third parties. We employ individuals and contract with independent consultants and agencies that may have previously worked at or conducted business with third parties; and, we may be subject to claims that we or our employees, consultants or agencies have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that our employees’ former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees. Market and economic conditions may negatively impact our business, financial condition and share price. Concerns over inflation, low energy prices, geopolitical issues, the U.S. financial markets and a declining real estate market, unstable global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. In addition, there is a risk that one or more of our current and future service providers, manufacturers, suppliers, hospitals and other medical facilities, our third-party payors, and other partners could be negatively affected by difficult economic times, which could adversely affect our ability to attain our operating goals on schedule and on budget or meet our business and financial objectives. The COVID-19 pandemic has caused interruptions or delays of our clinical studies and may continue to have a significant adverse effect on our business The global health crisis caused by the COVID-19 pandemic and its resurgences has and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence. The Omicron variant of COVID-19 has become the predominant strain of the virus in the United States. The ultimate impact of both the Omicron and other COVID-19 variants cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Omicron variant and other COVID-19 variants and the response by governmental bodies and regulators. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock. In July 2019, we initiated a Phase 2 clinical investigation for Pulmazole, our inhaled formulation of itraconazole, an anti-fungal drug commercially available as an oral drug that we are developing to treat and prevent pulmonary fungal infections. To date, five subjects have completed the 28-day dosing regimen, receiving either 10 mg, 20 mg, or 35 mg of Pulmazole or placebo in a randomized, double-blind treatment assignment. In the first quarter of 2020, we initiated the process of establishing additional study sites and amending the study protocol in order to improve enrollment. Also, on January 28, 2020, the FDA granted Fast Track designation to Pulmazole. However, as the COVID-19 pandemic escalated in late March and early April 2020, we were notified that 11 out of 21 clinical sites suspended enrollment in the Pulmazole clinical study due to issues associated with COVID-19. In July 2020, we terminated our Phase 2 clinical study for Pulmazole as a result of the disruptions and safety concerns caused by the COVID-19 pandemic. In January 2021, we completed a Type C Meeting with the FDA for the further clinical development of Pulmazole. The Phase 2b clinical study is expected to start in the first quarter of 2023 with top-line data expected in mid-2024. The COVID-19 pandemic could delay these dates or impact enrollment generally for clinical trials to the extent we cannot secure sites to enroll patients, patients remain or become subject to government “stay at home” mandates, patients feel like they cannot safely visit trial sites or patients drop out due to COVID-19 related issues. 26 Moreover, the ongoing COVID-19 pandemic has had and may continue to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations have been and may continue to be adversely affected to the extent that COVID-19 or any other epidemic harms the global economy generally. We do not yet know the full extent of potential delays or impact on our business, our relationship with our business partners, our clinical trials or the global economy as a whole. However, any one or a combination of these events could have an adverse effect on the operation of and results from our clinical trials and on our other business operations. If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires public companies to conduct an annual review and evaluation of their internal controls. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock. Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) a corporation that undergoes an “ownership change” is subject to annual limitations on its ability to use its pre-change net operating loss carryforwards or other tax attributes (“NOLs”), to offset future taxable income or reduce taxes. Our past issuances of stock and other changes in our stock ownership may have resulted in ownership changes within the meaning of Section 382 of the Code; accordingly, our pre-change NOLs may be subject to limitation under Section 382. If we determine that we have not undergone an ownership change, the Internal Revenue Service could challenge our analysis, and our ability to use our NOLs to offset taxable income could be limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in ownership changes under Section 382 of the Code further limiting our ability to utilize our NOLs. Furthermore, our ability to use NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to use a material portion of the NOLs, even if we attain profitability. Risks Related to Regulatory Matters Our product candidates must undergo rigorous nonclinical and clinical testing, and we must obtain regulatory approvals, which could be costly and time-consuming and subject us to unanticipated delays or prevent us from marketing any products. We cannot be certain that any of our current and future product candidates will receive regulatory approval, and without regulatory approval we will not be able to market our product candidates. Our ability to generate revenue related to product sales, if ever, will depend on the successful development and regulatory approval of our product candidates. We currently have no products approved for sale, and we cannot guarantee that we will ever have marketable products. The development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation, including regulation for safety, efficacy and quality, by the FDA in the United States and comparable regulatory authorities in other countries, with regulations differing from country to country. The FDA regulations and the regulations of comparable foreign regulatory authorities are wide-ranging and govern, among other things: ● product design, development, manufacture and testing; ● product labeling; ● product storage and shipping; ● pre-market clearance or approval; ● advertising and promotion; and ● product sales and distribution. 27 Clinical testing can be costly and take many years, and the outcome is uncertain and susceptible to varying interpretations. We cannot predict whether our current or future trials and studies will adequately demonstrate the safety and efficacy of any of our product candidates or whether regulators will agree with our conclusions regarding the preclinical studies and clinical trials we have conducted to date, including the clinical trials for Pulmazole. The clinical trials of our product candidates may not be completed on schedule, the FDA or foreign regulatory agencies may order us to stop or modify our research, or these agencies may not ultimately approve any of our product candidates for commercial sale. The data collected from our clinical trials may not be sufficient to support regulatory approval of our various product candidates. Even if we believe the data collected from our clinical trials are sufficient, the FDA has substantial discretion in the approval process and may disagree with our interpretation of the data. We are not permitted to market our product candidates in the United States until we receive approval of a NDA from the FDA. Obtaining approval of a NDA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA review processes can take years to complete and approval is never guaranteed. We cannot be certain that any of our submissions will be accepted for filing and review by the FDA. The requirements governing the conduct of clinical trials and manufacturing and marketing of our product candidates outside the United States vary widely from country to country. Foreign approvals may take longer to obtain than FDA approvals and can require, among other things, additional testing and different clinical trial designs. Foreign regulatory approval processes include essentially all of the risks associated with the FDA approval processes. Some of those agencies also must approve prices of the products. Approval of a product by the FDA does not ensure approval of the same product by the health authorities of other countries, or vice versa. In addition, changes in regulatory policy in the United States or in foreign countries for product approval during the period of product development and regulatory agency review of each submitted new application may cause delays or rejections. If we are unable to obtain approval from the FDA or other regulatory agencies for our product candidates, or if, subsequent to approval, we are unable to successfully market and commercialize our product candidates, we will not be able to generate sufficient revenue to become profitable. We have limited experience in filing and pursuing applications necessary to gain regulatory approvals, which may impede our ability to obtain timely approvals from the FDA or foreign regulatory agencies, if at all. As a company, we have no experience in late-stage regulatory filings, such as preparing and submitting NDAs, which may place us at risk of delays, overspending and human resources inefficiencies. Any delay in obtaining, or inability to obtain, regulatory approval could harm our business. Any failure by us to comply with existing regulations could harm our reputation and operating results. We will be subject to extensive regulation by U.S. federal and state and foreign governments in each of the markets where we intend to sell our product candidates if and after we are approved. If we fail to comply with applicable regulations, including the FDA’s pre-or post-approval cGMP requirements, then the FDA or other foreign regulatory authorities could sanction us. Even if a drug is FDA-approved, regulatory authorities may impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing studies. If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of the product, the regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may: ● issue warning letters; ● impose civil or criminal penalties; ● suspend regulatory approval; ● suspend any of our ongoing clinical trials; 28 ● refuse to approve pending applications or supplements to approved applications submitted by us; ● impose restrictions on our operations, including closing our contract manufacturers’ facilities; or ● seize or detain products or require a product recall. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our product candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn, our value and operating results will be adversely affected. Additionally, if we are unable to generate revenue from sales of our product candidates, our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert management’s attention from the operation of our business and damage our reputation. We expend significant resources on compliance efforts and such expenses are unpredictable and might adversely affect our results. Changing laws, regulations and standards might also create uncertainty, higher expenses and increase insurance costs. We and our third-party manufacturers are, and will be, subject to regulations of the FDA and other foreign regulatory authorities. We and our contract manufacturers are, and will be, required to adhere to laws, regulations and guidelines of the FDA or other foreign regulatory authorities setting forth current good manufacturing practices. These laws, regulations and guidelines cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to our therapeutic candidates. We and our third-party manufacturers may not be able to comply with applicable laws, regulations and guidelines. We and our contract manufacturers are and will be subject to unannounced inspections by the FDA, state regulators and similar foreign regulatory authorities outside the United States. Our failure, or the failure of our third party manufacturers, to comply with applicable laws, regulations and guidelines could result in the imposition of sanctions on us, including fines, injunctions, civil penalties, refusal of regulatory authorities to grant marketing approval of our therapeutic candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our therapeutic candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect regulatory approval and supplies of our therapeutic candidates, and materially and adversely affect our business, financial condition and results of operations. Even if we obtain regulatory approvals, our therapeutic candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and applicable foreign laws, regulations and guidelines, we could lose those approvals, and our business would be seriously harmed. Even if our therapeutic candidates receive regulatory approval, we or our commercialization partners, as applicable, will be subject to ongoing reporting obligations, including pharmacovigilance, and the therapeutic candidates and the manufacturing operations will be subject to continuing regulatory review, including inspections by the FDA or other foreign regulatory authorities. The results of this ongoing review may result in the withdrawal of a therapeutic candidate from the market, the interruption of the manufacturing operations and/or the imposition of labeling and/or marketing limitations. Since many more patients are exposed to drugs following their marketing approval, serious but infrequent adverse reactions that were not observed in clinical trials may be observed during the commercial marketing of the therapeutic candidate. In addition, the manufacturer and the manufacturing facilities that we or our commercialization partners use to produce any therapeutic candidate will be subject to periodic review and inspection by the FDA and other foreign regulatory authorities. Later discovery of previously unknown problems with any therapeutic candidate, manufacturer or manufacturing process, or failure to comply with rules and regulatory requirements, may result in actions, including but not limited to the following: ● restrictions on such therapeutic candidate, manufacturer or manufacturing process; ● warning letters from the FDA or other foreign regulatory authorities; ● withdrawal of the therapeutic candidate from the market; ● suspension or withdrawal of regulatory approvals; 29 ● refusal to approve pending applications or supplements to approved applications submitted by us or our commercial partners; ● voluntary or mandatory recall; ● fines; ● refusal to permit the import or export of our therapeutic candidates; ● product seizure or detentions; ● injunctions or the imposition of civil or criminal penalties; or ● adverse publicity. If we or our commercialization partners, suppliers, third party contractors or clinical investigators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or the adoption of new regulatory requirements or policies, we or our commercialization partners may lose marketing approval for any of our therapeutic candidates if any of our therapeutic candidates are approved, resulting in decreased or lost revenue from milestones, product sales or royalties. Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading. We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with any regulations applicable to us, to provide accurate information to regulatory authorities, to comply with manufacturing standards we may have established, to comply with federal and state healthcare fraud and abuse laws and regulations, or to report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risk. If we fail to comply with federal or state “fraud and abuse” laws, the failure to comply with these laws may adversely affect our business, financial condition and results of operations. In the United States, we will be subject to various federal and state health care “fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended to reduce fraud and abuse the healthcare industry, which could affect us, particularly upon successful commercialization of our products in the United States. The federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on our behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration in exchange for or to induce the referral of an individual for, or the purchase, order or recommendation of, any good or service, including the purchase, order or prescription of a particular drug for which payment may be made under a federal health care program, such as Medicare or Medicaid. Under federal government regulations, some arrangements, known as safe harbors, are deemed not to violate the federal Anti-Kickback Statute. However, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the federal Anti- Kickback Statute. False claims laws prohibit anyone from knowingly and willfully presenting or causing to be presented for payment to third-party payers, including government payers, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims for medically unnecessary items or services. Cases have been brought under false claims laws alleging that off-label promotion of pharmaceutical products or the provision of kickbacks has resulted in the submission of false claims to governmental health care programs. Under the Health Insurance Portability and Accountability Act of 1996, we are prohibited from knowingly and willfully executing a scheme to defraud any health care benefit program, including private payers, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines, penalties and/or exclusion or suspension from federal and state health care programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states. 30 Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for, or purchase, order or recommendation of, goods or services reimbursed by any source, not just governmental payers. The scope and enforcement of these laws are uncertain and subject to change in the current environment of healthcare reform. We cannot predict the impact on our business, financial condition nor results of operations of any changes in these laws. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming. Law enforcement authorities are increasingly focused on enforcing these laws, and if we are challenged under of one of these laws, we could be required to pay a fine and/or penalty and could be suspended or excluded from participation in federal or state health care programs, and our business, results of operations and financial condition may be adversely affected. Risks Related to Our Financial Position and Need for Additional Capital We will be required to raise additional capital to fund our operations, and we may not be able to continue as a going concern if we are unable to do so. Pharmaceutical product development, which includes research and development, preclinical and clinical studies and human clinical trials, is a time- consuming and expensive process that takes years to complete. We anticipate that our expenses will increase substantially to the extent that we advance Pulmazole to a planned new Phase 2b trial and pursue development of PUR1800 and PUR3100 or other iSPERSE™-based product candidates, and/or pursue development of iSPERSE™-based pharmaceuticals in additional indications. Based upon our current expectations, we believe that our existing capital resources will enable us to continue planned operations for at least 12 months following the filing date of this Annual Report. We cannot assure you, however, that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate. We will need to raise additional funds, whether through the sale of equity or debt securities, the entry into strategic business collaborations, the establishment of other funding facilities, licensing arrangements, or asset sales or other means, in order to continue our research and development and clinical trial programs for our iSPERSE™-based product candidates and to support our other ongoing activities. However, it may be difficult for us to raise additional funds on reasonable terms or at all. Since inception, we have incurred losses each year and have an accumulated deficit of $254.6 million as of December 31, 2021, which may raise concerns about our solvency and affect our ability to raise additional capital. The amount of additional funds we need will depend on a number of factors, including: ● rate of progress and costs of our clinical trials and research and development activities, including costs of procuring clinical materials and operating our manufacturing facilities; ● our success in establishing strategic business collaborations or other sales or licensing of assets, and the timing and amount of any payments we might receive from any such transactions we are able to establish; ● actions taken by the FDA and other regulatory authorities affecting our products and competitive products; ● our degree of success in commercializing any of our product candidates; ● the emergence of competing technologies and products and other adverse market developments; ● the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights or defending against claims of infringement by others; ● the level of our legal expenses; and ● the costs of discontinuing projects and technologies. We have raised capital in the past primarily through debt and public offerings and private placements of stock. We may in the future pursue the sale of additional equity and/or debt securities, or the establishment of other funding facilities including asset-based borrowings. There can be no assurances, however, that we will be able to raise additional capital through such an offering on acceptable terms, or at all. Issuances of additional debt or equity securities could impact the rights of the holders of our common stock and may dilute their ownership percentage. Moreover, the establishment of other funding facilities may impose restrictions on our operations. These restrictions could include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. We also may seek to raise additional capital by pursuing opportunities for the licensing or sale of certain intellectual property and other assets. We cannot offer assurances, however, that any strategic collaborations, sales of securities or sales or licenses of assets will be available to us on a timely basis or on acceptable terms, if at all. 31 In the event that sufficient additional funds are not obtained through strategic collaboration opportunities, sales of securities, funding facilities, licensing arrangements and/or asset sales on a timely basis, we will be required to reduce expenses through the delay, reduction or curtailment of our projects, including Pulmazole, PUR1800 or PUR3100 development activities, or reduction of costs for facilities and administration. Moreover, if we do not obtain such additional funds, there will be continued doubt about our ability to continue as a going concern and increased risk of insolvency and loss of investment to the holders of our securities. If we are or become insolvent, investors in our stock may lose the entire value of their investment. Our long-term capital requirements are subject to numerous risks. Our long-term capital requirements are expected to depend on many potential factors, including, among others: ● the number of product candidates in development; ● the regulatory clarity and path of each of our product candidates; ● the progress, success and cost of our clinical trials and research and development programs, including manufacturing; ● the costs, timing and outcome of regulatory review and obtaining regulatory clarity and approval of our product candidates and addressing regulatory and other issues that may arise post-approval; ● the costs of enforcing our issued patents and defending intellectual property-related claims; ● the costs of manufacturing, developing sales, marketing and distribution channels; ● our ability to successfully commercialize our product candidates, including securing commercialization agreements with third parties and favorable pricing and market share; and ● our consumption of available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated. Risks Related to Our Intellectual Property We may be unable to adequately protect or enforce our rights to intellectual property, causing us to lose valuable rights. Loss of patent rights may lead us to lose market share and anticipated profits. Our success, competitive position and future revenues depend, in part, on our ability to obtain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. Despite our efforts to protect our proprietary technologies and processes, it is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose proprietary technologies and processes. We try to protect our proprietary position by, among other things, filing U.S., European and other patent applications related to our product candidates, methods, processes and other technologies, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. Because the patent position of pharmaceutical companies involves complex legal and factual questions, we cannot predict the validity and enforceability of patents with certainty. Our issued patents may not provide us with any competitive advantages or may be held invalid or unenforceable as a result of legal challenges by third parties or could be circumvented. Our competitors may also independently develop inhaled drug delivery technologies or products similar to iSPERSE™ and iSPERSE™-based product candidates or design around or otherwise circumvent patents issued to us. Thus, any patents that we own may not provide any protection against competitors. Our pending patent applications, those we may file in the future or those we may license from third parties may not result in patents being issued. Even if these patents are issued, they may not provide us with proprietary protection or competitive advantages. The degree of future protection to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. 32 Patent rights are territorial, and accordingly, the patent protection we do have will only extend to those countries in which we have issued patents. Even so, the laws of certain countries do not protect our intellectual property rights to the same extent as do the laws of the United States and the European Union. Competitors may successfully challenge our patents, produce similar drugs or products that do not infringe our patents, or produce drugs in countries where we have not applied for patent protection or that do not respect our patents. Furthermore, it is not possible to know the scope of claims that will be allowed in published applications and it is also not possible to know which claims of granted patents, if any, will be deemed enforceable in a court of law. After the completion of prosecution and granting of our patents, third parties may still manufacture and/or market therapeutic candidates in infringement of our patent protected rights. Such manufacture and/or market of our product candidates in infringement of our patent protected rights is likely to cause us damage and lead to a reduction in the prices of our product candidates, thereby reducing our anticipated profits. In addition, due to the extensive time needed to develop, test and obtain regulatory approval for our therapeutic candidates, any patents that protect our product candidate may expire during early stages of commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration, we may face increased competition through the entry of generic products into the market and a subsequent decline in market share and profits. In addition, in some cases we may rely on our licensors to conduct patent prosecution, patent maintenance or patent defense on our behalf. Therefore, our ability to ensure that these patents are properly prosecuted, maintained, or defended may be limited, which may adversely affect our rights in our therapeutic products. Any failure by our licensors or development partners to properly conduct patent prosecution, patent maintenance or patent defense could harm our ability to obtain approval or to commercialize our products, thereby reducing our anticipated profits. If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us. In addition to filing patents, we generally try to protect our trade secrets, know-how and technology by entering into confidentiality or non-disclosure agreements with parties that have access to us, such as our development and/or commercialization partners, employees, contractors and consultants. We also enter into agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees, advisors, research collaborators, contractors and consultants while employed or engaged by us. However, these agreements can be difficult and costly to enforce or may not provide adequate remedies. Any of these parties may breach the confidentiality agreements and willfully or unintentionally disclose our confidential information, or our competitors might learn of the information in some other way. The disclosure to, or independent development by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantage we may have over any such competitor. To the extent that any of our employees, advisors, research collaborators, contractors or consultants independently develop, or use independently developed, intellectual property in connection with any of our products, disputes may arise as to the proprietary rights to this type of information. If a dispute arises with respect to any proprietary right, enforcement of our rights can be costly and unpredictable and a court may determine that the right belongs to a third party. Legal proceedings or third-party claims of intellectual property infringement and other challenges may require us to spend substantial time and money and could prevent us from developing or commercializing our product candidates. The development, manufacture, use, offer for sale, sale or importation of our product candidates may infringe on the claims of third-party patents or other intellectual property rights. The nature of claims contained in unpublished patent filings around the world is unknown to us, and it is not possible to know which countries patent holders may choose for the extension of their filings under the Patent Cooperation Treaty or other mechanisms. We may also be subject to claims based on the actions of employees and consultants with respect to the usage or disclosure of intellectual property learned at other employers. The cost to us of any intellectual property litigation or other infringement proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation or defense of intellectual property litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other proceedings may also absorb significant management time. Consequently, we are unable to guarantee that we will be able to manufacture, use, offer for sale, sell or import our therapeutic candidates in the event of an infringement action. 33 In the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a product candidate or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms. This inability to enter into licenses could harm our business significantly. We may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome. In addition to infringement claims against us, we may in the future become a party to other patent litigation or proceedings before regulatory agencies, including interference, re-examination Inter Partes review, or post grant review proceedings filed with the U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect to our therapeutic candidates, as well as other disputes regarding intellectual property rights with development and/or commercialization partners, or others with whom we have contractual or other business relationships. Post-issuance oppositions are not uncommon and we or our development and/or commercialization partners will be required to defend these opposition procedures as a matter of course. Opposition procedures may be costly, and there is a risk that we may not prevail, which could harm our business significantly. Risks Related to Our Common Stock The price of our common stock is subject to fluctuation and has been and may continue to be volatile. The stock market in general, and Nasdaq in particular, as well as biotechnology companies, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of small companies. The market price of our common stock may fluctuate as a result of, among other factors: ● the announcement of new products, new developments, services or technological innovations by us or our competitors; ● actual or anticipated quarterly increases or decreases in revenue, gross margin or earnings, and changes in our business, operations or prospects; ● announcements relating to strategic relationships, mergers, acquisitions, partnerships, collaborations, joint ventures, capital commitments, or other events by us or our competitors; ● conditions or trends in the biotechnology and pharmaceutical industries; ● changes in the economic performance or market valuations of other biotechnology and pharmaceutical companies; ● general market conditions or domestic or international macroeconomic and geopolitical factors unrelated to our performance or financial condition (including, for example, the recent coronavirus outbreak); ● purchase or sale of our common stock by stockholders, including executives and directors; ● volatility and limitations in trading volumes of our common stock; ● our ability to obtain financings to conduct and complete research and development activities including, but not limited to, our human clinical trials, and other business activities; ● any delays or adverse developments or perceived adverse developments with respect to the FDA’s review of our planned preclinical and clinical trials; ● ability to secure resources and the necessary personnel to conduct clinical trials on our desired schedule; ● failures to meet external expectations or management guidance; 34 ● changes in our capital structure or dividend policy, future issuances of securities, sales or distributions of large blocks of our common stock by stockholders; ● our cash position; ● announcements and events surrounding financing efforts, including debt and equity securities; ● our inability to enter into new markets or develop new products; ● reputational issues; ● analyst research reports, recommendations and changes in recommendations, price targets, and withdrawals of coverage; ● departures and additions of key personnel; ● disputes and litigation related to intellectual property rights, proprietary rights, and contractual obligations; ● changes in applicable laws, rules, regulations, or accounting practices and other dynamics; and ● other events or factors, many of which may be out of our control. In addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could fluctuate or decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management. Moreover, the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty since March 2020. A continuation or worsening of the levels of market disruption and volatility seen in the recent past as a result of the COVID-19 pandemic could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock. Financial reporting obligations of being a public company in the United States are expensive and time-consuming, and our management may be required to devote substantial time to compliance matters. As a publicly traded company, we incur significant additional legal, accounting and other expenses. The obligations of being a public reporting company require significant expenditures, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Nasdaq Capital Market. These rules require the establishment and maintenance of effective disclosure and financial controls and procedures, internal control over financial reporting and corporate governance practices, among many other complex rules that are often difficult and time consuming to implement, monitor and maintain compliance with. Moreover, despite recent reforms made possible by the Jumpstart Our Business Startups Act of 2012, the reporting requirements, rules, and regulations will make some activities more time- consuming and costly, particularly as we are no longer an “emerging growth company.” In addition, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance. Compliance with such requirements also places demands on management’s time and attention. In the foreseeable future, we do not intend to pay cash dividends on shares of our common stock so any investor gains will be limited to the value of our shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any gains to stockholders will therefore be limited to the increase, if any, in our share price. 35 We may be at risk of securities class action litigation. We may be at risk of securities class action litigation. This risk is especially relevant due to our dependence on positive clinical trial outcomes and regulatory approvals. In the past, biotechnology and pharmaceutical companies have experienced significant stock price volatility, particularly when associated with binary events such as clinical trials and product approvals. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business and result in a decline in the market price of our common stock. In the event that we fail to satisfy any of the listing requirements of The NASDAQ Capital Market, our common stock may be delisted, which could affect our market price and liquidity. Our common stock is listed on The NASDAQ Capital Market. For continued listing on The NASDAQ Capital Market, we will be required to comply with the continued listing requirements, including the minimum market capitalization standard, the minimum stockholders’ equity requirement, the corporate governance requirements and the minimum closing bid price requirement, among other requirements. In the event that we fail to satisfy any of the listing requirements of The NASDAQ Capital Market, our common stock may be delisted. If our securities are delisted from trading on The NASDAQ Stock Market, and we are not able to list our securities on another exchange or to have them quoted on The NASDAQ Stock Market, our securities could be quoted on the OTC Markets or on the “pink sheets.” As a result, we could face significant adverse consequences including: ● a limited availability of market quotations for our securities; ● a determination that our common stock is a “penny stock,” which would require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; ● a limited amount of news and analyst coverage; and ● a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3 or obtain additional financing in the future). We are likely to issue additional equity securities in the future, which are likely to result in dilution to existing investors. We may seek the additional capital necessary to fund our operations through public or private equity offerings, debt financings, and collaborative and licensing arrangements. To the extent we raise additional capital by issuing equity securities, including in a debt financing where we issue convertible notes or notes with warrants and any shares of our common stock to be issued in a private placement, our stockholders may experience substantial dilution. We may, from time to time, sell additional equity securities in one or more transactions at prices and in a manner we determine. If we sell additional equity securities, existing stockholders may be materially diluted. In addition, new investors could gain rights superior to existing stockholders, such as liquidation and other preferences. In addition, the exercise or conversion of outstanding options or warrants to purchase shares of capital stock may result in dilution to our stockholders upon any such exercise or conversion. In addition, as of March 25, 2022, 162,212 shares remained available to be awarded under our 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan”). Further, an aggregate of 288,373 shares of our common stock could be delivered upon the exercise or conversion of outstanding stock options or restricted stock units under the 2013 Plan and other equity incentive plans we previously assumed. We may also issue additional options, warrants and other types of equity in the future as part of stock-based compensation, capital raising transactions, technology licenses, financings, strategic licenses or other strategic transactions. To the extent these options are exercised, existing stockholders would experience additional ownership dilution. In addition, the number of shares available for future grant under our equity compensation plans may be increased in the future, as our equity compensation plan contains an “evergreen” provision, pursuant to which additional shares may be authorized for issuance under the plan each year. 36 Anti-takeover provisions under Delaware corporate law may make it difficult for our stockholders to replace or remove our board of directors and could deter or delay third parties from acquiring us, which may be beneficial to our stockholders. We are subject to the anti-takeover provisions of Delaware law, including Section 203 of the General Corporation Law of Delaware (the “DGCL”). Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three (3) years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203 of the DGCL, “interested stockholder” means, generally, someone owning fifteen percent (15%) or more of our outstanding voting stock or an affiliate that owned fifteen percent (15%) or more of our outstanding voting stock during the past three (3) years, subject to certain exceptions as described in Section 203 of the DGCL. Protective provisions in our charter and bylaws could prevent a takeover which could harm our stockholders. Our certificate of incorporation and bylaws contain a number of provisions that could impede a takeover or prevent us from being acquired, including, but not limited to, a classified board of directors and limitations on the ability of our stockholders to remove a director from office without cause. Each of these charter and bylaw provisions give our board of directors the ability to render more difficult or costly the completion of a takeover transaction that our stockholders might view as being in their best interests. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES. Our corporate headquarters are located at 99 Hayden Avenue, Suite 390, Lexington, Massachusetts. Our current lease for approximately 22,000 square feet of office and lab space will expire on June 30, 2023. On January 7, 2022, we executed a new lease for our future corporate headquarters which will be located in Bedford, Massachusetts. The future lease for approximately 20,000 square feet of office and lab space is expected to commence in May 2023, with an initial noncancellable term of ten years. The lease agreements provide for a base monthly rent, and we are also responsible for real estate taxes, maintenance and other operating expenses applicable to the leased premises. Our future minimum lease payments under both lease agreements are as follows (dollars in thousands): Year 2022 2023 2024 2025 2026 and thereafter Total Amount 1,478 1,470 1,234 1,271 10,820 16,273 $ $ We believe our current and future facilities are well-maintained and are both suitable and adequate for our current and anticipated future needs. ITEM 3. LEGAL PROCEEDINGS. From time to time, we may be involved in litigation that arises through the normal course of business. As of the date of this filing, we are not aware of any material legal proceedings to which we or our subsidiary is a party or to which any of our property is subject, nor are we aware of any such threatened or pending litigation or proceedings known to be contemplated by governmental authorities. There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial stockholder of more than 5% of our common stock, or any associate of any of the foregoing, is an adverse party or has a material interest adverse to our interest. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 37 ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF PART II EQUITY SECURITIES. Market Information Our common stock trades on The NASDAQ Capital Market under the symbol “PULM”. On March 25, 2022, the last reported sale price of our common stock on The NASDAQ Capital Market was $6.68 per share. Stockholders As of March 25, 2022, there were approximately 43 stockholders of record of our common stock. Dividends We have not paid dividends to our stockholders since inception and do not plan to pay cash dividends in the foreseeable future. Any future declaration of dividends will depend on our earnings, capital requirements, financial condition, prospects and any other factors that our board of directors deems relevant, as well as compliance with the requirements of state law. In general, as a Delaware corporation, we may pay dividends out of surplus capital or, if there is no surplus capital, out of net profits for the fiscal year in which a dividend is declared and/or the preceding fiscal year. We currently intend to retain earnings, if any, for reinvestment in our business. Unregistered Sales of Securities None. Issuer Purchases of Equity Securities Not applicable. ITEM 6. RESERVED. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information set forth below should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contain forward-looking statements based on our current expectations, assumptions, estimates and projections. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, including those discussed in Item 1 of this Annual Report on Form 10-K, entitled “Business,” under “Forward-Looking Statements” and Item 1A of this Annual Report on Form 10-K, entitled “Risk Factors.” References in this discussion and analysis to “us,” “we,” “our,” or our “Company” refer to Pulmatrix, Inc., a Delaware corporation. Overview We are a clinical-stage biotechnology company focused on the discovery and development of novel inhaled therapeutic products intended to prevent and treat respiratory diseases and infections with significant unmet medical needs. 38 We design and develop inhaled therapeutic products based on our proprietary dry powder delivery technology, iSPERSE™ (inhaled Small Particles Easily Respirable and Emitted), which enables delivery of small or large molecule drugs to the lungs by inhalation for local or systemic applications. The iSPERSE™ powders are engineered to be small, dense particles with highly efficient dispersibility and delivery to airways. iSPERSE™ powders can be used with an array of dry powder inhaler technologies and can be formulated with a broad range of drug substances including small molecules and biologics. We believe the iSPERSE™ dry powder technology offers enhanced drug loading and delivery efficiency that outperforms traditional lactose- blend inhaled dry powder therapies. We believe the advantages of using the iSPERSE™ technology include reduced total inhaled powder mass, enhanced dosing efficiency, reduced cost of goods and improved efficacy, safety and tolerability profiles. Our goal is to develop breakthrough therapeutic products that are safe, convenient, and more effective than the existing therapeutic products for respiratory and other diseases where iSPERSE™ properties are advantageous. Our current pipeline is aligned to this goal as we develop iSPERSE™-based therapeutic candidates which target the prevention and treatment of a range of diseases. These therapeutic candidates include Pulmazole for the treatment of allergic bronchopulmonary aspergillosis (“ABPA”) in patients with asthma, and in patients with cystic fibrosis (“CF”), PUR1800 for the treatment of acute exacerbations of chronic obstructive pulmonary disease (“AECOPD”), and PUR3100 for the treatment of acute migraine. Each program is enabled by its unique iSPERSE™ formulation designed to achieve specific therapeutic objectives. We intend to capitalize on our iSPERSE™ technology platform and our expertise in inhaled therapeutics to identify new product candidates for the prevention and treatment of diseases with significant unmet medical needs and to build our product pipeline beyond our existing candidates. In order to advance our clinical trials for our therapeutic candidates for respiratory and neurological diseases and leverage the iSPERSE™ platform to enable delivery of partnered compounds, we intend to form strategic alliances with third parties, including pharmaceutical and biotechnology companies or academic or private research institutes. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years based on our drug development plans. We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities, as we: ● resume Pulmazole clinical trials focused on the development of an inhaled anti-fungal therapy to prevent and treat allergic/hypersensitivity response to fungus in the lungs of patients with asthma and CF; ● continue to advance PUR1800, focusing on the development of an inhaled kinase inhibitor for treatment of AECOPD; ● initiate and complete clinical studies for PUR3100, an orally inhaled dihydroergotamine (“DHE”) including planned Phase 1 and Phase 2 clinical studies for the treatment of acute migraine; ● seek regulatory approval for our product candidates; ● capitalize on our proprietary iSPERSE™ technology and our expertise in inhaled therapeutics and particle engineering to identify new product candidates for prevention and treatment of diseases with significant unmet medical needs; ● invest in protecting and expanding our intellectual property portfolio and file for additional patents to strengthen our intellectual property rights; and ● hire personnel to support our product development, commercialization and administrative efforts. 39 We do not have any products approved for sale and have not generated any revenue from product sales. We will not generate product sales unless and until we successfully complete clinical developments and obtain regulatory approvals for our product candidates. Additionally, we currently utilize third-party contract research organizations (“CROs”) to carry out our clinical development activities and third-party contract manufacturing organizations (“CMOs”) to carry out our clinical manufacturing activities as we do not yet have a commercial organization. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Accordingly, we anticipate that we will seek to fund our operations through public or private equity or debt financings, licensing arrangements, collaborations with third parties, non-dilutive grants or other sources, potentially including collaborative commercial arrangements. Likewise, we intend to seek to limit our commercialization costs by partnering with other companies with complementary capabilities or larger infrastructure including sales and marketing. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. Recent Developments Pulmazole On April 15, 2019, we entered into a Development and Commercialization Agreement (the “Cipla Agreement”) with Cipla Technologies LLC (“Cipla”) for the co-development and commercialization, on a worldwide, except for the Cipla Territory defined below, exclusive basis, of Pulmazole, our inhaled iSPERSE™ drug delivery system (the “Product”) enabled formulation of the antifungal drug, itraconazole, which is only available as an oral drug, for the treatment of all pulmonary indications, including ABPA in patients with asthma. We entered into an amendment to the Cipla Agreement on November 8, 2021 (the “Amendment”), and all references to the Cipla Agreement herein refer to the Agreement as amended. The Cipla Agreement will remain in effect in perpetuity, unless otherwise earlier terminated in accordance with its terms. In the event of circumstances affecting the continuity of development of the Product in line with the Cipla Agreement or certain development milestones are not achieved within a specified timeframe discussed in greater detail below, the joint steering committee (“JSC”) will evaluate the cause and effect and make a recommendation as to the most optimal option available to Cipla and us. In such events, the parties are not obligated to follow the recommendation of the JSC and, either party may elect to terminate (a “Terminating Party”) its obligation to fund additional costs and expenses for the development and/or commercialization of the Product. If the non-Terminating Party wishes to continue the development of the Product, it will have the right to purchase the rights of the Terminating Party in the Product at its fair market value. If both Cipla and we abandon the development program, Cipla and we shall make commercially reasonable efforts to monetize the Product and development program in connection with the Pulmonary Indications. Cipla and we will equally share the proceeds. We and Cipla will each be responsible for 60% and 40%, respectively, of our overhead costs and the time spent by our employees and consultants on development of the Product (“Direct Costs”), provided, that Cipla will reimburse us an amount equal to 10% of aggregate Direct Costs upon the achievement of certain development milestones set forth in the table below. We will continue to share all other development costs with Cipla that are not Direct Costs, such as the cost of clinical research organizations, manufacturing costs and other third-party costs, on a 50/50 basis. Pursuant to the Cipla Agreement, (i) all development and commercialization activities with respect to the Product in India, South Africa, Sri Lanka, Nepal, Iran, Yemen, Myanmar and Algeria (such countries, the “Cipla Territory”) will be conducted exclusively by Cipla at Cipla’s sole cost and expense, and (ii) Cipla shall be entitled to all profits from the sale of the Product in the Cipla Territory, except that if Cipla successfully transfers manufacturing of the Product for the Cipla Territory to a manufacturing site determined by Cipla, we will become entitled to a royalty equal to 2% of net sales in the Cipla Territory. In partnership with Cipla, we initiated a Phase 2 clinical study in 2019, entitled: “A Randomized, Double-Blind, Multicenter, Placebo-Controlled, Phase 2 Study to Evaluate the Safety, Tolerability, and Pharmacokinetics of Itraconazole Administered as a Dry Powder for Inhalation (PUR1900) in Adult Asthmatic Patients with ABPA. This clinical study was terminated in July 2020 due to the ongoing impact of the COVID-19 pandemic on patient enrollment and clinical study conduct. Following termination of the Phase 2 clinical study, Pulmatrix conducted a Type C meeting with the FDA on January 27, 2021, in order to discuss the program overall development plan and the current Phase 2b clinical study design. The Phase 2b clinical study design includes a 16-week dosing regimen with an 8-week follow up and is intended to explore potential efficacy endpoints, whereas the terminated Phase 2 clinical study had comprised only a 4- week dosing regimen with safety and tolerability as its primary endpoint. The longer dosing regimen of the new Phase 2b clinical study is supported by the 6-month inhalation toxicology study in dogs completed in April 2020. The new development plan, including the planned Phase 2b clinical study, was approved on November 8, 2021. In addition to the terms of the Cipla Agreement described above, if any of the below development milestones are not met by the date that is nine months after the applicable deadline for achieving such development milestone, either party may elect to terminate its obligation to fund additional development costs, in which case either (i) the non-Terminating Party can acquire the rights of the Terminating Party for fair market value or (ii) the parties will monetize the Product. The table below sets forth the development milestones. 40 Phase 2b Development Plan – Development Milestones Development Milestone 25% of patients enrolled in Phase 2b clinical study are dosed Company delivers summary of key efficacy and safety data to include FEV1, IgE, ACQ-6, number of subjects withdrawn, any severe adverse events related to the medication and an overall summary table of adverse events (“Topline Results”) to the JSC. Phase 3 Development Plan – Development Milestones Development Milestone 25% of patients enrolled in Phase 3 clinical study dosed Company delivers Topline Results to the JSC The Prescription Drug User Fee Act (the “PDUFA”) PUR1800 Milestone Date June 30, 2023 June 30, 2024 Milestone Date To be proposed by JSC To be proposed by JSC To be proposed by JSC We completed the Phase 1b safety, tolerability, and pharmacokinetics of PUR1800 for patients with stable moderate-severe chronic obstructive pulmonary disease (“COPD”). Topline data was delivered in the first quarter of 2022. The clinical study, performed at the Medicines Evaluation Unit in Manchester, UK, was a randomized, three-way crossover double-blind study with 14 days of daily dosing which included placebo and one of two doses of PUR1800, and included a 28 day follow up period after each treatment period. A total of 18 adults with stable chronic obstructive pulmonary disease (“COPD”) were enrolled. Safety and tolerability as well as systemic PK were evaluated. PUR1800 was well-tolerated and there were no observed safety signals. The preliminary PK data indicate that PUR1800 results in low and consistent systemic exposure when administered via oral inhalation. The complete datasets will be analyzed and we expect to submit study results at a relevant medical conference later this year. This topline data, along with the results from chronic toxicology studies, support the continued development of PUR1800 for the treatment of AECOPD and other inflammatory respiratory disease. Toxicology studies in rats and dogs, with durations of six and nine months respectively, are complete. The data from both studies demonstrated that PUR1800 is safe and well tolerated with chronic dosing, with little to no progression of findings from 28-day studies. We believe that this indicates potential for chronic dosing of PUR1800, enabling Pulmatrix to explore PUR1800 therapy for chronic respiratory disease such as steroid resistant asthma, COPD, or idiopathic pulmonary fibrosis. While the program is currently in development for treatment of acute exacerbation of AECOPD, these positive toxicology study results could expand potential indications and value of the program. All rights to our kinase inhibitor portfolio, including PUR1800 and PUR5700, reverted to us upon the termination of our License, Development and Commercialization Agreement (the “JJEI License Agreement”), dated December 26, 2019, with Johnson & Johnson Enterprise Innovation, Inc. (“JJEI”). JJEI notified us that they were terminating the JJEI License Agreement in April 2021, and the effective date of the termination was July 6, 2021. 41 PUR3100 In 2020, Pulmatrix developed PUR3100, the iSPERSE™ formulation of DHE, for the treatment of acute migraine. Over 38 million people suffer from migraine in the United States. Currently DHE is only available as intravenous infusion or intranasal delivery. If approved for commercialization, PUR3100 should be the first orally inhaled DHE treatment for acute migraine and be an alternative to other acute therapies, such as oral and intravenous triptans that currently represent the majority of the annual migraine prescriptions in the United States. Given the oral inhaled route of delivery, PUR3100 is anticipated to provide a rapid onset of migraine symptom relief with a favorable tolerability profile. Two 14-day GLP toxicology studies have been conducted to support initial single dose clinical studies have been completed. We intend to complete an additional 14-day GLP-toxicology study in rats to fully characterize local toxicity in the lung to enable species selection for a single species chronic toxicology study to support longer-term clinical dosing. We submitted pre-IND questions to the FDA for which we have received written responses that have confirmed and/or clarified several manufacturing, nonclinical, and clinical aspects of the PUR3100 development program. After consideration of the responses, we have updated the initial clinical study from a 2-part Phase 1/Phase 2 clinical study to a Phase 1 double-blind matching placebo (double-dummy) study in which healthy volunteers will be randomized to receive either 1 of 3 doses of PUR3100 or IV DHE and a two dose Phase 2 efficacy clinical study in migraine patients. The Phase 1 clinical study is intended to assess not only safety, tolerability, and pharmacokinetics of PUR3100 in humans, but also provide preliminary bioavailability data to support the use of the 505(b)(2) pathway for marketing authorization. The FDA also confirmed that long-term safety should be assessed in a minimum of one hundred patients for six months of dosing and fifty patients for twelve months of dosing. The FDA also confirmed that it will be necessary to perform a safety study administering PUR3100 to otherwise healthy patients with asthma before a NDA is submitted for PUR3100. We further conducted a Type C meeting with the FDA to add additional clarification around some of the written responses in relation to the overall nonclinical and clinical program. Pulmatrix has concluded that conducting the Phase 1 clinical study in Australia allows us to generate the most comprehensive dataset for inclusion in an IND for Phase 2 in the United States, while also providing the most cost and time efficient path to Phase 1 data in 2022. We anticipate initiating patient dosing for the Phase 1 clinical study in Australia in the third quarter of 2022, with top-line data anticipated in fourth quarter of 2022. Following the Australia Phase 1 clinical study completion, we plan to open an IND and conduct a randomized placebo-controlled Phase 2 clinical study in patients with migraine to assess the safety and effectiveness of two doses of PUR3100, in which the selection of the two doses has been informed by the initial Phase 1 clinical study. We anticipate that this Phase 2 clinical study will initiate patient dosing in second quarter of 2023 with top- line data in late fourth quarter of 2023. Financial Overview To date, we have not generated any product sales. The 2021 and 2020 revenue was generated by the collaboration agreement and license agreement with Cipla on our Pulmazole program, the JJEI License Agreement for our PUR1800 kinase inhibitor, and immaterial royalties recorded from the Sensory Cloud Agreement. Effective as of July 6, 2021, the JJEI License Agreement was terminated and all revenues pursuant to the agreement were recognized as of that date. Research and Development Expenses Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates, and include: ● employee-related expenses, including salaries, benefits and share-based compensation expense; ● expenses incurred under agreements with CROs or CMOs, and consultants that conduct our clinical trials and preclinical activities; ● the cost of acquiring, developing and manufacturing clinical trial materials and lab supplies; ● facility, depreciation and other expenses, which include direct and allocated expenses for rent, maintenance of our facility, insurance and other supplies; ● costs associated with preclinical activities and clinical regulatory operations; and ● consulting and professional fees associated with research and development activities 42 We expense research and development costs to operations as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors. Research and development activities are central to our business model. We utilize a combination of internal and external efforts to advance product development from early-stage work to clinical trial manufacturing and clinical trial support. External efforts include work with consultants and substantial work at CROs and CMOs. We support an internal research and development team and facility for our pipeline programs. To move these programs forward along our development timelines, a large portion (approximately 80%) of our staff are research and development employees. In addition, we maintain an approximately 22,000 square foot office and research and development facility which includes capital equipment for the manufacture and characterization our iSPERSE™ powders for our pipeline programs. As we identify opportunities for iSPERSE™ in respiratory indications, we anticipate additional head count, capital, and development costs will be incurred to support these programs. Because of the numerous risks and uncertainties associated with product development, however, we cannot determine with certainty the duration and completion costs of these or other current or future preclinical studies and clinical trials. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. General and Administrative Expenses General and administrative expenses consist principally of salaries, benefits and related costs such as share-based compensation for personnel and consultants in executive, finance, business development, corporate communications and human resource functions, facility costs not otherwise included in research and development expenses, patent filing fees and legal fees. Other general and administrative expenses include travel expenses, expenses related to being a publicly traded company and professional fees for consulting, auditing and tax services. We anticipate that our general and administrative expenses will increase in the future as they relate to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission requirements, director and officer liability insurance, investor relations costs and other costs associated with being a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in staffing and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates. Impairment of Goodwill Goodwill is not amortized but evaluated for potential impairment. There was no goodwill impairment made in 2020. Given our common stock value decline during 2021 and based on a quantitative assessment, we determined that goodwill was impaired, and a full impairment charge of $3.6 million was recorded during the year ended December 31, 2021. Critical Accounting Policies This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements. Revenue Recognition Our principal sources of revenue during the years ended December 31, 2021 and 2020, were derived from our collaboration arrangement and license agreements that relate to the development and commercialization of Pulmazole under the Cipla Agreement and our license, development and commercialization arrangement under the JJEI Agreement. 43 At inception, we determine whether contracts are within the scope of ASC 606 or other topics, including ASC 808, Collaborative Arrangements (“ASC 808”). For contracts that are within the scope of ASC 808, the Company evaluates whether the counterparty is a customer for any of the units of account (i.e., distinct goods and services) in the contract. For units of account where the counterparty is considered a customer, the Company applies ASC 606 to those unit(s) of account, including recognition, measurement, presentation, and disclosure guidance. To date, the Company has determined it is appropriate to apply ASC 606 to all contracts and units of account for contracts within the scope of ASC 808. For contracts and units of account that are determined to be within the scope of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. To achieve this core principle, we apply the following five steps (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Performance obligations promised in a contract are identified at contract inception based on the goods and services that are both capable of being distinct and are distinct in the context of the contract. To the extent a contract includes multiple promised goods and services, we apply judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation. The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. At the inception of each contract that includes research or development milestone payments, we evaluate whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. We evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each reporting period, we reevaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. If the license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other promises, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the counterparty can benefit from a promise for its intended purpose without the receipt of the remaining promise, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount of revenue the Company records in future periods. 44 The promises under the Company’s arrangements may include research and development services to be performed by the Company on behalf of the counterparty. Payments or reimbursements from customers resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts. The Company uses an input method, according to the ratio of costs incurred to the total costs expected to be incurred in the future to satisfy the performance obligation. In management’s judgment, this input method is the best measure of the transfer of control of the performance obligation. Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion. Reimbursements from and payments to the counterparty that are the result of a collaborative relationship, instead of a customer relationship, such as co-development activities, are recognized as the services are performed and presented as a reduction to research and development expense. To date, the Company has determined that all arrangements which include research and development services have been transacted with customers and recognized on a gross basis using ASC 606. For contracts that include sales-based royalties, including milestone payments upon first commercial sales and milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options that are not determined to be material rights are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised. Research and Development Costs Research and development costs are expensed as incurred and include salaries, benefits, bonus, share-based compensation, license fees, milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and associated overhead and facilities costs. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors, CROs and CMOs. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of fees and costs associated with the contract that were rendered during the period and they are expensed as incurred. Research and development costs that are paid in advance of performance are capitalized as prepaid expenses and amortized over the service period as the services are provided. Leases At the inception of an arrangement, we determine whether the arrangement is, or contains a lease, based on the unique facts and circumstances present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. We have elected not to recognize on the balance sheet leases with terms of one year or less. Options to renew a lease are not included in our initial lease term assessment unless there is reasonable certainty that we will renew. We evaluate our plans to renew any material lease on a quarterly basis. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items, such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, we utilize our incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Changes to the Company’s estimate of our incremental borrowing rate could have a material impact on the recorded right-of-use asset and lease liabilities recorded on our balance sheet. 45 Goodwill Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired, and liabilities assumed under the acquisition method of accounting for push-down accounting. Goodwill is not amortized but is evaluated for impairment within our single reporting unit on an annual basis during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting unit below our carrying amount. When performing the impairment assessment, the accounting standard for testing goodwill for impairment permits a company to first assess the qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the goodwill is impaired. If we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of goodwill is impaired, we must perform a quantitative analysis to determine if the carrying value of the reporting unit exceeds its fair value. The impact of the COVID-19 pandemic was considered in our qualitative assessment. Given our common stock value decline during 2021, and based on the quantitative assessment, we determined that goodwill was impaired, and a full impairment charge of $3.6 million was recorded during the year ended December 31, 2021. Results of Operations Comparison of the Years Ended December 31, 2021 and 2020 The following table sets forth our results of operations for each of the periods set forth below (in thousands): Revenues Operating expenses: Research and development General and administrative Impairment of goodwill Total operating expenses Loss from operations Other income (expense): Interest income Warrant inducement expense Other expense, net Net loss 2021 Year ended December 31, 2020 Change $ 5,169 $ 12,634 $ (7,465) 15,382 6,377 3,577 25,336 (20,167) 7 - (11) (20,171) $ 15,609 6,887 - 22,496 (9,862) 82 (9,289) (239) (19,308) $ (227) (510) 3,577 2,840 (10,305) (75) 9,289 228 (863) $ Revenue — Revenue was $5.2 million for the year ended December 31, 2021 as compared to $12.6 million for the year ended December 31, 2020, a decrease of $7.5 million. The decrease is related to $3.4 million fewer reimbursable pass-through expenses and a $0.9 million decrease in license related revenues due to a pause in the development activities under the Cipla Agreement during 2021, and a $3.2 million decrease in license related revenues under the JJEI License Agreement. Research and development expenses — Research and development expense was $15.4 million for the year ended December 31, 2021 as compared to $15.6 million for the year ended December 31, 2020, a decrease of $0.2 million. The decrease was primarily due to decreased spend of $2.5 million on our PUR1800 program and $1.7 million on the Phase 2 Pulmazole clinical trial due to its COVID-19 related termination in 2020, partially offset by increased spend of $3.2 million on pre-clinical and manufacturing costs related to our PUR3100 program, in addition to $0.8 million of operating costs in support of our programs. General and administrative expenses — General and administrative expense was $6.4 million for the year ended December 31, 2021 as compared to $6.9 million for the year ended December 31, 2020, a decrease of $0.5 million. The decrease was primarily due to decreased employment costs of $0.5 million. Impairment of goodwill — In 2021 and 2020, the Company performed an impairment assessment and concluded that during 2021, the carrying amount of the goodwill exceeded its fair value and recorded the resulting impairment charges of $3.6 million. There was no goodwill impairment in 2020 based on management’s impairment assessment. 46 Warrant inducement expenses — During 2020, we executed a warrant exercise inducement transaction with existing investors who held existing and outstanding warrants that had an exercise price of $27.00 per share. Upon the exercise, warrant holders were able to purchase on a cash basis up to an aggregate of 504,287 shares of common stock. In consideration of the exercise, we issued to the exercise holders new warrants that had a five-year expiry and an exercise price of $35.99 per share. The fair value on the grant date of the new warrants was $9.3 million and was recorded as warrant inducement expense with a corresponding offset to paid-in-capital. There were no similar warrant exercise inducement transactions in 2021. Liquidity and Capital Resources Through December 31, 2021, we have incurred an accumulated deficit of $254.6 million, primarily as a result of expenses incurred through a combination of research and development activities related to our various product candidates and general and administrative expenses supporting those activities. We have financed our operations since inception primarily through the sale of preferred and common stock, the issuance of convertible promissory notes, term loans, and collaboration and license agreements. Our total cash and cash equivalents balance as of December 31, 2021 was $53.8 million. We anticipate that we will continue to incur losses, and that such losses will increase over the next several years due to development costs associated with our iSPERSE™ pipeline programs. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third- party funding and other collaborations and strategic alliances. We expect that our existing cash and cash equivalents as of December 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months following the date of this Annual Report on Form 10-K. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands): Net cash used in operating activities Net cash used in investing activities Net cash provided by financing activities Net increase in cash and cash equivalents Cash Flows from Operating Activities Year ended December 31, 2021 (19,727) $ (144) 43,475 23,604 $ 2020 (12,483) (281) 20,981 8,217 $ $ Net cash used in operating activities for the year ended December 31, 2021 was $19.7 million, which was primarily the result of a net loss of $20.2 million partially offset by $6.0 million of net non-cash adjustments, and $5.5 million in cash outflows associated with changes in operating assets and liabilities. Our non-cash adjustments were comprised of $3.6 million of impairment of goodwill, $1.2 million of share-based compensation expense, $1.0 million of amortization of an operating lease right-of-use asset, and $0.2 million of depreciation and amortization. The net cash outflows associated with changes in operating assets and liabilities were due to decreases of $3.3 million in deferred revenue, $1.1 million in operating lease liabilities, $0.8 million in accrued expenses, and $0.3 million in other operating assets and liabilities. Net cash used in operating activities for the year ended December 31, 2020 was $12.5 million, which was primarily the result of a net loss of $19.3 million partially offset by $11.5 million of net non-cash adjustments, and $4.7 million in cash outflows associated with changes in operating assets and liabilities. Our non-cash adjustments were comprised of $9.3 million in warrant inducement expense, $1.2 million of share-based compensation expense, $0.8 million of amortization of an operating lease right-of-use asset, and $0.2 million of depreciation and amortization. The net cash outflows associated with changes in operating assets and liabilities were due to decreases of $11.0 million in deferred revenue, $0.6 million in operating lease liabilities and $0.5 million in accrued expenses, partially offset by increases of $7.1 million in accounts receivable, $0.2 million in accounts payable, and $0.1 million in other operating assets and liabilities. 47 Cash Flows from Investing Activities Net cash used in investing activities for the years ended December 31, 2021 and December 31, 2020 were both due to purchases of property and equipment. Cash Flows from Financing Activities Net cash provided by financing activities for the year ended December 31, 2021, was $43.5 million as compared to $21.0 million for the year ended December 31, 2020. Net cash provided by financing activities for the year ended December 31, 2021 resulted from the issuance of common stock, net of issuance costs, of $37.1 million in a registered direct offering, the issuance of preferred stock and common stock warrants, net of issuance costs, of $6.2 million in a registered direct offering and warrant exercises of $0.2 million. Net cash provided by financing activities for the year ended December 31, 2020 resulted from the issuance of common stock, net of issuance costs, of $7.3 million in a registered direct offering and $13.7 million from warrant and stock option exercises. Financings 2021 Financings On December 17, 2021, we closed a registered direct offering with certain institutional investors for the issuance and sale of an aggregate of 6,745.008 shares of convertible preferred stock and warrants to purchase up to an aggregate of 281,047 shares of common stock, par value $0.0001 per share, for gross proceeds of $6.8 million or net proceeds of $6.0 million after placement agent’s fees and other offering expenses. The shares of preferred stock have a stated value of $1,000 per share and are initially convertible into an aggregate of 562,085 shares of common stock at a conversion price of $12.00 per share at any time. The common warrants have an exercise price of $13.99 per share. In addition, we issued the placement agent designees warrants to purchase up to 36,538 shares of common stock at an exercise price of $14.99 per share. Both the common warrants and the placement warrants are exercisable six months following the date issuance and have a five-year term. The shares of preferred stock and common warrants were offered by us pursuant to a “shelf” registration statement on Form S-3 (Registration No. 333-256502) previously filed with the Securities and Exchange Commission (the “SEC”) on May 26, 2021 and became effective on June 9, 2021. In May 2021, we entered into an At-The-Market Sales Agreement (the “Sales Agreement”) with H.C. Wainwright and Co., LLC (“HCW”) to act as our sales agent with respect to the issuance and sale of up to $20,000,000 of our shares of common stock, from time to time in an at-the-market public offering (the “ATM Offering”). Sales of common stock under the Sales Agreement are made pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 26, 2021, and subsequently declared effective on June 9, 2021 (File No. 333-256502), and a related prospectus. HCW acts as our sales agent on a commercially reasonable efforts basis, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of The NASDAQ Capital Market. If expressly authorized by us, HCW may also sell our common stock in privately negotiated transactions. There is no specific date on which the ATM Offering will end, there are no minimum sale requirements and there are no arrangements to place any of the proceeds of the ATM Offering in an escrow, trust or similar account. HCW is entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of our common stock pursuant to the Sales Agreement. There have been no sales of our common stock as of December 31, 2021 under the Sales Agreement. On February 16, 2021, we closed on a registered direct offering with certain healthcare-focused institutional investors to purchase up to an aggregate of 1,000,000 shares of our common stock at $40.00 per share, for gross proceeds $40.0 million or net proceeds of $37.1 million after placement agent’s fees and other offering expenses. In connection with the offering, 65,003 warrants with a five-year expiry were issued to placement agent designees at an exercise price of $49.99 per share. The shares of common stock were offered by Pulmatrix pursuant to a “shelf” registration statement on Form S-3 (File No. 333-230225) previously filed with the SEC on March 12, 2019 and declared effective by the SEC on March 15, 2019. In addition to the above registered direct offerings, during the year ended December 31, 2021, warrants issued in 2019 and 2020 were exercised on a cash basis to purchase 7,202 shares of our common stock. We issued 7,202 shares of our common stock for proceeds of $0.2 million. 48 2020 Financings On July 9, 2020, we entered into letter agreements with certain existing accredited investors to exercise certain existing and outstanding warrants (“Existing Warrants”) to purchase up to an aggregate of 504,287 shares of our common stock at the existing exercise price per share of $27.00. The Existing Warrants were issued in an underwritten public offering pursuant to a registration statement on Form S-1 (File No. 333-230395) and an additional registration statement on Form S-1 (File No. 333-230714) filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, that was consummated in April 2019. In consideration for the exercise of the Existing Warrants for cash, the exercising holders received new unregistered warrants to purchase up to an aggregate of 503,045 shares of common stock at an exercise price of $35.99 per share and with an exercise period of five years from July 14, 2020. The gross proceeds to the Company from the exercise were approximately $13.6 million or net proceeds of $12.5 million after placement agent fees and offering expenses. In addition, we issued 32,785 unregistered warrants to placement agent designees at an exercise price of $44.99 and with an exercise period of five years from July 14, 2020. All warrants issued in the financing were subsequently registered pursuant to a registration statement on Form S-3 (File No. 333-242341) which was declared effective on August 13, 2020. On April 16, 2020, we entered into a Securities Purchase Agreement with certain institutional investors (the “Purchasers”), pursuant to which on April 20, 2020, we issued and sold in a registered direct offering (the “Offering”) an aggregate of 239,379 shares of our common stock at an offering price of $33.42 per share, for gross proceeds of approximately $8.0 million or net proceeds of $7.3 million after placement agent fees and offering expenses. In a concurrent private placement, we issued to the Purchasers, for each share of common stock purchased in the Offering, a warrant (“Common Warrants”) to purchase one share of common stock. The Common Warrants have an exercise price of $30.99 per share and are exercisable to purchase an aggregate of up to 239,380 shares of common stock. In addition, we issued to the placement agent for the Offering warrants to purchase 15,562 shares of common stock at an exercise price of $41.77 per share. Both the Common Warrants and the placement agent warrants are exercisable immediately upon issuance and terminate on April 20, 2022. In addition to the warrant exercise inducement and the registered direct offering, during the year ended December 31, 2020, we issued 45,736 shares of common stock, upon the exercise of warrants to purchase 55,860 shares of common stock for proceeds of $1.1 million. Known Trends, Events and Uncertainties The ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence. These include but are not limited to the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that regulators, or our board or management, may determine are needed. The COVID-19 pandemic has created significant economic uncertainty and volatility in the credit and capital markets. We may not be able to raise sufficient additional capital and may tailor our drug candidate development program based on the amount of funding we are able to raise in the future. Nevertheless, there is no assurance that these initiatives will be successful. Other than as discussed above and elsewhere in this report, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item 8 is included at the end of this Annual Report on Form 10-K beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 49 ITEM 9A. CONTROLS AND PROCEDURES. Disclosure Controls and Procedures Our Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer as appropriate to allow timely decisions regarding required disclosure. Internal Control over Financial Reporting Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our Principal Executive Officer and Principal Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP, including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and the disposition of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and board of directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Management evaluates the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021. Changes in Internal Controls over Financial Reporting There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 50 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE PART III The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2021. ITEM 11. EXECUTIVE COMPENSATION The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2021. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2021. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2021. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company’s fiscal year ended December 31, 2021. 51 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a) The following documents are filed as part of this Annual Report on Form 10-K: PART IV (1) Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (2) Financial Statement Schedules: F-2 F-3 F-4 F-5 F-6 F-7 None. Financial statement schedules have not been included because they are not applicable or the information is included in the consolidated financial statements or notes thereto. (3) Exhibits: See “Index to Exhibits” for a description of our exhibits. ITEM 16. FORM 10-K SUMMARY Not applicable. 52 Exhibit Number Exhibit Description INDEX TO EXHIBITS Filed with this Report Incorporated by Reference herein from Form or Schedule 3.1 3.2 3.3 3.4 3.5 3.6 Amended and Restated Certificate of Incorporation of Pulmatrix, Inc., as amended through June 15, 2015 Restated Bylaws of Pulmatrix, Inc., as amended through June 15, 2015 Certificate of Amendment to Amended and Restated Certificate of Incorporation of Pulmatrix, Inc., dated as of June 5, 2018 Form of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock. Certificate of Correction to the Certificate of Designation, filed December 16, 2021 Certificate of Amendment to Amended and Restated Certificate of Incorporation of Pulmatrix, Inc., dated as of February 5, 2019 3.7 Certificate of Amendment to Amended and Restated X Certificate of Incorporation of Pulmatrix, Inc., dated as of February 28, 2022 4.1 4.2 4.3 4.4 4.5 4.6 4.7 Form of Specimen Stock Certificate Form of Representative’s Warrant Agreement Warrant Agreement, dated June 16, 2015, by and between Pulmatrix, Inc. and Hercules Technology Growth Capital, Inc. Form of Warrant issued in Pulmatrix Operating Private Placement, dated June 15, 2015 Form of Series B Warrant issued in Pulmatrix Public Offering, dated March 28, 2018 Form of Pre-Funded Warrant issued in Pulmatrix Public Offering, dated March 28, 2018 Form of Pre-Funded Warrant issued in Pulmatrix Public Offering, dated December 3, 2018 53 Form 10-Q (Exhibit 3.1) Form 10-Q (Exhibit 3.2) Form 8-K (Exhibit 3.1) Form 8-K/A (Exhibit 3.1) Form 8-K/A (Exhibit 3.2) Form 8-K (Exhibit 3.1) Form 8-K (Exhibit 4.1) Form S-1/A (Exhibit 4.2) Form 8-K (Exhibit 10.3) Form 10-Q (Exhibit 10.8) Form S-1/A (Exhibit 4.8) Form S-1/A (Exhibit 4.7) Form 8-K (Exhibit 4.1) Filing Date SEC File/Reg. Number 08/14/15 001-36199 08/14/15 001-36199 06/07/18 001-36199 12/17/21 001-36199 12/17/21 001-36199 02/06/19 001-36199 06/16/15 001-36199 02/24/14 333-190476 06/16/15 001-36199 08/14/15 001-36199 03/28/18 333-223630 03/28/18 333-223630 12/03/18 001-36199 4.8 4.9 Form of Common Warrant issued in Pulmatrix Public Offering, dated December 3, 2018 Form of Underwriter Warrant issued in Pulmatrix Public Offering, dated January 31, 2019 4.10 Form of Underwriter Warrant issued in Pulmatrix Public Offering, dated February 4, 2019 4.11 Form of Common Warrant issued in Pulmatrix Direct Registered Offering, dated February 12, 2019 4.12 Form of Placement Agent Warrant issued in Pulmatrix Registered Direct Offering, dated February 12, 2019 4.13 Form of Common Stock Warrant issued in Pulmatrix Public Offering, dated April 1, 2019 4.14 Form of Pre-Funded Warrant issued in Pulmatrix Public Offering, dated April 1, 2019 4.15 Form of Underwriter Warrant issued in Pulmatrix Public Offering, dated April 1, 2019 4,16 Form of Common Warrant issued in Pulmatrix Public Offering, dated April 16, 2020 4.17 Form of Placement Agent Warrant issued in Pulmatrix Public Offering dated April 16, 2020 4.18 Form of Warrant Dated July 9, 2020 4.19 Form of Common Stock Purchase Warrant, dated December 17, 2021 4.20 Form of Placement Agent Warrant dated December 17, 2021 4.21 4.22 Description of Securities X Form of Placement Agent Warrant dated February 16, 2021 10.1* Pulmatrix, Inc. Amended and Restated 2013 Employee, Director and Consultant Equity Incentive Plan 10.2* Pulmatrix, Inc. 2013 Employee, Director and Consultant Equity Incentive Plan 10.3* Pulmatrix Inc. 2003 Employee, Director and Consultant Stock Plan 54 Form 8-K (Exhibit 4.2) Form 8-K (Exhibit 4.1) Form 8-K (Exhibit 4.1) Form 8-K (Exhibit 4.1) Form 8-K (Exhibit 4.2) Form S-1/A (Exhibit 4.13) Form S-1/A (Exhibit 4.11) Form S-1/A (Exhibit 4.12) Form 8-K (Exhibit 4.1) Form 8-K (Exhibit 4.1) Form 8-K (Exhibit 4.1) Form 8-K (Exhibit 4.1) Form 8-K (Exhibit 4.2) Form 8-K (Exhibit 4.1) Form 8-K (Exhibit 10.6) Form S-8 (Exhibit 99.2) Form S-8 (Exhibit 99.3) 12/03/18 001-36199 1/30/19 001-36199 02/01/19 001-36199 02/11/19 001-36199 02/11/19 001-36199 04/01/19 333-230395 04/01/19 333-230395 04/01/19 333-230395 04/16/20 001-36199 04/20/20 001-36199 07/09/20 001-36199 12/15/21 001-36199 12/15/21 001-36199 02/16/21 001-36199 06/16/15 001-36199 07/20/15 333-205752 07/20/15 333-205752 10.4 License, Development and Commercialization Agreement, dated June 9, 2017, by and between Pulmatrix, Inc. and Respivert Ltd. 10.5 First Amendment to the Pulmatrix, Inc. Amended and Restated 2013 Employee, Director and Consultant Equity Incentive Plan, dated as of June 5, 2018 10.6* Amended and Restated Employment Agreement, dated June 28, 2019, by and between the Company and Teofilo Raad 10.7 10.8* Development and Commercialization Agreement, dated as of April 15, 2019, by and between Cipla Technologies, LLC and Pulmatrix, Inc. Second Amendment to the Pulmatrix, Inc. Amended and Restated 2013 Employee, Director and Consultant Equity Incentive Plan, dated March 11, 2019 10.9* Third Amendment to the Pulmatrix, Inc. Amended and Restated 2013 Employee, Director and Consultant Equity Incentive Plan, dated as of September 6, 2019 10.10** 10.11 License, Development and Commercialization Agreement, by and between Pulmatrix, Inc. and Johnson & Johnson Enterprise Innovation, Inc., dated as of December 26, 2019 Collaboration and License Agreement by and between Pulmatrix, Inc. and Sensory Cloud, Inc. dated April 9, 2020 10.12 Securities Purchase Agreement 10.13 Form of Letter Agreement 10.14 Form of Securities Purchase Agreement dated December 15, 2021, by and between Pulmatrix, Inc. and the purchaser parties thereto 10.15** Second Amendment to Development and Commercialization Agreement, dated as of November 8, 2021, by and between Cipla Technologies, LLC and Pulmatrix, Inc. 10.16 Form of Securities Purchase Agreement dated February 11, 2021, by and between Pulmatrix, Inc. and the purchaser parties thereto Form 10-Q (Exhibit 10.1) Form 8-K (Exhibit 10.1) Form 10-K/A (Exhibit 10.1) Form 10-Q (Exhibit 10.4) Form S-8 (Exhibit 99.3) Form 8-K (Exhibit 10.1) 08/04/17 001-36199 06/07/18 001-36199 06/28/19 001-36199 08/05/19 001-36199 06/04/19 333-231935 09/09/19 001-36199 Form 10-K (Exhibit 10.13) 03/26/20 001-36199 Form 8-K 04/15/20 001-36199 (Exhibit 10.1) Form 8-K (Exhibit 10.1) Form 8-K (Exhibit 10.1) Form 8-K (Exhibit 10.1) Form 8-K (Exhibit 10.1) Form 8-K (Exhibit 10.1) 55 04/16/20 001-36199 07/09/20 001-36199 12/15/21 001-36199 11/09/21 001-36199 02/16/21 001-36199 21.1 List of Subsidiaries Form 10-K (Exhibit 21.1) 03/13/18 001-36199 23.1 Consent of Marcum LLP, independent registered public accounting firm, to the Form 10-K 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101. INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL 101.DEF Inline XBRL Taxonomy Extension Calculation Linkbase Document Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) X X X X X X X X X X X * ** These exhibits are management contracts Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K under the Securities Act of 1933, as amended, because they are both (i) not material and (ii) the type that the registrant treats as private or confidential. A copy of the omitted portions will be furnished to the SEC upon its request. 56 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Date: March 29, 2022 PULMATRIX, INC. By: /s/ Teofilo Raad Teofilo Raad Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated below and on the dates indicated. Signature Title /s/ Teofilo Raad Teofilo Raad /s/ Michelle S. Siegert Michelle S. Siegert /s/ Michael J. Higgins Michael J. Higgins /s/ Richard Batycky, Ph.D. Richard Batycky /s/ Todd Bazemore Todd Bazemore /s/ Christopher Cabell, M.D. Chris Cabell /s/ Anand Varadan Anand Varadan Chief Executive Officer, President and Director (Principal Executive Officer) VP, Finance, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) Chairman of the Board of Directors Director Director Director Director 57 Date March 29, 2022 March 29, 2022 March 29, 2022 March 29, 2022 March 29, 2022 March 29, 2022 March 29, 2022 PULMATRIX, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 688) Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements F-1 Page F-2 F-3 F-4 F-5 F-6 F-7 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Pulmatrix, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Pulmatrix, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition – Estimated Total Contract Costs Description of the Matter As described in Note 2 and Note 5 to the financial statements the Company recognizes revenue from non-refundable, upfront fees allocated to a license, when such license is transferred to the customer through collaboration arrangements and the customer is able to use and benefit from the license. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company uses the input method, with estimated costs to satisfy the performance obligation being the input, as the best measure of the transfer of control of the performance obligation. Management uses significant assumptions and estimates when determining the total estimated costs expected upon satisfying the performance obligation, which in turn led to significant auditor judgment, subjectivity and effort in performing procedures to evaluate the total estimate of the costs expected upon satisfying the performance obligation. How We Addressed the Matter in Our Audit Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among others, (i) obtaining an understanding of management’s process in developing the cost estimates (ii) discussion with the Company’s clinical and manufacturing personnel to understand the estimates used in developing the cost estimates (iii) evaluating the appropriateness of management’s estimates of total costs to satisfy the performance obligation; (iv) evaluating whether the cost estimates used by management were reasonable considering consistency with company-specific data; and (v) determining the reasonableness of the assumptions used in management’s estimation process. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2015. New York, NY March 29, 2022 F-2 PULMATRIX, INC. Consolidated Balance Sheets (in thousands, except share and per share data) Year ended December 31, 2021 2020 Assets Current assets: Cash and cash equivalents Accounts receivable Prepaid expenses and other current assets Total current assets Property and equipment, net Operating lease right-of-use asset Long-term restricted cash Goodwill Total assets Liabilities and stockholders’ equity Current liabilities: Accounts payable Accrued expenses Operating lease liability Deferred revenue Total current liabilities Deferred revenue, net of current portion Operating lease liability, net of current portion Total liabilities Commitments and contingencies (Note 11) Stockholders’ equity: Series A convertible preferred stock, $0.0001 par value — 6,745 and no shares authorized at December 31, 2021 and December 31, 2020, respectively; 1,830 and no shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively Common stock, $0.0001 par value — 200,000,000 shares authorized at December 31, 2021 and December 31, 2020; 3,222,037 and 1,805,250 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively Additional paid-in capital Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity $ $ $ $ 53,840 $ 67 871 54,778 321 2,093 1,625 - 58,817 $ 839 $ 1,233 1,431 939 4,442 6,069 857 11,368 31,657 84 723 32,464 361 1,489 204 3,577 38,095 851 2,028 1,135 4,166 8,180 6,168 608 14,956 1,081 - - 301,008 (254,640) 47,449 58,817 $ - 257,608 (234,469) 23,139 38,095 See accompanying notes to consolidated financial statements. F-3 PULMATRIX, INC. Consolidated Statements of Operations (in thousands, except share and per share data) Year ended December 31, 2021 2020 $ 5,169 $ 12,634 Revenues Operating expenses: Research and development General and administrative Impairment of goodwill Total operating expenses Loss from operations Other income/(expense): Interest income Warrant inducement expense Other expense, net Total Other income/(expense) Net loss Less: Deemed dividend - beneficial conversion feature of preferred stock Net loss attributable to common stockholders Net loss per share attributable to common stockholders - basic and diluted Weighted average common shares outstanding - basic and diluted $ $ See accompanying notes to consolidated financial statements. F-4 15,382 6,377 3,577 25,336 (20,167) 7 - (11) (4) (20,171) (3,197) (23,368) $ (8.63) $ 2,708,558 15,609 6,887 - 22,496 (9,862) 82 (9,289) (239) (9,446) (19,308) - (19,308) (13.43) 1,437,666 PULMATRIX, INC. Consolidated Statements of Stockholders’ Equity (in thousands) Preferred Stock Shares Amount - - $ Additional Common Stock Shares Amount Paid-in Accumulated Capital Deficit Total Stockholders’ Equity 1,805,250 $ - $ 257,608 $ (234,469) $ 23,139 6,745 - 3,984 (3,197) - - - (4,915) 3,197 (2,903) - 409,585 - - - - 2,056 3,197 (3,197) 2,903 - - - - - - - - - - - - 1,830 $ 1,081 1,000,000 7,202 - - 3,222,037 $ 37,079 204 1,158 - - - - - - $ 301,008 $ - - - (20,171) (254,640) $ 6,040 - - - 37,079 204 1,158 (20,171) 47,449 Preferred Stock Shares Amount - $ - Additional Common Stock Shares Amount Paid-in Accumulated Capital Deficit Total Stockholders’ Equity 999,723 $ - $ 226,180 $ (215,161) $ 11,019 - - - - - - - - $ - - - - - - - - 239,379 550,023 15,000 - 1,125 - - 1,805,250 $ 7,314 13,643 - 9,289 24 1,158 - - - - - - - - - $ 257,608 $ - - - - - - (19,308) (234,469) $ 7,314 13,643 - 9,289 24 1,158 (19,308) 23,139 Balance — January 1, 2021 Issuance of preferred stock and common stock warrants, net of issuance costs Beneficial conversion feature of preferred stock Deemed dividend related to beneficial conversion feature of preferred stock Conversion of preferred stock to common stock Issuance of common stock, net of issuance costs Exercise of warrants Share-based compensation Net loss Balance — December 31, 2021 Balance — January 1, 2020 Issuance of common stock, net of issuance costs Exercise of warrants, net of issuance costs Exercise of pre-funded warrants Warrant inducement expense Exercise of stock options Share-based compensation Net loss Balance — December 31, 2020 See accompanying notes to consolidated financial statements. F-5 PULMATRIX, INC. Consolidated Statements of Cash Flows (in thousands) Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Year ended December 31, 2021 2020 $ (20,171) $ (19,308) Depreciation and amortization Amortization of operating lease right-of-use asset Share-based compensation Warrant inducement expense Impairment of goodwill Changes in operating assets and liabilities: Accounts receivable Prepaid expenses and other current assets Accounts payable Accrued expenses Operating lease liability Deferred revenue Net cash used in operating activities Cash flows from investing activities: Purchases of property and equipment Net cash used in investing activities Cash flows from financing activities: Proceeds from the issuance of preferred stock and common stock warrants, net of issuance costs Proceeds from issuance of common stock, net of issuance costs Proceeds from exercise of common stock warrants, net of issuance costs Proceeds from exercise of common stock options Proceeds from Paycheck Protection Program loan Repayment of Paycheck Protection Program loan Net cash provided by financing activities Net increase in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash — beginning of period Cash, cash equivalents and restricted cash — end of period Supplemental disclosures of non-cash investing and financing information: Fixed asset purchases in accounts payable Issuance costs in accounts payable Operating lease right-of-use asset obtained in exchange for operating lease obligation Conversion of preferred stock to common stock Preferred stock issuance costs associated with placement agent warrants Beneficial conversion feature of preferred stock Deemed dividend related to beneficial conversion feature of preferred stock $ $ $ $ $ $ $ $ See accompanying notes to consolidated financial statements F-6 169 1,067 1,158 - 3,577 17 (148) (149) (795) (1,126) (3,326) (19,727) (144) (144) 6,192 37,079 204 - - - 43,475 23,604 31,861 55,465 $ (10) $ (152) $ 1,671 $ 2,903 $ 300 $ 3,197 $ (3,197) $ 215 828 1,158 9,289 - 7,116 54 226 (486) (619) (10,956) (12,483) (281) (281) - 7,314 13,643 24 617 (617) 20,981 8,217 23,644 31,861 25 - 1,687 - - - - PULMATRIX, INC. Notes to Consolidated Financial Statements (in thousands, except share and per share data) 1. Nature of the Business and Basis of Presentation Organization Pulmatrix, Inc. (the “Company”) was incorporated in 2013 as a Delaware corporation. The Company is a clinical-stage biotechnology company focused on the discovery and development of a novel class of inhaled therapeutic products. The Company’s proprietary dry powder delivery platform, iSPERSE™ (inhaled Small Particles Easily Respirable and Emitted), is engineered to deliver small, dense particles with highly efficient dispersibility and delivery to the airways, which can be used with an array of dry powder inhaler technologies and can be formulated with a variety of drug substances. The Company is developing a pipeline of iSPERSE™- based therapeutic candidates targeted at prevention and treatment of a range of respiratory and other diseases with significant unmet medical needs. Reverse Stock Split On February 28, 2022, the Company effectuated a 1-for-20 reverse stock split of its issued and outstanding shares of common stock (the “Reverse Stock Split”) pursuant to which every 20 shares of the Company’s issued and outstanding common stock were automatically converted into 1 share of common stock, without any change in the par value per share. Any fraction of a share of common stock that would otherwise have resulted from the Reverse Stock Split will be rounded up to the nearest whole share. Accordingly, as required in accordance with U.S. GAAP (as defined below), all common share and per share data are retrospectively restated to give effect of the Reverse Stock Split for all periods presented herein. 2. Summary of Significant Accounting Policies and Recent Accounting Standards Basis of Presentation Principles of Consolidation The consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiary in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to the U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). Risks and Uncertainties The ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any drug developed by the Company must undergo rigorous preclinical and clinical testing and an extensive regulatory approval process implemented by the United States Food and Drug Administration (“FDA”) under the Food, Drug and Cosmetic Act. The Company has limited experience in conducting and managing the preclinical and clinical testing necessary to obtain regulatory approval. There can be no assurance that the Company will not encounter problems in the clinical trials that will cause the Company or the FDA to delay or suspend clinical trials. The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the property rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company. F-7 Based on its current operating plan, the Company believes that its cash and cash equivalents as of December 31, 2021, will be adequate to fund our currently anticipated operating expenses for at least twelve months from the date of these financial statements. The Company will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of the Company’s planned research and development activities and regulatory activities; commercialize product candidates; or conduct any substantial, additional development requirements requested by the FDA. Additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to secure additional capital, it will be required to significantly decrease the amount of planned expenditures and may be required to cease operations. In addition, any disruption in the capital markets caused by the novel coronavirus (“COVID-19”) pandemic could make any financing more challenging, and there can be no assurance that Pulmatrix will be able to obtain such financing on commercially reasonable terms or at all. Curtailment of operations would cause significant delays in the Company’s efforts to develop and introduce its products to market, which is critical to the realization of its business plan and the future operations of the Company. Use of Estimates In preparing consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results may differ from these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. The most significant estimates and assumptions in the Company’s consolidated financial statements include, but are not limited to, estimates of future expected costs in order to derive and recognize revenue, estimates related to clinical trial accruals and upfront deposits, fair value used to record preferred stock and warrants transactions, incremental borrowing rate, accounting for income taxes and the related valuation allowance, and goodwill impairment. Concentrations of Credit Risk and Off-Balance Sheet Arrangements Cash is a financial instrument that potentially subjects the Company to concentrations of credit risk. For all periods presented, substantially all of the Company’s cash was deposited in an account at a single financial institution that management believes is creditworthy. The Company is exposed to credit risk in the event of default by these financial institutions for amounts in excess of the Federal Deposit Insurance Corporation insured limits. The Company maintains its cash at a high-quality financial institution and has not incurred any losses to date. For the years ended December 31, 2021 and 2020, revenue from two customers accounted for 99% and 99% of revenue recognized in the consolidated statements of operations, respectively. As of December 31, 2021 and 2020, one customer accounted for 96% and 93% of accounts receivable, respectively. The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents are held in U.S. banks and consist of liquid investments and money market funds with a maturity from date of purchase of 90 days or less that are readily convertible into cash. Cash and cash equivalents consist of cash, checking accounts and money market accounts. Restricted cash represents cash held in a depository account at a financial institution to collateralize conditional stand-by letters of credit related to the Company’s current and future office and laboratory facility lease agreements in the amounts of $1,421 and $153, respectively, as well as $51 deposited in a money market account as security for a credit card as of December 31, 2021. As of December 31, 2020, restricted cash was comprised of a conditional stand-by letter of credit related to the Company’s current office and laboratory facility lease agreements and deposits in a money market account held as security for a credit card in the amounts of $153 and $51, respectively. Restricted cash is reported as non-current unless the restrictions are expected to be released in the next 12 months. F-8 The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported in the consolidated balance sheets that sum to the total of the same amounts in the consolidated statement of cash flows: Year Ended December 31, 2021 2020 Cash and cash equivalents Restricted cash Total cash, cash equivalents and restricted cash $ $ 53,840 $ 1,625 55,465 $ 31,657 204 31,861 Property and Equipment, net Property and equipment are recorded at cost less accumulated depreciation and amortization. Property and equipment are depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated remaining lease term or the useful lives of the related assets. Repairs and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment. Depreciation and amortization is provided over the following estimated useful lives: Asset Description Laboratory equipment Computer equipment Office furniture and equipment Leasehold improvements Estimated Useful Lives 5 years 3 years 5 years Shorter of estimated useful life or remaining lease term Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Impairment of Long-Lived Assets The Company accounts for long-lived assets in accordance with ASC 360. Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. Application of alternative assumptions, such as changes in estimate of future cash flows, could produce significantly different results. For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and estimated fair value. Fair Value of Financial Instruments The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below: F-9 Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 — Valuations based on quoted prices for similar assets or liabilities in markets that are not active, or for which all significant inputs are observable, either directly or indirectly. Level 3 — Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. As of December 31, 2021 and 2020, the Company did not hold any financial assets or liabilities that were measured at fair value on a recurring or nonrecurring basis, except for money market funds which are a Level 1 instrument, measured at fair value on a recurring basis and included in Cash and cash equivalents in the consolidated balance sheets in the amount of $47,758 and $29,054 respectively. During the years ended December 31, 2021 and 2020, there were no transfers between Level 1, Level 2 and Level 3. Leases The Company accounts for leases in accordance with FASB ASC Topic 842, Leases (“ASC 842”). At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items, such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company has elected to account for the lease and non-lease components as a combined lease component. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Revenue Recognition The Company’s principal sources of revenue during the years ended December 31, 2021 and 2020, were derived from collaboration arrangement and license agreements that relate to the development and commercialization of Pulmazole under the Cipla Agreement and our license, development and commercialization arrangement under the JJEI Agreement. At inception, management determines whether contracts are within the scope of ASC 606 or other topics, including ASC 808, Collaborative Arrangements (“ASC 808”). For contracts that are within the scope of ASC 808, the Company evaluates whether the counterparty is a customer for any of the units of account (i.e., distinct goods and services) in the contract. For units of account where the counterparty is considered a customer, the Company applies ASC 606 to those unit(s) of account, including recognition, measurement, presentation, and disclosure guidance. To date, the Company has determined it is appropriate to apply ASC 606 to all contracts and units of account for contracts within the scope of ASC 808. F-10 For contracts and units of account that are determined to be within the scope of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which management expects to be entitled to receive in exchange for these goods and services. To achieve this core principle, management applies the following five steps (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Identification of Performance Obligations. Performance obligations promised in a contract are identified at contract inception based on the goods and services that are both capable of being distinct and are distinct in the context of the contract. To the extent a contract includes multiple promised goods and services, we apply judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation. Transaction Price and Milestone Payments. The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. At the inception of each contract that includes research or development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. Management evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each reporting period, management reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. Exclusive Licenses. If the license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other promises, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the counterparty can benefit from a promise for its intended purpose without the receipt of the remaining promise, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount of revenue the Company records in future periods. Research and Development Services. The promises under the Company’s arrangements may include research and development services to be performed by the Company on behalf of the counterparty. Payments or reimbursements from customers resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts. The Company uses an input method, according to the ratio of costs incurred to the total costs expected to be incurred in the future to satisfy the performance obligation. In management’s judgment, this input method is the best measure of the transfer of control of the performance obligation. Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion. Reimbursements from and payments to the counterparty that are the result of a collaborative relationship, instead of a customer relationship, such as co-development activities, are recognized as the services are performed and presented as a reduction to research and development expense. To date, the Company has determined that all arrangements which include research and development services have been transacted with customers and recognized on a gross basis using ASC 606. F-11 Royalties. For contracts that include sales-based royalties, including milestone payments upon first commercial sales and milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. Customer Options. If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options that are not determined to be material rights are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised. For a complete discussion of accounting for the Company’s revenue contracts, see Note 5, Significant Agreements. Research and Development Costs Research and development costs are expensed as incurred and include salaries, benefits, bonus, share-based compensation, license fees, milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and associated overhead and facilities costs. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors, clinical research organizations (“CROs”) and clinical manufacturing organizations (“CMOs”). Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third- party contractor activities based on our estimate of fees and costs associated with the contract that were rendered during the period and they are expensed as incurred. Research and development costs that are paid in advance of performance are capitalized as prepaid expenses and amortized over the service period as the services are provided. Share-Based Compensation The Company recognizes all employee share-based compensation as a cost in the consolidated financial statements. Equity-classified awards principally related to stock options and restricted stock units (“RSUs”), which are measured at the grant date fair value of the award. The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model. The fair value of restricted stock awards are determined using the closing price of the Company’s common stock on the grant date. For service based vesting grants, expense is recognized over the requisite service period based on the number of options or shares expected to ultimately vest. For performance-based vesting grants, expense is recognized over the requisite period until the performance obligation is met, assuming that it is probable. No expense is recognized for performance-based grants until it is probable the vesting criteria will be satisfied. Share-based payments to non-employees are recognized as services are rendered, generally on a straight-line basis. The Company believes that the fair values of these awards are more reliably measurable than the fair values of the services rendered. F-12 Convertible Financial Instruments The Company bifurcates conversion options from their host instruments and accounts for them as freestanding derivative financial instruments if certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable U.S. GAAP. When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, discounts are recorded for the intrinsic value of any beneficial conversion options embedded in the instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the instrument. Deemed dividends are also recorded for the intrinsic value of beneficial conversion options embedded in preferred stock based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred stock. Common Stock Warrants The Company classifies as equity any warrants that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net- cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any warrants that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control), (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement) or (iii) that contain reset provisions that do not qualify for the scope exception. The Company assesses classification of its common stock warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company’s freestanding derivatives consist of warrants to purchase common stock that were issued in connection with its (i) convertible preferred stock, (ii) private placements, (iii) term loan, (iv) consulting services and (v) underwriting and representative services. The Company evaluated these warrants to assess their proper classification and determined that the common stock warrants meet the criteria for equity classification in the consolidated balance sheets. Basic and Diluted Net Loss Per Share Basic and diluted earnings (loss) per share are computed using the two-class method, which is an earnings allocation method that determines earnings (loss) per share for common shares and participating securities. The participating securities consist of the Company’s preferred stock. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. In periods of loss, no allocation is made to the preferred shares and diluted net loss per share is the same as basic net loss per share because common stock equivalents are excluded as their inclusion would be anti-dilutive. Income Taxes Income taxes are recorded in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. F-13 Goodwill Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired, and liabilities assumed under the acquisition method of accounting for push-down accounting. Goodwill is not amortized but is evaluated for impairment within the Company’s single reporting unit on an annual basis during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company’s reporting unit below its carrying amount. When performing the impairment assessment, the accounting standard for testing goodwill for impairment permits a company to first assess the qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the goodwill is impaired. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is impaired, the Company then must perform a quantitative analysis to determine if the carrying value of the goodwill exceeds the fair value of the Company. The impact of the COVID-19 pandemic was considered in our qualitative assessment. Given the Company’s common stock value decline during 2021, and based on the quantitative assessment, the Company determined that goodwill was impaired, and a full impairment charge of $3,577 was recorded during the year ended December 31, 2021. Reclassifications of Prior Year Presentation Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the consolidated balance sheet and statement of cash flows for fiscal year ended December 31, 2020, to reclassify deferred operating costs classified in Prepaid expenses and other current assets and Accounts payable. Recent Accounting Pronouncements In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020- 06”). ASU 2020-06, which simplifies the guidance on accounting for convertible financial instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately present in equity an embedded conversion feature in such convertible financial instruments. Instead, we will account for convertible financial instruments wholly as debt or equity, unless certain other conditions are met. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and share settlement when an instrument can be settled in cash or shares at the entity’s option, unless the instrument is a liability-classified share-based payment award. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements. In April 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force) (“ASU 2021-04”). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. The ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company plans to adopt ASU 2021-04 on January 1, 2022 and does not expect it to have a material impact on the consolidated financial statements. As of December 31, 2021, there have been no other new, or existing recently issued or adopted, accounting pronouncements that are of significance, or potential significance, that impact the Company’s consolidated financial statements. 3. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: Insurance Clinical and consulting Other Total prepaid and other current assets As of December 31, 2021 2020 325 $ 230 316 871 $ 276 317 130 723 $ $ F-14 4. Property and Equipment, Net Property and equipment, net consisted of the following: Laboratory equipment Computer equipment Office furniture and equipment Leasehold improvements Capital in progress Total property and equipment Less accumulated depreciation and amortization Property and equipment, net As of December 31, 2021 2020 $ $ 1,838 $ 304 217 602 - 2,961 (2,640) 321 $ 1,702 302 217 596 25 2,842 (2,481) 361 Depreciation and amortization expense for the years ended December 31, 2021 and 2020 was $169 and $215, respectively. During the years ended 2021 and 2020, the Company disposed of certain fixed asset with immaterial gross costs and accumulated depreciation. 5. Significant Agreements Development and Commercialization Agreement with Cipla Technologies LLC (“Cipla”) On April 15, 2019, the Company entered into a Development and Commercialization Agreement (the “Cipla Agreement”) with Cipla for the co- development and commercialization, on a worldwide exclusive basis, of Pulmazole, the Company’s inhaled iSPERSE™ drug delivery system (the “Product”) enabled formulation of the antifungal drug, itraconazole, which is only available as an oral drug, for the treatment of all pulmonary indications, including allergic bronchopulmonary aspergillosis (“ABPA”) in patients with asthma. The Company received a non-refundable upfront payment of $22,000 (the “Upfront Payment”) under the Cipla Agreement. Upon receipt of the Upfront Payment, the Company irrevocably assigned to Cipla the following assets, solely to the extent that each covers the Product in connection with any treatment, prevention, and/or diagnosis of diseases of the pulmonary system (“Pulmonary Indications”): all existing and future technologies, current and future drug master files, dossiers, third-party contracts, regulatory filings, regulatory materials and regulatory approvals, patents, and intellectual property rights, as well as any other associated rights and assets directly related to the Product, specifically in relation to Pulmonary Indications (collectively, the “Assigned Assets”), excluding most specifically the Company’s iSPERSE™ technology. A portion of the Upfront Payment was deposited by the Company into a bank account, along with an equal amount from the Company, and will be dedicated to the development of the Product (the “Initial Development Funding”). After the Initial Development Funding is depleted, the Company and Cipla will each be responsible for a portion of the development costs actually incurred as described below (the “Co-Development Phase”). The Cipla Agreement will remain in effect in perpetuity, unless otherwise earlier terminated in accordance with its terms. In the event of circumstances affecting the continuity of development of the Product in line with the Cipla Agreement or certain development milestones are not achieved within a specified timeframe discussed in greater detail below, the joint steering committee (“JSC”) will evaluate the cause and effect and make a recommendation as to the most optimal option available to Cipla and the Company. In such events, the parties are not obligated to follow the recommendation of the JSC and, either party may elect to terminate (a “Terminating Party”) its obligation to fund additional costs and expenses for the development and/or commercialization of the Product. If the non-Terminating Party wishes to continue the development of the Product, it will have the right to purchase the rights of the Terminating Party in the Product at its fair market value. If both the Company and Cipla abandon the development program, the Company and Cipla shall make commercially reasonable efforts to monetize the Product and development program in connection with the Pulmonary Indications. The Company and Cipla will equally share the proceeds. The Company and Cipla will each be responsible for 60% and 40%, respectively, of the Company’s overhead costs and the time spent by the Company’s employees and consultants on development of the Product (“Direct Costs”), provided, that Cipla will reimburse the Company an amount equal to 10% of aggregate Direct Costs upon the achievement of certain development milestones set forth in the table below. The Company will continue to share all other development costs with Cipla that are not Direct Costs, such as the cost of clinical research organizations, manufacturing costs and other third-party costs, on a 50/50 basis. F-15 Pursuant to the Cipla Agreement, (i) all development and commercialization activities with respect to the Product in India, South Africa, Sri Lanka, Nepal, Iran, Yemen, Myanmar and Algeria (such countries, the “Cipla Territory”) will be conducted exclusively by Cipla at Cipla’s sole cost and expense, and (ii) Cipla shall be entitled to all profits from the sale of the Product in the Cipla Territory, except that if Cipla successfully transfers manufacturing of the Product for the Cipla Territory to a manufacturing site determined by Cipla, we will become entitled to a royalty equal to 2% of net sales in the Cipla Territory. In partnership with Cipla, the Company initiated a Phase 2 clinical study in 2019, entitled: “A Randomized, Double-Blind, Multicenter, Placebo- Controlled, Phase 2 Study to Evaluate the Safety, Tolerability, and Pharmacokinetics of Itraconazole Administered as a Dry Powder for Inhalation (PUR1900) in Adult Asthmatic Patients with ABPA. This clinical study was terminated in July 2020 due to the ongoing impact of the COVID-19 pandemic on patient enrollment and clincal study conduct. Folloiwng termination of the Phase 2 clincial study, the Company conducted a Type C meeting with the FDA on January 27, 2021, in order to discuss the program overall development plan and the current Phase 2b clinical study design. The Phase 2b clinical study design includes a 16-week dosing regimen with an 8-weel follow up and is intended to explore potential efficacy endpoints, whereas the terminated Phase 2 clinical study had comprised only a 4- week dosing regimen with safety and tolerability as its primary endpoint. The longer dosing regimen of the new Phase 2b clinical study is supported by the 6-month inhalation toxicology study in dogs completed in April 2020. The new development plan, including the planned Phase 2b clinical study, was approved on November 8, 2021. In addition to the terms of the Cipla Agreement described above, if any of the below development milestones are not met by the date that is nine months after the applicable deadline for achieving such development milestone, either party may elect to terminate its obligation to fund additional development costs, in which case either (i) the non-Terminating Party can acquire the rights of the Terminating Party for fair market value or (ii) the parties will monetize the Product. The table below sets forth the development milestones. Phase 2b Development Plan – Development Milestones Development Milestone 25% of patients enrolled in Phase 2b clinical study are dosed Company delivers summary of key efficacy and safety data to include FEV1, IgE, ACQ-6, number of subjects withdrawn, any severe adverse events related to the medication and an overall summary table of adverse events (“Topline Results”) to the JSC. Phase 3 Development Plan – Development Milestones Development Milestone 25% of patients enrolled in Phase 3 clinical study dosed Company delivers Topline Results to the JSC The Prescription Drug User Fee Act (the “PDUFA”) F-16 Milestone Date June 30, 2023 June 30, 2024 Milestone Date To be proposed by JSC To be proposed by JSC To be proposed by JSC Accounting Treatment The Company concluded that because both it and Cipla are active participants in the arrangement and are exposed to the significant risks and rewards of the collaboration, the Company’s collaboration with Cipla is within the scope of ASC 808. The Company concluded that Cipla is a customer since they contracted with the Company to obtain research and development services and a license to the Assigned Assets, each of which is an output of the Company’s ordinary activities, in exchange for consideration. Therefore, the Company has applied the guidance in ASC 606 to account for the research and development services and a license within the contract. The Company determined that the research and development services and license to the Assigned Assets are considered highly interdependent and highly interrelated and therefore are considered a single combined performance obligation because Cipla cannot benefit from the license without the performance by Pulmatrix of the research and development services. Such research and development services are highly specialized and proprietary to Pulmatrix and therefore not available to Cipla from any other third party. The Company determined the total transaction price to be $22,000 – comprised of $12,000 for research and development services for the Product and $10,000 for the irrevocable license to the Assigned Assets. Any consideration related to the Co-Development Phase has not been included in the transaction price as such amounts are subject to the variable consideration constraint. Additionally, upon commercialization, Cipla and the Company will share equally, both positive and negative total free cash-flows earned by Cipla in respect of the Product. However, the Company has not included such free cash-flows in the transaction price as these milestones are constrained until after the commercialization of the Product. Revenue is recognized for the Cipla Agreement as the research and development services are provided using an input method, according to the ratio of costs incurred to the total costs expected to be incurred in the future to satisfy the Company’s obligations. In management’s judgment, this input method is the best measure of the transfer of control of the combined performance obligation. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue on the Company’s consolidated balance sheets, with amounts expected to be recognized in the next 12 months recorded as current. The Company received the $22,000 Upfront Payment in May 2019. During the year ended December 31, 2020, the Company recognized $5,749 in revenue related to the research and development services and irrevocable license to the Assigned Assets in the Company’s consolidated statements of operations. As of December 31, 2020, the aggregate transaction price related to the Company’s unsatisfied obligations was $8,341 and was recorded in deferred revenue, $2,173 of which was current. The Company concluded that the Amendment represented a contract modification that is treated for accounting purposes as the termination of the Cipla Agreement and a creation of a new contract (the “Amended Cipla Agreement”). Accordingly, the modification is accounted for on a prospective basis. The total transaction price for the Amended Cipla Agreement includes variable consideration from the Amendment as well as $7,397 deferred under the Cipla Agreement as of the Amendment execution date. Revenue is recognized for the Amended Cipla Agreement as the research and development services are provided using an input method, according to the ratio of costs incurred to the total costs expected to be incurred in the future to satisfy the Company’s obligations. During the year ended December 31, 2021, the Company recognized $1,398 in revenue related to the research and development services and irrevocable license to the Assigned Assets in the Company’s consolidated statements of operations. As of December 31, 2021, the aggregate transaction price related to the Company’s unsatisfied obligations was $7,008 and was recorded in deferred revenue, $939 of which was current. Collaboration and License Agreement with Sensory Cloud, Inc. (“Sensory Cloud”) On April 9, 2020, the Company entered into a Collaboration and License Agreement (the “Sensory Cloud Agreement”) with Sensory Cloud. Under the terms of the Agreement, the Company has granted Sensory Cloud an exclusive, worldwide, royalty bearing license to PUR003 and PUR006, the Company’s proprietary aerosol salt solution for delivery or administration to or through the nasal passages, as well as related patents and know-how, for use in the field (the “Licensed Product”). PUR003 and PUR006, also known as NasoCalm, was originally developed by the Company as a potential anti- infective biodefense medical countermeasure product. Sensory Cloud will be using NasoCalm, now integral in their product FEND, a hypertonic calcium chloride salt solution with nasal mister. For purposes of the Sensory Cloud Agreement, the field means the formulation and commercialization of over-the- counter products for the prophylaxis, prevention and treatment of upper and lower respiratory disease that are delivered or administered to or through the nasal passages. The license granted to Sensory Cloud does not cover the development or commercialization of any prescription products. F-17 Under the terms of the Sensory Cloud Agreement, Sensory Cloud may develop other over-the-counter Licensed Products that contain other active pharmaceutical ingredients or therapeutic agents and combine the Licensed Product with one or more of Sensory Cloud’s proprietary delivery devices. In addition, Pulmatrix has granted Sensory Cloud an exclusive right of first refusal to any new over-the-counter products in the field that may be developed by Pulmatrix. During the term of the Sensory Cloud Agreement, neither party may alone or with, through or for the benefit of any third party, with respect to any Licensed Product in the field, pursue any research, development or commercialization activities specifically directed to development or commercialization of any Licensed Product. Pulmatrix shall be entitled to royalties on net sales of Licensed Product in each country in which there is a valid claim of a patent within the licensed intellectual property covering the Licensed Product. Pulmatrix’ rights to receive such royalties commences upon the first commercial sale of a Licensed Product in any such country and terminates upon the expiration of the last valid claim in such territory. The royalty rates are as follows: (1) 7% of net sales during calendar year 2020, (2) 14% of net sales during calendar year 2021, and (3) 17% of net sales during calendar year 2022 and each calendar year thereafter during the royalty term. In addition, Pulmatrix shall be entitled to receive a milestone payment of $1,000 following the achievement of aggregate net sales of all Licensed Products of $20,000. The Sensory Cloud Agreement shall terminate at such time that Pulmatrix would no longer be entitled to royalties because there are no longer any valid claims of a patent within the licensed intellectual property covering any Licensed Product. Upon there being no more such royalty payments owed by Sensory Cloud for a Licensed Product, the licenses granted by Pulmatrix to Sensory Cloud shall become fully paid up, royalty free, perpetual, irrevocable and non-exclusive licenses to such Licensed Product. The Sensory Cloud Agreement may also be terminated earlier by Sensory Cloud for convenience and by Sensory Cloud or Pulmatrix for material breach or upon the bankruptcy or insolvency of the other party. Accounting Treatment Royalty revenues from the Company’s agreements with third parties are recognized when the Company can reasonably determine the amounts earned. This will be upon notification from Sensory Cloud, which is typically during the quarter following the quarter in which the sales occurred. The Company does not participate in the selling or marketing of products for which it receives royalties. No provision for uncollectible accounts is established upon recognition of revenues. Sensory Cloud commenced their product launch in October 2020. During the years ended December 31, 2021 and 2020, the Company recorded royalty revenue from Sensory Cloud Agreement of $23 and $6 respectively. License, Development and Commercialization Agreement with Johnson & Johnson Enterprise Innovation, Inc. (“JJEI”) All rights to the Company’s kinase inhibitor portfolio, including PUR1800 and PUR5700, reverted to the Company upon the termination of our License, Development and Commercialization Agreement (the “JJEI License Agreement”), dated December 26, 2019, with Johnson & Johnson Enterprise Innovation, Inc. (“JJEI”). JJEI notified the Company that they were terminating the JJEI License Agreement in April 2021, and the effective date of the termination was July 6, 2021. Accounting Treatment Revenue associated with the combined research and development services for the Licensed Product and the irrevocable license is recognized as revenue as the research and development services are provided using an input method, according to the ratio of costs incurred to the total costs expected to be incurred in the future to satisfy the performance obligation. In management’s judgment, this input method is the best measure of the transfer of control of the performance obligation. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue in the Company’s consolidated balance sheet. During the year ended December 31, 2020, the Company recognized $6,854 in revenue related to the research and development services and license agreement in the Company’s consolidated statements of operations. As of December 31, 2020, $1,993 was recorded as deferred revenue in the Company’s consolidated balance sheets which was all recognized in revenue during the year ended December 31, 2021. In total, during the year ended December 31, 2021, the Company recognized $3,748 in revenue related to the research and development services and license agreement in the Company’s consolidated statements of operations. F-18 6. Accrued Expenses and Other Current Liabilities Accrued expenses consisted of the following: Wages and incentives Clinical and consulting Vacation Legal and patents Other Total accrued expenses 7. Preferred Stock As of December 31, 2021 2020 $ $ 991 97 60 $ 58 27 1,233 $ 813 1,010 56 129 20 2,028 The Company’s amended and restated certificate of incorporation (the “Articles”) provides for a class of authorized stock known as preferred stock, consisting of 500,000 shares, $0.0001 par value per share, issuable from time to time in one or more series. As of December 31, 2020, there were no shares of preferred stock outstanding and no series designated and authorized. During the year ended December 31, 2021, the Articles were amended to designate and authorize 6,745.008 shares of series A convertible preferred stock. On December 17, 2021, the Company closed a registered direct offering with certain institutional investors for the issuance and sale of an aggregate of 6,745.008 shares of convertible preferred stock and warrants to purchase up to an aggregate of 281,047 shares of common stock, par value $0.0001 per share, for gross proceeds of $6,745, or net cash proceeds of $6,040 after deducting $705 related to placement agent’s fees and other offering expenses. The shares of preferred stock have a stated value of $1 per share and are initially convertible into an aggregate of 562,085 shares of common stock at a conversion price of $12.00 per share at any time. The common warrants have an exercise price of $13.99 per share. In addition, the Company issued the placement agent designees warrants to purchase up to 36,538 shares of common stock at an exercise price of $14.99 per share and their fair value of $422 was recorded as an additional offering cost. Both the common warrants and the placement warrants are exercisable six months following the date issuance and have a five-year term. The preferred stock does not have any mandatory redemption provisions, contingently redeemable redemption provisions, preferential dividend rights, liquidation preferences, or voting rights, apart from mirrored, non-discretionary voting rights with common stock as a single class, equal to 100,000 votes per share of common stock underlying the preferred stock on the Reverse Stock Split proposal which was approved by the Company’s stockholders at a special stockholder meeting on February 10, 2022. The Company evaluated the classification of the preferred stock and determined equity classification was appropriate due to no mandatory or contingently redeemable redemption features. The warrants issued to the investors were considered freestanding equity classified instruments. The Company first allocated gross proceeds from the registered direct offering between the preferred stock and the warrants issued to investors using a relative fair value approach, resulting in an initial allocation to both instruments of $4,784 and $1,961, respectively. The issuance costs, inclusive of the fair value of warrants issued to placement agent designees, were allocated between the preferred stock and the warrants issued to investors in a systematic and rational manner resulting in an allocation to both instruments of $800 and $328, for an initial net allocation of $3,984 and $1,633, respectively. On the issuance date, the Company estimated the fair value of the warrants issued to investors and to placement agent designees using a Black-Scholes option pricing model using the following assumptions: (i) contractual term of 5 years, (ii) expected volatility rate of 117.98%, (iii) risk-free interest rate of 1.23%, (iv) expected dividend rate of 0%, and (v) closing price of the Company’s common stock of the day immediately preceding the registered direct offering. The fair value of preferred stock was estimated based upon equivalent common shares that preferred stock could have been converted into at the closing price of the day immediately preceding the purchase date. The embedded conversion feature was evaluated and bifurcation from the preferred stock equity host was not considered necessary. A beneficial conversion feature was separately recorded as a discount to the preferred stock resulting in the amount of $3,197 based on the intrinsic value of the beneficial conversion feature. As the preferred stock was immediately convertible into common stock, a deemed dividend related to the discount associated with the beneficial conversion feature was immediately recorded. As of December 31, 2021, 4,915.008 shares of preferred stock were converted into 409,585 shares of common stock. Subsequent to December 31, 2021 and prior to the date the consolidated financial statements were issued, an additional 915 shares of preferred stock were converted into 76,250 shares of common stock. F-19 8. Common Stock 2021 At-the-Market Offering In May 2021, the Company entered into an At-The-Market Sales Agreement (the “Sales Agreement”) with H.C. Wainwright and Co., LLC (“HCW”) to act as the Company’s sales agent with respect to the issuance and sale of up to $20,000,000 of the Company’s shares of common stock, from time to time in an at-the-market public offering (the “ATM Offering”). Sales of common stock under the Sales Agreement are made pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 26, 2021, and subsequently declared effective on June 9, 2021 (File No. 333-256502), and a related prospectus. HCW acts as the Company’s sales agent on a commercially reasonable efforts basis, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of The NASDAQ Capital Market. If expressly authorized by the Company, HCW may also sell the Company’s common stock in privately negotiated transactions. There is no specific date on which the ATM Offering will end, there are no minimum sale requirements and there are no arrangements to place any of the proceeds of the ATM Offering in an escrow, trust or similar account. HCW is entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of the Company’s common stock pursuant to the Sales Agreement. There have been no sales of common stock as of December 31, 2021 under the Sales Agreement. Registered Direct Offering On February 16, 2021, the Company closed on a registered direct offering with certain healthcare-focused institutional investors for the sale of 1,000,000 shares of its common stock for gross proceeds of $40,000, or $37,079 after deducting placement agent’s fees and other offering expenses. In connection with the offering, 65,003 warrants with a five-year expiry were issued to placement agent designees at an exercise price of $49.99 per share. The fair value of the placement agent warrants was $31.40 per share. The shares of common stock were offered by the Company pursuant to a “shelf” registration statement on Form S-3 (File No. 333-230225) previously filed with the SEC on March 12, 2019, and declared effective by the SEC on March 15, 2019. Exercise of Warrants During the year ended December 31, 2021, warrants issued in 2019 and 2020 were exercised on a cash basis to purchase 7,202 shares of our common stock for proceeds of $204. 2020 Warrant Inducement On July 9, 2020, the Company entered into letter agreements with certain existing accredited investors to exercise certain existing and outstanding warrants (“Existing Warrants”) to purchase through a cash exercise up to an aggregate of 504,287 shares of the Company’s common stock at the existing exercise price of $27.00 per share. The Existing Warrants were issued in an underwritten public offering pursuant to a registration statement on Form S-1 and an additional registration statement on Form S-1 filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, that was consummated in April 2019. In consideration for the exercise of the Existing Warrants for cash, the Company agreed to issue the exercising holders new unregistered warrants (“Inducement Warrants”) in three tranches which occurred on July 13, 2020, July 23, 2020, and August 7, 2020, to purchase up to an aggregate of 503,045 shares of common stock at an exercise price of $35.99 per share and with an exercise period of five years from July 14, 2020. The gross proceeds to the Company from the exercise of 504,287 warrants was approximately $13,616. After deducting placement agent fees and offering expenses of approximately $1,112, the Company recorded net proceeds of $12,504. As compensation, the Company issued warrants to designees of the placement agent on substantially the same terms as the Inducement Warrants to purchase up to an aggregate of 32,785 shares of common stock in two tranches which occurred on July 13, 2020 and August 7, 2020, at an exercise price per share of $44.99 with an exercise period of five years from July 14, 2020. F-20 All Inducement Warrants and the placement warrants were registered pursuant to a registration statement on Form S-3, which was declared effective on August 13, 2020. At issuance, the Inducement Warrants and the placement agent warrants had a weighted average fair value of approximately $18.40 and $17.40 per award, respectively. These weighted average fair values were estimated using the Black-Scholes option-pricing model with the following assumptions: expected life of 5 years, expected volatility of 99.0%, risk-free interest rate of 0.28% and expected dividend yield of 0.0%. The weighted average grant date fair value of approximately $9,289 associated with the Inducement Warrants, was recorded as a warrant inducement expense in the accompanying statements of operations with an offset to additional paid-in capital. Registered Direct Offering On April 20, 2020, the Company sold 239,379 shares at $33.42 per share, pursuant to a securities purchase agreement, dated as of April 16, 2020, by and among the Company and certain institutional investors, for gross proceeds of approximately $8,000. After deducting placement agent fees and offering expenses of approximately $686, the Company recorded net proceeds of $7,314. In a concurrent private placement, the Company issued warrants to purchase an aggregate of up to 239,380 shares of its common stock to investors with an exercise price of $30.99 per share and an expiration date of April 20, 2022. In addition, the Company issued warrants to purchase up to 15,562 shares of its common stock to the designees of the placement agent with an exercise price of $41.77 per share and an expiration date of April 20, 2022. The investor and placement agent warrants have a fair value of approximately $12.80 and $10.80 per share, respectively. Exercise of Warrants In addition to the warrant exercise inducement and the registered direct offering, during the year ended December 31, 2020, the Company issued 45,736 shares of common stock, upon exercise of warrants to purchase 55,860 shares of common stock and 15,000 shares of common stock, upon exercise of pre- funded warrants for proceeds of $1,139. 9. Warrants The following table summarizes warrant activity for the years ended December 31, 2021 and 2020: Outstanding January 1, 2020 Warrants issued Warrants exercised Pre-funded warrants exercised Expirations Outstanding December 31, 2020 Warrants issued Warrants exercised Outstanding December 31, 2021 Number of Common Warrants Number of Pre-funded Warrants 932,760 792,022 (560,147) - (276) 1,164,359 382,588 (7,202) 1,539,745 F-21 15,000 - - (15,000) - - - Weighted Average Exercise Price 72.20 $ 35.00 26.40 0.20 2,045.40 68.20 20.20 33.41 56.39 $ $ Average Remaining Contractual Term (Years) 4.17 $ Aggregate Intrinsic Value 3.30 $ 2.98 $ - - - The following represents a summary of the warrants outstanding at each of the dates identified: Issue Date December 17, 2021 December 17, 2021 February 16, 2021 August 7, 2020 August 7, 2020 July 23, 2020 July 13, 2020 July 13, 2020 April 20, 2020 April 20, 2020 April 8, 2019 April 8, 2019 February 12, 2019 February 12, 2019 February 4, 2019 January 31, 2019 December 3, 2018 April 3, 2018 April 4, 2018 Classification Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity June 15, 2015 Equity Total Outstanding Adjusted Exercise Price Expiration Date Number of Shares Underlying Warrants Year ended December 31, 2020 2021 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 14.99 13.99 49.99 35.99 44.99 35.99 44.99 35.99 30.99 41.77 26.99 33.74 36.62 26.79 42.49 42.49 77.99 149.99 149.99 December 15, 2026 December 17, 2026 February 11, 2026 July 14, 2025 July 14, 2025 July 14, 2025 July 14, 2025 July 14, 2025 April 20, 2022 April 20, 2022 April 8, 2024 April 3, 2024 February 7, 2024 August 12, 2024 January 30, 2024 January 26, 2024 June 3, 2024 April 3, 2023 April 4, 2023 36,538 281,047 65,003 90,743 10,939 77,502 21,846 334,800 239,380 15,562 65,907 39,871 5,548 66,675 1,732 511 46,876 117,559 5,751 - - - 90,743 10,939 77,502 21,846 336,050 239,380 15,562 66,859 39,871 5,548 71,675 1,732 511 46,876 117,559 5,751 1,509.99 achievement 15,955 15,955 Five years after milestone 1,539,745 1,164,359 10. Share-Based Compensation The Company sponsors the Pulmatrix, Inc. 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan”). As of December 31, 2021, the 2013 Plan provided for the grant of up to 293,262 shares of the Company’s common stock, of which 93,481 shares remained available for future grant. In addition, the Company sponsors two legacy plans under which no additional awards may be granted. As of December 31, 2021, the two legacy plans have a total of 63 options outstanding all of which are fully vested and for which common stock will be delivered upon exercise. Stock Options During the year ended December 31, 2021, the Company granted options to purchase 51,539 and 6,500 shares of the Company’s common stock to employees and directors, respectively. The stock options granted vest over time (the “Time Based Options”). Subject to the grantee’s continuous service with the Company, Time Based Options vest in one of the following ways: (i) 25% at the one year anniversary of the vesting start date and the remainder in 36 equal monthly installments beginning in the thirteenth month after the vesting start date or (ii) in 48 equal monthly installments beginning on the first monthly anniversary after the vesting start date or (iii) 25% at the time of grant and the remainder in 36 equal monthly installments beginning in the first month after the vesting start date. Stock options expire ten years after the date of grant. F-22 The following table summarizes stock option activity for the years ended December 31, 2021 and 2020: Outstanding — January 1, 2020 Granted Exercised Forfeited or expired Outstanding — December 31, 2020 Granted Forfeited or expired Outstanding — December 31, 2021 Exercisable — December 31, 2021 Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value 44,968 117,215 (1,125) (16,096) 144,962 58,039 (6,995) 196,006 95,233 $ $ $ $ 231.90 30.42 21.20 289.87 64.20 27.79 83.78 52.72 78.20 8.52 $ - 9.55 8.75 $ 59.86 8.12 $ 7.73 $ - - The Company records stock-based compensation related to stock options granted at fair value. During the years ended December 31, 2021 and 2020, the Company used the Black-Scholes option-pricing model to estimate the fair value of stock option grants and to determine the related compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates. The weighted-average fair value of options granted was $33.00 and $38.00 for the years ended December 31, 2021 and 2020, respectively. The weighted-average assumptions used in determining fair value of the employee stock options for the years ended December 2021 and 2020, are as follows: Expected option life (years) Risk-free interest rate Expected volatility Expected dividend yield Year ended December 31, 2021 2020 5.98 0.64% 104.96% 0% 5.93 1.57% 93.93% 0% The expected life of the Company’s options was determined using the simplified method as a result of limited historical data regarding the Company’s activity. The risk-free interest rate was obtained from U.S. Treasury rates for the expected life of the stock options. The Company’s expected volatility was based upon the weighted average of historical volatility for industry peers and its own volatility. The dividend yield considers that the Company has not historically paid dividends and does not expect to pay dividends in the foreseeable future. As of December 31, 2021, there was $2,182 of unrecognized stock-based compensation expense related to unvested stock options granted under the Company’s stock award plans. This expense is expected to be recognized over a weighted-average period of approximately 2.4 years. The following table presents total stock-based compensation expense for the years ended December 31, 2021 and 2020, respectively: Research and development General and administrative Total stock-based compensation expense Year ended December 31, 2021 2020 $ $ 217 $ 941 1,158 $ 185 973 1,158 F-23 11. Commitments and Contingencies Research and Development Activities The Company contracts with various other organizations to conduct research and development activities. As of December 31, 2021, we had aggregate commitments to pay approximately $296 remaining on these contracts. The scope of the services under contracts for research and development activities may be modified and the contracts, subject to certain conditions, may generally be cancelled by us upon written notice. In some instances, the contracts, subject to certain conditions, may be cancelled by the third party. 12. Leases Current Corporate Headquarters The Company has limited leasing activities as a lessee and are primarily related to its corporate headquarters located at 99 Hayden Avenue, Suite 390, Lexington, Massachusetts. The lease is for approximately 22,000 square feet of office and lab space under a lease with 99 Hayden LLC which was subsequently amended on April 30, 2020 and October 6, 2021, and will expire on June 30, 2023. The lease provides for base rent, and the Company is responsible for real estate taxes, maintenance, and other operating expenses applicable to the leased premises. The Company also leases small office equipment which is primarily short-term or immaterial in nature. Therefore, no right-of-use assets and lease liabilities are recognized for these leases. The components of lease expense for the Company for the years ended December 31, 2021 and 2020 were as follows: Lease Cost Fixed lease cost Variable lease cost Total lease cost Other information Immaterial office equipment lease obligation, 4 year lease Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases Right-of-use assets obtained in exchange for lease obligations: Operating leases Weighted-average remaining lease term — operating leases Weighted-average discount rate — operating leases $ $ $ $ $ Maturities of lease liabilities due under these lease agreements as of December 31, 2021 are as follows: Maturity of lease liabilities 2022 2023 (half year) Total lease payments Less: interest Total lease liabilities Reported as of December 31, 2021 Lease liabilities — short term Lease liabilities — long term F-24 909 421 1,330 15 698 1,687 5.23% Year ended December 31, 2021 2020 1,135 417 1,552 $ $ 12 $ 1,194 $ 1,671 1.5 years $ 2.97% Operating Leases $ $ $ $ 1,478 862 2,340 (52) 2,288 1,431 857 2,288 Future Corporate Headquarters On January 7, 2022, the Company executed a lease agreement with Cobalt Propco 2020, LLC for its new corporate headquarters at 36 Crosby Drive, Bedford, Massachusetts. The leased premises comprises approximately 20,000 square feet of office and lab space and is expected to commence in May 2023, following completion of construction to prepare the premises for the Company’s intended use. The improvements will be funded by the landlord through a tenant allowance of up $3,920. The lease provides for base rent of $101 per month, which will increase 3% each year over the ten year noncancellable term. The Company has the option to extend the lease for one additional 5-year term and is responsible for real estate taxes, maintenance, and other operating expenses applicable to the leased premises. During the construction period, the Company will evaluate the nature of the costs incurred to determine the accounting owner of the improvements. If it is determined the improvements are Company owned assets, they will be capitalized by the Company in accordance with ASC 360, Property, Plant and Equipment. As of the date the consolidated financial statements were issued, construction had not yet commenced and a lease commencement date in accordance with ASC 842 had not occurred. 13. Income Taxes The Company had no income tax expense due to operating losses incurred for the year ended December 31, 2021 and 2020. A reconciliation of the provision for income taxes computed at the statutory federal income tax rate to the provision for income taxes as reflected in the consolidated financial statements is as follows: Income tax computed at federal statutory tax rate State taxes, net of federal benefit Research and development credits Expiration of stock options Write-down of goodwill assets Non-deductible warrant inducement Permanent differences Limitations on credits and net operating losses Other Change in valuation allowance Total 2021 2020 21.0% 5.0% 1.8% (0.3)% (3.7)% — (0.3)% (16.3)% — (7.2)% — The significant components of the Company’s deferred tax assets as of December 31, 2021 and 2020 were as follows: 2021 2020 Deferred tax assets: Net operating loss carryforwards Research and development credit carryforwards Capitalized start-up expenses Share-based compensation Lease liability Other Total deferred tax assets Deferred tax liabilities: Right of use asset Total deferred tax liabilities Valuation allowance Net deferred tax liabilities $ 10,836 $ 12 432 815 625 2,415 15,135 (572) (572) (14,563) $ — $ F-25 21.0% 3.1% 2.6% (2.3)% — (10.1)% (0.4)% (5.3)% (0.8)% (7.8)% — 8,732 356 572 664 476 2,716 13,516 (407) (407) (13,109) — At December 31, 2021, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $50,520 and $3,592, respectively, which were available to reduce future taxable income. The Company has unlimited federal net operating loss carryforwards of $46,736 and federal and state net operating loss carryforwards of $2,670 and $3,784, respectively, which will expire at various dates from 2023 through 2041. The Company has research and development credits for federal income tax purposes of approximately $12, which begin to expire in 2041. Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financings since its inception which it believes has resulted in changes in control as defined by Sections 382 and 383 of the Internal Revenue Code. The Company has completed an assessment through December 31, 2021 to determine the impact of the Section 382 and 383 ownership changes and has reduced their income tax credit and loss carryforwards. Management of the Company evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and determined that it is more likely than not that the Company will not recognize the benefits of the deferred tax assets. As a result, a full valuation allowance was recorded as of December 31, 2021 and 2020. The valuation allowance increased by $1,454 during the year ended December 31, 2021, primarily due to the increase in loss carryforwards by the Company. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted March 27, 2020. Among the business provisions, the CARES Act provided for various payroll tax incentives, changes to net operating loss carryback and carryforward rules, business interest expense limitation increases, and bonus depreciation on qualified improvement property. Additionally, the Consolidated Appropriations Act of 2021 was signed on December 27, 2020 which provided additional COVID relief provisions for businesses. The Company has evaluated the impact of both Acts and has determined that any impact is not material to its consolidated financial statements. The Company applies ASC 740 for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Unrecognized tax benefits represent tax positions for which reserves have been established. A full valuation allowance has been provided against the Company’s deferred tax assets, so that the effect of the unrecognized tax benefits is to reduce the gross amount of the deferred tax asset and the corresponding valuation allowance. The Company is currently not under examination by the Internal Revenue Service or any other jurisdictions for any tax years. The Company files income tax returns in the United States for federal and state income taxes. In the normal course of business, the Company is subject to examination by tax authorities in the United States. Since the Company is in a loss carryforward position, the Company is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carryforward is utilized. The Company’s returns remain subject to federal and state audits for the years 2018 through 2021. However, carryforward attributes from prior years may still be adjusted upon examination by tax authorities if they are used in an open period. The Company may from time to time be assessed interest or penalties by major tax jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company has not recorded interest or penalties on any unrecognized tax benefits since its inception. The Company anticipates that the amount of unrecognized tax benefits will not materially change in the next twelve months. F-26 The roll-forward of the Company’s gross uncertain tax positions is as follows: Balance — January 1, 2020 Additions for current year tax positions Reductions for prior year tax positions Balance — December 31, 2020 Additions for current year tax positions Reductions for prior year tax positions Balance — December 31, 2021 Gross Uncertain Tax Position 87 34 (121) - 130 (130) - $ $ The Company’s total uncertain tax positions decreased during the year ended December 31, 2021 as a result of the reduction of tax credit and loss carryforward that were determined to be limited for future utilization by the Company under Sections 382 and 383. None of the uncertain tax positions that, if realized, would affect the Company’s effective tax rate in future periods due to a valuation allowance provided against the Company’s net deferred tax assets. 14. Net Loss Per Share Basic and diluted earnings (loss) per share are computed using the two-class method, which is an earnings allocation method that determines earnings (loss) per share for common shares and participating securities. The participating securities consist of the Company’s preferred stock. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. In periods of loss, no allocation is made to the preferred shares and diluted net loss per share is the same as basic net loss per share because common stock equivalents are excluded as their inclusion would be anti-dilutive. The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding, because such securities had an antidilutive impact: Options to purchase common stock Preferred stock convertible into common stock Warrants to purchase common stock Total 15. Subsequent Events Year ended December 31, 2021 2020 196,004 152,500 1,539,745 1,888,249 144,960 - 1,164,359 1,309,319 The Company has completed an evaluation of all subsequent events after the balance sheet date of December 31, 2021 through the date the consolidated financial statements were issued, to ensure that the consolidated financial statements include appropriate disclosure of events both recognized in the consolidated financial statements as of December 31, 2021, and events which occurred subsequently but were not recognized in the consolidated financial statements. The Company has concluded that no subsequent events have occurred that require disclosure, except as disclosed within the financial statements. Stock Option Activity Subsequent to December 31, 2021 and through the date the consolidated financial statements were issued, the Company granted 92,367 stock options to employees and directors of the Company under the 2013 Plan. F-27 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PULMATRIX, INC. Exhibit 3.7 Pulmatrix, Inc. (the “Corporation”), a corporation duly organized and existing under the laws of the State of Delaware, by its duly authorized officer, does hereby certify that: 1. The Board of Directors of the Corporation has duly adopted resolutions (i) authorizing the Corporation to execute and file with the Secretary of State of the State of Delaware an amendment of the Corporation’s Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split at a ratio of 1-for-20, (ii) declaring such amendment to be advisable and in the best interest of the Corporation and (iii) calling for the consideration and approval thereof at a meeting of the stockholders of the Corporation. 2. Upon this Certificate of Amendment becoming effective, Article FOURTH of the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by adding the following new paragraph at the end of such article: “E. Reverse Stock Split. 1. Effective at 4:05 p.m., Eastern Time, on February 28, 2022 (the “2022 Split Effective Time”), every twenty (20) shares of common stock issued and outstanding or held by the Corporation as treasury shares as of the 2022 Split Effective Time shall automatically, and without action on the part of the stockholders, convert and combine into one (1) validly issued, fully paid and non- assessable share of common stock, without effecting a change to the par value per share of common stock (the “2022 Reverse Split”). In the case of a holder of shares not evenly divisible by twenty (20), in lieu of a fractional share of common stock, such holder shall receive an additional share of common stock. As of the 2022 Split Effective Time and thereafter, a certificate(s) representing shares of common stock prior to the 2022 Reverse Split is deemed to represent the number of post-2022 Reverse Split shares into which the pre-2022 Reverse Split shares were converted.” 3. Pursuant to the resolution of the Board of Directors, a special meeting of the stockholders of the Company was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the foregoing amendment. 4. This Certificate of Amendment has been duly approved by the holders of the requisite number of shares of capital stock of the Corporation in accordance with Section 242 of the General Corporation Law of the State of Delaware and the applicable provisions of the Amended and Restated Certificate of Incorporation. 5. This Certificate of Amendment shall become effective at 4:05 p.m., Eastern Time, on February 28, 2022. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed by its duly authorized officer this 22nd day of February, 2022. PULMATRIX, INC., a Delaware corporation /s/ Teofilo Raad By: Name: Teofilo Raad Title: Chief Executive Officer DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 Exhibit 4.21 The following description is intended as a summary and is qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”) and our Restated Bylaws, as amended (the “By-laws”) as currently in effect, copies of which are filed as exhibits to this Annual Report on Form 10-K and are incorporated by reference herein. Authorized Capital Stock As of December 31, 2021, we have authorized 200,500,000 shares of capital stock, par value $0.0001 per share, of which 200,000,000 are shares of common stock and 500,000 are shares of “blank check” preferred stock. As of December 31, 2021, and after adjusting for the reverse-stock split effected on February 28, 2022, there were 3,222,037 shares of common stock issued and outstanding and 1,830 shares of Series A preferred stock issued and outstanding. The authorized and unissued shares of common stock and the authorized and undesignated shares of preferred stock are available for issuance without further action by our stockholders, unless such action is required by applicable law or the rules of any stock exchange on which our securities may be listed. Unless approval of our stockholders is so required, our board of directors does not intend to seek stockholder approval for the issuance and sale of our common stock or preferred stock. Common Stock The holders of our common stock are entitled to one vote per share. Our certificate of incorporation does not provide for cumulative voting. Our directors are divided into three classes. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire are elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. The holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of legally available funds; however, the current policy of our board of directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of our board of directors and issued in the future. Anti-Takeover Law and Provisions of our Certificate of Incorporation and By-laws Section 203 of the Delaware General Corporation Law, in general, prohibits a business combination between a corporation and an interested stockholder within three years of the time such stockholder became an interested stockholder, unless: ● prior to such time the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; ● upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, exclusive of shares owned by directors who are also officers and by certain employee stock plans; ● at or subsequent to such time, the business combination is approved by the board of directors and authorized by the affirmative vote at a stockholders’ meeting of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. The term “business combination” is defined to include, among other transactions between an interested stockholder and a corporation or any direct or indirect majority owned subsidiary thereof: a merger or consolidation; a sale, lease, exchange, mortgage, pledge, transfer or other disposition (including as part of a dissolution) of assets having an aggregate market value equal to 10% or more of either the aggregate market value of all assets of the corporation on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation; certain transactions that would result in the issuance or transfer by the corporation of any of its stock to the interested stockholder; certain transactions that would increase the interested stockholder’s proportionate share ownership of the stock of any class or series of the corporation or such subsidiary; and any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or any such subsidiary. In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with, or controlling, or controlled by, the entity or person. The term “owner” is broadly defined to include any person that individually, with or through that person’s affiliates or associates, among other things, beneficially owns the stock, or has the right to acquire the stock, whether or not the right is immediately exercisable, under any agreement or understanding or upon the exercise of warrants or options or otherwise or has the right to vote the stock under any agreement or understanding, or has an agreement or understanding with the beneficial owner of the stock for the purpose of acquiring, holding, voting or disposing of the stock. The restrictions in Section 203 do not apply to corporations that have elected, in the manner provided in Section 203, not to be subject to Section 203 of the Delaware General Corporation Law or, with certain exceptions, which do not have a class of voting stock that is listed on a national securities exchange or held of record by more than 2,000 stockholders. Our Amended and Restated Certificate of Incorporation and By-laws do not opt out of Section 203. Section 203 could delay or prohibit mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price. Provisions of our Certificate of Incorporation and By-laws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our Certificate of Incorporation and By-laws: ● permits our board of directors to issue up to 500,000 shares of preferred stock, without further action by the stockholders, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in control; ● provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors in office; ● divide our board of directors into three classes, with each class serving staggered three-year terms; ● do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); ● provide that special meetings of our stockholders may be called only by our board of directors, chairman or chief executive officer; and ● provide advance notice provisions with which a stockholder who wishes to nominate a director or propose other business to be considered at a stockholder meeting must comply. Transfer Agent and Listing Information The transfer agent and registrar for our common stock is Vstock Transfer, LLC. The transfer agent’s address is 18 Lafayette Place, Woodmere, NY 11598. Our common stock is listed on the Nasdaq Capital Market under the symbol “PULM.” Series A Convertible Preferred Stock The Company is offering up to 6,745.0008 shares of its Series A Convertible Preferred Stock, with a stated value of $1,000 per share. The following are the principal terms of the Preferred Stock: Dividends The holders of Preferred Stock are be entitled to dividends, on an as-if converted basis, equal to and in the same form as dividends actually paid on shares of common stock, when and if actually paid. Voting Rights The Preferred Stock has no voting rights, except: ● the right to vote, with the holders of common stock, as a single class, with each share of Preferred Stock entitled to 100,000 votes per share of common stock underlying the Preferred Stock, after adjusting for the reverse-stock split effected on February 28, 2022, on any resolution presented to stockholders of the Company for the purpose of obtaining shareholder approval with respect to only (i) the Reverse Stock Split, in each case which shall be voted in the same proportion as the holders of common stock are voted without further action of the holders of the Preferred Stock, and (ii) an amendment to the Certificate of Incorporation to reduce the number of authorized shares of common stock; and ● otherwise, as long as any shares of Preferred Stock are outstanding, the holders of the Preferred Stock will be entitled to approve, by a majority vote of the then outstanding shares of Preferred Stock if the Company seeks to (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend the Certificate of Designation of Series A Convertible Preferred Stock (the “Certificate of Designation”) governing the Preferred Stock, (b) amend the Charter or other charter documents in any manner that adversely affects any rights of the holders of the Preferred Stock, (c) increase the number of authorized shares of Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing. Liquidation Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the then holders of the Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Preferred Stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to common stock which amounts shall be paid pari passu with all holders of common stock. Conversion The Preferred Stock is convertible into shares of common stock (the “Conversion Shares”). The conversion rate, subject to adjustment as set forth in the Certificate of Designation, is determined by dividing the stated value of the Preferred Stock by $12.00 (the “Conversion Price”), after adjusting for the reverse-stock split effected on February 28, 2022. The Conversion Price can be adjusted as set forth in the Certificate of Designation for stock dividends and stock splits or the occurrence of a fundamental transaction (as defined below). If any shares of Preferred Stock are converted or reacquired by us, such shares shall resume the status of authorized but unissued shares of preferred stock of the Company and shall no longer be designated as Preferred Stock. Optional Conversion The Preferred Stock can be converted at the option of the holder at any time and from time to time after the original issuance date. Holders shall effect conversions by providing us with the form of conversion notice (the “Notice of Conversion”) specifying the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable holder delivers by email such Notice of Conversion to us. Forced Conversion On the effective date of the Reverse Stock Split (the “Effective Date”) or, if all of the Equity Conditions (as described in the Securities Purchase Agreement) are not satisfied on the Effective Date, on the first such date, if and only if such date is within and no later than 15 trading days after the Effective Date, that all of the Equity Conditions are satisfied unless waived in writing by each holder of the Preferred Stock (the “Forced Conversion Date”), we shall deliver written notice of the Forced Conversion (as defined below) to all holders on the Forced Conversion Date and, on such Forced Conversion Date, we shall convert all of each holder’s shares of Preferred Stock into Conversion Shares at the then effective Conversion Price (the “Forced Conversion”). If any of the Equity Conditions shall cease to be satisfied at any time on or after the Forced Conversion Date through and including the actual delivery of all of the Conversion Shares to the holders, a holder may elect to nullify the Forced Conversion by notice to us within 3 trading days, after the first day on which any such Equity Condition has not been satisfied. Beneficial Ownership Limitation The Preferred Stock cannot be converted to common stock if the holder and its affiliates would beneficially own more than 4.99% or 9.99% at the election of the holder of the outstanding common stock. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon notice to us, provided that any increase in this limitation will not be effective until 61 days after such notice from the holder to us and such increase or decrease will apply only to the holder providing such notice. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT We consent to the incorporation by reference in the Registration Statement of Pulmatrix, Inc. on Form S-1 (File Nos. 333-223630, 333-230670, 333- 239431, and 333-230395, and the related registration statement (File No. 333-230714) filed under Rule 462(b)), Forms S-3 (File Nos. 333-212546, 333- 230225, 333-242341, and 333-256502) and Forms S-8 (File Nos. 333-195737, 333-205752, 333-207002 333-212547, 333-216628, 333-225627, 333- 231935, and 333-252439) of our report, dated March 29, 2022 with respect to our audits of the consolidated financial statements of Pulmatrix, Inc. as of December 31, 2021 and 2020 and for each of the two years in the period ended December 31, 2021, which report is included in this Annual Report on Form 10-K of Pulmatrix, Inc. for the year ended December 31, 2021. Exhibit 23.1 /s/ Marcum LLP Marcum LLP New York, NY March 29, 2022 CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 31.1 I, Teofilo Raad, President and Chief Executive Officer, certify that: 1. I have reviewed this Annual Report on Form 10-K of Pulmatrix, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 29, 2022 /s/ Teofilo Raad Teofilo Raad President & Chief Executive Officer (Principal Executive Officer) CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14 and 15d-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 31.2 I, Michelle S. Siegert., Vice President of Finance, certify that: 1. I have reviewed this Annual Report on Form 10-K of Pulmatrix, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 29, 2022 /s/ Michelle S. Siegert Michelle S. Siegert Vice President of Finance (Principal Financial Officer) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.1 In connection with the Annual Report on Form 10-K of Pulmatrix, Inc. (the “Company”) for the period ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, the undersigned, Teofilo Raad, as the President & Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 29, 2022 /s/ Teofilo Raad Teofilo Raad President & Chief Executive Officer (Principal Executive Officer) The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.2 In connection with the Annual Report on Form 10-K of Pulmatrix, Inc. (the “Company”) for the period ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, the undersigned, Michelle S. Siegert, as the VP, Finance of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 29, 2022 /s/ Michelle S. Siegert Michelle S. Siegert Vice President of Finance (Principal Financial Officer) The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document. 

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