UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐	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		46-1821392
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

99 Hayden Avenue, Suite 390 Lexington, MA		02421
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (781) 357-2333

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 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. (Check one):

Large accelerated filer	☐	Accelerated filer	☐

Non-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 ☒

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each Class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		PULM		The NASDAQ Stock Market LLC

As of November 9, 2021, the registrant had 56,249,062 shares of common stock outstanding.

PULMATRIX, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	4
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	31
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3. Defaults Upon Senior Securities	35
Item 4. Mine Safety Disclosures	35
Item 5. Other Information	35
Item 6. Exhibits	35
SIGNATURES	36

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

PULMATRIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	At September 30,			At December 31,
	2021			2020
		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	53,491		$	31,657
Accounts receivable		9			84
Prepaid expenses and other current assets		938			797
Total current assets		54,438			32,538
Property and equipment, net		345			361
Operating lease right-of-use asset		761			1,489
Long-term restricted cash		204			204
Goodwill		-			3,577
Total assets	$	55,748		$	38,169
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	875		$	925
Accrued expenses		1,385			2,028
Operating lease liability		898			1,135
Deferred revenue		1,974			4,166
Total current liabilities		5,132			8,254
Deferred revenue, net of current portion		5,423			6,168
Operating lease liability, net of current portion		-			608
Total liabilities		10,555			15,030
Stockholders’ equity:
Preferred stock, $0.0001 par value — 500,000 authorized and 0 issued and outstanding at September 30, 2021 and December 31, 2020		-			-
Common stock, $0.0001 par value — 200,000,000 shares authorized; 56,249,062 and 36,105,097 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.		6			4
Additional paid-in capital		295,796			257,604
Accumulated deficit		(250,609	)		(234,469	)
Total stockholders’ equity		45,193			23,139
Total liabilities and stockholders’ equity	$	55,748		$	38,169

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

PULMATRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

	2021			2020			2021			2020
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Revenues	$	1,069		$	4,372		$	4,713		$	10,634
Operating expenses:
Research and development		4,026			3,873			12,423			12,344
General and administrative		1,656			1,776			4,837			5,478
Goodwill impairment		3,577			-			3,577			-
Total operating expenses		9,259			5,649			20,837			17,822
Loss from operations		(8,190	)		(1,277	)		(16,124	)		(7,188	)
Other income (expense):
Interest income		1			13			6			78
Warrant inducement expense		-			(9,289	)		-			(9,289	)
Other income (expense), net		5			-			(22	)		(10	)
Net loss	$	(8,184	)	$	(10,553	)	$	(16,140	)	$	(16,409	)
Net loss per share attributable to common stockholders-basic and diluted	$	(0.15	)	$	(0.31	)	$	(0.30	)	$	(0.62	)
Weighted average shares of common stock used to compute basic and diluted net loss per share		56,249,062			33,924,499			53,081,963			26,284,826

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

PULMATRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the three and nine months ended September 30, 2021 and 2020

(in thousands, except share data)

	Shares		Amount		Capital		Deficit			Total
					Additional
	Common Stock				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance — January 1, 2021		36,105,097	$	4	$	257,604		(234,469	)		23,139
Issuance of common stock, net of issuance costs		20,000,000		2		37,077		-			37,079
Exercise of warrants		143,965		-		204		-			204
Share-based compensation		-		-		328		-			328
Exercise of pre-funded warrants		-		-
Exercise of common stock options		-		-
Warrant inducement expense		-		-
Net loss		-		-		-		(4,104	)		(4,104	)
Balance — March 31, 2021		56,249,062		6		295,213		(238,573	)		56,646

Share-based compensation		-		-		299		-			299
Net loss		-		-		-		(3,852	)		(3,852	)
Balance — June 30, 2021		56,249,062		6		295,512		(242,425	)		53,093

Share-based compensation		-		-		284		-			284
Net loss		-		-		-		(8,184	)		(8,184	)
Balance —September 30, 2021		56,249,062	$	6	$	295,796	$	(250,609	)	$	45,193

					Additional
	Common Stock				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance — January 1, 2020		19,994,560	$	2	$	226,178	$	(215,161	)	$	11,019
Exercise of pre-funded warrants		300,000		-		-		-			-
Exercise of common stock options		19,997		-		21		-			21
Exercise of warrants		206,747		-		239		-			239
Share-based compensation		-		-		343		-			343
Net loss		-		-		-		(4,686	)		(4,686	)
Balance — March 31, 2020		20,521,304		2		226,781		(219,847	)		6,936

Issuance of common stock, net of issuance costs		4,787,553		1		7,313		-			7,314
Exercise of common stock options		2,500		-		3		-			3
Exercise of warrants		437,999		-		536		-			536
Share-based compensation		-		-		266		-			266
Net loss		-		-		-		(1,170	)		(1,170	)
Balance — June 30, 2020		25,749,356		3		234,899		(221,017	)		13,885
Balance		25,749,356		3		234,899		(221,017	)		13,885

Exercise of warrants, net of issuance costs		8,658,127		-		10,576		-			10,576
Warrant inducement expense		-		-		9,289		-			9,289
Share-based compensation		-		-		303		-			303
Net loss		-		-		-		(10,553	)		(10,553	)
Balance — September 30, 2020		34,407,483	$	3	$	255,067	$	(231,570	)	$	23,500
Balance		34,407,483	$	3	$	255,067	$	(231,570	)	$	23,500

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

PULMATRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	2021			2020
	For the Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(16,140	)	$	(16,409	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		134			157
Amortization of operating lease right-of-use asset		728			593
Share-based compensation		911			912
Impairment of goodwill		3,577			-
Warrant inducement expense		-			9,289
Changes in operating assets and liabilities:
Accounts receivable		75			5,983
Prepaid expenses and other current assets		(141	)		(617	)
Accounts payable		(50	)		9
Accrued expenses		(643	)		(125	)
Operating lease liability		(845	)		(467	)
Deferred revenue		(2,937	)		(9,040	)
Net cash (used in)/provided by operating activities		(15,331	)		(9,715	)
Cash flows from investing activities:
Purchases of property and equipment		(118	)		(198	)
Net cash used in investing activities		(118	)		(198	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		37,079			7,314
Proceeds from exercise of common stock options		-			24
Proceeds from exercise of common stock warrants, net of issuance costs		204			11,351
Proceeds from exercise of common stock warrants, shares to be issued		-			2,292
Proceeds from Paycheck Protection Program loan		-			617
Repayment of Paycheck Protection Program loan		-			(617	)
Net cash provided by financing activities		37,283			20,981
Net increase in cash, cash equivalents and restricted cash		21,834			11,068
Cash, cash equivalents and restricted cash — beginning of period		31,861			23,644
Cash, cash equivalents and restricted cash — end of period	$	53,695		$	34,712

Supplemental disclosures of non-cash investing and financing information:
Fixed asset purchases in accounts payable	$	-		$	21

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

PULMATRIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(unaudited)

(in thousands, except share and per share data)

1. 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.

2. Summary of Significant Accounting Policies and Recent Accounting Standard

Basis of Presentation

Principles of Consolidation

The condensed consolidated financial statements of the Company included herein have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 23, 2021, and amended on March 26, 2021 and May 14, 2021 (the “Annual Report”). In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2021. For further information, refer to the financial statements and footnotes included in the Company’s annual financial statements for the fiscal year ended December 31, 2020, which are included in the Annual Report.

Use of Estimates

In preparing condensed consolidated financial statements in conformity with 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 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. These estimates and assumptions include valuing equity securities in share-based payments, valuing future expected costs in order to derive and recognize revenue, estimating the useful lives of depreciable and amortizable assets, interest borrowing rate, valuation allowance against deferred tax assets, goodwill impairment, and estimating the fair value of long-lived assets to assess whether impairment charges may apply.

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 has not incurred any losses to date.

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.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash, checking accounts and money market accounts. Restricted cash consists of two security deposits with a financial institution.

The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported in the condensed consolidated balance sheets that sum to the total of the same amounts in the statement of cash flows.

	2021		2020
	Nine months ended
	September 30, 2021
	2021		2020
Cash and cash equivalents	$	53,491	$	34,508
Restricted cash		204		204
Total cash, cash equivalents and restricted cash	$	53,695	$	34,712

Revenue Recognition

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. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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.

Our principal sources of revenue during the reporting period were income that resulted through our collaborative arrangements and license agreements that related to the development and commercialization of Pulmazole and PUR1800, and from reimbursement of clinical study costs. In all instances, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, and collectability of the resulting receivable is reasonably assured.

During the three months ended September 30, 2021, our principal source of revenue was income that resulted from the JJEI License Agreement, and immaterial royalties from the Sensory Cloud Agreement.

During the nine months ended September 30, 2021, our principal source of revenue was income that resulted from the JJEI License Agreement and the Cipla Agreement described in Note 6, and immaterial royalties from the Sensory Cloud Agreement.

Milestone Payments

At the inception of each arrangement 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 control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company 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 subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its 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.

Royalties

For arrangements 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. To date, the Company has recognized immaterial royalty revenue that resulted from the Sensory Cloud licensing arrangement.

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, 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 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. 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.

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 goodwill is impaired, the Company then must perform a quantitative analysis to determine if the carrying value of the reporting entity exceeds its fair value. The impact of the novel coronavirus (“COVID-19”) pandemic was considered in the Company’s qualitative assessment. Given the Company’s common stock value decline during the nine months ended September 30, 2021, and based on the quantitative assessment, the Company determined that goodwill was impaired as of September 30, 2021, and a full impairment charge of $3,577 was recorded.

Recently Issued Accounting Pronouncements

There have been no new, or existing recently issued, accounting pronouncements that are of significance, or potential significance, that impact the Company’s condensed consolidated financial statements.

3. Prepaid Expenses and Other Current Assets

Prepaid expenses consisted of the following:

	2021		2020
	At		At
	September 30, 2021		December 31, 2020
Prepaid Insurance	$	474	$	276
Prepaid Clinical Trials		43		317
Prepaid Other		283		130
Deferred Operating Costs		-		74
Deferred Offering Costs		138		-
Total prepaid and other current assets	$	938	$	797

4. Property and Equipment, Net

Property and equipment consisted of the following:

Summary of Property and Equipment

	At			At
	September 30, 2021			December 31, 2020
Laboratory equipment	$	1,828		$	1,702
Computer equipment		304			302
Office furniture and equipment		217			217
Leasehold improvements		602			596
Capital in progress		-			25
Total property and equipment		2,951			2,842
Less accumulated depreciation and amortization		(2,606	)		(2,481	)
Property and equipment, net	$	345		$	361

5. Accrued Expenses and Other Current Liabilities

Accrued expenses consisted of the following:

Schedule of Accrued Expenses

	2021		2020
	At		At
	September 30, 2021		December 31, 2020
Accrued vacation	$	103	$	56
Accrued wages and incentive		692		813
Accrued clinical & consulting		435		1,010
Accrued legal & patent		114		129
Accrued other expenses		41		20
Total accrued expenses	$	1,385	$	2,028

6. Significant Agreements

License, Development and Commercialization Agreement with Johnson & Johnson Enterprise Innovation, Inc. (“JJEI”)

On December 26, 2019, the Company entered into a License, Development and Commercialization Agreement (the “JJEI License Agreement”) with Johnson & Johnson Enterprise Innovation, Inc. Under the terms of the JJEI License Agreement, the Company has granted JJEI an option to acquire (1) the Company’s rights to an intellectual property portfolio of materials and technology related to narrow spectrum kinase inhibitor compounds (the “Licensed Product”) and (2) an exclusive, worldwide, royalty bearing license to PUR1800, the Company’s inhaled iSPERSE drug delivery system as formulated with one of the kinase inhibitor compounds. The Company is currently conducting a clinical and chronic toxicology program focused on chronic obstructive pulmonary diseases (“COPD”) and lung cancer interception.

JJEI exercised its option to terminate the Company’s license, development, and commercialization agreement in April 2021. All rights to the kinase inhibitor portfolio, including PUR1800 and PUR5700, reverted to Pulmatrix when the termination of the contract became effective on July 6, 2021. The Company intends to continue the development of PUR1800, with ongoing clinical and toxicology studies to support programs in acute exacerbation of chronic obstructive pulmonary disease (“AECOPD”) and other chronic airway diseases.

Accounting Treatment

Revenue associated with the combined research and development services for the Licensed Product and the irrevocable license to the Assigned Assets (as defined below) 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 on the Company’s condensed consolidated balance sheet. During the three months ended September 30, 2021, the Company recognized $647 in revenue related to the license agreement and $413 in revenue related to reimbursed expenses in the Company’s condensed consolidated statement of operations. During the nine months ended September 30, 2021, the Company recognized $1,993 in revenue related to the license agreement and $1,755 in revenue related to reimbursed expenses in the Company’s condensed consolidated statement of operations. On July 6, 2021, all deferred revenue associated with the JJEI License Agreement was recognized.

Collaborations - Development and Commercialization Agreement with Cipla Technologies LLC (“Cipla”)

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 exclusive basis, of Pulmazole, our inhaled iSPERSE drug delivery system enabled formulation of the antifungal drug, itraconazole, for the treatment of all pulmonary indications, including 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.

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 conducted a Type C meeting with the U.S. Food and Drug Administration (the “FDA”) on January 27, 2021, and, leveraging the insights gained from this meeting, had planned to commence the Phase 2b clinical study when the risks of study conduct presented by the ongoing COVID-19 pandemic were reduced to an acceptable level. The Phase 2b clinical study design includes a 16-week dosing regimen as well as an exploration of potential efficacy endpoints, whereas the terminated Phase 2 study 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.

On May 10, 2021, the Company sent a letter to Cipla notifying Cipla that it is in material breach of the Cipla Agreement due to Cipla’s anticipatory breach of its obligation under the Agreement to fund 50% of the development costs for Pulmazole in accordance with the terms of the Cipla Agreement. Due to the ongoing dispute with Cipla, development activities related to the Pulmazole program have been paused.

On November 8, 2021, the Company and Cipla entered into an amendment (the “Amendment”) to the Cipla Agreement, which modifies certain provisions of the Cipla Agreement and resolves the current dispute between Cipla and the Company regarding each party’s respective performance of the Cipla Agreement. Pursuant to the Amendment, among other things, (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, (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, the Company will become entitled to a royalty equal to 2% of net sales in the Cipla Territory, and (iii) following the depletion of development funding initially set aside for the development of the Product by the Company, 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. Cipla and the Company will continue to share all other development costs 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.

The Phase 2b study is expected to start in Q1 2023 with top-line data expected in mid 2024. In addition, if any development milestone is not met by the date that is 9 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		Milestone Date

25% of patients enrolled in Phase 2b Clinical Study are dosed		June 30, 2023

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 JSC		June 30, 2024

Phase 3 Development Plan – Development Milestones

Development Milestone		Milestone Date

25% of patients enrolled in Phase 3 Clinical Study dosed		To be proposed by JSC

Company delivers Topline Results to the JSC		To be proposed by JSC

PDUFA		To be proposed by JSC

The Amendment also contains a mutual release of alleged breaches of the Cipla Agreement that may have occurred prior to the date of the Amendment.

Accounting Treatment

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 associated with the combined research and development services for the Product and the irrevocable license to the Assigned Assets 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 on the Company’s condensed consolidated balance sheet.

The Company received the $22,000 upfront payment in May 2019. No revenue was recognized during the three months ended September 30, 2021. During the nine months ended September 30, 2021, the Company recognized $755 in revenue related to the research and development services and $189 in revenue for the irrevocable license to the Assigned Assets in the Company’s condensed consolidated statements of operations.

Due to the ongoing dispute with Cipla, activities related to the Pulmazole program were paused and no deferred revenue has been recognized as revenue during the three months ended September 30, 2021. The aggregate amount of the transaction price related to the Company’s unsatisfied performance obligations, and on September 30, 2021, the Company recorded $7,397 in deferred revenue, $1,974 of which is current. The Company expects to recognize the deferred revenue according to costs incurred over the remaining research term.

7. Common Stock

2021

At-the-Market Offering

On May 26, 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 of the Company’s shares of common stock, from time to time in an at-the-market public offering (the “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 Offering will end, there are no minimum sale requirements and there are no arrangements to place any of the proceeds of this 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 the Company’s common stock during the nine months ended September 30, 2021 under the Sales Agreement.

On February 16, 2021, the Company closed on a registered direct offering with certain healthcare-focused institutional investors for the sale of 20,000,000 shares of its common stock for gross proceeds of $40,000, prior to deducting placement agent’s fees and other offering expenses. In connection with the offering, 1,300,000 warrants with a five-year expiry were issued to placement agent designees at an exercise price of $2.50 per share. The fair value of the placement agent warrants was $1.57 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. After giving effect to approximately $2,921 of fees and expenses related to the sale, the Company recorded net proceeds of $37,079.

2020

In April 20, 2020, the Company sold 4,787,553 shares at $1.671 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 prior to deducting fees and expenses of approximately $686. In a concurrent private placement, the Company issued warrants to purchase an aggregate of up to 4,787,553 shares of its common stock to investors with an exercise price of $1.55 per share and an expiration date of April 20, 2022. In addition, the Company issued warrants to purchase up to 311,191 shares of its common stock to the designees of the placement agent with an exercise price of $2.0888 per share and an expiration date of April 20, 2022. The investor and placement agent warrants have a fair value of approximately $0.64 and $0.54 per share, respectively.

Exercise of Warrants

2021

During the three months ended September 30, 2021, no warrants were exercised to purchase shares of common stock.

During the nine months ended September 30, 2021, warrants to purchase 25,000 shares of common stock issued in July 2020, 100,000 shares of common stock issued in February 2019 and 18,965 shares of common stock issued in April 2019, were exercised for cash and the Company collected aggregate proceeds of $204.

2020

During the three months ended September 30, 2020, the Company issued 8,658,127 shares of common stock upon the exercise of 10,355,741 common stock warrants. The Company collected net proceeds of $12,868 which includes proceeds of $2,292 related to 1,697,614 shares of common stock held in abeyance and recorded as a common stock payable in the accompanying condensed consolidated balance sheet as of September 30, 2020.

During the nine months ended September 30, 2020 the Company issued 9,302,873 and 300,000 shares of common stock upon exercise of 11,202,925 warrants and 300,000 pre-funded warrants respectively. The Company collected net proceeds of $13,643 which includes proceeds of $2,292 related to 1,697,614 shares of common stock held in abeyance and recorded as a common stock payable in the accompanying condensed consolidated balance sheet as of September 30, 2020.

Exercise of Stock Options

During the three and nine months ended September 30, 2021, no stock options were exercised.

During the three months ended September 30, 2020, no stock options were exercised.

During the nine months ended September 30, 2020, stock options to buy 22,497 shares were exercised, and the Company collected proceeds of $24.

8. Warrants

A rollforward of the common stock warrants outstanding at September 30, 2021 is as follows.

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2021		23,284,813		$	3.41		3.3	$	-
Warrants exercised		(143,965	)	$	1.42
Warrants issued		1,300,000		$	2.50
Outstanding September 30, 2021		24,440,848		$	3.37		2.7	$	-

There were no warrants issued during the three months ended September 30, 2021. The estimated fair values of warrants granted during the nine months ended September 30, 2021, and the three and nine months ended September 30, 2020, were determined on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Schedule of Warrants Assumptions

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
	2021		2020			2021			2020
Contractual term (years)		-		5			5			4
Risk-free interest rate		-		0.28	%		0.57	%		0.26	%
Expected volatility		-		99.0	%		105.8	%		98.8	%
Expected dividend yield		-		0	%		0	%		0	%

The risk-free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the weighted average of the historical volatility for industry peers and our 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.

The following represents a summary of the warrants outstanding at each of the dates identified:

Schedule of Warrants Outstanding

					Number of Shares Underlying Warrants
					For the Period Ended September 30
Issue Date	Classification	Exercise Price		Expiration Date	2021		2020
February 16, 2021	Equity	$	2.50	February 11, 2026		1,300,000		—
August 07, 2020	Equity	$	1.80	July 14, 2025		1,814,815		1,814,815
August 07, 2020	Equity	$	2.25	July 14, 2025		218,713		218,713
July 23, 2020	Equity	$	1.80	July 14, 2025		1,550,000		1,550,000
July 13, 2020	Equity	$	2.25	July 14, 2025		436,860		436,860
July 13, 2020	Equity	$	1.80	July 14, 2025		6,695,926		6,720,926
April 20, 2020	Equity	$	1.55	April 20, 2022		4,787,553		4,787,553
April 20, 2020	Equity	$	2.0888	April 20, 2022		311,191		311,191
April 8, 2019	Equity	$	1.35	April 8, 2024		1,317,812		1,336,777
April 8, 2019	Equity	$	1.6875	April 3, 2024		797,334		797,334
February 12, 2019	Equity	$	1.8313	February 7, 2024		110,922		110,922
February 12, 2019	Equity	$	1.34	August 12, 2024		1,333,447		1,433,447
February 04, 2019	Equity	$	2.125	January 30, 2024		34,605		34,605
January 31, 2019	Equity	$	2.125	January 26, 2024		10,151		10,151
December 3, 2018	Equity	$	3.90	June 3, 2024		937,500		937,500
April 3, 2018	Equity	$	7.50	April 3, 2023		2,350,011		2,350,011
April 4, 2018	Equity	$	7.50	April 4, 2023		115,000		115,000
June 15, 2015	Equity	$	75.50	Five years after milestone achievement		319,008		319,008

Total Outstanding						24,440,848		23,284,813

9. Share-Based Compensation

The Company sponsors the Pulmatrix, Inc. 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan). As of September 30, 2021, the 2013 Plan provides for the grant of up to 5,865,254 shares of common stock, of which 1,901,869 shares remain available for future grant.

In addition, the Company has two legacy plans: The Pulmatrix Operating’s 2013 Employee, Director and Consultant Equity Incentive Plan (the “Original 2013 Plan”) and Pulmatrix Operating’s 2003 Employee, Director, and Consultant Stock Plan (the “2003 Plan”). As of September 30, 2021, a total of 1,304 shares of common stock may be delivered under options outstanding under the Original 2013 Plan and the 2003 Plan, however no additional awards may be granted under the Original 2013 Plan or the 2003 Plan.

Stock Options

During the three months ended September 30, 2021, the Company granted 70,500 options to employees and the fair value of the awards on the date of grant was $51. During the nine months ended September 30, 2021, the Company granted 1,128,087 options to employees and directors and the fair value of the awards on the date of grant was $1,278.

During the three months ended September 30, 2020, the Company granted 16,400 options to employees and the fair value of the awards on the date of grant was $20. During the nine months ended September 30, 2020, the Company granted 2,265,504 options to employees, directors and consultants and the fair value of the awards on the date of grant was $2,634. The options vest over four years and expire ten years from the grant date for all options awarded during both years.

The following table summarizes stock option activity for the nine months ended September 30, 2021:

Summary of Stock Option Activity

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2021		2,899,837		$	3.22		8.75	$	60
Granted		1,128,087		$	1.41
Forfeited or expired		(140,049	)	$	4.22
Outstanding - September 30, 2021		3,887,875		$	2.66		8.36	$	-
Exercisable - September 30, 2021		1,675,671		$	4.26		7.91	$	-

The estimated fair values of employee stock options granted during the three and nine months ended September 30, 2021, and September 30, 2020, were determined on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Expected option life (years)		6.07			6.03			5.98			5.92
Risk-free interest rate		0.94	%		0.40	%		0.62	%		1.61	%
Expected volatility		106.04	%		94.41	%		104.96	%		93.91	%
Expected dividend yield		0	%		0	%		0	%		0	%

The risk-free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the weighted average of the historical volatility for industry peers and our own volatility. 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 dividend yield considers that the Company has not historically paid dividends and does not expect to pay dividends in the foreseeable future.

As of September 30, 2021, there was $2,414 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 2.58 years. The following table presents total share-based compensation expense for the three and nine months ended September 30, 2021 and 2020:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020

Research and development	$	53	$	46	$	164	$	142
General and administrative		231		257		747		770
Total share-based compensation expense	$	284	$	303	$	911	$	912

10. Commitments and Contingencies

Research and Development Activities

The Company contracts with various other organizations to conduct research and development activities. As of September 30, 2021, the Company had aggregate commitments to pay approximately $256 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 the Company upon written notice. In some instances, the contracts, subject to certain conditions, may be cancelled by the third party.

Operating Leases

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 Company currently leases approximately 22,000 square feet of office and lab space in Lexington, Massachusetts under a lease that expires on June 30, 2022. 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 components of lease expense for the Company as of September 30, 2021, are as follows:

Schedule of Components of Lease Expense

	2021		2020		2021		2020
	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Lease Cost:
Fixed lease cost	$	259	$	259	$	777	$	650
Variable lease cost		97		99		319		317
Total lease cost	$	356	$	358	$	1,096	$	967

Maturities of lease liabilities due under these lease agreements as of September 30, 2021 are as follows:

	2021
	Operating Leases
Maturity of lease liabilities:
2021 (excluding the nine months ended September 30, 2021)	$	299
2022 (half year)		615
Total lease payments		914
Less: interest		(16	)
Total lease liabilities	$	898

11. Net Loss Per Share

The Company computes basic and diluted net loss per share using a methodology that gives effect to the impact of outstanding participating securities (the “two-class method”). As the three and nine months ended September 30, 2021 and 2020, respectively, resulted in net losses attributable to common stockholders, there is no income allocation required under the two-class method or dilution attributed to weighted average shares outstanding in the calculation of diluted net loss per share. The following potentially dilutive securities outstanding prior to the use of the treasury stock method have been excluded from the computation of diluted weighted-average shares outstanding, as they would be anti-dilutive.

	As of September 30,
	2021		2020

Options to purchase common stock		3,887,875		2,879,231
Warrants to purchase common stock		24,440,848		23,284,813
Total		28,328,723		26,164,044

12. Subsequent Events

On November 8, 2021, the Company entered into an amendment to the Cipla Agreement which modifies certain provisions of the Cipla Agreement and resolves the current dispute between the Company and Cipla as further discussed in Note 6.

On October 14, 2021, the Company granted 32,800 stock options to employees.

On October 5, 2021, an extension to the Company’s operating lease for office and lab space was signed between the Company and 99 Hayden LLC. The 6^th amendment to the original lease executed on May 31, 2007 has a base rent of $1,725 from July 2022 to June 2023 and will expire on June 30, 2023.

The Company has evaluated its events subsequent to September 30, 2021 to the date these condensed consolidated financial statements were issued, and has determined that, other than what was disclosed above, it does not have any subsequent events to disclose in these condensed consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information set forth below should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q as well as the audited financial statements and the notes thereto contained in our current report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 23, 2021, and amended on March 26, 2021 and May 14, 2021. Unless stated otherwise, references in this Quarterly Report on Form 10-Q to “us,” “we,” “our,” or our “Company” and similar terms refer to Pulmatrix, Inc., a Delaware corporation and its subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q 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”) on the Company’s ongoing and planned clinical trials;

	●	the geographic, social and economic impact of COVID-19 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;

	●	our ability to regain and maintain compliance with the NASDAQ Capital Market’s listing standards;

	●	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 factors that may affect our business and that could cause the actual results to differ materially from those projected in these forward-looking statements, see the risk factors and uncertainties set forth in Part II, Item 1A of this Quarterly Report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise, except as required by law.

Overview

Business

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 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 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 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 ongoing clinical and non-clinical trials for PUR1800, focusing on the development of an inhaled kinase inhibitor for treatment of AECOPD;

●	initiate and complete non-clinical studies for PUR3100, an orally inhaled dihydroergotamine (“DHE”) to support planned Ph1 and Ph2 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

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 agreements, 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

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 initiated a Phase 2 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 study was terminated in July 2020 due to the ongoing impact of the COVID-19 pandemic on patient enrollment and study conduct.

We conducted a Type C meeting with the U.S. Food and Drug Administration (the “FDA”) on January 27, 2021 and leveraging the insights gained from this meeting, had planned to commence the Phase 2b clinical study when the risks of study conduct presented by the ongoing COVID-19 pandemic were reduced to an acceptable level. The Phase 2b clinical study design includes a 16-week dosing regimen as well as an exploration of potential efficacy endpoints, whereas the terminated Phase 2 study 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.

On May 10, 2021, we sent a letter to Cipla notifying Cipla that it is in material breach of the Cipla Agreement due to Cipla’s anticipatory breach of its obligation under the Cipla Agreement to fund 50% of the development costs for Pulmazole in accordance with the terms of the Cipla Agreement. Due to the ongoing dispute with Cipla, development activities related to the Pulmazole program have been paused.

SEC Form 10-Q filed by Pulmatrix, Inc.