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 March 31, 2022

☐	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 May 9, 2022, the registrant had 3,387,172 shares of common stock outstanding.

PULMATRIX, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements	3
Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021	3
Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (unaudited)	4
Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021 (unaudited)	5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (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	29
Item 4. Controls and Procedures	29
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3. Defaults Upon Senior Securities	32
Item 4. Mine Safety Disclosures	32
Item 5. Other Information	32
Item 6. Exhibits	32
SIGNATURES	33

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

PULMATRIX, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	March 31, 2022			December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	47,534		$	53,840
Accounts receivable		1,113			67
Prepaid expenses and other current assets		1,961			871
Total current assets		50,608			54,778
Property and equipment, net		319			321
Operating lease right-of-use asset		1,751			2,093
Long-term restricted cash		1,625			1,625
Total assets	$	54,303		$	58,817
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		1,227			839
Accrued expenses		1,067			1,233
Operating lease liability		1,566			1,431
Deferred revenue		1,517			939
Total current liabilities		5,377			4,442
Deferred revenue, net of current portion		5,739			6,069
Operating lease liability, net of current portion		430			857
Total liabilities		11,546			11,368
Commitments and contingencies (Note 12)		-
Stockholders’ equity:
Series A convertible preferred stock, $0.0001 par value — 6,746 shares authorized at March 31, 2022 and December 31, 2021; 915 and 1,830 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		540			1,081
Common stock, $0.0001 par value — 200,000,000 shares authorized at March 31, 2022 and December 31, 2021; 3,310,922 and 3,222,037 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		-			-
Additional paid-in capital		301,830			301,008
Accumulated deficit		(259,613	)		(254,640	)
Total stockholders’ equity		42,757			47,449
Total liabilities and stockholders’ equity	$	54,303		$	58,817

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

PULMATRIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share data)

	2022			2021
	Three Months Ended March 31,
	2022			2021
Revenues	$	1,160		$	1,390
Operating expenses:
Research and development		4,149			3,856
General and administrative		1,974			1,619
Total operating expenses		6,123			5,475
Loss from operations		(4,963	)		(4,085	)
Other income (expense):
Interest income		1			3
Other expense, net		(11	)		(22	)
Total other income (expense)		(10	)		(19	)
Net loss	$	(4,973	)	$	(4,104	)
Net loss per share attributable to common stockholders - basic and diluted	$	(1.51	)	$	(1.78	)
Weighted average common shares outstanding - basic and diluted		3,297,280			2,301,610

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

PULMATRIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

(in thousands, except share data)

	Shares			Amount			Shares		Amount		Capital		Deficit			Equity
	Preferred Stock						Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares			Amount			Shares		Amount		Capital		Deficit			Equity
Balance — January 1, 2022		1,830		$	1,081			3,222,037	$	-	$	301,008	$	(254,640	)	$	47,449
Conversion of preferred stock to common stock		(915	)		(541	)		76,250		-		541		-			-
Adjustment due to reverse stock split		-			-			12,635		-		-		-			-
Stock-based compensation		-			-			-		-		281		-			281
Net loss		-			-			-		-		-		(4,973	)		(4,973	)
Balance — March 31, 2022		915		$	540			3,310,922	$	-	$	301,830	$	(259,613	)	$	42,757

	Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance — January 1, 2021		-	$	-		1,805,250	$	-	$	257,608	$	(234,469	)	$	23,139
Balance		-	$	-		1,805,250	$	-	$	257,608	$	(234,469	)	$	23,139
Issuance of common stock, net of issuance costs		-		-		1,000,000		-		37,079		-			37,079
Exercise of warrants		-		-		7,202		-		204		-			204
Stock-based compensation		-		-		-		-		328		-			328
Net loss		-		-		-		-		-		(4,104	)		(4,104	)
Balance — March 31, 2021		-	$	-		2,812,452	$	-	$	295,219	$	(238,573	)	$	56,646
Balance		-	$	-		2,812,452	$	-	$	295,219	$	(238,573	)	$	56,646

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

PULMATRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

	2022			2021
	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(4,973	)	$	(4,104	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		35			51
Amortization of operating lease right-of-use asset		342			239
Stock-based compensation		281			328
Changes in operating assets and liabilities:
Accounts receivable		(1,046	)		(3	)
Prepaid expenses and other current assets		(1,090	)		(165	)
Accounts payable		517			(22	)
Accrued expenses		(166	)		(160	)
Operating lease liability		(292	)		(278	)
Deferred revenue		248			(1,381	)
Net cash used in operating activities		(6,144	)		(5,495	)

Cash flows from investing activities:
Purchases of property and equipment		(10	)		-
Net cash used in investing activities		(10	)		-

Cash flows from financing activities:
Preferred stock issuance costs		(152	)		-
Proceeds from issuance of common stock, net of issuance costs		-			37,079
Proceeds from exercise of warrants		-			204
Net cash (used in) provided by financing activities		(152	)		37,283
Net (decrease) increase in cash, cash equivalents and restricted cash		(6,306	)		31,788
Cash, cash equivalents and restricted cash — beginning of period		55,465			31,861
Cash, cash equivalents and restricted cash — end of period	$	49,159		$	63,649

Supplemental information:
Cash and cash equivalents	$	47,534		$	63,445
Restricted cash	$	1,625		$	204
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	49,159		$	63,649
Supplemental disclosure of non-cash investing and financing activities:
Fixed asset purchases in accounts payable	$	33		$	15
Conversion of preferred stock to common stock	$	541		$	-

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

PULMATRIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (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.

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 stock 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

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 (“U.S. 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 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 29, 2022 (the “Annual Report”).

The financial information as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, is unaudited. 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. The balance sheet data as of December 31, 2021 was derived from audited consolidated financial statements. The results of the Company’s operations for any interim periods are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.

Use of Estimates

In preparing condensed 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 condensed 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 condensed 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 warrant transactions, incremental borrowing rate, and accounting for income taxes and the related valuation allowance.

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 three months ended March 31, 2022, one customer accounted for 99% of revenue recognized in the accompanying financial statements. For the three months ended March 31, 2021, two customers accounted for 99% of revenue recognized in the accompanying financial statements. As of March 31, 2022 and 2021, one customer accounted for 99% and 91% of accounts receivable recorded in the accompanying financial statements, 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.

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 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. ASU 2020-06 also 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 stock-based payment award. The Company elected to early adopt ASU 2020-06 as of January 1, 2022, using the modified retrospective method. The adoption of ASU 2020-06 did not have any net impact on the classification or measurement of the Company’s convertible financial instruments or contracts in the Company’s own equity outstanding as of January 1, 2022, nor the earnings per-share amounts for the three months ended March 31, 2022.

In May 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 addresses how an issuer should account for modifications, or an exchange of freestanding written call options classified as equity that is not within the scope of another topic. The Company elected to early adopt ASU 2021-04 as of January 1, 2022. The adoption of ASU 2021-04 did not have a material impact on the Company’s condensed consolidated financial statements.

As of March 31, 2022, 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 condensed consolidated financial statements.

3. Fair Value of Financial Instruments

As of March 31, 2022 and December 31, 2021, 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 $41,801 and $47,758 respectively. During the three months ended March 31, 2022, there were no transfers between Level 1, Level 2 and Level 3.

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following at March 31, 2022 and December 31, 2021 (dollars in thousands):

	March 31, 2022		December 31, 2021
Insurance	$	147	$	325
Software and hosting costs		133		-
Cloud computing implementation costs		72		-
Clinical and consulting		1,365		230
Other		244		316

Total prepaid and other current assets	$	1,961	$	871

5. Property and Equipment, Net

Property and equipment consisted of the following at March 31, 2022 and December 31, 2021 (dollars in thousands):

Schedule of Property and Equipment

	March 31, 2022			December 31, 2021
Laboratory equipment	$	1,838		$	1,838
Computer equipment		298			304
Office furniture and equipment		217			217
Leasehold improvements		602			602
Capital in progress		33			-
Total property and equipment		2,988			2,961
Less accumulated depreciation and amortization		(2,669	)		(2,640	)
Property and equipment, net	$	319		$	321

Depreciation and amortization expense for the three months ended March 31, 2022 and 2021 was $35 and $51, respectively. During the three months ended March 31, 2022, the Company disposed of certain fixed asset with immaterial gross costs and accumulated depreciation.

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following at March 31, 2022 and December 31, 2021 (dollars in thousands):

	March 31, 2022		December 31, 2021
Wages and incentives	$	290	$	991
Clinical and consulting		526		97
Vacation		106		60
Legal and patents		65		58
Other		80		27

Total accrued expenses and other current liabilities	$	1,067	$	1,233

7. 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. Pulmatrix 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 Company received a non-refundable upfront payment of $22.0 million (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 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.

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, the Company 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 clinical study conduct.

Following termination of the Phase 2 clinical study, the Company conducted a Type C meeting with the U.S. Food and Drug Administration (“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 by the JSC.

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		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 the 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

The Prescription Drug User Fee Act (the “PDUFA”)		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 Accounting Standards Codification (“ASC”) 808, Collaborative Arrangements (“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, Revenue from Contracts with Customers (“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 $22.0 million – comprised of $12.0 million for research and development services for the Product and $10.0 million for the irrevocable license to the Assigned Assets. 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 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 $7.4 million 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 three months ended March 31, 2022 and 2021, the Company recognized $1.2 million and $0.6 million 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 March 31, 2022, the aggregate transaction price related to the Company’s unsatisfied obligations was $7.3 million and was recorded in deferred revenue in the accompanying consolidated balance sheets, $1.5 million 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 Sensory Cloud 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.

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 $1.0 million following the achievement of aggregate net sales of all Licensed Products of $20.0 million.

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 Sensory Cloud Agreement are recognized in the period usage occurs. The Company does not participate in the selling or marketing of products for which it receives royalties. Sensory Cloud commenced their product launch in October 2020. During the three months ended March 31, 2022 and 2021, the Company recorded royalty revenue from Sensory Cloud Agreement of $1 thousand and $8 thousand, respectively.

8. Preferred Stock

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. During 2021, the Articles were amended to designate and authorize 6,746 shares of series A convertible preferred stock.

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.

9. Common Stock

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 $20.0 million 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 under the Sales Agreement as of March 31, 2022.

10. Warrants

There were no warrants issued, exercised, or expired during the three months ended March 31, 2022.

The following represents a summary of the warrants outstanding and exercisable at March 31, 2022:

Schedule of Warrants Outstanding

					Number of Shares Underlying Warrants
Issue Date	Classification	Adjusted Exercise Price		Expiration Date	Outstanding Shares		Exercisable Shares
17-Dec-21	Equity	$	14.99	15-Dec-26		36,538		-
17-Dec-21	Equity	$	13.99	17-Dec-26		281,047		-
16-Feb-21	Equity	$	49.99	11-Feb-26		65,003		65,003
7-Aug-20	Equity	$	35.99	14-Jul-25		90,743		90,743
7-Aug-20	Equity	$	44.99	14-Jul-25		10,939		10,939
23-Jul-20	Equity	$	35.99	14-Jul-25		77,502		77,502
13-Jul-20	Equity	$	44.99	14-Jul-25		21,846		21,846
13-Jul-20	Equity	$	35.99	14-Jul-25		334,800		334,800
20-Apr-20	Equity	$	30.99	20-Apr-22		239,380		239,380
20-Apr-20	Equity	$	41.77	20-Apr-22		15,562		15,562
8-Apr-19	Equity	$	26.99	8-Apr-24		65,907		65,907
8-Apr-19	Equity	$	33.74	3-Apr-24		39,871		39,871
12-Feb-19	Equity	$	36.62	7-Feb-24		5,548		5,548
12-Feb-19	Equity	$	26.79	12-Aug-24		66,675		66,675
4-Feb-19	Equity	$	42.49	30-Jan-24		1,732		1,732
31-Jan-19	Equity	$	42.49	26-Jan-24		511		511
3-Dec-18	Equity	$	77.99	3-Jun-24		46,876		46,876
3-Apr-18	Equity	$	149.99	3-Apr-23		117,559		117,559
4-Apr-18	Equity	$	149.99	4-Apr-23		5,751		5,751
15-Jun-15	Equity	$	1,509.99	Five years after milestone achievement		15,955		15,955

						1,539,745		1,222,160

11. Stock-Based Compensation

The Company sponsors the Pulmatrix, Inc. 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan). As of March 31, 2022, the 2013 Plan provides for the grant of up to 454,363 shares of common stock, of which 162,548 shares remain available for future grant.

In addition, the Company sponsors two legacy plans under which no additional awards may be granted. As of March 31, 2022, the two legacy plans have a total of 61 options outstanding, all of which are fully vested.

Stock Options

During the three months ended March 31, 2022, the Company granted 93,922 options to employees and directors with a weighted-average fair value of $5.93 per share.

The following table summarizes stock option activity for the three months ended March 31, 2022:

Summary of Stock Option Activity

	Number of Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding — January 1, 2022		196,006		$	52.72		8.12	$	-
Granted		93,922			7.03
Forfeited or expired		(1,890	)		23.50
Outstanding — March 31, 2022		288,038		$	38.01		8.51	$	23
Exercisable — March 31, 2022		110,317		$	70.64		7.63	$	-

The Company records stock-based compensation related to stock options based on their grant date fair value. During the three months ended March 31, 2022 and 2021, 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 estimating the fair value of stock-based payment awards represent management’s best estimates. The weighted-average assumptions used in determining fair value of the stock options for the three months ended March 31, 2022 and 2021, are as follows:

	Three Months Ended March 31,
	2022			2021
Expected option life (years)		6.01			5.96
Risk-free interest rate		1.69	%		0.58	%
Expected volatility		113.62	%		104.81	%
Expected dividend yield		0	%		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 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 March 31, 2022, there was $2,427 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 2.5 years.

The following table presents total stock-based compensation expense for the three months ended March 31, 2022 and 2021, respectively (dollars in thousands):


	Three Months Ended March 31,
	2022		2021
Research and development	$	63	$	56
General and administrative		218		272
Total stock-based compensation expense	$	281	$	328

12. Commitments and Contingencies

Research and Development Activities

The Company contracts with various other organizations to conduct research and development activities. As of March 31, 2022, the Company had aggregate commitments to pay approximately $148 thousand 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.

Legal Proceedings

In the ordinary course of its business, the Company may be involved in various legal proceedings involving contractual and employment relationships, patent or other intellectual property rights, and a variety of other matters. The Company is not aware of any pending legal proceedings that would reasonably be expected to have a material impact on the Company’s financial position or results of operations

13. 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 three months ended March 31, 2022 and 2021 were as follows (dollars in thousands):

Schedule of Components of Lease Expense

	2022			2021
	Three Months Ended March 31,
	2022			2021
Lease cost
Fixed lease cost	$	357		$	259
Variable lease cost		204			126
Total lease cost	$	561		$	385
Other information
Immaterial office equipment lease obligation, 4 year lease	$	11		$	14
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	308		$	299
Weighted-average remaining lease term — operating leases		1.3 years
Weighted-average discount rate — operating leases		2.97	%

Maturities of lease liabilities due under these lease agreements as of March 31, 2022 are as follows:

	Operating Leases
Maturity of lease liabilities
2022	$	1,170
2023 (half year)		862
Total lease payments		2,032
Less interest		(36	)
Total lease liabilities	$	1,996

Schedule of Operating Lease Liability

Reported as of March 31, 2022
Lease liabilities — short term	$	1,566
Lease liabilities — long term		430
Total lease liabilities	$	1,996

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 to $3.9 million. The lease provides for base rent of $101 thousand 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, Leases, had not occurred.

14. Income Taxes

The Company had no income tax expense due to operating losses incurred for the three months ended March 31, 2022 and 2021.

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 March 31, 2022 and December 31, 2021.

The Company applies ASC 740, Income Taxes, 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 has no material uncertain tax positions as of March 31, 2022 and December 31, 2021.

15. 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:


	Three Months Ended March 31,
	2022		2021
Stock options to purchase common stock		288,038		194,665
Preferred stock convertible into common stock		76,250		-
Warrants to purchase common stock		1,539,745		1,222,160
		1,904,033		1,416,825

16. Subsequent Events

The Company has completed an evaluation of all subsequent events after the balance sheet date of March 31, 2022 through the date the condensed consolidated financial statements were issued, to ensure that the condensed consolidated financial statements include appropriate disclosure of events both recognized in the condensed consolidated financial statements as of March 31, 2022, and events which occurred subsequently but were not recognized in the condensed consolidated financial statements. The Company has concluded that no subsequent events have occurred that require disclosure, except as disclosed within the condensed consolidated financial statements.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. 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 consolidated 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 29, 2022. 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”) 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;

	●	our ability to 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 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 II, Item 1A of this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q 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.

“iSPERSE^™” is one of our trademarks used in this Quarterly Report on Form 10-Q. 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.

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 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 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 patients with asthma. 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 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 16-week dosing regimen with potential registration efficacy endpoints, rather than the 4-week 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.

●

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. We are analyzing the Phase 1b clinical study data for future publication and to finalize the design of a potential Phase 2 study in the treatment of AECOPD.

●

Initiate and complete non-clinical studies and a Phase 1 clinical study of PUR3100, an orally inhaled dihydroergotamine (“DHE”) 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 March 31, 2022, our patent portfolio related to iSPERSE^™ included approximately 134 granted patents, 19 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.

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 2022, we have hired our Chief Medical Officer, among other personnel, to support our two programs entering active clinical trials in the next year.

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 Cipla 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 are 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 reimburses us an amount equal to 10% of aggregate Direct Costs upon the achievement of certain development milestones set forth in the table below. We 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’s 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 the Amendment.

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 the 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

The Prescription Drug User Fee Act (the “PDUFA”)		To be proposed by JSC

We successfully completed a Phase 1/1b clinical study in 2018. 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.

PUR1800

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 respiratory disease.

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.

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.

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 good laboratory practice (“GLP”) toxicology studies have been conducted, one in rats and one in dogs, to support initial single dose clinical studies. 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-investigational new drug application questions to the FDA for which we have received written responses that have confirmed and/or clarified several manufacturing, non-clinical, 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 healthy volunteers. Participants will be randomized to receive 1 of 3 doses of PUR3100 or intravenously DHE. The Phase 1 clinical study will evaluate safety, tolerability, and pharmacokinetics of PUR3100 in humans. Based on our FDA communications, we believe this study may provide preliminary comparative bioavailability data to potentially support a 505(b)(2) pathway for marketing authorization. Based on FDA guidance provided in the pre-IND meeting, 300 patients will be followed for 6 months of dosing and 100 of which will be followed for 12 months of dosing as part of an open-label extension study of the potential pivotal study. The FDA also confirmed that it will be necessary to perform a safety study administering PUR3100 to otherwise healthy patients with asthma before a new drug application 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 non-clinical 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 in order to enable a randomized placebo-controlled Phase 2 clinical study in patients with migraines 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.

Nasdaq Minimum Bid Price Requirement

As previously reported, on August 17, 2021, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the 30 consecutive business day period between July 6, 2021 through August 16, 2021, we did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). On February 15, 2022, the Company received a letter from Nasdaq notifying the Company that the Company has been granted an additional 180-day period, or until August 15, 2022, to regain compliance with the Minimum Bid Price Requirement. On March 15, 2022, the Company received a letter from Nasdaq notifying it that it had regained full compliance with the Minimum Bid Price Rule, and that the matter was closed.

Recent Developments

Bylaw Amendment

On April 28, 2022, our board of directors of approved an amendment to the existing bylaws (the “Amendment”), effective as of April 28, 2022. The Amendment amends and restates Article I, Section 4 of the existing bylaws in its entirety to lower the number of holders of the shares entitled to vote at a meeting of stockholders constituting a quorum, in person or by proxy, from a majority to one-third.

Appointment of Interim Chief Financial Officer

On April 14, 2022, our board of directors appointed Peter Ludlum as our Interim Chief Financial Officer, effective as of April 18, 2022, to serve until a successor is chosen and qualified, or until his earlier resignation or removal. Mr. Ludlum also serves as our principal accounting officer and principal financial officer.

Financial Overview

Revenues

To date, we have not generated any product sales. The revenue for the three months ended March 31, 2022 was primarily generated by the collaboration and license agreement with Cipla on our Pulmazole program. The revenue for the three months ended March 31, 2021 was generated by the Cipla Agreement and the JJEI License Agreement for our PUR1800 kinase inhibitor.

For more discussion on the collaboration or licensing agreements, please see Note 7 of the condensed consolidated financial statements included in the Quarterly Report on Form 10-Q.

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 stock-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.

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 77% of staff) are research and development employees. In addition, we maintain approximately a 22,000 square foot office and research and development facility which includes capital equipment for the manufacture and characterization of 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 and related costs such as stock-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 professional legal fees. Other general and administrative expenses include travel expenses, expenses related to 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.

Critical Accounting Policies, Judgments, and Estimates

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, or 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 revenue recognition, accrued expenses, and stock-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.

There were no changes to our critical accounting policies during the three months ended March 31, 2022, including estimates, assumptions, and judgments as compared to those described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 29, 2022 (the “2021 Annual Report”). It is important that the discussion of our operating results that follow be read in conjunction with the critical accounting policies disclosed in our 2021 Annual Report.

Results of Operations

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

The following table sets forth our results of operations for each of the periods set forth below (in thousands):

	Three Months Ended March 31,						Change
	2022			2021			2022 vs. 2021
Revenues	$	1,160		$	1,390		$	(230	)

Operating expenses:
Research and development		4,149			3,856			293
General and administrative		1,974			1,619			355
Total operating expenses		6,123			5,475			648
Loss from operations		(4,963	)		(4,085	)		(878	)
Other income (expense):
Interest income		1			3			(2	)
Other expense, net		(11	)		(22	)		11
Total other income (expense)		(10	)		(19	)		9
Net loss	$	(4,973	)	$	(4,104	)	$	(869	)

Revenues — For the three months ended March 31, 2022, $1.2 million was recorded in revenue which was all substantially associated with the collaboration and licensing agreement with Cipla. For the three months ended March 31, 2021, $0.6 million and $0.8 million were recorded in revenue which were the result of the collaboration and licensing agreements with Cipla and JJEI, respectively.

Research and development expenses — For the three months ended March 31, 2022, research and development expenses were $4.1 million compared to $3.9 million for the three months ended March 31, 2021, an increase of $0.3 million. The increase was primarily due to increased spend of $0.7 million in employment costs and $0.1 million in rent costs, partially offset by decreased spend of $0.3 million on preclinical costs related to our PUR1800 program and $0.2 million on clinical and manufacturing costs related to the Pulmazole program.

General and administrative expenses — General and administrative expenses were $2.0 million for the three months ended March 31, 2022, compared to $1.6 million for the three months ended March 31, 2021, an increase of $0.4 million. The increase was primarily due to increased spend of $0.1 million in employment costs, $0.3 million on consulting and legal, and $0.1 million on audit, tax and public company expense, partially offset by decreased patent expense of $0.1 million.

Liquidity and Capital Resources

Through March 31, 2022, we have incurred an accumulated deficit of $259.6 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 and term loans, and collaboration and license agreements. Our total cash and cash equivalents balance as of March 31, 2022 was $47.5 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 March 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months following the date of this Quarterly Report on Form 10-Q. We expect that our existing cash and cash equivalents as of March 31, 2022 will enable us to fund our projected operating expenses and capital expenditures into Q2 2024. 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):

	Three Months Ended March 31,
	2022			2021
Net cash used in operating activities	$	(6,144	)	$	(5,495	)
Net cash used in investing activities		(10	)		-
Net cash (used in) provided by financing activities		(152	)		37,283
Net (decrease) increase in cash, cash equivalents, and restricted cash	$	(6,306	)	$	31,788

Cash Flows from Operating Activities

Net cash used in operating activities for the three months ended March 31, 2022 was $6.1 million, which consisted of a $5.0 million net loss and $1.8 million in cash outflows associated with changes in operating assets and liabilities, partially offset by $0.7 million of net non-cash adjustments. Our non-cash adjustments were comprised of $0.3 million of stock-based compensation expense, $0.3 million of amortization of operating lease right-of-use asset, and $35 thousand of depreciation and amortization expense. The net cash outflows associated with changes in operating assets and liabilities was primarily due to increases of $1.0 million in accounts receivable and $1.1 million in prepaid expenses and other current assets and decreases of $0.2 million in accrued expenses and $0.3 million in operating lease liability, partially offset by increases of $0.8 million in deferred revenue and accounts payable.

Net cash used in operating activities for the three months ended March 31, 2021 was $5.5 million, which consisted of a $4.1 million net loss and $2.0 million in cash outflows associated with changes in operating assets and liabilities, partially offset by $0.6 million of net non-cash adjustments. Our non-cash adjustments were comprised of $0.3 million of stock-based compensation expense, $0.2 million of amortization of operating lease right-of-use asset, and $0.1 million of depreciation and amortization expense. The net cash outflows associated with changes in operating assets and liabilities was primarily due to decreases of $1.4 million in deferred revenue and $0.4 million in accrued expenses and operating lease liability, and an increase of $0.2 million in prepaid expenses and other current assets.

Cash Flows from Investing Activities

Net cash used in investing activities for the three months ended March 31, 2022 was due to purchases of property and equipment. There was no cash used in investing activities for the three months ended March 31, 2021.

Cash Flows from Financing Activities

Net cash used in financing activities for the three months ended March 31, 2022 was $0.2 million as compared to $37.3 million provided from financing activities for the three months ended March 31, 2021. Net cash used in financing activities for the three months ended March 31, 2022 resulted from the payment of preferred stock issuance costs from a registered direct offering in December 2021. Net cash provided by financing activities for the three months ended March 31, 2021 resulted from the issuance of common stock, net of issuance costs, of $37.1 million proceeds in a registered direct offering and $0.2 million of proceeds from the exercise of warrants.

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 $20.0 million 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 March 31, 2022 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.

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.

Off-Balance Sheet Arrangements

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. 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 Quarterly Report on Form 10-Q, 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 Evaluation of 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 Rules 13a-15(e) and 15d-15(e)) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Form 10-Q, 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 and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. 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 any of our subsidiaries is a party or to which any of our property is subject, nor are we aware of any such threatened or pending litigation or any such proceedings known to be contemplated by governmental authorities.

We are not aware of any 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 a party adverse to or has a material interest adverse to, us or any of our subsidiaries.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in Part I, Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 in addition to the other information included in this Form 10-Q before making an investment decision regarding our common stock. If any of these risks actually occurs, our business, financial condition, or operating results would likely suffer, possibly materially, the trading price of our common stock could decline, and you could lose part or all of your investment.

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Condensed Consolidated Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

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 the 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;

●	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 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.

Our failure to meet the continued listing requirements of The NASDAQ Capital Market could result in a delisting of our common stock.

As previously reported, on August 17, 2021, we received a letter from the Listing Qualifications Department of Nasdaq indicating that, based upon the closing bid price of our common stock for the 30 consecutive business day period between July 6, 2021 through August 16, 2021, we did not meet the Minimum Bid Price Requirement and had a compliance period of 180 calendar days, or until February 14, 2022, in which to regain compliance. On February 15, 2022, the Company received a letter from Nasdaq notifying the Company that the Company has been granted an additional 180-day period, or until August 15, 2022, to regain compliance with the Minimum Bid Price Requirement. On March 15, 2022, the Company received a letter from Nasdaq notifying it that it had regained full compliance with the Minimum Bid Price Rule, and that the matter was closed.

Although we have restored compliance with the listing requirements, we can provide no assurance that we will not fall out of compliance again. Should a delisting occur, an investor would likely find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of our common stock, and our ability to raise future capital through the sale of our common stock could be severely limited.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Unregistered Sales of Equity Securities

None.

(b) Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during the three months ended March 31, 2022.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

See Index to Exhibits.

SIGNATURES

Pursuant to the requirements 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.

	PULMATRIX, INC.

Date: May 12, 2022	By:	/s/ Teofilo Raad
		Teofilo Raad
		President and Chief Executive Officer (Principal Executive Officer)

Date: May 12, 2022	By:	/s/ Peter Ludlum
		Peter Ludlum
		Interim Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT INDEX

Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of Pulmatrix, Inc., as amended through June 15, 2015 (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q filed with the Securities and Exchange commission on August 14, 2015).

3.2		Restated Bylaws of Pulmatrix, Inc., as amended through June 15, 2015 (incorporated by reference to Exhibit 3.2 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2015).

3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Pulmatrix, Inc., dated as of June 5, 2018 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 7, 2018).

3.4		Form of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on December 17, 2021).

3.5		Certificate of Correction to the Certificate of Designation, filed December 16, 2021 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on December 17, 2021).

3.6		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Pulmatrix, Inc., dated as of February 5, 2019 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2019).

3.7		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Pulmatrix, Inc., dated as of February 28, 2022 (incorporated by reference to Exhibit 3.7 to Annual Report on Form 10-K filed with the Securities and Exchange commission on March 29, 2022)

3.8		Amendment to the Restated Bylaws of Pulmatrix, Inc. 2019 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 29, 2022).

10.1		Consulting Agreement, dated November 30, 2021, by and between Pulmatrix, Inc. and Danforth Advisors, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 15, 2022).

31.1*		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer and Principal Financial Officer 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*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		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).

Filed herewith.

SEC Form 10-Q filed by Pulmatrix Inc.