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 ~~June~~September 30, 2021

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

For the transition period from ___________ to __________

Commission file number: 001-36199

PULMATRIX, INC.

(Exact name of registrant as specified in its charter)

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

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

Registrant’s telephone number, including area code (~~781~~(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 ~~August~~November 9, 2021, the registrant had 56,249,062shares of common stock outstanding.

PULMATRIX, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2021

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2021 (unaudited) and December 31, 2020	3
Condensed Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020 (unaudited)	4
Condensed Consolidated Statements of Stockholders’ Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the ~~Six months~~Nine Months Ended ~~June~~September 30, 2021 and 2020 (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1819
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2731
Item 4. Controls and Procedures	2731
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	2831
Item 1A. Risk Factors	2832
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3135
Item 3. Defaults Upon Senior Securities	3135
Item 4. Mine Safety Disclosures	3135
Item 5. Other Information	3135
Item 6. Exhibits	3135
SIGNATURES	3236

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

PULMATRIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	At June 30,			At December 31,			At September 30,			At December 31,
	2021			2020			2021			2020
	(unaudited)							(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	56,903		$	31,657		$	53,491		$	31,657
Restricted cash		204			-
Accounts receivable		1,766			84			9			84
Prepaid expenses and other current assets		1,596			797			938			797
Total current assets		60,469			32,538			54,438			32,538
Property and equipment, net		379			361			345			361
Operating lease right-of-use asset		1,008			1,489			761			1,489
Long-term restricted cash		-			204			204			204
Goodwill		3,577			3,577			-			3,577
Total assets	$	65,433		$	38,169		$	55,748		$	38,169
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,508		$	925		$	875		$	925
Accrued expenses		1,191			2,028			1,385			2,028
Operating lease liability		1,184			1,135			898			1,135
Deferred revenue		3,034			4,166			1,974			4,166
Total current liabilities		6,917			8,254			5,132			8,254
Deferred revenue, net of current portion		5,423			6,168			5,423			6,168
Operating lease liability, net of current portion		-			608			-			608
Total liabilities		12,340			15,030			10,555			15,030
Commitments (Note10)
Stockholders’ equity:
Preferred stock, $0.0001 par value — 500,000 authorized and 0 issued and outstanding at June 30, 2021 and December 31, 2020		-			-
Common stock, $0.0001 par value — 200,000,000 shares authorized; 56,249,062 and 36,105,097 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively.		6			4
Preferred stock, $0.0001 par value — 500,000 authorized and 0 issued and outstanding at September 30, 2021 and December 31, 2020								-			-
Common stock, $0.0001 par value — 200,000,000 shares authorized; 56,249,062 and 36,105,097 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.								6			4
Additional paid-in capital		295,512			257,604			295,796			257,604
Accumulated deficit		(242,425	)		(234,469	)		(250,609	)		(234,469	)
Total stockholders’ equity		53,093			23,139			45,193			23,139
Total liabilities and stockholders’ equity	$	65,433		$	38,169		$	55,748		$	38,169

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

PULMATRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

2021 2020 2021 2020
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues $ 1,069 $ 4,372 $ 4,713 $ 10,634
Operating expenses:
Research and development 4,026 3,873 12,423 12,344
General and administrative 1,656 1,776 4,837 5,478
Goodwill impairment 3,577 - 3,577 -
Total operating expenses 9,259 5,649 20,837 17,822
Loss from operations (8,190 ) (1,277 ) (16,124 ) (7,188 )
Other income (expense):
Interest income 1 13 6 78
Warrant inducement expense - (9,289 ) - (9,289 )
Other income (expense), net 5 - (22 ) (10 )
Net loss $ (8,184 ) $ (10,553 ) $ (16,140 ) $ (16,409 )
Net loss per share attributable to common stockholders-basic and diluted $ (0.15 ) $ (0.31 ) $ (0.30 ) $ (0.62 )
Weighted average shares of common stock used to compute basic and diluted net loss per share
56,249,062
33,924,499
53,081,963
26,284,826
2021 2020 2021 2020
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Revenues $ 2,254 $ 3,500 $ 3,644 $ 6,262
Operating expenses:
Research and development 4,541 3,184 8,397 8,471
General and administrative 1,562 1,490 3,181 3,702
Total operating expenses 6,103 4,674 11,578 12,173
Loss from operations (3,849 ) (1,174 ) (7,934 ) (5,911 )
Other income (expense):
Interest income 2 13 5 65
Other expense, net (5 ) (9 ) (27 ) (10 )
Net loss $ (3,852 ) $ (1,170 ) $ (7,956 ) $ (5,856 )
Net loss per share attributable to common stockholders-basic and diluted $ (0.07 ) $ (0.05 ) $ (0.16 ) $ (0.26 )
Weighted average shares of common stock used to compute basic and diluted net loss per share 56,249,062 24,376,571 51,319,680 22,423,014
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
4
PULMATRIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020
(in thousands, except share data)
Shares Amount Capital Deficit Total
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance — January 1, 2021 36,105,097 $ 4 $ 257,604 $ (234,469 ) $ 23,139
Issuance of common stock, net of issuance costs 20,000,000 2 37,077 - 37,079
Exercise of warrants 143,965 - 204 - 204
Share-based compensation - - 328 - 328
Exercise of pre-funded warrants
Exercise of pre-funded warrants, shares
Exercise of common stock options
Exercise of common stock options, shares
Net loss -     - - (4,104 ) (4,104 )
Balance — March 31, 2021 56,249,062 $ 6 $ 295,213 $ (238,573 ) $ 56,646

Share-based compensation - - 299 - 299
Net loss - - - (3,852 ) (3,852 )
Balance — June 30, 2021 56,249,062 $ 6 $ 295,512 $ (242,425 ) $ 53,093
Additional Shares Amount Capital Deficit Total
Common Stock Paid-In Accumulated Additional
Shares Amount Capital Deficit Total Common Stock Paid-In Accumulated
Balance — January 1, 2020 19,994,560 $ 2 $ 226,178 $ (215,161 ) $ 11,019
Shares Amount Capital Deficit Total
Balance — January 1, 2021 36,105,097 $ 4 $ 257,604 (234,469 ) 23,139
Issuance of common stock, net of issuance costs 20,000,000 2 37,077 - 37,079
Exercise of warrants 143,965 - 204 - 204
Share-based compensation - - 328 - 328
Exercise of pre-funded warrants 300,000 - - - - - -
Exercise of common stock options 19,997 - 21 - 21 - -
Exercise of warrants 206,747 - 239 - 239
Warrant inducement expense - -
Net loss - - - (4,104 ) (4,104 )
Balance — March 31, 2021 56,249,062 6 295,213 (238,573 ) 56,646

Share-based compensation -    - 343 - 343 - - 299 - 299
Net loss - - - (4,686 ) (4,686 ) - - - (3,852 ) (3,852 )
Balance — March 31, 2020 20,521,304 $ 2 $ 226,781 $ (219,847 ) $ 6,936
Balance — June 30, 2021 56,249,062 6 295,512 (242,425 ) 53,093

Balance, March 31, 2020 20,521,304 $ 2 $ 226,781 $ (219,847 ) $ 6,936
Issuance of common stock, net of issuance costs 4,787,553 1 7,313 - 7,314
Exercise of common stock options 2,500 - 3 - 3
Exercise of warrants 437,999 - 536 - 536
Share-based compensation - - 266 - 266 - - 284 - 284
Net loss - - - (1,170 ) (1,170 ) - - - (8,184 ) (8,184 )
Balance — June 30, 2020 25,749,356 $ 3 $ 234,899 $ (221,017 ) $ 13,885
Balance, June 30, 2020 25,749,356 $ 3 $ 234,899 $ (221,017 ) $ 13,885
Balance —September 30, 2021 56,249,062 $ 6 $ 295,796 $ (250,609 ) $ 45,193
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance — January 1, 2020 19,994,560 $ 2 $ 226,178 $ (215,161 ) $ 11,019
Exercise of pre-funded warrants 300,000 - - - -
Exercise of common stock options 19,997 - 21 - 21
Exercise of warrants 206,747 - 239 - 239
Share-based compensation - - 343 - 343
Net loss - - - (4,686 ) (4,686 )
Balance — March 31, 2020 20,521,304 2 226,781 (219,847 ) 6,936

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

Exercise of warrants, net of issuance costs 8,658,127 - 10,576 - 10,576
Warrant inducement expense - - 9,289 - 9,289
Share-based compensation - - 303 - 303
Net loss - - - (10,553 ) (10,553 )
Balance — September 30, 2020 34,407,483 $ 3 $ 255,067 $ (231,570 ) $ 23,500
Balance 34,407,483 $ 3 $ 255,067 $ (231,570 ) $ 23,500
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
5

PULMATRIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

2021 2020
For the Six Months Ended 2021 2020
June 30,
For the Nine Months Ended
September 30,

2021 2020 2021 2020
Cash flows from operating activities:
Net loss $ (7,956 ) $ (5,856 ) $ (16,140 ) $ (16,409 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 88 103 134 157
Amortization of operating lease right-of-use asset 481 359 728 593
Share-based compensation 627 609 911 912
Impairment of goodwill 3,577 -
Warrant inducement expense - 9,289
Changes in operating assets and liabilities:
Accounts receivable (1,682 ) 6,847 75 5,983
Prepaid expenses and other current assets (799 ) (671 ) (141 ) (617 )
Accounts payable 495 (321 ) (50 ) 9
Accrued expenses (837 ) 931 (643 ) (125 )
Operating lease liability (559 ) (317 ) (845 ) (467 )
Deferred revenue (1,877 ) (5,884 ) (2,937 ) (9,040 )
Net cash used in operating activities (12,019 ) (4,200 )
Net cash (used in)/provided by operating activities (15,331 ) (9,715 )
Cash flows from investing activities:
Purchases of property and equipment (18 ) (98 ) (118 ) (198 )
Net cash used in investing activities (18 ) (98 ) (118 ) (198 )
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs 37,079 7,314 37,079 7,314
Proceeds from exercise of common stock options - 24 - 24
Proceeds from exercise of warrants 204 775
Proceeds from exercise of common stock warrants, net of issuance costs 204 11,351
Proceeds from exercise of common stock warrants, shares to be issued - 2,292
Proceeds from Paycheck Protection Program loan - 617 - 617
Repayment of Paycheck Protection Program loan - (617 ) - (617 )
Net cash provided by financing activities 37,283 8,113 37,283 20,981
Net increase in cash, cash equivalents and restricted cash 25,246 3,815 21,834 11,068
Cash, cash equivalents and restricted cash — beginning of period 31,861 23,644 31,861 23,644
Cash, cash equivalents and restricted cash — end of period $ 57,107 $ 27,459 $ 53,695 $ 34,712

Supplemental disclosures of non-cash investing and financing information:
Fixed asset purchases in accounts payable $ 88 $ 12 $ - $ 21

The accompanying footnotes are an integral part of these condensed consolidated financial statements.
6
PULMATRIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~JUNE~~ SEPTEMBER 30, 2021
(unaudited)
(in thousands, except share and per share data)

1. Organization

Pulmatrix, Inc. (the “Company”) was incorporated in 2013 as a Delaware corporation. The Company is a clinical stage biotechnology company focused on the discovery and development of a novel class of inhaled therapeutic products. The Company’s proprietary dry powder delivery platform, iSPERSE™ (inhaled Small Particles Easily Respirable and Emitted), is engineered to deliver small, dense particles with highly efficient dispersibility and delivery to the airways, which can be used with an array of dry powder inhaler technologies and can be formulated with a variety of drug substances. The Company is developing a pipeline of iSPERSE^™- based therapeutic candidates targeted at prevention and treatment of a range of respiratory and other diseases with significant unmet medical needs.

2. Summary of Significant Accounting Policies and Recent Accounting ~~Standards~~Standard

Basis of Presentation

Principles of Consolidation

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

Use of Estimates

In preparing condensed consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results may differ from these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions include valuing equity securities in share-based payments, valuing future expected costs in order to derive and recognize revenue, estimating the useful lives of depreciable and amortizable assets, interest borrowing rate, valuation allowance against deferred tax assets, goodwill impairment, and estimating the fair value of long-lived assets to assess whether impairment charges may apply.

Concentrations of Credit Risk and Off-Balance Sheet Arrangements

Cash is a financial instrument that potentially subjects the Company to concentrations of credit risk. For all periods presented, substantially all of the Company’s cash was deposited in an account at a single financial institution that management believes is creditworthy. The Company is exposed to credit risk in the event of default by these financial institutions for amounts in excess of the Federal Deposit Insurance Corporation insured limits. The Company has not incurred any losses to date.
7
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Cash, Cash Equivalents and Restricted Cash

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

The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported in the condensed consolidated balance sheets that sum to the total of the same amounts in the statement of cash flows.
Schedule of Reconciliation of Cash, Cash Equivalents and Restricted Cash
2021 2020
2021 2020 Nine months ended
Six months ended June 30 September 30, 2021
2021 2020 2021 2020
Cash and cash equivalents $ 56,903 $ 27,255 $ 53,491 $ 34,508
Restricted cash 204 204 204 204
Total cash, cash equivalents and restricted cash $ 57,107 $ 27,459 $ 53,695 $ 34,712

Revenue Recognition

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.

Our principal sources of revenue during the reporting period were income that resulted through our collaborative arrangements and license agreements that related to the development and commercialization of Pulmazole and PUR1800, and from reimbursement of clinical study costs. In all instances, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, and collectability of the resulting receivable is reasonably assured.
During the three ~~and six~~ months ended ~~June~~September 30, 2021, our principal source of revenue was income that resulted from the ~~Cipla~~JJEI License Agreement, and immaterial royalties from the Sensory Cloud Agreement.
During the nine months ended September 30, 2021, our principal source of revenue was income that resulted from the JJEI License Agreement and the ~~JJEI License~~Cipla Agreement described in Note 6, and immaterial royalties from the Sensory Cloud Agreement.
Milestone Payments

At the inception of each arrangement that includes research or development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

8

~~Royalties.~~Royalties

For arrangements that include sales-based royalties, including milestone payments upon first commercial sales and milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, the Company has recognized immaterial royalty revenue that resulted from the Sensory Cloud licensing arrangement.

Research and Development Costs

Research and development costs are expensed as incurred and include: salaries, benefits, bonus, share-based compensation, license fees, milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, develop drug materials and delivery devices, and associated overhead and facilities costs. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contract research organizations (“CROs”) to carry out our clinical development activities and third-party contract manufacturing organizations (“CMOs”) to carry out our clinical manufacturing activities. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of fees and costs associated with the contract that were rendered during the period and they are expensed as incurred. Research and development costs that are paid in advance of performance are capitalized as prepaid expenses and amortized over the service period as the services are provided.

Goodwill

Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired, and liabilities assumed under the acquisition method of accounting for push-down accounting. Goodwill is not amortized but is evaluated for impairment within the ~~Company’s~~Company��s single reporting unit on an annual basis during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company’s reporting unit below its carrying amount. When performing the impairment assessment, the accounting standard for testing goodwill for impairment permits a company to first assess the qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the goodwill is impaired. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of goodwill is impaired, the Company then must perform a quantitative analysis to determine if the carrying value of the reporting entity exceeds its fair value. The impact of the novel coronavirus (“COVID-19”) pandemic was considered in the Company’s qualitative assessment. ~~Currently, there has not been a significant impact~~Given the Company’s common stock value decline during the nine months ended September 30, 2021, and based on the ~~carrying value of~~quantitative assessment, the Company ~~but this factor will continue to be evaluated.~~determined that goodwill was impaired as of September 30, 2021, and a full impairment charge of $3,577 was recorded.
Recently Issued Accounting Pronouncements

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

9
3. Prepaid Expenses and Other Current Assets

Prepaid expenses consisted of the following:
Schedule of Prepaid Expenses and Other Current Assets
June 30, 2021 December 31, 2020
At At
June 30, 2021 December 31, 2020
Prepaid insurance $ 632 $ 276
Prepaid clinical trials 531 317
Deferred operating costs 283 74
Prepaid other 150 130
Total prepaid and other current assets $ 1,596 $ 797
2021 2020
At At
September 30, 2021 December 31, 2020
Prepaid Insurance $ 474 $ 276
Prepaid Clinical Trials 43 317
Prepaid Other 283 130
Deferred Operating Costs - 74
Deferred Offering Costs 138 -
Total prepaid and other current assets $ 938 $ 797
9
4. Property and Equipment, Net

Property and equipment consisted of the following:
Summary of Property and Equipment
At At At At
June 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Laboratory equipment $ 1,741 $ 1,702 $ 1,828 $ 1,702
Computer equipment 304 302 304 302
Office furniture and equipment 216 217 217 217
Leasehold improvements 600 596 602 596
Capital in progress 87 25 - 25
Total property and equipment 2,948 2,842 2,951 2,842
Less accumulated depreciation and amortization (2,569 ) (2,481 ) (2,606 ) (2,481 )
Property and equipment, net $ 379 $ 361 $ 345 $ 361
5. Accrued Expenses and Other Current Liabilities

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

June 30, 2021 December 31, 2020
At At
June 30, 2021 December 31, 2020
Accrued vacation $ 117 $ 56
Accrued wages and incentive 409 813
Accrued clinical & consulting 449 1,010
Accrued legal & patent 164 129
Accrued other expenses 52 20
Total accrued expenses $ 1,191 $ 2,028
10

6. Significant Agreements

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

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

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

10
Accounting Treatment

Revenue associated with the combined research and development services for the Licensed Product and the irrevocable license to the Assigned Assets (as defined below) is recognized as revenue as the research and development services are provided using an input method, according to the ratio of costs incurred to the total costs expected to be incurred in the future to satisfy the performance obligation. In management’s judgment, this input method is the best measure of the transfer of control of the performance obligation. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue on the Company’s condensed consolidated balance sheet. During the ~~six~~three months ~~ending June~~ended September 30, 2021, the Company recognized $~~2,688~~647 in revenue related to the license agreement and $413 in revenue related to reimbursed expenses in the Company’s condensed consolidated statement of operations. ~~As of June~~ During the nine months ended September 30, 2021, the Company recognized $1,993 ~~647~~ ~~was recorded as deferred~~in revenue ~~resulting from~~related to the license agreement and $~~413~~1,755 asin revenue related to reimbursed expenses in the Company’s condensed consolidated statement of operations. On July 6, 2021, all deferred revenue ~~resulting from deferred reimbursed expenses, all of which are current. The Company expects to recognize~~associated with the ~~deferred revenue according to costs incurred, through the termination date of the contract, which~~JJEI License Agreement was ~~July 6, 2021.~~recognized.

Collaborations - Development and Commercialization Agreement with Cipla Technologies LLC (“Cipla”)
On April 15, 2019, we entered into a Development and Commercialization Agreement (the “Cipla Agreement”) with Cipla Technologies LLC (“Cipla”) for the co-development and commercialization, on a worldwide exclusive basis, of Pulmazole, our inhaled iSPERSE drug delivery system enabled formulation of the antifungal drug, itraconazole, for the treatment of all pulmonary indications, including ABPA in patients with asthma.

The Company received a non-refundable upfront payment of $22,000 ~~22,000~~ ~~(the~~(the “Upfront Payment”) under the ~~Development and Commercialization Agreement (the “Cipla Agreement”).~~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 ~~any event,~~such events, the parties are not obligated to follow the recommendation of the JSC and, either ~~the Company or Cipla~~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.

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The Company conducted a Type C meeting with the U.S. Food and Drug Administration (the “FDA”) on January 27, 2021, and, leveraging the insights gained from this meeting, ~~now plan~~had planned to commence the Phase 2b clinical study when the risks of study conduct presented by the ongoing COVID-19 pandemic iswere reduced to an acceptable level. The Phase 2b clinical study design includes a 16-week dosing regimen as well as an exploration of potential efficacy endpoints, whereas the terminated Phase 2 study comprised only a 4 week dosing regimen with safety and tolerability as its primary endpoint. The longer dosing regimen of the ~~planned~~ new Phase 2b clinical study is supported by the 6-month inhalation toxicology study in dogs completed in April 2020.

On May 10, 2021, the Company sent a letter to Cipla notifying Cipla that it is in material breach of the Cipla Agreement due to Cipla’s anticipatory breach of its obligation under the Agreement to fund 5050% % of the development costs for Pulmazole in accordance with the terms of the Cipla Agreement. Due to the ongoing dispute with Cipla, ~~has refused~~development activities related to ~~approve~~ the development plan and budget for the Phase 2b clinical study unless the Company accepts Cipla’s demands that the Company absorb a disproportionate amount of the costs and financial risks of the development plan. In the letter, the Company stated that Cipla had 30 days from the date of the letter to reaffirm that it will perform the Cipla Agreement in accordance with its terms.Pulmazole program have been paused.

~~Since the date of the Company’s letter to Cipla,~~On November 8, 2021, the Company ~~has received several correspondences from~~and Cipla ~~disputing that~~entered into an amendment (the “Amendment”) to the Cipla ~~is in material breach~~Agreement, which modifies certain provisions of the Cipla Agreement and ~~that~~resolves the ~~Company is entitled to terminate the Agreement. Accordingly,~~current dispute between Cipla and the Company ~~have initiated~~regarding each party’s respective performance of the Cipla Agreement. Pursuant to the Amendment, among other things, (i) all development and commercialization activities with respect to the Product in India, South Africa, Sri Lanka, Nepal, Iran, Yemen, Myanmar and Algeria (such countries, the “Cipla Territory”) will be conducted exclusively by Cipla at Cipla’s sole cost and expense, (ii) Cipla shall be entitled to all profits from the sale of the Product in the Cipla Territory, except that if Cipla successfully transfers manufacturing of the Product for the Cipla Territory to a manufacturing site determined by Cipla, the Company will become entitled to a royalty equal to 2% of net sales in the Cipla Territory, and (iii) following the depletion of development funding initially set aside for the development of the Product by the Company, the Company and Cipla will each be responsible for 60% and 40%, respectively, of the Company’s overhead costs and the time spent by the Company’s employees and consultants on development of the Product (“Direct Costs”), provided, that Cipla will reimburse the Company an amount equal to 10% of aggregate Direct Costs upon the achievement of certain ~~mandatory dispute resolution procedures under~~development milestones set forth in the table below. Cipla and the Company will continue to share all other development costs that are not Direct Costs, such as the cost of clinical research organizations, manufacturing costs and other third-party costs, on a 50/50 basis.
The Phase 2b study is expected to start in Q1 2023 with top-line data expected in mid 2024. In addition, if any development milestone is not met by the date that is 9 months after the applicable deadline for achieving such development milestone, either party may elect to terminate its obligation to fund additional development costs, in which case either (i) the non-Terminating Party can acquire the rights of the Terminating Party for fair market value or (ii) the parties will monetize the Product. The table below sets forth the development milestones.
Phase 2b Development Plan – Development Milestones
Development Milestone Milestone Date
25% of patients enrolled in Phase 2b Clinical Study are dosed June 30, 2023
Company delivers summary of key efficacy and safety data to include FEV1, IgE, ACQ-6, number of subjects withdrawn, any severe adverse events related to the medication and an overall summary table of adverse events (“Topline Results”) to JSC June 30, 2024
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Phase 3 Development Plan – Development Milestones
Development Milestone Milestone Date
25% of patients enrolled in Phase 3 Clinical Study dosed To be proposed by JSC
Company delivers Topline Results to the JSC To be proposed by JSC
PDUFA To be proposed by JSC
The Amendment also contains a mutual release of alleged breaches of the Cipla Agreement ~~which remain ongoing. As of~~that may have occurred prior to the date of ~~this report,~~ the Company has not terminated the Agreement and the Agreement remains in full force and effect. However, the Company intends to continue to seek Cipla’s reaffirmation of all of its obligations under the Cipla Agreement and, in the absence of such reaffirmation, to pursue all available remedies.Amendment.
11
Accounting Treatment

The Company determined the total transaction price to be $22,000 – comprised of $12,000 for research and development services for the Product and $10,000 for the irrevocable license to the Assigned Assets. Any consideration related to the Co-Development Phase has not been included in the transaction price as such amounts are subject to the variable consideration constraint. Additionally, upon Commercialization, Cipla and the Company will share equally, both positive and negative total free cash-flows earned by Cipla in respect of the Product. However, the Company has not included such free cash-flows in the transaction price as these milestones are constrained until after the commercialization of the Product.

Revenue associated with the combined research and development services for the Product and the irrevocable license to the Assigned Assets is recognized as revenue as the research and development services are provided using an input method, according to the ratio of costs incurred to the total costs expected to be incurred in the future to satisfy the performance obligation. In management’s judgment, this input method is the best measure of the transfer of control of the performance obligation. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue on the Company’s condensed consolidated balance sheet.

The Company received the $22,000 upfront payment in May 2019. No revenue was recognized during the three months ended September 30, 2021. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company recognized $755 in revenue related to the research and development services and $189 in revenue for the irrevocable license to the Assigned Assets in the Company’s condensed consolidated statements of operations.
Due to the ongoing dispute with Cipla, activities related to the Pulmazole program were paused and no deferred revenue has been recognized as revenue during the three months ended September 30, 2021. The aggregate amount of the transaction price related to the Company’s unsatisfied performance obligations, and ~~at June~~on September 30, 2021, the Company recorded $7,397 in deferred revenue, $1,974 of which is current. The Company expects to recognize the deferred revenue according to costs incurred over the remaining research term.

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7. Common Stock

2021

At-the-Market Offering

On May 26, 2021, the Company entered into an At-The-Market Sales Agreement (the “Sales Agreement”) with H.C. Wainwright and Co., LLC (“HCW”) to act as the Company’s sales agent with respect to the issuance and sale of up to $20,000 of the Company’s shares of common stock, from time to time in an at-the-market public offering (the “Offering”). Sales of common stock under the Sales Agreement are made pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 26, 2021, and subsequently declared effective on June 9, 2021 (File No. 333-256502), and a related prospectus. HCW acts as the Company’s sales agent on a commercially reasonable efforts basis, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of The NASDAQ Capital Market. If expressly authorized by the Company, HCW may also sell the Company’s common stock in privately negotiated transactions. There is no specific date on which the Offering will end, there are no minimum sale requirements and there are no arrangements to place any of the proceeds of this offering in an escrow, trust or similar account. HCW is entitled to compensation at a fixed commission rate of ~~3.0~~3.0%% of the gross proceeds from the sale of the Company’s common stock pursuant to the Sales Agreement.
There have been 0 sales of the Company’s common stock during the ~~three~~nine months ended ~~June~~September 30, 2021 under the Sales Agreement.
12
On February 16, 2021, the Company closed on a registered direct offering with certain healthcare-focused institutional investors for the sale of 20,000,000 shares of its common stock for gross proceeds of $40,000, prior to deducting placement agent’s fees and other offering expenses. In connection with the offering, 1,300,000 warrants with a five-year expiry were issued to placement agent designees at an exercise price of $2.50 per share. The fair value of the placement agent warrants was $1.57 per share. The shares of common stock were offered by the Company pursuant to a “shelf” registration statement on Form S-3 (File No. 333-230225) previously filed with the SEC on March 12, 2019, and declared effective by the SEC on March 15, 2019. After giving effect to approximately $2,921 of fees and expenses related to the sale, the Company recorded net proceeds of $37,079.
2020
In April 20, 2020, the Company sold 4,787,553 shares at $1.671 per share, pursuant to a securities purchase agreement, dated as of April 16, 2020, by and among the Company and certain institutional investors, for gross proceeds of approximately $8,000 prior to deducting fees and expenses of approximately $686. In a concurrent private placement, the Company issued warrants to purchase an aggregate of up to 4,787,553 shares of its common stock to investors with an exercise price of $1.55 per share and an expiration date of April 20, 2022. In addition, the Company issued warrants to purchase up to 311,191 shares of its common stock to the designees of the placement agent with an exercise price of $2.0888 per share and an expiration date of April 20, 2022. The investor and placement agent warrants have a fair value of approximately $0.64 and $0.54 per share, respectively.

Exercise of Warrants

2021

During the three months ended ~~June~~September 30, 2021, 0 warrants were exercised to purchase shares of common stock.

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

2020

During the three months ended ~~June~~September 30, 2020, the Company issued ~~437,999~~8,658,127 shares of common stock upon the exercise of 10,355,741 common stock warrants. The Company collected net proceeds of $12,868 which includes proceeds of $2,292 related to 1,697,614 shares of common stock held in abeyance and recorded as a common stock payable in the accompanying condensed consolidated balance sheet as of September 30, 2020.
14
During the nine months ended September 30, 2020 the Company issued 9,302,873 and 300,000 shares of common stock upon exercise of 11,202,925 warrants ~~to purchase~~and ~~524,353~~300,000 ~~shares of common stock.~~pre-funded warrants respectively. The Company collected net proceeds of $13,643 ~~536~~ ~~upon the exercise~~which includes proceeds of ~~these warrants.~~$2,292
related to 1,697,614
~~During the six months ended June 30, 2020, the Company issued~~ ~~944,746~~shares of common stock ~~upon exercise~~held in abeyance and recorded as a common stock payable in the accompanying condensed consolidated balance sheet as of ~~warrants to purchase~~ ~~1,147,184~~ ~~shares of common stock. The Company collected proceeds of $775~~ ~~upon the exercise of these warrants.~~September 30, 2020.

Exercise of Stock Options

During the three and ~~six~~nine months ended ~~June~~September 30, 2021, 0 stock options were exercised.

During the three months ended ~~June~~September 30, 2020, 0 stock options were exercised.
During the nine months ended September 30, 2020, stock options to buy ~~2,500~~22,497 shares were exercised, and the Company collected proceeds of $324.
~~During the six months ended June 30, 2020, stock options to buy~~ ~~22,497~~ ~~shares were exercised, and the Company collected proceeds of $~~24.
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8. Warrants

A rollforward of the common stock warrants outstanding at ~~June~~September 30, 2021 is as follows.
Schedule of Rollforward of Common Stock Warrants Outstanding
Number of Warrants Weighted Average
Exercise Price Weighted Average
Remaining Contractual
Term (Years) Aggregate
Intrinsic
Value
Outstanding January 1, 2021 23,284,813 $ 3.41 3.3 $ -
Warrants exercised (143,965 ) $ 1.42
Warrants issued 1,300,000 $ 2.50
Outstanding September 30, 2021 24,440,848 $ 3.37 2.7 $ -

Number of Warrants Weighted Average
Exercise Price Weighted Average
Remaining Contractual
Term (Years) Aggregate Intrinsic
Value
Outstanding January 1, 2021 23,284,813 $ 3.41 3.3 $ -
Warrants exercised (143,965 ) $ 1.42 -
Warrants issued 1,300,000 $ 2.50 -
Outstanding June 30, 2021 24,440,848 $ 3.37 2.9 $ -
There were no warrants issued during the three months ended ~~June~~September 30, 2021. The estimated fair values of warrants granted during the ~~six~~nine months ended ~~June~~September 30, 2021, and the three and ~~six~~nine months ended ~~June~~September 30, 2020, were determined on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Schedule of Warrants Assumptions
For the Three Months Ended For the Six Months Ended For the Three Months Ended For the Nine Months Ended
June 30, June 30, September 30, September 30,
2021 2020 2021 2020 2021 2020 2021 2020
Expected life (years) - 2 5 2
Contractual term (years) - 5 5 4
Risk-free interest rate - 0.20 % 0.57 % 0.20 % - 0.28 % 0.57 % 0.26 %
Expected volatility - 98.51 % 105.77 % 98.51 % - 99.0 % 105.8 % 98.8 %
Expected dividend yield - 0 % 0 % 0 % - 0 % 0 % 0 %

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

15
The following represents a summary of the warrants outstanding at each of the dates identified:
Schedule of Warrants Outstanding
Number of Shares Underlying Warrants Number of Shares Underlying Warrants
For the Period Ended June 30 For the Period Ended September 30
Issue Date Classification Exercise Price Expiration Date 2021 2020 Classification Exercise Price Expiration Date 2021 2020
February 16, 2021 Equity $ 2.50 February 11, 2026 1,300,000 — Equity $ 2.50 February 11, 2026 1,300,000 —
August 07, 2020 Equity $ 1.80 July 14, 2025 1,814,815 — Equity $ 1.80 July 14, 2025 1,814,815 1,814,815
August 07, 2020 Equity $ 2.25 July 14, 2025 218,713 — Equity $ 2.25 July 14, 2025 218,713 218,713
July 23, 2020 Equity $ 1.80 July 14, 2025 1,550,000 — Equity $ 1.80 July 14, 2025 1,550,000 1,550,000
July 13, 2020 Equity $ 2.25 July 14, 2025 436,860 — Equity $ 2.25 July 14, 2025 436,860 436,860
July 13, 2020 Equity $ 1.80 July 14, 2025 6,695,926 — Equity $ 1.80 July 14, 2025 6,695,926 6,720,926
April 20, 2020 Equity $ 1.55 April 20, 2022 4,787,553 4,787,553 Equity $ 1.55 April 20, 2022 4,787,553 4,787,553
April 20, 2020 Equity $ 2.0888 April 20, 2022 311,191 311,191 Equity $ 2.0888 April 20, 2022 311,191 311,191
April 8, 2019 Equity $ 1.35 April 8, 2024 1,317,812 11,692,518 Equity $ 1.35 April 8, 2024 1,317,812 1,336,777
April 8, 2019 Equity $ 1.6875 April 3, 2024 797,334 797,334 Equity $ 1.6875 April 3, 2024 797,334 797,334
February 12, 2019 Equity $ 1.8313 February 7, 2024 110,922 110,922 Equity $ 1.8313 February 7, 2024 110,922 110,922
February 12, 2019 Equity $ 1.34 August 12, 2024 1,333,447 1,433,447 Equity $ 1.34 August 12, 2024 1,333,447 1,433,447
February 04, 2019 Equity $ 2.125 January 30, 2024 34,605 34,605 Equity $ 2.125 January 30, 2024 34,605 34,605
January 31, 2019 Equity $ 2.125 January 26, 2024 10,151 10,151 Equity $ 2.125 January 26, 2024 10,151 10,151
December 3, 2018 Equity $ 3.90 June 3, 2024 937,500 937,500 Equity $ 3.90 June 3, 2024 937,500 937,500
April 3, 2018 Equity $ 7.50 April 3, 2023 2,350,011 2,350,011 Equity $ 7.50 April 3, 2023 2,350,011 2,350,011
April 4, 2018 Equity $ 7.50 April 4, 2023 115,000 115,000 Equity $ 7.50 April 4, 2023 115,000 115,000
August 31, 2015 Equity $ 118.00 August 31, 2020 — 3,000
June 15, 2015 Equity $ 75.50 Five years after milestone achievement 319,008 319,008 Equity $ 75.50 Five years after milestone achievement 319,008 319,008

Total Outstanding 24,440,848 22,902,240 24,440,848 23,284,813

9. Share-Based Compensation

The Company sponsors the Pulmatrix, Inc. 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan). As of ~~June~~September 30, 2021, the 2013 Plan provides for the grant of up to 5,865,254 shares of common stock, of which ~~1,859,348~~1,901,869 shares remain available for future grant.

In addition, the Company has two legacy plans: The Pulmatrix Operating’s 2013 Employee, Director and Consultant Equity Incentive Plan (the “Original 2013 Plan”) and Pulmatrix Operating’s 2003 Employee, Director, and Consultant Stock Plan (the “2003 Plan”). As of ~~June~~September 30, 2021, a total of ~~6,048~~1,304 shares of common stock may be delivered under options outstanding under the Original 2013 Plan and the 2003 Plan, however no additional awards may be granted under the Original 2013 Plan or the 2003 Plan.

Stock Options

During the three months ended ~~June~~September 30, 2021, the Company granted ~~64,000~~70,500 options to employees and the fair value of the awards on the date of grant was $5351. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company granted ~~1,057,587~~1,128,087 options to employees and directors and the fair value of the awards on the date of grant was $~~1,228~~1,278.
16

During the three months ended ~~June~~September 30, 2020, the Company granted ~~105,000~~ 16,400options to employees ~~directors, or consultants~~ and the fair value of the awards on the date of grant was $~~117~~20. During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company granted ~~2,249,104~~ 2,265,504options to employees, directors and consultants and the fair value of the awards on the date of grant was $~~2,615~~2,634. The options vest over four yearsand expire ten years from the grant date for all options awarded during both years.

The following table summarizes stock option activity for the ~~six~~nine months ended ~~June~~September 30, 2021:
Summary of Stock Option Activity
Number of Options Weighted Average
Exercise Price Weighted Average
Remaining Contractual
Term (Years) Aggregate Intrinsic
Value Number of Options Weighted Average
Exercise Price Weighted Average
Remaining Contractual
Term (Years) Aggregate Intrinsic
Value
Outstanding January 1, 2021 2,899,837 $ 3.22 8.75 $ 60 2,899,837 $ 3.22 8.75 $ 60
Granted 1,057,587 $ 1.44 1,128,087 $ 1.41
Forfeited or expired (22,284 ) $ 2.39 (140,049 ) $ 4.22
Outstanding - June 30, 2021 3,935,140 $ 2.75 8.58 $ 1
Exercisable - June 30, 2021 1,488,568 $ 4.87 8.02 $ -
Outstanding - September 30, 2021 3,887,875 $ 2.66 8.36 $ -
Exercisable - September 30, 2021 1,675,671 $ 4.26 7.91 $ -

The estimated fair values of employee stock options granted during the three and ~~six~~nine months ended ~~June~~September 30, 2021, and ~~June~~September 30, 2020, were determined on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Schedule of Calculation of Fair Value Assumptions
For the Three Months Ended For the Six Months Ended For the Three Months Ended For the Nine Months Ended
June 30, June 30, September 30, September 30,
2021 2020 2021 2020 2021 2020 2021 2020
Contractual term 6.06 6.03 5.97 5.92
Expected option life (years) 6.07 6.03 5.98 5.92
Risk-free interest rate 0.97 % 0.45 % 0.60 % 1.62 % 0.94 % 0.40 % 0.62 % 1.61 %
Expected volatility 106.11 % 94.40 % 104.89 % 93.90 % 106.04 % 94.41 % 104.96 % 93.91 %
Expected dividend yield 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %

The risk-free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the weighted average of the historical volatility for industry peers and our own volatility. The expected life of the Company’s options was determined using the simplified method as a result of limited historical data regarding the Company’s activity. The dividend yield considers that the Company has not historically paid dividends and does not expect to pay dividends in the foreseeable future.

As of ~~June~~September 30, 2021, there was $~~2,687~~ 2,414of 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 ~~2.8~~ 2.58years. The following table presents total share-based compensation expense for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:
Schedule of Stock-Based Compensation Expense
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2021 2020 2021 2020

Research and development $ 55 $ 49 $ 111 $ 96
General and administrative 244 217 516 513
Total share-based compensation expense $ 299 $ 266 $ 627 $ 609
15
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020

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

10. Commitments and Contingencies

Research and Development Activities

The Company contracts with various other organizations to conduct research and development activities. As of ~~June~~September 30, 2021, wethe Company had aggregate commitments to pay approximately $256 ~~933~~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 usthe Company upon written notice. In some instances, the contracts, subject to certain conditions, may be cancelled by the third party.
17

Operating Leases

The Company has limited leasing activities as a lessee and are primarily related to its corporate headquarters located at 99 Hayden Avenue, Suite 390, Lexington, Massachusetts. The Company currently leases approximately 22,000 square feet of office and lab space in Lexington, Massachusetts under a lease that expires on June 30, 2022. The lease provides for base rent, and the Company is responsible for real estate taxes, maintenance, and other operating expenses applicable to the leased premises.

The components of lease expense for the Company as of ~~June~~September 30, 2021, are as follows:
Schedule of Components of Lease Expense
2021 2020 2021 2020 2021 2020 2021 2020
For the Three Months Ended For the Six Months Ended For the Three Months Ended For the Nine Months Ended
June 30, June 30, September 30, September 30,
2021 2020 2021 2020 2021 2020 2021 2020
Lease Cost:
Fixed lease cost $ 259 $ 228 $ 518 $ 391 $ 259 $ 259 $ 777 $ 650
Variable lease cost 96 99 222 218 97 99 319 317
Total lease cost $ 355 $ 327 $ 740 $ 609 $ 356 $ 358 $ 1,096 $ 967

Maturities of lease liabilities due under these lease agreements as of ~~June~~September 30, 2021 are as follows:
Schedule of Maturities of Lease Liabilities
2021
Operating Leases Operating Leases
Maturity of lease liabilities:
2021 $ 597
2021 (excluding the nine months ended September 30, 2021) $ 299
2022 (half year) 615 615
Total lease payments 1,212 914
Less: interest (28 ) (16 )
Total lease liabilities $ 1,184 $ 898

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11. Net Loss Per Share

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

As of June 30, As of September 30,
2021 2020 2021 2020

Options to purchase common stock 3,935,140 2,980,432 3,887,875 2,879,231
Warrants to purchase common stock 22,440,848 22,902,240 24,440,848 23,284,813
Total 26,375,988 25,882,672 28,328,723 26,164,044

12. Subsequent Events

~~During July,~~On November 8, 2021, the Company entered into an amendment to the Cipla Agreement which modifies certain provisions of the Cipla Agreement and resolves the current dispute between the Company and Cipla as further discussed in Note 6.
On October 14, 2021, the Company granted ~~34,900~~32,800 stock options to ~~employees~~employees.
On October 5, 2021, an extension to the Company’s operating lease for office and lab space was signed between the Company and 99 Hayden LLC. The 6^th amendment to the original lease executed on May 31, 2007 has a base rent of ~~30,000~~$1,725 ~~stock options~~from July 2022 to ~~a director.~~June 2023 and will expire on June 30, 2023.
The Company has evaluated its events subsequent to ~~June~~September 30, 2021 to the date these condensed consolidated financial statements were issued, and has determined that, other than what was disclosed above, it does not have any subsequent events to disclose in these condensed consolidated financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact contained herein, including statements regarding our business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results, are forward-looking statements. Words such as “anticipates,” “assumes,” “believes,” “can,” “could,” “estimates,” “expects,” “forecasts,” “guides,” “intends,” “is confident that,” “may,” “plans,” “seeks,” “projects,” “targets,” and “would,” and their opposites and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will actually be achieved. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

● the impact of the novel coronavirus (“COVID-19”) on the Company’s ongoing and planned clinical trials;

● the geographic, social and economic impact of COVID-19 on the Company’s ongoing and planned clinical trials;

● our history of recurring losses and negative cash flows from operating activities, significant future commitments and the uncertainty regarding the adequacy of our liquidity to pursue or complete our business objectives;
● our inability to carry out research, development and commercialization plans;

● our inability to manufacture our product candidates on a commercial scale on our own or in collaborations with third parties;

● our inability to complete preclinical testing and clinical trials as anticipated;

● our collaborators’ inability to successfully carry out their contractual duties;

● termination of certain license agreements;

● our ability to adequately protect and enforce rights to intellectual property, or defend against claims of infringement by others;

● difficulties in obtaining financing on commercially reasonable terms, or at all;

● intense competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution, personnel and resources than we do;

● entry of new competitors and products and potential technological obsolescence of our products;
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● adverse market and economic conditions;

● our ability to regain and maintain compliance with the NASDAQ Capital Market’s listing standards;
● loss of one or more key executives or scientists; and

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

Overview

Business

We are a clinical stage biotechnology company focused on the discovery and development of novel inhaled therapeutic products intended to prevent and treat respiratory and other diseases with significant unmet medical needs.

We design and develop inhaled therapeutic products based on our proprietary dry powder delivery technology, iSPERSE^™(inhaled Small Particles Easily Respirable and Emitted), which enables delivery of small or large molecule drugs to the lungs by inhalation for local or systemic applications. The iSPERSE powders are engineered to be small, dense particles with highly efficient dispersibility and delivery to airways. iSPERSE powders can be used with an array of dry powder inhaler technologies and can be formulated with a broad range of drug substances including small molecules and biologics. We believe the iSPERSE dry powder technology offers enhanced drug loading and delivery efficiency that outperforms traditional lactose-blend inhaled dry powder therapies.

We believe the advantages of using the iSPERSE technology include reduced total inhaled powder mass, enhanced dosing efficiency, reduced cost of goods and improved efficacy, safety, and tolerability profiles. Our goal is to develop breakthrough therapeutic products that are safe, convenient, and more effective than the existing therapeutic products for respiratory and other diseases where iSPERSE properties are advantageous.

Our current pipeline is aligned to this goal as we develop iSPERSE-based therapeutic candidates which target the prevention and treatment of a range of diseases. These therapeutic candidates include Pulmazole for the treatment of allergic bronchopulmonary aspergillosis (“ABPA”) in patients with asthma, and in patients with cystic fibrosis (“CF”), PUR1800 for the treatment of acute exacerbations of chronic obstructive pulmonary disease (“AECOPD”), and PUR3100 for the treatment of acute migraine. Each program is enabled by its unique iSPERSE formulation designed to achieve specific therapeutic objectives.

We intend to capitalize on our iSPERSE technology platform and our expertise in inhaled therapeutics to identify new product candidates for the prevention and treatment of diseases with significant unmet medical needs and to build our product pipeline beyond our existing candidates. In order to advance clinical trials for our therapeutic candidates and leverage the iSPERSE platform to enable delivery of partnered compounds, we intend to form strategic alliances with third parties, including pharmaceutical and biotechnology companies or academic or private research institutes.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years based on our drug development plans. We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities, as we:

● ~~continue~~resume Pulmazole clinical trials focused on the development of an inhaled anti-fungal therapy to prevent and treat allergic/hypersensitivity response to fungus in the lungs of patients with asthma and CF;

● continue ongoing clinical and non-clinical trials for PUR1800, focusing on the development of an inhaled kinase inhibitor for treatment of AECOPD;
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● initiate and complete non-clinical studies for PUR3100, an orally inhaled dihydroergotamine (“DHE”) to support planned Ph1 and Ph2 clinical studies for the treatment of acute migraine;

● seek regulatory approval for our product candidates;

● capitalize on our proprietary iSPERSE technology and our expertise in inhaled therapeutics and particle engineering to identify new product candidates for prevention and treatment of diseases with significant unmet medical needs;
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● invest in protecting and expanding our intellectual property portfolio and file for additional patents to strengthen our intellectual property rights and

● hire personnel to support our product development, commercialization, and administrative efforts

We do not have any products approved for sale and have not generated any revenue from product sales. We will not generate product sales unless and until we successfully complete clinical developments and obtain regulatory approvals for our product candidates. Additionally, we currently utilize third-party contract research organizations (“CROs”) to carry out our clinical development activities and third-party contract manufacturing organizations (“CMOs”) to carry out our clinical manufacturing activities as we do not yet have a commercial organization. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Accordingly, we anticipate that we will seek to fund our operations through public or private equity or debt financings, licensing agreements, collaborations with third parties, non-dilutive grants or other sources, potentially including collaborative commercial arrangements. Likewise, we intend to seek to limit our commercialization costs by partnering with other companies with complementary capabilities or larger infrastructure including sales and marketing.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

Recent Developments

Pulmazole

On April 15, 2019, we entered into a Development and Commercialization Agreement (the “Cipla Agreement”) with Cipla Technologies LLC (“Cipla”) for the co-development and commercialization, on a worldwide exclusive basis, of Pulmazole, our inhaled iSPERSE drug delivery system enabled formulation of the antifungal drug, itraconazole, for the treatment of all pulmonary indications, including ABPA in patients with asthma.

The 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.
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We initiated a Phase 2 study in 2019, entitled: “A Randomized, Double-Blind, Multicenter, Placebo-Controlled, Phase 2 Study to Evaluate the Safety, Tolerability, and Pharmacokinetics of Itraconazole Administered as a Dry Powder for Inhalation (PUR1900) in Adult Asthmatic Patients with ABPA. This study was terminated in July 2020 due to the ongoing impact of the COVID-19 pandemic on patient enrollment and study conduct.

We conducted a Type C meeting with the U.S. Food and Drug Administration (the “FDA”) on January 27, 2021 and leveraging the insights gained from this meeting, ~~now plan~~had planned to commence the Phase 2b clinical study when the risks of study conduct presented by the ongoing COVID-19 pandemic ~~are~~were reduced to an acceptable level. The Phase 2b clinical study design includes a 16-week dosing regimen as well as an exploration of potential efficacy endpoints, whereas the terminated Phase 2 study comprised only a 4-week dosing regimen with safety and tolerability as its primary endpoint. The longer dosing regimen of the ~~planned~~ new Phase 2b clinical study is supported by the 6-month inhalation toxicology study in dogs completed in April 2020.

On May 10, 2021, we sent a letter to Cipla notifying Cipla that it is in material breach of the Cipla Agreement due to Cipla’s anticipatory breach of its obligation under the Cipla Agreement to fund 50% of the development costs for Pulmazole in accordance with the terms of the Cipla Agreement. Due to the ongoing dispute with Cipla, ~~has refused~~development activities related to ~~approve~~ the ~~development plan and budget for the Phase 2b clinical study unless~~Pulmazole program have been paused.
On November 8, 2021, we ~~accept Cipla’s demands that we absorb a disproportionate amount of the costs and financial risks of the development plan. In the letter we stated that~~entered into an amendment with Cipla ~~had 30 days from the date of the letter~~(the “Amendment”) to ~~reaffirm that it will perform~~ the Cipla Agreement, ~~in accordance with its terms.~~
~~Since the date of our letter to Cipla, we have received several correspondences from Cipla disputing that Cipla is in material breach~~which modifies certain provisions of the Cipla Agreement and ~~that we are~~resolves the current dispute between us and Cipla regarding each party’s respective performance of the Cipla Agreement. Pursuant to the Amendment, among other things, (i) all development and commercialization activities with respect to the Product in India, South Africa, Sri Lanka, Nepal, Iran, Yemen, Myanmar and Algeria (such countries, the “Cipla Territory”) will be conducted exclusively by Cipla at Cipla’s sole cost and expense, (ii) Cipla shall be entitled to ~~terminate~~all profits from the ~~Agreement. Accordingly, Cipla and we have initiated certain mandatory dispute resolution procedures under~~sale of the Product in the Cipla ~~Agreement, which remain ongoing. As~~Territory, except that if Cipla successfully transfers manufacturing of the ~~date~~Product for the Cipla Territory to a manufacturing site determined by Cipla, we will become entitled to a royalty equal to 2% of ~~this report,~~net sales in the Cipla Territory, and (iii) following the depletion of development funding we ~~have not terminated~~initially set aside for the ~~Agreement~~development of the Product, we and Cipla will each be responsible for 60% and 40%, respectively, of our overhead costs and the ~~Agreement remains~~time spent by our employees and consultants on development of the Product (“Direct Costs”), provided, that Cipla will reimburse us an amount equal to 10% of aggregate Direct Costs upon the achievement of certain development milestones set forth in ~~full force and effect. However, we intend to~~the table below. We will continue to ~~seek Cipla’s reaffirmation~~share all other development costs with Cipla that are not Direct Costs, such as the cost of ~~all~~clinical research organizations, manufacturing costs and other third-party costs, on a 50/50 basis.
The Phase 2b study is expected to start in Q1 2023 with top-line data expected in mid 2024. In addition, if any development milestone is not met by the date that is 9 months after the applicable deadline for achieving such development milestone, either party may elect to terminate its obligation to fund additional development costs, in which case either (i) the non-Terminating Party can acquire the rights of ~~its obligations under~~ the ~~Cipla Agreement and, in~~Terminating Party for fair market value or (ii) the ~~absence of such reaffirmation, to pursue all available remedies.~~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 Joint Steering Committee (“JSC”). June 30, 2024

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Phase 3 Development Plan – Development Milestones
Development Milestone Milestone Date
25% of patients enrolled in Phase 3 Clinical Study dosed To be proposed by JSC
Company delivers Topline Results to the JSC To be proposed by JSC
PDUFA To be proposed by JSC
The Amendment also contains a mutual release of alleged breaches of the Cipla Agreement that may have occurred prior to the date of the Amendment.
PUR1800

On December 26, 2019, ~~Pulmatrix~~we entered into a License, Development and Commercialization Agreement (the “JJEI License Agreement”) with and Johnson & Johnson Enterprise Innovation, Inc. (“JJEI”). Under the JJEI License Agreement, ~~the Company has~~we granted JJEI an option to acquire (1) ~~the Company’s~~our rights to an intellectual property portfolio of materials and technology related to narrow spectrum kinase inhibitor compounds and (2) an exclusive, worldwide, royalty bearing license to PUR1800. In April 2021, JJEI exercised their option to terminate ~~the Company’s~~our license, development and commercialization agreement. All rights to the in-licensed kinase inhibitor portfolio, including PUR1800 and PUR5700, reverted to ~~Pulmatrix~~us upon the effective date of the termination, which was July 6, 2021. We are continuing the development of PUR1800, with ongoing clinical and toxicology studies to support programs in AECOPD and other chronic airway diseases.

~~As of the filing of this Quarterly Report, 18 patients have been dosed in~~We are conducting a ~~fully enrolled~~ Phase 1b safety, tolerability, and biomarker study ~~targeting approximately 12~~for patients ~~completing the study. Study subjects have~~with stable moderate-severe chronic obstructive pulmonary disease (“COPD”). The study is fully enrolled and top line data is anticipated in Q1 2022. The Phase 1b study is a randomized, three-way crossover double-blind study with 14 days of daily dosing with placebo and one of two doses of PUR1800, and includes a 28 day follow up period ~~between~~after each ~~crossover.~~treatment period.

The Ph1b study is being conducted at the Medicines Evaluation Unit in Manchester, United Kingdom (“UK”), where the UK vaccination rollout included up to 3 months between the first and second vaccination. This slowed the Ph1b enrollment rate during the first half of 2021. With many potential study subjects having completed their second vaccination, the Ph1b enrollment rate ~~has~~ accelerated, and ~~top~~the study is fully enrolled. Top line data is expected in Q1 of 2022.

~~The toxicology~~Toxicology studies ~~for~~in rats and dogs, with durations of 6 and 9 months respectively, are complete. The data from both studies demonstrated that PUR1800 is safe and well tolerated with chronic dosing, with little to no progression of findings from 28-day studies. This indicates potential for chronic dosing of PUR1800, enabling ~~Pulmatrix~~us to explore PUR1800 therapy for chronic respiratory disease such as steroid resistant asthma, COPD, or idiopathic pulmonary fibrosis. While the program is currently in development for treatment of acute exacerbation of AECOPD, these positive toxicology study results could expand potential indications and value of the program.

PUR3100

~~Nonclinical pharmacokinetic (“PK”) and~~
Two 14-day toxicology studies conducted in conformance with good laboratory practices (“GLP”) ~~toxicology studies are underway~~intended to support initial single dose clinical studies have been completed. We have submitted pre-investigational new drug (“IND”) questions to the FDA for which we have received written responses that have confirmed or clarified several manufacturing, nonclinical, and clinical aspects of the PUR3100 development program. After consideration of the responses, we have changed the initial clinical study from a ~~planned Ph1/Ph2 study. Pulmatrix intends~~2-part Phase 1/Phase 2 study to ~~dose~~a Phase 1 double-blind matching placebo (double-dummy) study in which healthy volunteers will be randomized to receive either 1 of 3 doses of PUR3100 or intravenous (“IV”) DHE. This study is intended to assess not only safety, tolerability, and pharmacokinetics of PUR3100 in humans, but also provide preliminary comparative bioavailability data between PUR3100 and IV DHE. Based on the ~~first patients~~initial FDA responses to the pre-IND questions, we believe that establishing comparative bioavailability between PUR3100 and IV DHE will enable the use of the 505(b)(2) pathway for marketing authorization for PUR3100. Additionally, we plan to request a Type C meeting with the FDA to further clarify some of the responses in ~~a Ph1/ Ph2 study~~relation to the overall nonclinical and clinical program. We anticipate submitting the IND in Q1 2022 and initiating the Phase 1 study in Q2 2022 with top line data anticipated in Q3 2022.
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In the FDA response to pre-IND questions, the FDA also indicated that it will be necessary to perform a safety study administering PUR3100 to otherwise healthy patients with asthma. In accordance with this guidance, we plan to conduct this study after the completion of the initial Ph1 clinical study. We then plan to conduct a randomized placebo-controlled Phase 2 study in patients with migraine to assess the safety and effectiveness of 2 doses PUR3100, in which the selection of the 2 doses has been informed by the initial clinical study. We anticipate that this Phase 2 study will initiate in Q4 ~~2022.~~2022 and complete in mid 2023.
Nasdaq Minimum Bid Price Requirement

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 letter also indicated that we will be provided with a compliance period of 180 calendar days, or until February 14, 2022 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).
In order to regain compliance with Nasdaq’s minimum bid price requirement, our common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. In the event we do not regain compliance by the end of the Compliance Period, we may be eligible for additional time to regain compliance. To qualify, we will be required to meet the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If we meet these requirements, we may be granted an additional 180 calendar days to regain compliance. However, if it appears to The Nasdaq Capital Market that we will be unable to cure the deficiency, or if we are not otherwise eligible for the additional cure period, The Nasdaq Capital Market will provide notice that our common stock will be subject to delisting. We have not regained compliance as of the date of this report.
Financial Overview

Revenues
To date, we have not generated any product sales. The 2021 revenue was generated by the collaboration agreement and license agreement with Cipla on our Pulmazole program, the JJEI License Agreement for our PUR1800 kinase inhibitor, and immaterial royalties recorded from the Sensory Cloud agreement. In April, 2021, JJEI notified us that JJEI was exercising its option to terminate the Company’s license, development, and commercialization agreement. The agreement remained in effect until the termination dateEffective as of July 6, 2021, the JJEI License Agreement was terminated and all revenues pursuant to the agreement ~~will be~~were recognized as of that date. ~~We do not expect to receive any further revenue under the Cipla Agreement from the non-refundable upfront payment until the ongoing contractual dispute with Cipla has been resolved.~~
For more discussion on the collaboration or licensing agreements, please see Note 5 of the condensed consolidated financial statements in the Company’s annual report on Form 10-K filed with the SEC on March 23, 2021 and amended on March 26, 2021 and May 14, 2021.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates, and include:

● employee-related expenses, including salaries, benefits and share-based compensation expense;

● expenses incurred under agreements with CROs or CMOs, and consultants that conduct our clinical trials and preclinical activities;
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● 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;
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● 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 (81% 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 share-based compensation for personnel and consultants in executive, finance, business development, corporate communications and human resource functions, facility costs not otherwise included in research and development expenses, patent filing fees and 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

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.~~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 accrued expenses and share-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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In this Form 10-Q, in Part I, Item 1, Note 2, “Summary of Significant Accounting Policies and Recent Accounting Standards” and in the 2020 Form 10-K filed with the SEC on March 23, 2021 and amended on March 26, 2021 and May 14, 2021, both the Notes to the condensed consolidated Financial Statements in Part II, Item 8, and the “Critical Accounting Policies” in Part II, Item 7 describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting policies and estimates since the 2020 Form 10-K filed on March 23, 2021 and amended on March 26, 2021 and May 14, 2021.

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Results of Operations

Three Months Ended ~~June~~September 30, 2021 Compared with Three Months Ended ~~June~~September 30, 2020

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

For the Three Months Ended
June 30,
2021 2020 Change
Revenues $ 2,254 $ 3,500 $ (1,246 )
Operating expenses
Research and development 4,541 3,184 1,357
General and administrative 1,562 1,490 72
Total operating expenses 6,103 4,674 1,429
Loss from operations (3,849 ) (1,174 ) (2,675 )
Other income (expense)
Interest income 2 13 (11 )
Other expense, net (5 ) (9 ) 4
Net loss $ (3,852 ) $ (1,170 ) $ (2,682 )
For the Three Months Ended
September 30,
2021 2020 Change
Revenues $ 1,069 $ 4,372 $ (3,303 )
Operating expenses:
Research and development 4,026 3,873 153
General and administrative 1,656 1,776 (120 )
Goodwill impairment 3,577 - 3,577
Total operating expenses 9,259 5,649 3,610
Loss from operations (8,190 ) (1,277 ) (6,913 )
Other income (expense):
Interest income 1 13 (12 )
Warrant inducement expense - (9,289 ) 9,289
Other income (expense), net 5 - 5
Net loss $ (8,184 ) $ (10,553 ) $ 2,369

Revenue — For the three months ended ~~June~~September 30, 2021, ~~$2.2~~$1.1 million was recorded in revenue which was primarily ~~comprised of $0.3 million and $1.9 million, which were~~from the result of the collaboration and licensing agreements with ~~Cipla and JJEI, respectively.~~JJEI. For the three months ended ~~June~~September 30, 2020, ~~$3.5~~$4.4 million was recorded in revenue which was comprised of ~~$1.8~~$1.4 million and ~~$1.7~~$3.0 million, which were the result of the collaboration and licensing agreements with Cipla and JJEI, respectively.

Research and development expenses — For the three months ended ~~June~~September 30, 2021, research and development ~~expense was $4.5~~expenses were $4.0 million compared to ~~$3.2~~$3.9 million for the three months ended ~~June~~September 30, 2020, an increase of ~~$1.3~~$0.1 million. The increase was primarily due to increased spend of ~~$1.6~~$0.9 million on the PUR3100 project due to preclinical and manufacturing costs partially offset by decreased spend of $0.3 million on the PUR1800 program and $0.5 million on the Pulmazole Phase 2 clinical trial due to its ~~Covid-19~~COVID-19 related termination in 2020.

General and administrative expenses — General and administrative expenses were ~~$1.6~~$1.7 million for the three months ended ~~June~~September 30, 2021, compared to ~~$1.5~~$1.8 million for the three months ended ~~June~~September 30, 2020, ~~an increase~~a decrease of $0.1 million. The ~~increase~~decrease was primarily due to ~~increased legal, patent, and public company~~the decreased employment costs of $0.2 million partially offset by ~~decreased employment costs.~~increased legal expense of $0.1 million.

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~~Six months ended June~~Nine Months Ended September 30, 2021 Compared with ~~Six~~Nine Months Ended ~~June~~September 30, 2020

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

For the Six Months Ended For the Nine Months Ended
June 30, September 30,
2021 2020 Change 2021 2020 Change
Revenues $ 3,644 $ 6,262 $ (2,618 ) $ 4,713 $ 10,634 $ (5,921 )
Operating expenses
Operating expenses:
Research and development 8,397 8,471 (74 ) 12,423 12,344 79
General and administrative 3,181 3,702 (521 ) 4,837 5,478 (641 )
Goodwill impairment 3,577 - 3,577
Total operating expenses 11,578 12,173 (595 ) 20,837 17,822 3,015
Loss from operations (7,934 ) (5,911 ) (2,023 ) (16,124 ) (7,188 ) (8,936 )
Other income (expense)
Other income (expense):
Interest income 5 65 (60 ) 6 78 (72 )
Warrant inducement expense - (9,289 ) 9,289
Other expense, net (27 ) (10 ) (17 ) (22 ) (10 ) (12 )
Net loss $ (7,956 ) $ (5,856 ) $ (2,100 ) $ (16,140 ) $ (16,409 ) $ 269

Revenue — For the ~~six~~nine months ended ~~June~~September 30, 2021, ~~$3.6~~$4.7 million was recorded in revenue which was comprised of $0.9 million and ~~$2.7~~$3.8 million, which were ~~primarily~~ the result of the collaboration and licensing agreements with Cipla and JJEI, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2020, ~~$6.3~~$10.6 million was recorded in revenue which was comprised of ~~$3.9~~$5.3 million and ~~$2.4~~$5.3 million respectively, which were the result of the collaboration and licensing agreements with Cipla and JJEI, respectively.

Research and development expenses — For the ~~six~~nine months ended ~~June~~September 30, 2021 research and development expense was ~~$8.4~~$12.4 million compared to ~~$8.5~~$12.3 million for the ~~six~~nine months ended ~~June~~September 30, 2020, ~~a decrease~~an increase of $0.1 million. The ~~decrease~~increase was primarily due to increased spend of $3.2 million on pre-clinical and manufacturing costs related to our PUR3100 program and $0.2 million in operating expenses, partially offset by decreased spend of ~~$1.2~~$1.6 million on ~~the~~our PUR1800 ~~project due primarily to decreased manufacturing costs, $1.2~~program, and $1.7 million on the Phase 2 Pulmazole clinical trial due to its ~~Covid-19~~COVID-19 related termination in ~~2020, which is partially offset by increased spend of $2.3 million on pre-clinical and manufacturing costs related to our PUR3100 program.~~2020.

General and administrative expenses — General and administrative expenses were ~~$3.2~~$4.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$3.7~~$5.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020, a decrease of ~~$0.5~~$0.6 million. The decrease was primarily due to decreased employment ~~and consulting~~ costs of ~~$0.4 million and $0.1 million, respectively.~~$0.6 million.

Liquidity and Capital Resources

Through ~~June~~September 30, 2021, we have incurred an accumulated deficit of ~~$242.4~~$250.6 million, primarily as a result of expenses incurred through a combination of research and development activities related to our various product candidates and general and administrative expenses supporting those activities. We have financed our operations since inception primarily through the sale of preferred and common stock, the issuance of convertible promissory notes, term loans and collaboration and license agreements. Our total cash and cash equivalents balance as of ~~June~~September 30, 2021 was ~~$56.9~~$53.5 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.

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We expect that our existing cash and cash equivalents as of ~~June~~September 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months following the date of this Quarterly Report on Form 10-Q. 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.
In May 2021, we entered into an At-The-Market Sales Agreement (the “Sales Agreement”) with H.C. Wainwright and Co., LLC (“HCW”) to act as our sales agent with respect to the issuance and sale of up to $20,000,000 of our shares of common stock, from time to time in an at-the-market public offering (the “ATM Offering”). Sales of common stock under the Sales Agreement are made pursuant to an effective shelf registration statement on Form S-3, which was filed with the SEC on May 26, 2021, and subsequently declared effective on June 9, 2021 (File No. 333-256502), and a related prospectus. HCW acts as our sales agent on a commercially reasonable efforts basis, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of The NASDAQ Capital Market. If expressly authorized by us, HCW may also sell our common stock in privately negotiated transactions. There is no specific date on which the ATM Offering will end, there are no minimum sale requirements and there are no arrangements to place any of the proceeds of the ATM Offering in an escrow, trust or similar account.
HCW is entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of our common stock pursuant to the Sales Agreement.
There have been no sales of our common stock during the three months ended ~~June~~September 30, 2021 under the Sales Agreement.
Impact of COVID-19 on the Company’s Operations, Financial Condition and Liquidity

The ultimate impact of the COVID-19 pandemic on the Company’s 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 including~~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 the board or management of the Company, may determine are needed.

The COVID-19 pandemic has created significant economic uncertainty and volatility in the credit and capital markets. The Company 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.

Our future funding requirements will depend on many factors, including, but not limited to:

● the impact of the COVID-19 pandemic on the Company’s ongoing and planned clinical trials;

● the geographic, social and economic impact of COVID-19 on the Company’s ongoing and planned clinical trials;

● the initiation, progress, timing, costs and results of clinical studies for existing and new pipeline programs based on iSPERSE;
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● the outcome, timing and cost of regulatory approvals by the FDA and European regulatory authorities, including the potential for these agencies to require that we perform studies in addition to those that we currently have planned;

● the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

● our need to expand our research and development activities;
● our need and ability to hire additional personnel;

● our need to implement additional infrastructure and internal systems;

● the cost of establishing and maintaining a commercial-scale manufacturing line; and

● the cost of establishing sales, marketing and distribution capabilities for any products for which we may receive regulatory approval.

If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected.

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):

Nine Months Ended
Six months ended
June 30, September 30,
2021 2020 2021 2020
Net cash used in operating activities $ (12,019 ) $ (4,200 ) $ (15,331 ) $ (9,715 )
Net cash used in investing activities (18 ) (98 ) (118 ) (198 )
Net cash provided by financing activities 37,283 8,113 37,283 20,981
Net increase in cash and cash equivalents $ 25,246 $ 3,815
Net increase in cash, cash equivalents $ 21,834 $ 11,068
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Cash Flows from Operating Activities

Net cash used in operating activities for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$12.0~~$15.3 million, which was primarily the result of a net loss of ~~$8.0~~$16.1 million partially offset by ~~$1.2~~$5.3 million in net non-cash adjustments, and ~~$5.2~~$4.5 million in cash outflows associated with changes in operating assets and liabilities. Our non-cash adjustments were primarily comprised of ~~$0.6~~$3.6 million of goodwill impairment, $0.9 million of share-based compensation expense, ~~$0.5~~$0.7 million of amortization of operating lease right-of-use asset and $0.1 million of depreciation expense. The net cash outflows associated with changes in operating assets and liabilities were primarily due to decreases of ~~$1.9~~$2.9 million in deferred revenue, ~~$1.7~~$0.9 million in ~~accounts receivable, $0.8~~operating lease liability, $0.6 million in accrued expenses, ~~$0.8~~and $0.1 million in prepaid expenses and other current assets.
Net cash used in operating activities for the nine months ended September 30, 2020 was $9.7 million which was primarily the result of a net loss of $16.4 million partially offset by $10.9 million of net non-cash adjustments, and $4.2 million in cash outflows associated with changes in operating assets and liabilities. Our non-cash adjustments were primarily comprised of $9.3 million in warrant exercise inducement expense, $0.9 million of share-based compensation expense, $0.6 million of amortization of operating lease right-of-use asset and $0.1 million of depreciation expense. The net cash outflows associated with changes in operating assets and liabilities were primarily due to decreases of $9.1 million in deferred revenue, $0.6 million in prepaid expenses and other current assets, and $0.5 million in operating lease liability partially offset by an increase ~~of $0.5~~totaling $6.0 million in accounts ~~payable inflows.~~receivable.

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Net cash used in operating activities for the six months ended June 30, 2020 was $4.2 million which was primarily the result of a net loss of $5.9 million offset by $1.1 million of net non-cash adjustments and 0.6 million in cash inflows associated with changes in operating assets and liabilities. Our non-cash adjustments were primarily comprised of $0.6 million of share-based compensation expense, $0.1 million of depreciation expense and $0.4 million of amortization of operating lease right-of-use asset. The net cash inflows associated with changes in operating assets and liabilities were primarily due to increases of $6.9 million in accounts receivable and $0.9 million in accrued expenses partially offset by decreases of $5.9 million in deferred revenue, $.7 million in prepaid expenses and other current assets and $0.3 million in accounts payable and $0.3 million of operating lease liability.
Cash Flows from Investing Activities

Net cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020 were entirely due to the purchases of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2021, was $37.3 million as compared to ~~$8.1~~$21.0 million for the ~~six~~nine months ended ~~June~~September 30, 2020. Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2021 were the result of the issuance of common stock of $37.1 million from a registered direct offering, and warrant exercises of $0.2 million. Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2020 resulted from the issuance of common stock, net of issuance costs, of $7.3 million which was as a result of a registered direct offering to certain investors and ~~$0.8~~$13.7 million from warrant and stock option exercises.

Financings

2021

On May 26, 2021, we entered into the Sales Agreement with respect to the issuance and sale of up to $20,000,000 of our common stock from time to time in an at-the-market public offering. There have been no sales of the Company’s common stock during the three and nine months ended ~~June~~September 30, 2021 under the Sales Agreement.

On February 16, 2021 we closed on a registered direct offering with certain healthcare-focused institutional investors to purchase up to an aggregate of 20,000,000 shares of our common stock at $2.00 per share. The gross proceeds were $40.0 million, prior to deducting placement agent’s fees and other offering expenses. In connection with the offering, 1,300,000 warrants with a five-year expiry were issued to placement agent designees at an exercise price of $2.50 per share. The shares of common stock were offered by ~~Pulmatrix~~us pursuant to a “shelf” registration statement on Form S-3 (File No. 333-230225) previously filed with the SEC on March 12, 2019 and declared effective by the SEC on March 15, 2019. After giving effect to fees and expenses incurred as a result of the offering, we recorded approximately $37.1 million.

In addition to the registered direct offering, during the ~~six~~nine months ended ~~June~~September 30, 2021, warrants issued in 2019 and 2020 were exercised on a cash basis to purchase 143,965 shares of our common stock. We issued 143,965 shares of our common stock and recorded approximately $0.2 million.

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2020

On July 9, 2020, we entered into letter agreements with certain existing accredited investors to exercise certain existing and outstanding warrants (the “Existing Warrants”) to purchase up to an aggregate of 10,085,741 shares of our common stock at the existing exercise price per share of $1.35. The Existing Warrants were issued in an underwritten public offering pursuant to a registration statement on Form S-1 (File No. 333-230395) and an additional registration statement on Form S-1 (File No. 333-230714) filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended that was consummated in April 2019. In consideration for the exercise of the Existing Warrants for cash, the exercising holders received new unregistered warrants to purchase up to an aggregate of 10,085,741 shares of common stock at an exercise price of $1.80 per share and with an exercise period of five years from July 14, 2020. The gross proceeds to the Company from the exercise were approximately $13.6 million, prior to deducting placement agent fees and offering expenses. In addition, we issued 655,573 unregistered warrants to placement agent designees at an exercise price of $2.25 and with an exercise period of five years from July 14, 2020. All warrants issued in the financing were subsequently registered pursuant to a registration statement on Form S-3 (File No. 333-242341) which was declared effective on August 13, 2020.
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During the ~~six~~nine months ended ~~June~~September 30, 2020, we issued and sold in a registered direct offering (“Offering”) an aggregate of 4,787,553 shares of our common stock at $1.671 per share, for gross proceeds of approximately $8.0 million before the deduction of placement agent fees and offering expenses. In a concurrent private placement, we issued to the Purchasers, for each share of common stock purchased in the Offering, a warrant to purchase one share of common stock. The warrants have an exercise price of $1.55 per share and are exercisable to purchase an aggregate of up to 4,787,553 shares of common stock. In addition, we issued to the placement agent for the Offering warrants to purchase 311,191 shares of common stock at an exercise price of $2.0888 per share. Both the common warrants and the placement agent warrants are exercisable immediately upon issuance and terminate on April 20, 2022. The shares of common ~~shares,~~stock, common warrants, and placement agent warrants were all offered pursuant to a “shelf” registration statement on Form S-3 (File No. 333-230225) previously filed with the SEC on March 12, 2019 and declared effective by the SEC on March 15, 2019.

In addition to the warrant exercise and the registered direct offering, during the ~~six~~nine months ended ~~June~~September 30, 2020, we issued 944,746 shares of common stock, upon exercise of warrants to purchase 1,147,184 shares of common stock and collected proceeds of $775.

Off-Balance Sheet Arrangements

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

(a) 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.

(b) Changes in Internal Controls. 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 quarter ended ~~June~~September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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.
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Item 1A. Risk Factors

The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on March 23, 2021, and amended on March 26, 2021 and May 14, 2021. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price.

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, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

~~Risk~~ Risks Related to Our Business

We are in a contractual dispute with Cipla, our clinical development partner for Pulmazole, which may result in delays to the clinical development program for Pulmazole or the loss of our rights to Pulmazole and/or financial losses.
On May 10, 2021, we sent a letter to Cipla notifying Cipla that it is in material breach of the Cipla Agreement due to Cipla’s anticipatory breach of its obligation under the Cipla Agreement to fund 50% of the development costs for Pulmazole in accordance with the terms of the Cipla Agreement. Cipla has refused to approve the development plan and budget for the Phase 2b clinical study unless we accept Cipla’s demands that we absorb a disproportionate amount of the costs and financial risks of the development plan. In the letter we stated that Cipla had 30 days from the date of the letter to reaffirm that it will perform the Cipla Agreement in accordance with its terms.
Since the date of our letter to Cipla, we have received several correspondences from Cipla disputing that Cipla is in material breach of the Cipla Agreement and that we are entitled to terminate the Agreement. Accordingly, Cipla and we have initiated certain mandatory dispute resolution procedures under the Cipla Agreement, which remain ongoing. As of the date of this report, we have not terminated the Agreement and the Agreement remains in full force and effect. However, we intend to continue to seek Cipla’s reaffirmation of all of its obligations under the Cipla Agreement and, in the absence of such reaffirmation, to pursue all available remedies.
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Cipla may continue to disagree with our assertion that it is in breach of the Cipla Agreement, which may force us to arbitrate our contractual right to terminate the Cipla Agreement for Cipla’s breach. We cannot predict the outcome of any arbitration proceeding and an arbitration panel may not agree that we are entitled to terminate the Cipla Agreement for Cipla’s material breach. We expect that any arbitration proceeding against Cipla will be costly, time consuming and may distract management’s attention from the development of other drug candidates.
In addition, Cipla may make counterclaims against us and there is no guaranty we will be able to successfully defend any such counterclaims. If Cipla were to successfully prosecute any counterclaims against us we may be subject to monetary damages or the loss of the Pulmazole program to Cipla or both. Furthermore, the Cipla Agreement provides that the prevailing party is entitled to recover its costs incurred in connection with any arbitration. Accordingly, if we are forced to arbitrate with Cipla and are not successful, we may be forced to pay Cipla’s arbitration costs, which could be substantial.
If we cannot resolve our disputes with Cipla, either through a negotiated settlement or an arbitration proceeding, we may be required suspend to development of Pulmazole, be forced to pay legal costs and/or monetary damages and/or lose our rights to Pulmazole, any of which may have a material adverse effect on us.
The COVID-19 pandemic has caused interruptions or delays of our clinical studies and may continue to have a significant adverse effect on our business.
The global health crisis caused by the COVID-19 pandemic and its resurgences has and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence. ~~In addition, a new~~The Delta variant of COVID-19, which appears to be the most transmissible variant to date, has ~~begun to spread globally.~~become the predominant strain. The ultimate impact of the Delta variant cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and the response by governmental bodies and regulators. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business.
A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock.

In July of 2019, we initiated a Phase 2 clinical investigation for Pulmazole, our inhaled formulation of itraconazole, an anti-fungal drug commercially available as an oral drug that we are developing to treat and prevent pulmonary fungal infections. To date, five subjects have completed the 28-day dosing regimen, receiving either 10 mg, 20 mg, or 35 mg of Pulmazole or placebo in a randomized, double-blind treatment assignment. In the first quarter of 2020, we initiated the process of establishing additional study sites and amending the study protocol in order to improve enrollment. Also, on January 28, 2020 the FDA granted Fast Track designation to Pulmazole. However, as the COVID-19 pandemic escalated in late March and early April 2020, we were notified that 11 out of 21 clinical sites suspended enrollment in the Pulmazole study due to issues associated with COVID-19. In July 2020, we terminated our Phase 2 clinical study for Pulmazole as a result of the disruptions and safety concerns caused by the COVID-19 pandemic. In January 2021, we completed a Type C Meeting with the FDA for the further clinical development of Pulmazole. Based on the feedback received, we intend to initiate a Phase 2b clinical study of Pulmazole ~~in ABPA in Q1 2022.~~as soon as possible. Actual study start will be determined upon Cipla and Pulmatrix joint steering committee approval of final budget and assessment of COVID-19 impact on patient safety and study operations. To date, Cipla has refused to approve the budget and development plan for the Phase 2b clinical study unless we accept Cipla’s demands that we absorb a disproportionate amount of the costs and financial risks of the development plan. On May 10, 2021, we sent a letter to Cipla notifying Cipla that it is in material breach of our development and commercialization agreement due to Cipla’s anticipatory breach of its obligation under the Cipla Agreement to fund 50% of the development costs for Pulmazole in accordance with the terms of the Cipla Agreement. Since the date of our letter to Cipla, we have received several correspondences from Cipla disputing that Cipla is in material breach of the Cipla Agreement and that we are entitled to terminate the Agreement. Accordingly, Cipla and we have initiated certain mandatory dispute resolution procedures under the Cipla Agreement, which remain ongoing. As of the date of this report, we have not terminated the Agreement and the Agreement remains in full force and effect. However, we intend to continue to seek Cipla’s reaffirmation of all of its obligations under the Cipla Agreement and, in the absence of such reaffirmation, to pursue our all available remedies.
Separately, in February 2021, we initiated a Phase 1b study of PUR1800 in patients with stable COPD. As of the filing date of this Quarterly Report, ~~we successfully dosed 18 patients with PUR1800.~~the study is fully enrolled and top line data is anticipated in Q1 2022. The Phase 1b study data is anticipated in the first quarter 2022. The COVID-19 pandemic could delay this date or impact enrollment generally to the extent we cannot secure sites to enroll patients, patients remain or become subject to government “stay at home” mandates, patients feel like they cannot safely visit trial sites or patients drop out due to COVID-19 related issues.
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Moreover, the ongoing COVID-19 outbreak has had and may continue to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations have been and may continue to be adversely affected to the extent that COVID-19 or any other epidemic harms the global economy generally.

We do not yet know the full extent of potential delays or impact on our business, our relationship with our business partners, our clinical trials or the global economy as a whole. However, any one or a combination of these events could have an adverse effect on the operation of and results from our clinical trials and on our other business operations.

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 pre-clinical 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;
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● announcements and events surrounding financing efforts, including debt and equity securities;

● our inability to enter into new markets or develop new products;

● reputational issues;
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● 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, ~~on March 12, 2020, the WHO declared COVID-19 to be a pandemic, and~~ the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty ~~in recent weeks.~~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 Nasdaq indicating that, based upon the closing bid price of our common stock for the 30 consecutive business day period between 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). In order to regain compliance with Nasdaq’s minimum bid price requirement, our common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. In the event that we do not regain compliance by the end of the Compliance Period, we may be eligible for additional time to regain compliance. To qualify, we will be required to meet the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If we meet these requirements, we may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that we will be unable to cure the deficiency, or if we are not otherwise eligible for the additional cure period, Nasdaq will provide notice that our common stock will be subject to delisting.
To resolve the noncompliance, we may consider available options including a reverse stock split, which may not result in a permanent increase in the market price of our common stock, which is dependent on many factors, including general economic, market and industry conditions and other factors detailed from time to time in the reports we file with the SEC. It is not uncommon for the market price of a company’s shares to decline in the period following a reverse stock split.
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Although we expect to take actions intended to restore our compliance with the listing requirements, we can provide no assurance that any action taken by us would be successful, or that any such action would stabilize the market price or improve the liquidity of our common stock. 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 quarter ended ~~June~~September 30, 2021.

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.

3135

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: ~~August~~November 10, 2021 By: /s/ Teofilo Raad
Teofilo Raad

President and Chief Executive Officer
(Principal Executive Officer)

Date: ~~August~~November 10, 2021 By: /s/ Michelle S. ~~Siegert.~~Siegert
Michelle S. ~~Siegert.~~Siegert

Vice President, Finance
(Principal Financial Officer)

3236
EXHIBIT INDEX

Exhibit
No. Description

1.1 At The Market Offering Agreement, dated May 26, 2021, by and between Pulmatrix, Inc. and H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit 1.2 to Registration Statement on Form S-3 filed with the Securities and Exchange commission on May 26, 2021).
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 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).

3.3
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).

4.1
Form of Common Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2020).

4.2 Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2020).

4.3 Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2021).

~~10.1~~ ~~Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2020).~~
31.1*
~~10.2~~ ~~Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2021).~~
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* The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2021 (unaudited) and December 31, 2020, (ii) Condensed Consolidated Statements of Operations for the three months and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (unaudited), (iii) Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (unaudited), and (iv) Notes to Condensed Consolidated Financial Statements (unaudited).

104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
3337

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

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

					Additional								Shares		Amount		Capital		Deficit			Total
	Common Stock				Paid-In		Accumulated										Additional
	Shares		Amount		Capital		Deficit			Total			Common Stock				Paid-In		Accumulated
Balance — January 1, 2020		19,994,560	$	2	$	226,178	$	(215,161	)	$	11,019
													Shares		Amount		Capital		Deficit			Total
Balance — January 1, 2021														36,105,097	$	4	$	257,604		(234,469	)		23,139
Issuance of common stock, net of issuance costs														20,000,000		2		37,077		-			37,079
Exercise of warrants														143,965		-		204		-			204
Share-based compensation														-		-		328		-			328
Exercise of pre-funded warrants		300,000		-		-		-			-			-		-
Exercise of common stock options		19,997		-		21		-			21			-		-
Exercise of warrants		206,747		-		239		-			239
Warrant inducement expense														-		-
Net loss														-		-		-		(4,104	)		(4,104	)
Balance — March 31, 2021														56,249,062		6		295,213		(238,573	)		56,646

Share-based compensation		-		-		343		-			343			-		-		299		-			299
Net loss		-		-		-		(4,686	)		(4,686	)		-		-		-		(3,852	)		(3,852	)
Balance — March 31, 2020		20,521,304	$	2	$	226,781	$	(219,847	)	$	6,936
Balance — June 30, 2021														56,249,062		6		295,512		(242,425	)		53,093

Balance, March 31, 2020		20,521,304	$	2	$	226,781	$	(219,847	)	$	6,936
Issuance of common stock, net of issuance costs		4,787,553		1		7,313		-			7,314
Exercise of common stock options		2,500		-		3		-			3
Exercise of warrants		437,999		-		536		-			536
Share-based compensation		-		-		266		-			266			-		-		284		-			284
Net loss		-		-		-		(1,170	)		(1,170	)		-		-		-		(8,184	)		(8,184	)
Balance — June 30, 2020		25,749,356	$	3	$	234,899	$	(221,017	)	$	13,885
Balance, June 30, 2020		25,749,356	$	3	$	234,899	$	(221,017	)	$	13,885
Balance —September 30, 2021														56,249,062	$	6	$	295,796	$	(250,609	)	$	45,193

	2021			2020
	For the Six Months Ended						2021			2020
	June 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020
Cash flows from operating activities:
Net loss	$	(7,956	)	$	(5,856	)	$	(16,140	)	$	(16,409	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		88			103			134			157
Amortization of operating lease right-of-use asset		481			359			728			593
Share-based compensation		627			609			911			912
Impairment of goodwill								3,577			-
Warrant inducement expense								-			9,289
Changes in operating assets and liabilities:
Accounts receivable		(1,682	)		6,847			75			5,983
Prepaid expenses and other current assets		(799	)		(671	)		(141	)		(617	)
Accounts payable		495			(321	)		(50	)		9
Accrued expenses		(837	)		931			(643	)		(125	)
Operating lease liability		(559	)		(317	)		(845	)		(467	)
Deferred revenue		(1,877	)		(5,884	)		(2,937	)		(9,040	)
Net cash used in operating activities		(12,019	)		(4,200	)
Net cash (used in)/provided by operating activities								(15,331	)		(9,715	)
Cash flows from investing activities:
Purchases of property and equipment		(18	)		(98	)		(118	)		(198	)
Net cash used in investing activities		(18	)		(98	)		(118	)		(198	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		37,079			7,314			37,079			7,314
Proceeds from exercise of common stock options		-			24			-			24
Proceeds from exercise of warrants		204			775
Proceeds from exercise of common stock warrants, net of issuance costs								204			11,351
Proceeds from exercise of common stock warrants, shares to be issued								-			2,292
Proceeds from Paycheck Protection Program loan		-			617			-			617
Repayment of Paycheck Protection Program loan		-			(617	)		-			(617	)
Net cash provided by financing activities		37,283			8,113			37,283			20,981
Net increase in cash, cash equivalents and restricted cash		25,246			3,815			21,834			11,068
Cash, cash equivalents and restricted cash — beginning of period		31,861			23,644			31,861			23,644
Cash, cash equivalents and restricted cash — end of period	$	57,107		$	27,459		$	53,695		$	34,712

Supplemental disclosures of non-cash investing and financing information:
Fixed asset purchases in accounts payable	$	88		$	12		$	-		$	21

	June 30, 2021		December 31, 2020
	At		At
	June 30, 2021		December 31, 2020
Prepaid insurance	$	632	$	276
Prepaid clinical trials		531		317
Deferred operating costs		283		74
Prepaid other		150		130
Total prepaid and other current assets	$	1,596	$	797

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

Phase 2b Development Plan – Development Milestones

Development Milestone		Milestone Date

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

Company delivers summary of key efficacy and safety data to include FEV1, IgE, ACQ-6, number of subjects withdrawn, any severe adverse events related to the medication and an overall summary table of adverse events (“Topline Results”) to JSC		June 30, 2024

Phase 3 Development Plan – Development Milestones

Development Milestone		Milestone Date

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

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

PDUFA		To be proposed by JSC

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

	For the Three Months Ended					For the Six Months Ended						For the Three Months Ended					For the Nine Months Ended
	June 30,					June 30,						September 30,					September 30,
	2021		2020			2021			2020			2021		2020			2021			2020
Expected life (years)		-		2			5			2
Contractual term (years)													-		5			5			4
Risk-free interest rate		-		0.20	%		0.57	%		0.20	%		-		0.28	%		0.57	%		0.26	%
Expected volatility		-		98.51	%		105.77	%		98.51	%		-		99.0	%		105.8	%		98.8	%
Expected dividend yield		-		0	%		0	%		0	%		-		0	%		0	%		0	%

					Number of Shares Underlying Warrants								Number of Shares Underlying Warrants
					For the Period Ended June 30								For the Period Ended September 30
Issue Date	Classification	Exercise Price		Expiration Date	2021		2020		Classification	Exercise Price		Expiration Date	2021		2020
February 16, 2021	Equity	$	2.50	February 11, 2026		1,300,000		—	Equity	$	2.50	February 11, 2026		1,300,000		—
August 07, 2020	Equity	$	1.80	July 14, 2025		1,814,815		—	Equity	$	1.80	July 14, 2025		1,814,815		1,814,815
August 07, 2020	Equity	$	2.25	July 14, 2025		218,713		—	Equity	$	2.25	July 14, 2025		218,713		218,713
July 23, 2020	Equity	$	1.80	July 14, 2025		1,550,000		—	Equity	$	1.80	July 14, 2025		1,550,000		1,550,000
July 13, 2020	Equity	$	2.25	July 14, 2025		436,860		—	Equity	$	2.25	July 14, 2025		436,860		436,860
July 13, 2020	Equity	$	1.80	July 14, 2025		6,695,926		—	Equity	$	1.80	July 14, 2025		6,695,926		6,720,926
April 20, 2020	Equity	$	1.55	April 20, 2022		4,787,553		4,787,553	Equity	$	1.55	April 20, 2022		4,787,553		4,787,553
April 20, 2020	Equity	$	2.0888	April 20, 2022		311,191		311,191	Equity	$	2.0888	April 20, 2022		311,191		311,191
April 8, 2019	Equity	$	1.35	April 8, 2024		1,317,812		11,692,518	Equity	$	1.35	April 8, 2024		1,317,812		1,336,777
April 8, 2019	Equity	$	1.6875	April 3, 2024		797,334		797,334	Equity	$	1.6875	April 3, 2024		797,334		797,334
February 12, 2019	Equity	$	1.8313	February 7, 2024		110,922		110,922	Equity	$	1.8313	February 7, 2024		110,922		110,922
February 12, 2019	Equity	$	1.34	August 12, 2024		1,333,447		1,433,447	Equity	$	1.34	August 12, 2024		1,333,447		1,433,447
February 04, 2019	Equity	$	2.125	January 30, 2024		34,605		34,605	Equity	$	2.125	January 30, 2024		34,605		34,605
January 31, 2019	Equity	$	2.125	January 26, 2024		10,151		10,151	Equity	$	2.125	January 26, 2024		10,151		10,151
December 3, 2018	Equity	$	3.90	June 3, 2024		937,500		937,500	Equity	$	3.90	June 3, 2024		937,500		937,500
April 3, 2018	Equity	$	7.50	April 3, 2023		2,350,011		2,350,011	Equity	$	7.50	April 3, 2023		2,350,011		2,350,011
April 4, 2018	Equity	$	7.50	April 4, 2023		115,000		115,000	Equity	$	7.50	April 4, 2023		115,000		115,000
August 31, 2015	Equity	$	118.00	August 31, 2020		—		3,000
June 15, 2015	Equity	$	75.50	Five years after milestone achievement		319,008		319,008	Equity	$	75.50	Five years after milestone achievement		319,008		319,008

Total Outstanding						24,440,848		22,902,240						24,440,848		23,284,813

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value		Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2021		2,899,837		$	3.22		8.75	$	60		2,899,837		$	3.22		8.75	$	60
Granted		1,057,587		$	1.44						1,128,087		$	1.41
Forfeited or expired		(22,284	)	$	2.39						(140,049	)	$	4.22
Outstanding - June 30, 2021		3,935,140		$	2.75		8.58	$	1
Exercisable - June 30, 2021		1,488,568		$	4.87		8.02	$	-
Outstanding - September 30, 2021											3,887,875		$	2.66		8.36	$	-
Exercisable - September 30, 2021											1,675,671		$	4.26		7.91	$	-

				2021
	Operating Leases			Operating Leases
Maturity of lease liabilities:
2021	$	597
2021 (excluding the nine months ended September 30, 2021)				$	299
2022 (half year)		615			615
Total lease payments		1,212			914
Less: interest		(28	)		(16	)
Total lease liabilities	$	1,184		$	898

	As of June 30,				As of September 30,
	2021		2020		2021		2020

Options to purchase common stock		3,935,140		2,980,432		3,887,875		2,879,231
Warrants to purchase common stock		22,440,848		22,902,240		24,440,848		23,284,813
Total		26,375,988		25,882,672		28,328,723		26,164,044

	●	the impact of the novel coronavirus (“COVID-19”) on the Company’s ongoing and planned clinical trials;

	●	the geographic, social and economic impact of COVID-19 on the Company’s ongoing and planned clinical trials;

	●	our history of recurring losses and negative cash flows from operating activities, significant future commitments and the uncertainty regarding the adequacy of our liquidity to pursue or complete our business objectives;

	●	our inability to carry out research, development and commercialization plans;

	●	our inability to manufacture our product candidates on a commercial scale on our own or in collaborations with third parties;

	●	our inability to complete preclinical testing and clinical trials as anticipated;

	●	our collaborators’ inability to successfully carry out their contractual duties;

	●	termination of certain license agreements;

	●	our ability to adequately protect and enforce rights to intellectual property, or defend against claims of infringement by others;

	●	difficulties in obtaining financing on commercially reasonable terms, or at all;

	●	intense competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution, personnel and resources than we do;

	●	entry of new competitors and products and potential technological obsolescence of our products;

	●	adverse market and economic conditions;

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

	●	loss of one or more key executives or scientists; and

	●	difficulties in securing regulatory approval to market our product candidates.

	●	~~continue~~resume Pulmazole clinical trials focused on the development of an inhaled anti-fungal therapy to prevent and treat allergic/hypersensitivity response to fungus in the lungs of patients with asthma and CF;

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

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

	●	seek regulatory approval for our product candidates;

	●	capitalize on our proprietary iSPERSE technology and our expertise in inhaled therapeutics and particle engineering to identify new product candidates for prevention and treatment of diseases with significant unmet medical needs;


●	invest in protecting and expanding our intellectual property portfolio and file for additional patents to strengthen our intellectual property rights and

	●	hire personnel to support our product development, commercialization, and administrative efforts

	●	employee-related expenses, including salaries, benefits and share-based compensation expense;

	●	expenses incurred under agreements with CROs or CMOs, and consultants that conduct our clinical trials and preclinical activities;

	●	the cost of acquiring, developing and manufacturing clinical trial materials and lab supplies;

	●	facility, depreciation, and other expenses, which include direct and allocated expenses for rent, maintenance of our facility, insurance, and other supplies;

	●	costs associated with preclinical activities and clinical regulatory operations, and

	●	consulting and professional fees associated with research and development activities

	●	the impact of the COVID-19 pandemic on the Company’s ongoing and planned clinical trials;

	●	the geographic, social and economic impact of COVID-19 on the Company’s ongoing and planned clinical trials;

	●	the initiation, progress, timing, costs and results of clinical studies for existing and new pipeline programs based on iSPERSE;

	●	the outcome, timing and cost of regulatory approvals by the FDA and European regulatory authorities, including the potential for these agencies to require that we perform studies in addition to those that we currently have planned;

	●	the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

	●	our need to expand our research and development activities;

	●	our need and ability to hire additional personnel;

	●	our need to implement additional infrastructure and internal systems;

	●	the cost of establishing and maintaining a commercial-scale manufacturing line; and

	●	the cost of establishing sales, marketing and distribution capabilities for any products for which we may receive regulatory approval.

							Nine Months Ended
	Six months ended June 30,						September 30,
	2021			2020			2021			2020
Net cash used in operating activities	$	(12,019	)	$	(4,200	)	$	(15,331	)	$	(9,715	)
Net cash used in investing activities		(18	)		(98	)		(118	)		(198	)
Net cash provided by financing activities		37,283			8,113			37,283			20,981
Net increase in cash and cash equivalents	$	25,246		$	3,815
Net increase in cash, cash equivalents							$	21,834		$	11,068

●	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 pre-clinical 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;