| Summary of Significant Accounting Policies and Recent Accounting Standards | 2. Summary of Significant Accounting Policies and Recent
Accounting Standards Basis of Presentation The condensed consolidated financial statements of the Company included herein
have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 28, 2024 (the “Annual Report”). The financial information as of September 30, 2024, and for the three and nine
months ended September 30, 2024 and 2023, is unaudited. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been
included. The balance sheet data as of December 31, 2023 was derived from audited consolidated financial statements. The results of the Company’s operations for any interim periods are not necessarily indicative of the results that may be
expected for any other interim period or for a full fiscal year. Based on its current operating plan, the Company believes that its cash and
cash equivalents as of September 30, 2024, will be adequate to fund its currently anticipated operating expenses for at least twelve months from the date these condensed consolidated financial statements are issued. The Company will need to
secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of the Company’s planned research and development activities and regulatory activities;
commercialize product candidates; or conduct any substantial, additional development requirements requested by the FDA. Additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to secure
additional capital, it will be required to significantly decrease the amount of planned expenditures and may be required to cease operations. In addition, any disruption in the capital markets could make any financing more challenging, and
there can be no assurance that Pulmatrix will be able to obtain such financing on commercially reasonable terms or at all. Curtailment of operations would cause significant delays in the Company’s efforts to develop and introduce its products
to market, which is critical to the realization of its business plan and the future operations of the Company. Use of Estimates In preparing the condensed consolidated financial statements in conformity
with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial
statements, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results may differ from these estimates. On an ongoing basis, the Company evaluates its
estimates and assumptions. The most significant estimates and assumptions in the Company’s condensed consolidated financial statements have included, but are not limited to, estimates of future expected costs in order to derive and recognize
revenue and estimates related to clinical trial accruals and upfront deposits. Concentrations of Credit Risk 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 accounts at a single financial institution that management believes is creditworthy, and the Company has not incurred any losses
to date. The Company is exposed to credit risk in the event of default by this financial institution for amounts in excess of the Federal Deposit Insurance Corporation insured limits. For the three and nine months ended September 30, 2024, revenue from two
customers accounted for 100% of revenue recognized in the accompanying condensed consolidated financial statements. For the
three and nine months ended September 30, 2023, revenue from one customer accounted for 100% of revenue recognized in the
accompanying condensed consolidated financial statements. As of September 30, 2024 and December 31, 2023, one customer accounted for 100%
of accounts receivable. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies and Recent Accounting Standards Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial
Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. The Company did not adopt any new accounting pronouncements during the nine months ended September 30, 2024
that had a material effect on its condensed consolidated financial statements. In November 2023, the FASB issued Accounting Standard Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In December 2023, the FASB issued Accounting Standard Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures As of September 30, 2024, there are no other new, or existing recently issued,
accounting pronouncements that are of significance, or potential significance, that impact the Company’s condensed consolidated financial statements. | 2. Summary of Significant Accounting Policies and Recent
Accounting Standards Principles of Consolidation The consolidated financial statements represent the consolidation of the
accounts of the Company and its subsidiary in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. Any
reference in these notes to applicable guidance is meant to refer to the U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). Risks, Uncertainties and Liquidity The ongoing research and development activities will be subject to extensive
regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any drug developed by the Company must undergo rigorous preclinical and clinical testing and an extensive regulatory approval process
implemented by the United States Food and Drug Administration (“FDA”) under the Food, Drug and Cosmetic Act. The Company has limited experience in conducting and managing the preclinical and clinical testing necessary to obtain regulatory
approval. There can be no assurance that the Company will not encounter problems in the clinical trials that will cause the Company or the FDA to delay or suspend clinical trials. The Company’s success will depend in part on its ability to obtain patents and
product license rights, maintain trade secrets, and operate without infringing on the property rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not
be challenged, invalidated, circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company. Based on its current operating plan, the Company believes that its cash and
cash equivalents as of December 31, 2023, will be adequate to fund its currently anticipated operating expenses for at least twelve months from the date these financial statements are issued. The Company will need to secure additional funding
in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of the Company’s planned research and development activities and regulatory activities; commercialize product candidates; or
conduct any substantial, additional development requirements requested by the FDA. Additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to secure additional capital, it will be required
to significantly decrease the amount of planned expenditures and may be required to cease operations. In addition, any disruption in the capital markets could make any financing more challenging, and there can be no assurance that Pulmatrix
will be able to obtain such financing on commercially reasonable terms or at all. Curtailment of operations would cause significant delays in the Company’s efforts to develop and introduce its products to market, which is critical to the
realization of its business plan and the future operations of the Company. Use of Estimates In preparing the consolidated financial statements in conformity with U.S.
GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the
reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results may differ from these
estimates. On an ongoing basis, the Company evaluates its estimates and
assumptions. The most significant estimates and assumptions in the Company’s consolidated financial statements include, but are not limited to, estimates of future expected costs in order to derive and recognize revenue and estimates related to
clinical trial accruals and upfront deposits. Concentrations of Credit Risk 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 accounts at a single financial institution that management believes is creditworthy, and the Company has not incurred any losses
to date. The Company is exposed to credit risk in the event of default by this financial institution for amounts in excess of the Federal Deposit Insurance Corporation insured limits. For the year ended December 31, 2023, revenue from one customer accounted for
100% of revenue recognized in the accompanying consolidated financial statements. For the year ended December 31, 2022, revenue from
one customer accounted for approximately 99% of revenue recognized in the accompanying consolidated financial statements. As of both
December 31, 2023 and 2022, one customer accounted for 100% of accounts receivable. Accounts Receivable The Company’s accounts receivable generally relate to amounts reimbursable
under its collaboration agreements with partners. The contractual life of the Company’s receivables is generally short term. The Company makes judgments as to its ability to collect outstanding receivables and provides reserves against
receivables for estimated losses that may result from a customer’s inability to pay. Specific amounts determined to be uncollectable are charged against the reserve. The Company believes that credit risks associated with its partners are not
significant. For the years ended December 31, 2023 and 2022, the Company did not record any expected credit losses related to accounts receivable. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents are held in US banks and consist of cash deposited
in operating and money market accounts. Restricted cash represents cash held in a depository account at a financial
institution to collateralize conditional stand-by letters of credit related to the Company’s current office and laboratory facility lease agreement in the amounts of $1,421, as well as $51 deposited in a money market account as security for a
credit card as of December 31, 2023. During the year ended December 31, 2023, $153 of restricted cash collateralizing a letter of credit related to the Company’s former headquarters lease became unrestricted, providing
additional cash available for operations. Property and Equipment, net Property and equipment are recorded at cost less accumulated depreciation and
amortization. Property and equipment are depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated remaining lease term or the useful lives of the
related assets. Repairs and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment. Depreciation and amortization is provided over the following estimated useful
lives:
Asset Description
Estimated Useful Lives
Laboratory equipment
5 years
Computer equipment
3 years
Office furniture and equipment
5 years
Leasehold improvements
Shorter of estimated useful life or remaining lease term
Upon retirement or sale, the cost and related accumulated depreciation are
removed from the balance sheet and the resulting gain or loss is reflected in operations. Impairment of Long-Lived Assets The Company accounts for long-lived assets in accordance with FASB ASC Topic
360, Property, Plant, and Equipment For long-lived assets used in operations, impairment losses are only recorded
if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and estimated fair value. Fair Value of Financial Instruments The Company is required to disclose information on all assets and liabilities
reported at fair value that enables an assessment of the inputs used in determining the reported fair values. FASB ASC Topic 820, Fair Value Measurement Level 1 — Valuations based on unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 — Valuations based on quoted prices for similar assets or liabilities
in markets that are not active, or for which all significant inputs are observable, either directly or indirectly. Level 3 — Valuations that require inputs that reflect the Company’s own
assumptions that are both significant to the fair value measurement and unobservable. To the extent that valuation is based on models or inputs that are less
observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A
financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. As of December 31, 2023 and 2022, the Company did not hold any financial
assets or liabilities that were measured at fair value on a recurring or nonrecurring basis. During the years ended December 31, 2023 and 2022, there were no transfers between Level 1, Level 2 and Level 3. Leases The Company accounts for leases in accordance with FASB ASC Topic 842, Leases Operating lease liabilities and their corresponding right-of-use assets are
recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items, such as incentives received. The interest rate implicit in lease
contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a
similar economic environment. The Company has elected to account for the lease and non-lease components as a combined lease component. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Revenue Recognition The Company’s principal source of revenue during the years ended December 31,
2023 and 2022 was derived from a collaboration arrangement and license agreement that relate to the development and commercialization of PUR1900 under the Cipla Agreement (as defined below). At inception, management determines whether contracts are within the scope of
FASB ASC Topic 606, Revenue from Contracts with Customers Collaborative Arrangements For contracts and units of account that are determined to be within the scope
of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which management expects to be entitled to receive in exchange for these goods and
services. To achieve this core principle, management applies the following five steps (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate
the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the
Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Identification of Performance Obligations. Performance obligations promised in a contract are identified at contract inception based on the goods and services that are both capable of being distinct and are distinct in the context of the contract. To the
extent a contract includes multiple promised goods and services, management applies judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. If these criteria
are not met, the promised goods and services are accounted for as a combined performance obligation. Transaction Price and Milestone Payments. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer. At the inception of each contract that includes
research or development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is
probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee, such as regulatory approvals, are
not considered probable of being achieved until those approvals are received. Management evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in
making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each reporting period, management reevaluates the probability of
achievement of all milestones subject to constraint and, if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the
period of adjustment. Exclusive Licenses. If
the license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to
the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other promises, the Company considers
factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether
the counterparty can benefit from a promise for its intended purpose without the receipt of the remaining promise, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide
the remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to
determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of
progress each reporting period and, if necessary, adjusts the measure of performance and
related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research and development and licensing agreement.
Such a change could have a material impact on the amount of revenue the Company records in future periods. Research and Development Services. The promises under the Company’s arrangements may include research and development services to be performed by the Company on behalf of the counterparty. Payments or reimbursements from customers resulting from the
Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts. The Company uses an input method, according to the ratio of costs
incurred to the total costs expected to be incurred in the future to satisfy the performance obligation. In management’s judgment, this input method is the best measure of the transfer of control of the performance obligation. Amounts
received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the
accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion. Reimbursements from and payments to
the counterparty that are the result of a collaborative relationship, instead of a customer relationship, such as co-development activities, are recognized as the services are performed and presented as a reduction to research and development
expense. To date, the Company has determined that all arrangements which include research and development services have been transacted with customers and recognized on a gross basis using ASC 606. Royalties. For
contracts that include sales-based royalties, including milestone payments upon first commercial sales and milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is
deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated
has been satisfied or partially satisfied. Customer Options. If an
arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options that are not determined to be material rights are not considered to
be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a
discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material
rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue
until, at the earliest, the option is exercised. For a complete discussion of accounting for the Company’s revenue contracts,
see Note 6, Significant Agreements Research and Development Costs Research and development costs are expensed as incurred and include salaries,
benefits, bonus, stock-based compensation, license fees, milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and
associated overhead and facilities costs. Clinical trial costs are a substantial component of research and development expenses and include costs associated with third-party contractors, clinical research organizations (“CROs”) and clinical
manufacturing organizations (“CMOs”). Invoicing from third-party contractors for services performed can lag several months. The Company accrues the costs of services rendered in connection with third-party contractor activities based on
management’s 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. Stock-based Compensation The Company recognizes all employee stock-based compensation as a cost in the
consolidated financial statements. Equity-classified awards principally related to stock options, which are measured at the grant date fair value of the award. The Company determines grant-date fair value of stock option awards using the
Black-Scholes option-pricing model. For service-based vesting grants, expense is recognized over the requisite service period based on the number of options or shares expected to ultimately vest. For performance-based vesting grants, expense is
recognized over the requisite period until the performance obligation is met, assuming that
it is probable. No expense is recognized for performance-based grants until it is probable the vesting criteria will be satisfied. Stock-based payments to non-employees are recognized as services are rendered,
generally on a straight-line basis. The Company believes that the fair values of these awards are more reliably measurable than the fair values of the services rendered. Convertible Financial Instruments The Company bifurcates conversion options from their host instruments and
accounts for them as freestanding derivative financial instruments if certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and
closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An
exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable U.S. GAAP. When the Company has determined that the embedded conversion options should
not be bifurcated from their host instruments, discounts are recorded for the intrinsic value of any beneficial conversion options embedded in the instruments based upon the differences between the fair value of the underlying common stock at
the commitment date of the transaction and the effective conversion price embedded in the instrument. Deemed dividends are also recorded for the intrinsic value of beneficial conversion options embedded in preferred stock based upon the
differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred stock. Common Stock Warrants The Company classifies as equity any warrants that (i) require physical
settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any warrants that
(i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control), (ii) gives the counterparty a choice of net-cash settlement or settlement in shares
(physical settlement or net-share settlement) or (iii) that contain reset provisions that do not qualify for the scope exception. The Company assesses classification of its common stock warrants and other freestanding derivatives at each
reporting date to determine whether a change in classification between assets and liabilities is required. The Company’s freestanding derivatives consist of warrants to purchase common stock that were issued in connection with its (i)
convertible preferred stock, (ii) private placements, (iii) term loan, (iv) consulting services and (v) underwriting and representative services. The Company evaluated these warrants to assess their proper classification and determined that the
common stock warrants meet the criteria for equity classification in the consolidated balance sheets. Basic and Diluted Net Loss Per Share Basic and diluted earnings (loss) per share are computed using the two-class
method, which is an earnings allocation method that determines earnings (loss) per share for common shares and participating securities. The participating securities consist of the Company’s preferred stock. The undistributed earnings are
allocated between common shares and participating securities as if all earnings had been distributed during the period. In periods of loss, no allocation is made to the preferred shares and diluted net loss per share is the same as basic net
loss per share because common stock equivalents are excluded as their inclusion would be anti-dilutive. Income Taxes Income taxes are recorded in accordance with FASB ASC Topic 740, Income Taxes statement and tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. A valuation allowance is provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be
realized. The Company accounts for uncertain tax positions in accordance with the
provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more
likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the FASB or
other standard setting bodies that are adopted by the Company as of the specified effective date. Except as set forth below, the Company did not adopt any new accounting pronouncements during the year ended December 31, 2023 that had a material
effect on its consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial
Instruments—Credit Losses (Topic 326)—Measurement of Credit Losses on Financial Instruments As of December 31, 2023, there are no new, or existing recently issued,
accounting pronouncements that are of significance, or potential significance, that impact the Company’s consolidated financial statements. |
