ITEM 1A. RISK FACTORS.
The
following risk factors, together with all of the other information included or incorporated in this Annual Report on Form 10-K, should
be carefully considered. If any of the following risks, either alone or taken together, or other risks not presently known to us or that
we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations
or prospects could be materially adversely affected. If that happens, the market price of our common stock could decline, and stockholders
may lose all or part of their investment.
Risk
Factor Summary
We
are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility
of our risk factor disclosures. We encourage you to carefully review the full risk factors contained in this Annual Report on Form 10-K
in their entirety for additional information regarding the material factors that make an investment in our securities speculative or
risky. These risks and uncertainties include, but are not limited to, the following:
Risks Related to the Merger with Cullgen
● The intended benefits of the Merger may not be realized;
● We have a history of net losses and may experience future losses;
Risks Related to the Proposed Reverse Stock Split
Risks Related to Our Business
● We have a history of net losses and may experience future losses;
● Our business is subject to cybersecurity risks.
Risks Related to Regulatory Matters
Risks Related to Our Financial Position and Need for Additional Capital
● Our long-term capital requirements are subject to numerous risks;
Risks Related to Our Intellectual Property
Risks Related to Our Common Stock
● We may be at risk of securities class action litigation;
Risks
Related to the Merger with Cullgen
There
is no assurance when or if the Merger will be completed. Any delay in completing the Merger may substantially reduce the potential benefits
that we and Cullgen expect to obtain from the Merger.
Completion
of the Merger is subject to the satisfaction or waiver of a number of conditions, as set forth in the Merger Agreement, including the
approval by our stockholders, approval by Nasdaq of our application for the initial listing of our common stock to be issued in connection
with the Merger, and other customary closing conditions. There can be no assurance that we and Cullgen will be able to satisfy the closing
conditions or that closing conditions beyond their control will be satisfied or waived. For a discussion of the conditions to the completion
of the Merger, see the section titled “The Merger Agreement-Conditions to the Completion of the Merger” beginning
on page 147 of the proxy statement/prospectus included in the registration statement on Form S-4, filed with the SEC on February
14, 2025 (the “proxy statement/prospectus”). If the conditions are not satisfied or waived, the Merger may not occur or may
not be completed within the expected timeframe, and we and Cullgen each may materially and adversely lose some or all of the potential
benefits that we and Cullgen expect to achieve as a result of the Merger and could result in additional transaction costs or other effects
associated with uncertainty about the Merger. In addition, pursuant to the Merger Agreement, we may extend the originally scheduled End
Date (defined in the Merger Agreement as August 13, 2025) by up to 60 calendar days (to October 12, 2025). Moreover, each of we and Cullgen
has incurred and expects to continue to incur significant expenses related to the Merger, such as legal and accounting fees, some of
which must be paid even if the Merger is not completed.
We
and Cullgen can agree at any time to terminate the Merger Agreement, even if our stockholders and/or Cullgen securityholders have already
adopted the Merger Agreement and thereby approved the Merger and the other transactions contemplated by the Merger Agreement. We and
Cullgen can also terminate the Merger Agreement under other specified circumstances.
In
addition, if the Merger Agreement is terminated and our board of directors or the Cullgen board of directors determines to seek another
business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the
consideration to be provided by each party in the Merger. In such circumstances, our board of directors may elect to, among other things,
divest all or a portion of our business, or take the steps necessary to liquidate all of our business and assets, and in either such
case, the consideration that we receive may be less attractive than the consideration to be received by us pursuant to the Merger Agreement.
If
the Merger Agreement is not consummated, it is anticipated that we will be delisted from the Nasdaq Capital Market and may need to consider
whether to remain a public company. For risks related to a delisting from the Nasdaq Capital Market, see “-In the event that
we fail to satisfy any of the listing requirements of Nasdaq, our common stock may be delisted, which could affect our market price and
liquidity,” in this Annual Report.
We
may engage in the sale, license, transfer, disposition, divestiture or other monetization transaction Pulmatrix Legacy Business.
There
can be no assurance that we will be able to conduct such transactions on favorable terms. Likewise, if the Merger is not completed, our
ongoing businesses would be significantly impacted if assets of our business as conducted at any time prior to the date of the Merger
Agreement (the “Pulmatrix Legacy Business”) is divested prior to the non-completion of the Merger.
The
issuance of shares of our common stock to Cullgen stockholders in the Merger will substantially dilute the voting power of our current
stockholders. Having a minority share position will reduce the influence that current stockholders have on our management.
Pursuant
to the terms of the Merger Agreement, at the First Effective Time, we will issue (or reserve for future issuance) approximately 97,519,045
shares of our common stock using the assumed Exchange Ratio of 1.2491 (which is subject to change depending on the net amount of cash
we have and the number of our and Cullgen’s outstanding securities at the First Effective Time), without giving effect to the proposed
reverse stock split contemplated by the Reverse Stock Split Proposal (as defined herein), to Cullgen stockholders as merger consideration.
As a result, upon completion of the Merger, our securityholders as of immediately prior to the Merger are expected to own approximately
3.6145% of the outstanding shares of the Combined Company on a fully-diluted basis, as further described under “The Merger-Exchange
Ratio” in the proxy statement/prospectus. Accordingly, the issuance of the shares of our common stock to Cullgen stockholders
in the Merger will significantly reduce the ownership stake and relative voting power of each share of our common stock held by current
stockholders. Consequently, following the Merger, the ability of current stockholders to influence Combined Company management will be
substantially reduced.
The
issuance, or expected issuance, of our common stock in connection with the Merger could decrease the market price of our common stock.
In
connection with the Merger and as part of the merger consideration, we expect to issue shares of common stock to Cullgen stockholders.
The anticipated issuance of our common stock in the Merger may result in fluctuations in the market price of our common stock, including
a stock price decrease. In addition, the perception in the market that the holders of a large number of shares of our common stock may
intend to sell shares could reduce the market price of our common stock.
The
intended benefits of the Merger may not be realized.
The
Merger poses risks for our and Cullgen’s ongoing operations, including, among others:
As
a result of the foregoing, the Combined Company may be unable to realize the full strategic and financial benefits currently anticipated
from the Merger, and we or Cullgen cannot assure you that the Merger will be accretive to us or Cullgen in the near term or at all. Furthermore,
if we or Cullgen fail to realize the intended benefits of the Merger, the market price of the Combined Company’s common stock could
decline to the extent that the market price reflects those benefits. Our stockholders will have experienced substantial dilution of their
ownership interests in us without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent
the Combined Company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.
Because
the lack of a public market for Cullgen common stock makes it difficult to evaluate the fairness of the Merger, Cullgen stockholders
may receive consideration in the Merger that is greater than or less than the fair market value of Cullgen common stock.
The
outstanding Cullgen common stock is privately held and is not traded in any public market. The lack of a public market makes it extremely
difficult to determine the fair market value of Cullgen shares. Since the percentage of our common stock to be issued to Cullgen stockholders
was determined based on negotiations between the parties, it is possible that the value of our common stock to be issued in connection
with the Merger will be greater than the fair market value of Cullgen shares. Alternatively, it is possible that the value of the shares
of our common stock to be issued in connection with the Merger will be less than the fair market value of Cullgen shares.
Transfers
of the Combined Company’s securities utilizing Rule 144 of the Securities Act may be limited.
To
the extent that we complete a sale of the assets of the Pulmatrix Legacy Business prior to completion of the Merger or are otherwise
deemed a shell company, a significant portion of the Combined Company’s securities will be restricted from immediate resale. Holders
should be aware that transfers of the Combined Company’s securities pursuant to Rule 144 may be limited as Rule 144 is not available,
subject to certain exceptions, for the resale of securities initially issued by shell companies (other than business combination related
shell companies) or issuers that have been at any time previously a shell company. Our expected disposal of our historical assets and
operations in connection with the Merger with Cullgen will make us a shell company. We anticipate that following the consummation of
the Merger, the Combined Company will no longer be a shell company. As a result, we anticipate that holders will not be able to sell
their restricted Combined Company securities pursuant to Rule 144 without registration until one year after we file the Current Report
on Form 8-K following the Closing that includes the required Form 10 information that reflects that the Combined Company is no longer
a shell company.
Our
expected disposal of our historical assets and operations in connection with our proposed Merger with Cullgen will make us a shell company.
As a result, we will be subject to more stringent reporting requirements, offering limitations and resale restrictions.
We
are seeking to divest our three remaining ongoing development programs, PUR3100, PUR1800 and its legacy technology and intellectual property.
If deemed necessary by us, such a transaction may be contingent upon obtaining stockholder approval. As such, if successful in the divestment
or if otherwise is deemed a shell company, we expect to become a shell company prior to or upon consummation of the Merger, and our Merger
with Cullgen would be subject to the requirements applicable to shell company business combinations; provided, however, that if the Merger
is not consummated, the disposal of our legacy technology and intellectual property is not expected to occur and we would therefore not
expect to become a shell company.
The
requirements applicable to shell company business combinations are as follows:
The
foregoing SEC requirements would increase the Combined Company’s time and cost of raising capital, offering stock under equity
plans, and complying with securities laws. Further, such requirements will add burdensome restrictions on the resale of Combined Company
shares by affiliates of Cullgen and any holders of “restricted” or “control” securities.
Directors
and officers of us and Cullgen may have interests in the Merger that are different from, or in addition to, those of our stockholders
and Cullgen stockholders generally that may influence them to support or approve the Merger.
Our
and Cullgen’s officers and directors may have interests in the Merger that are different from, or are in addition to, those of
our stockholders and Cullgen stockholders generally. Effective upon the Closing, Ying Luo, Ph.D., Thomas Eastling and Yue Xiong, Ph.D.
are expected to be employed as executive officers by the Combined Company. It is expected that five directors designated by Cullgen,
Drs. Luo and Xiong, Mr. Eastling, Claire Weston, Ph.D. and Maxwell Kirkby, and one director of our existing board
of directors to be agreed to by Cullgen (which such director has not been identified as of the date of this Annual Report) are to be
appointed as Combined Company directors after the completion of the Merger and will receive cash and equity compensation in consideration
for such service as described in more detail in the section titled “Management Following the Merger” beginning on
page 284 of the proxy statement/prospectus. Upon the Merger, the vesting of outstanding equity awards held by our current directors
and officers will accelerate. Each outstanding option to acquire shares of Cullgen common stock held by Cullgen executive officers and
directors will be converted into an option to acquire shares of our common stock.
In
addition, our and Cullgen’s directors and executive officers also have certain rights to indemnification or to directors’
and officers’ liability insurance that will survive the completion of the Merger. These interests may have influenced our and Cullgen’s
directors and executive officers to support or recommend the proposals presented to our and Cullgen’s stockholders. See the sections
titled “The Merger-Interests of Pulmatrix Directors and Executive Officers in the Merger” beginning on page 124
and “The Merger-Interests of Cullgen Directors and Executive Officers in the Merger” beginning on page 126
of the proxy statement/prospectus.
If
the Merger is completed, Cullgen executive officers and Cullgen appointees to the Combined Company board of directors will have the ability
to significantly influence the Combined Company’s management and business affairs, as well as matters submitted to the Combined
Company board of directors or stockholders for approval, especially if they decide to act together with the current Cullgen stockholders.
Upon
completion of the Merger, the former Cullgen securityholders are expected to own approximately 96.3655% of the outstanding shares of
the Combined Company on a fully diluted basis, excluding the effects of adjustments based on Pulmatrix’s Net Cash (as defined in
the Merger Agreement). If the Merger is completed, the Combined Company is expected to be led by Cullgen executive officers. Furthermore,
the Combined Company’s anticipated board of directors will consist of six members, five of which will be appointed by Cullgen
pursuant to the terms of the Merger Agreement and one of which will be an existing member of the Pulmatrix board of directors to be agreed
to by Cullgen. As a result, such persons, if they choose to act together, will have the ability to significantly influence the Combined
Company’s management and business affairs, as well as matters submitted to the Combined Company board of directors or stockholders
for approval.
The
announcement and pendency of the Merger could have an adverse effect on our or Cullgen’s business, financial condition, results
of operations or business prospects.
The
announcement and pendency of the Merger could disrupt our and/or Cullgen’s businesses in the following ways, among others:
Should
they occur, any of these matters could adversely affect the businesses of, or harm the financial condition, results of operations or
business prospects of, us or Cullgen.
During
the pendency of the Merger, we or Cullgen may not be able to enter into a business combination with another party and will be subject
to contractual limitations on certain actions because of restrictions in the Merger Agreement.
Covenants
in the Merger Agreement impede our and Cullgen’s the ability to make dispositions or acquisitions or complete other transactions
that are not in the ordinary course of business pending completion of the Merger, potential spin-off of all or a portion of our assets
prior to the consummation of the Merger, other than the Parent Restructuring (as defined in the Merger Agreement) and certain permitted
financings as set forth in the Merger Agreement. As a result, if the Merger is not completed, the parties may be at a disadvantage to
their competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited from
soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that
could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition, a
tender offer, a merger or other business combination outside the ordinary course of business. These restrictions may prevent each of
us and Cullgen from pursuing otherwise attractive business opportunities or other capital structure alternatives and making other changes
to their business or executing certain of their business strategies prior to the completion of the Merger, which could be favorable to
our stockholders or Cullgen stockholders. See the section titled “The Merger Agreement-Non-Solicitation” beginning
on page 143 of the proxy statement/prospectus.
Certain
provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be
superior to the arrangements contemplated by the Merger Agreement.
The
terms of the Merger Agreement prohibit each of us and Cullgen from soliciting competing proposals or cooperating with persons making
unsolicited takeover proposals, except in limited circumstances if our board of directors determines in good faith, after consultation
with its independent financial advisor and outside counsel, that an unsolicited competing proposal constitutes, or would reasonably be
expected to result in, a superior competing proposal and that failure to take such action would be reasonably likely to result in a breach
of the fiduciary duties of our board of directors. In the event that our board of directors withdraws or modifies its recommendation
for Nasdaq Stock Issuance Proposal (as defined in the proxy statement/prospectus) based on such superior competing proposal, Cullgen
may terminate the Merger Agreement. See the section titled “The Merger Agreement-Termination and Termination Fees”
beginning on page 148 of the proxy statement/prospectus.
The
rights of Cullgen stockholders who become our stockholders in the Merger and our stockholders following the Merger will be governed by
the Certificate of Incorporation, as amended.
Upon
consummation of the Merger, outstanding shares of Cullgen common stock will be converted into the right to receive shares of our common
stock. Cullgen stockholders who receive shares of our common stock in the Merger will become our stockholders. As a result, Cullgen stockholders
who become our stockholders will be governed by the Certificate of Amendment, rather than being governed by the Cullgen Charter. Pursuant
to the Merger Agreement, the Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) will
be amended, subject to our stockholders’ approval of the applicable proposals described in the proxy statement/prospectus, immediately
prior to the effective time of the Merger. See the section titled “Comparison of Rights of Holders of Pulmatrix Capital Stock
and Cullgen Capital Stock” beginning on page 305 of the proxy statement/prospectus.
The
Exchange Ratio is not adjustable based on the market price of our common stock, so the Merger consideration at the Closing may have a
greater or lesser value than at the time the Merger Agreement was signed.
The
Merger Agreement has set the Exchange Ratio (as defined in the Merger Agreement) formula for the Cullgen common stock, and the Exchange
Ratio is only adjustable upward or downward to reflect our and Cullgen’s equity capitalization as of immediately prior to the effective
time of the Merger and the excess cash we have at the effective time of the Merger. Any changes in the market price of common stock before
the completion of the Merger will not affect the number of shares Cullgen securityholders will be entitled to receive pursuant to the
Merger Agreement. Therefore, if before the completion of the Merger, the market price of our common stock declines from the market price
on the date of the Merger Agreement, then Cullgen securityholders could receive merger consideration with substantially lower value.
Similarly, if before the completion of the Merger, the market price of our common stock increases from the market price on the date of
the Merger Agreement, then Cullgen securityholders could receive merger consideration with substantially more value for their shares
of Cullgen common stock than the parties had negotiated for in the establishment of the Exchange Ratio. For a discussion of the Exchange
Ratio, see the section titled “The Merger Agreement-Exchange Ratio” beginning on page 136 of the proxy statement/prospectus.
We
are expected to incur substantial expenses related to the Merger with Cullgen.
We
have incurred, and expect to continue to incur, substantial expenses in connection with the Merger, as well as operating as a public
company. We will incur significant fees and expenses relating to legal, accounting, financial advisory and other transaction fees and
costs associated with the Merger. Actual transaction costs may substantially exceed our estimates and may have an adverse effect on the
Combined Company’s financial condition and operating results.
Failure
to complete the Merger could negatively affect the value of our common stock and the future business and financial results of both us
and Cullgen.
If
the Merger is not completed, our and Cullgen’s ongoing businesses could be adversely affected. Moreover, we and Cullgen will be
subject to a variety of risks associated with the failure to complete the Merger, including without limitation the following:
If
the Merger is not completed, the market price of our common stock and the business and financial results of both us (including the cessation
of its operations) and Cullgen could be materially affected.
The
Merger is expected to result in a limitation on the Combined Company’s ability to utilize its net operating loss carryforward.
Under
Section 382 of the Code, use of our net operating loss carryforwards (“NOLs”) will be limited if we experience a cumulative
change in ownership of greater than 50% in a moving three-year period. As of December 31, 2024, we had approximately $70.0 million of
net operating loss carryforwards, of which $3.8 million will expire, if unused, between the years 2026 and 2037. We may experience an
ownership change as a result of the Merger and therefore its ability to utilize its NOLs and certain credit carryforwards remaining at
the effective time of the Merger may be limited. The limitation would be determined by the fair market value of our common stock outstanding
prior to the ownership change, multiplied by the applicable federal rate. Limitations imposed on us ability to utilize NOLs could cause
U.S. federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such
NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs.
The
analysis received by our board of directors from Lucid Capital Markets, LLC has not been, and is not expected to be, updated to reflect
changes in circumstances that may have occurred since the date of the analysis.
Such
analysis was one of many factors considered by our board of directors in approving the Merger. The analysis does not speak as of the
time the Merger will be completed or any date other than the date of such analysis. Subsequent changes in the operation and prospects
of us or Cullgen, general market and economic conditions and other factors that may be beyond the control of us or Cullgen, may significantly
alter the value of us or Cullgen or the prices of the shares of our common stock by the time the Merger is to be completed. The analysis
does not address the fairness of the merger consideration from a financial point of view to us at the time the Merger is to be completed,
or as of any other date other than the date of such analysis, and the Merger Agreement does not require that the analysis be updated,
revised or reaffirmed prior to the Closing to reflect any changes in circumstances between the date of the signing of the Merger Agreement
and the completion of the Merger as a condition to closing the Merger. See the section titled “The Merger-Opinion of Pulmatrix’s
Financial Advisor” beginning on page 112 of the proxy statement/prospectus.
The
Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes or
other causes.
In
general, either party can refuse to complete the Merger if there is a material adverse effect affecting the other party between November
13, 2024, the date of the Merger Agreement, and the Closing of the Merger. However, some types of changes do not permit either party
to refuse to complete the Merger, even if such changes would have a material adverse effect on us or Cullgen, as the case may be:
● changes in U.S. GAAP or other applicable law or the interpretation thereof.
If
adverse changes occur but we and Cullgen must still complete the Merger, the market price of our common stock may suffer. For a more
complete discussion of what constitutes a material adverse effect on us or Cullgen under the Merger Agreement, see the section titled
“The Merger Agreement- Representations and Warranties” beginning on page 140 of the proxy statement/prospectus.
We,
our Board of Directors, and/or and Cullgen may become involved in securities litigation or stockholder derivative litigation in
connection with the Merger, and this could divert the attention of our and Cullgen’s management and harm our, Cullgen, and/or
the Combined Company’s business, and insurance coverage may not be available or sufficient to cover all related costs, expenses, and
damages.
Securities
litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such
as the sale of a business division or announcement of a business combination transaction. We, our Board of Directors, and/or Cullgen may become involved in this
type of litigation in connection with the Merger, and the Combined Company may become involved in this type of litigation in the future.
Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of us,
Cullgen and the Combined Company.
In connection with the Merger Agreement and the proxy statement/prospectus, Pulmatrix has received multiple demand
letters from purported Pulmatrix stockholders demanding that Pulmatrix disclose certain additional information related to the merger (the
“Demands”). Pulmatrix cannot predict the outcome of the Demands. Pulmatrix believes that the claims asserted in the Demands
are without merit and intends to defend against them vigorously. Additional demand letters or lawsuits arising out of the Merger may also
be received or filed in the future.
We
have never paid and, other than in connection with the Merger with Cullgen, does not intend to pay any cash dividends in the foreseeable
future.
We
have never paid cash dividends on any of its capital stock. Pursuant to the terms of the Merger Agreement, we may declare and pay a special
cash dividend to our stockholders of record prior to the Merger (the “Cash Dividend”). The Cash Dividend will be up to an
amount equal in the aggregate to our reasonable, good faith approximation of the amount by which Parent Net Cash (as defined in the Merger
Agreement) will exceed the Cash Dividend Amount (as defined in the Merger Agreement), provided, that if the Closing Parent Net Cash is
greater than $7,000,000, the Cash Dividend Amount shall not exceed (x) $4,500,000 plus (y) an amount equal to (A) 0.5 multiplied by (B)
the Closing Parent Net Cash in excess of $7,000,000. There is no guarantee that the Parent Net Cash will exceed $2,500,000. The amount
of the Cash Dividend is currently uncertain, pending the determination of our outstanding obligations and net cash position as of the
Closing. Other than such potential special cash dividend in connection with the Closing, we do not currently anticipate declaring or
paying cash dividends on its capital stock in the foreseeable future.
We
are substantially dependent on our remaining employees, key contractors and consultants to facilitate the consummation of the Merger.
Our
ability to successfully complete the Merger depends in large part on our ability to retain certain remaining personnel, in addition to
key contractors and consultants. Despite our efforts to retain these employees, as well as key contractors and consultants, one or more
may terminate their employment or services with us on short notice. The loss of the service of certain employees, key contractors or
consultants could potentially harm our ability to consummate the Merger and run our day-to-day business operations, as well as fulfill
our reporting obligations as a public company.
Risks
Related to the Proposed Reverse Stock Split
The
proposed reverse stock split may not increase the Combined Company’s common stock price over the long term.
If
the proposal to approve an amendment to the Certificate of Incorporation to effect a reverse stock split of the issued and outstanding
common stock at a ratio determined by our board of directors and agreed to by Cullgen as further described in the joint proxy statement/prospectus
(the “Reverse Stock Split Proposal”) is approved, the Combined Company anticipates effecting a reverse stock split in order
at a ratio to be determined in the future. While it is expected that the reduction in the number of outstanding shares of common stock
will proportionally increase the market price of the Combined Company common stock upon effectiveness of the proposed reverse stock split,
it cannot be assured that the proposed reverse stock split will result in any sustained proportionate increase in the market price of
the Combined Company common stock, which is dependent upon many factors, including the business and financial performance of the Combined
Company, general market conditions, and prospects for future success, which are unrelated to the number of shares of the Combined Company
common stock outstanding. While the Combined Company common stock price might meet the initial listing requirements for Nasdaq initially,
it cannot be assured that it will continue to do so.
The
proposed reverse stock split would have the effect of increasing the amount of common stock that the Combined Company is authorized to
issue without further approval by the Combined Company stockholders.
The
proposed amendment to the Certificate of Incorporation in connection with the proposal to increase the number of authorized shares of
common stock of the Company as set forth in the joint proxy statement/prospectus is anticipated to authorize the Combined Company to
issue up to a certain number of shares of common stock yet to be determined as of the date of this Annual Report on Form 10-K, and does
not anticipate reducing this amount in connection with the proposed reverse stock split. Except in certain instances, as required by
law or by the rules of the securities exchange that lists the Combined Company common stock, these additional shares may be issued by
the Combined Company without further vote of the Combined Company stockholders. If the Combined Company’s board of directors chooses
to issue additional shares of the Combined Company common stock, such issuance could have a dilutive effect on the equity, earnings and
voting interests of the Combined Company stockholders.
The
proposed reverse stock split may decrease the liquidity of our common stock.
Although
our board of directors believes that the anticipated increase in the market price of our common stock could encourage interest in its
common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced
number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading
and a smaller number of market makers for our common stock.
The
proposed reverse stock split may lead to a decrease in overall market capitalization of the Combined Company.
Should
the market price of our common stock decline after the proposed reverse stock split, the percentage decline may be greater, due to the
smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed
negatively by the market and, consequently, can lead to a decrease in the overall market capitalization of the Combined Company. If the
per share market price does not increase in proportion to the reverse stock split ratio, then the value of the Combined Company, as measured
by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock
splits subsequently declined back to pre-reverse split levels and, accordingly, it cannot be assured that the total market value of our
common stock will remain the same after the reverse stock split is effected, or that the proposed reverse stock split will not have an
adverse effect on our common stock price due to the reduced number of shares outstanding after the proposed reverse stock split.
Risks
Related to Our Business
We
have a history of net losses and may experience future losses.
We
have yet to establish any history of profitable operations. We reported a net loss of $9.6 million and $14.1 million for the fiscal years
ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $297.2 million. We expect to
incur additional operating losses for the foreseeable future. There can be no assurance that we will be able to achieve sufficient revenues
throughout the year or be profitable in the future.
We
will need to raise additional capital to meet our business requirements in the future and such capital raises may be costly or difficult
to obtain and could dilute our stockholders’ ownership interests.
Our
current capital will be sufficient to enable us to continue operations for at least 12 months following the filing date of this Annual
Report on Form 10-K. In order to continue our operations and to fully realize all of our business objectives, absent any non-dilutive
funding from a strategic partner or some other strategic transactions, we will need to raise additional capital, which may not be available
on reasonable terms, or at all. For instance, we will need to raise additional funds to accomplish the following:
● advancing the research and development of our therapeutic candidates;
● hiring and retaining qualified management and key employees;
● responding to competitive pressures; and
● maintaining compliance with applicable laws.
Any
additional capital raised through the sale of equity or equity backed securities will dilute our stockholders’ ownership percentages
and could also result in a decrease in the market value of our equity securities.
The
terms of any securities issued by us in future financing transactions may be more favorable to new investors, and may include preferences,
superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders
of any of our securities then outstanding.
Furthermore,
any additional capital financing that we may need in the future may not be available on terms favorable to us, or at all. If we are unable
to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced
to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results
of operations, and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders
would receive any distribution on their shares. Further, we may not be able to continue operating if we do not generate sufficient revenues
from operations needed to stay in business.
In
addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting
fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash
expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial
condition and cause further dilution to our stockholders.
We
have historically been a clinical development stage biopharmaceutical company and have never been profitable. We expect to incur additional
losses in the future and may never be profitable.
We
have historically been a clinical development stage biopharmaceutical company. We have not commercialized any product candidates or recognized
any revenues from our product sales. All of our product candidates are still in the preclinical or clinical development stage, and none
have been approved for marketing or are currently being marketed or commercialized. Our product candidates will require substantial additional
development, clinical studies, regulatory clearances, and additional investments of time and capital before they can be commercialized.
We cannot be certain when or if any of our product candidates will obtain the required regulatory approval.
We
have never been profitable and have incurred net losses each year since our inception. Our losses are principally a result of research
and development and general administrative expenses in support of our operations. We may incur substantial additional losses as we continue
to focus our resources on prioritizing, selecting and advancing our product candidates. Our ability to generate revenue and achieve profitability
depends mainly upon our ability, alone or with others, to successfully develop our product candidates, obtain the required regulatory
approvals in various territories and commercialize our product candidates. We may be unable to achieve any or all of these goals with
regard to our product candidates. As a result, we may never be profitable or achieve significant and/or sustained revenues.
All
of our product candidates are still under development, and there can be no assurance of successful commercialization of any of our products.
All
of our research and development programs are in developmental stages. One or more of our product candidates may fail to meet safety and
efficacy standards in human testing, even if those product candidates are found to be effective in animal studies. To develop and commercialize
inhaled therapeutic treatment for allergic bronchopulmonary aspergillosis (“ABPA”), acute migraine, and other iSPERSETM-based
product candidates, we must provide the FDA and foreign regulatory authorities with human clinical and non-clinical animal data that
demonstrate adequate safety and effectiveness. To generate these data, we will have to subject our product candidates to substantial
additional research and development efforts, including extensive non-clinical studies and clinical testing. Our approach to drug development
may not be effective or may not result in the development of any drug. Currently our development efforts are primarily focused on PUR3100,
PUR1800 and PUR1900. Even if PUR3100, PUR1800 and PUR1900 or our other product candidates are successful when tested in animals, such
success would not be a guarantee of the safety or effectiveness of such product candidates in humans. It can take several years for a
product to be approved and we may not be successful in bringing any therapeutic candidates to the market. A new drug may appear promising
at an early stage of development or after clinical trials and never reach the market, or it may reach the market and not sell, for a
variety of reasons. For example, the drug may:
● fail to receive regulatory approval on a timely basis or at all;
● be difficult to manufacture on a large scale;
● not be economically viable;
● not be prescribed by doctors or accepted by patients;
● infringe on intellectual property rights of any other party.
If
our delivery platform technologies or product development efforts fail to generate product candidates that lead to the successful development
and commercialization of products, our business and financial condition will be materially adversely affected.
Drug
development is a long, expensive and inherently uncertain process with a high risk of failure at every stage of development, and results
of earlier studies and trials may not be predictive of future trial results.
We
have a number of proprietary drug candidates in research and development ranging from the early research phase through preclinical testing
and clinical trials. Preclinical testing and clinical trials are long, expensive and highly uncertain processes. It will take us several
years to complete clinical trials and we may not have the resources to complete the development and commercialization of any of our proposed
drug candidates. The start or end of a clinical trial can often be delayed or halted due to changing regulatory requirements, manufacturing
challenges, required clinical trial administrative actions, slower than anticipated patient enrollment, changing standards of care, availability
or prevalence of use of a competitor drug or required prior therapy, clinical outcomes, or financial constraints of us and our partners.
Drug
development is a highly uncertain scientific and medical endeavor, and failure can unexpectedly occur at any stage of preclinical and
clinical development. Typically, there is a high rate of attrition for drug candidates in preclinical and clinical trials due to scientific
feasibility, safety, efficacy, changing standards of medical care and other variables. The risk of failure is heightened for our drug
candidates that are based on new technologies, such as the application of our dry powder delivery platform, iSPERSETM,
including PUR3100, PUR1800, PUR1900 and other iSPERSETM-based drug candidates currently in research or preclinical
development. The failure of one or more of our iSPERSETM-based drug candidates could have a material adverse effect
on our business, financial condition, and results of operations.
In
addition, the results of preclinical studies and clinical trials of previously published iSPERSETM-based products
may not necessarily be indicative of the results of our future clinical trials. The design of our clinical trials is based on many assumptions
about the expected effects of inhaled drugs used historically in the industry and if those assumptions are incorrect, the trials may
not produce statistically significant results. Preliminary results may not be confirmed upon full analysis of the detailed results of
an early clinical trial. Product candidates in later stages of clinical trials may fail to show safety and efficacy sufficient to support
intended use claims despite having progressed through initial clinical trials. The data collected from clinical trials of our product
candidates may not be sufficient to obtain regulatory approval in the United States or elsewhere. Because of the uncertainties associated
with drug development and regulatory approval, we cannot determine if, or when, we may have an approved product for commercialization
or whether we will ever achieve sales of or profits on our product candidates or those we may pursue in the future.
If
our collaborators are not successful, or breach their agreements with us, we may not effectively develop and market some of our therapeutic
candidates.
At
this time, we have entered into a co-development agreement regarding one of our therapeutic candidates and, as a result, we no longer
have complete control over the development of this candidate. We may also enter into co-development agreements for our other therapeutic
candidates in the future. If our collaborators do not successfully carry out their contractual duties or meet expected deadlines, or
they otherwise breach their contractual obligations to us, we may be delayed or may not obtain regulatory approval for, or commercialize,
our product candidates. We are also subject to the terms of such co-development agreements that may affect our ability to develop and
manufacture our therapeutic candidates. As a result of such limitations, we may be unable to pursue the most efficient or profitable
path in developing our therapeutic candidates.
If
our relationships with these collaborators terminate, we believe that we would be able to enter into arrangements with alternative third
parties. However, replacing any collaborator could delay our clinical trials and could jeopardize our ability to obtain regulatory approvals
and commercialize our product candidates on a timely basis, if at all.
We
may not be able to attract, retain, or manage highly qualified personnel, which could adversely impact our business.
Our
future success and ability to compete in the biopharmaceutical industry is substantially dependent on our ability to identify, attract,
and retain highly qualified key managerial, scientific, medical, and operations personnel. The market for key employees in the biopharmaceutical,
pharmaceutical and biotechnology industries is competitive. The loss of the services of any of our principal members of management or
key employees without an adequate replacement or our inability to hire new employees as needed could delay our product development efforts,
harm our ability to sell our products or otherwise negatively impact our business.
The
scientific, research and development personnel upon whom we have historically relied to operate our business have expertise in certain
aspects of drug development and clinical development, and it may be difficult to replace these individuals. We have previously conducted
our research and development operations within the greater Boston area, and this region is headquarters to many other biopharmaceutical,
biotechnology, pharmaceutical, and medical technology companies, as well as many academic and research institutions, and, therefore,
we face increased competition for technical and managerial personnel in this region.
In
addition, we have scientific, medical and clinical advisors who assist us in designing and formulating our products and with development
and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with,
other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development of
products that may compete with ours.
Despite
our efforts to retain valuable employees, members of our management and scientific and development teams may terminate their employment
with us at any time. Although we have written employment offer letter agreements with our executive officers, our executive officers
can leave their employment at any time, for any reason, with 30 days’ notice. A sustained labor shortage or increased turnover
rates within our employee base could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract
and retain employees, and could negatively affect our ability to efficiently operate our manufacturing and distribution facilities and
overall business. If we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may
take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative effects,
our business could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could
have a material adverse impact on our operations, results of operations, liquidity or cash flows. The loss of the services of any of
our executive officers or our other key employees and our inability to find suitable replacements could potentially harm our business,
financial condition and prospects. We do not maintain “key man” insurance policies on the lives of these individuals or the
lives of any of our other employees.
We
face substantial competition in the development of our product candidates and may not be able to compete successfully, and our product
candidates may be rendered obsolete by rapid technological change.
The
pharmaceutical and biotechnology industry is highly competitive, and we face substantial competition from many pharmaceutical, biopharmaceutical
and biotechnology companies that are researching and marketing products designed to address the indications for which we are currently
developing therapeutic candidates or for which we may develop product candidates in the future.
Many
of our existing or potential competitors have, or have access to, substantially greater financial, research and development, production,
and sales and marketing resources than we do and have a greater depth and number of experienced managers. As a result, our competitors
may be better equipped than us to develop, manufacture, market and sell competing products. In addition, gaining favorable reimbursement
is critical to the success of our product candidates. We are aware of many established pharmaceutical companies in the United States
and other parts of the world that have or are developing technologies for inhaled drug delivery for the prevention and treatment of respiratory
diseases, including GlaxoSmithKline, Mereo BioPharma, Mylan, Savara, Insmed, Satsuma, Bristol-Meyers, TFF Pharmaceuticals, Zambon Pharma
and Pulmocide, which we consider our potential competitors in this regard. If we are unable to compete successfully with these and other
potential future competitors, we may be unable to grow or generate revenue.
The
rapid rate of scientific discoveries and technological changes could result in one or more of our product candidates becoming obsolete
or noncompetitive. Our competitors may develop or introduce new products that render our iSPERSETM delivery technology
and other product candidates less competitive, uneconomical or obsolete. Some of these technologies may have an entirely different approach
or means of accomplishing similar therapeutic effects compared to our drug candidates. Our future success will depend not only on our
ability to develop our product candidates but to improve them and keep pace with emerging industry developments. We cannot assure you
that we will be able to do so.
We
also expect to face increasing competition from universities and other non-profit research organizations. These institutions carry out
substantial research and development in the areas of respiratory diseases. These institutions are becoming increasingly aware of the
commercial value of their findings and are more active in seeking patent and other proprietary rights as well as licensing revenues.
The
potential acceptance of therapeutics that are alternatives to ours may limit market acceptance of our product candidates, even if commercialized.
Respiratory diseases, including our targeted diseases and conditions, can also be treated by other medication or drug delivery technologies.
These treatments may be widely accepted in medical communities and have a longer history of use. The established use of these competitive
drugs may limit the potential for our product candidates to receive widespread acceptance if commercialized.
If
the third parties on which we rely to conduct our clinical trials and to assist us with preclinical development do not perform as contractually
required or expected, we may not be able to obtain regulatory clearance or approval for, or to commercialize, our products.
We
do not have the ability to independently conduct our preclinical and clinical trials for our products and we must rely on third parties,
such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct such trials.
If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if
these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere
to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials
may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize,
our products on a timely basis, if at all, and our business, operating results and prospects may be adversely affected. Furthermore,
our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of our control, such
as, but not limited to, patient enrollment.
We
rely on third-party contract vendors to manufacture and supply us with high quality active pharmaceutical ingredients and manufacture
our therapeutic candidates in the quantities we require on a timely basis.
We
currently do not manufacture any active pharmaceutical ingredients (“APIs”). Instead, we rely on third-party vendors for
the manufacture and supply of our APIs that are used to formulate our therapeutic candidates. We also do not currently own or operate
manufacturing facilities and therefore rely, and expect to continue to rely, on third parties to manufacture clinical and commercial
quantities of our therapeutic candidates and for quality assurance related to regulatory compliance. If these suppliers or manufacturers
are incapable or unwilling to meet our current or future needs at our standards or on acceptable terms, if at all, we may be unable to
locate alternative suppliers or manufacturers on acceptable terms, if at all, or produce necessary materials or components on our own.
While
there may be several alternative suppliers of API in the market, changing API suppliers or finding and qualifying new API suppliers can
be costly and can take a significant amount of time. Many APIs require significant lead time to manufacture. There can also be challenges
in maintaining similar quality or technical standards from one manufacturing batch to the next. We could experience a delay in conducting
clinical trials of or obtaining regulatory approval for PUR3100, PUR1800, PUR1900 or our other drug candidates and incur additional costs
if we changed API suppliers for any reason. Similarly, replacing our manufacturers could cause us to incur added costs and experience
delays in identifying, engaging, qualifying and training any such replacements.
If
we are not able to find stable, affordable, high quality, or reliable supplies of the APIs, or if we are unable to maintain our existing
or future third-party manufacturing arrangements, we may not be able to produce enough supply of our therapeutic candidates or commercialize
any therapeutic candidates on a timely and competitive basis, which could adversely affect our business, financial condition or results
of operations.
Supply
chain and shipping disruptions may result in shipping delays, a significant increase in shipping costs, and could increase product costs
and result in lost sales and reputational damage, which may have a material adverse effect on our business, operating results and financial
condition.
Our
third-party manufacturers and suppliers have experienced, and may continue to experience, supply chain disruption and shipping disruptions,
including disruptions or delays in loading container cargo in ports of origin or off-loading cargo at ports of destination, congestion
in port terminal facilities, labor supply and shipping container shortages, inadequate equipment and persons to load, dock and offload
container vessels and for other reasons. These disruptions may impact our ability to receive our raw materials and certain components
required for the manufacture of our clinical trial materials or products in the future, to distribute our products in a cost-effective
and timely manner and to meet demand, all of which could have an adverse effect on our financial condition and results of operations.
There can be no assurance that further unforeseen events impacting the supply chain will not have a material adverse effect on us in
the future. Additionally, the impacts that supply chain disruptions have on our third-party manufacturers and suppliers are not within