ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

INTRODUCTION

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing activities, includes forward-looking statements that involve risks and uncertainties. You should review the Forward-Looking Statements and Risk Factors sections of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis or elsewhere in the Annual Report on Form 10-K.

Management’s discussion and analysis of the financial condition and results of operations, or MD&A, is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations. This item should be read in connection with our Consolidated Financial Statements for the year ending December 31, 2022 and notes thereto, or Notes, included in this Annual Report on Form 10-K. See the section titled, “Item 8 – Financial Statements and Supplementary Data.”

Information concerning the shares of our common stock and related share prices in this MD&A has been adjusted to reflect the 1-for-50 reverse split of our common stock that was made effective on February 24, 2023. (See the section titled, “Item 8 – Notes to consolidated financial statements – Note 2 - Basis of Presentation”).

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OVERVIEW

We are a clinical-stage biopharmaceutical company focused on the development of novel therapeutics intended to address significant unmet medical needs in important cardiovascular care markets. Our development programs are primarily focused on the treatment of cardiovascular diseases. Our lead product candidate, istaroxime, is a first-in-class, dual-acting agent being developed to improve cardiac function in patients with acute heart failure, or AHF, with a potentially differentiated safety profile from existing treatments. Istaroxime demonstrated significant improvement in both diastolic and systolic aspects of cardiac function and was generally well tolerated in three Phase 2 clinical trials. Istaroxime has been granted Fast Track designation for the treatment of AHF by the U.S. Food and Drug Administration, or FDA. Based on the profile observed in our Phase 2 clinical studies in AHF, where istaroxime significantly improved cardiac function and systolic blood pressure, or SBP, in acute decompensated heart failure patients, we initiated a Phase 2 global clinical study to evaluate istaroxime for the treatment of early cardiogenic shock (Society for Cardiovascular Angiography and Interventions Stage B shock), a severe form of AHF characterized by very low blood pressure and risk for hypoperfusion to critical organs and mortality. We completed this Phase 2 global clinical study and, in April 2022, announced positive topline results. Istaroxime rapidly and significantly increased SBP while also improving cardiac function and preserving renal function. In May 2022, we presented the study results at the European Society of Cardiology Heart Failure Meeting in Madrid, Spain and, in September 2022, the results were published in the European Journal of Heart Failure. We believe that istaroxime has the potential to fulfill an unmet need in early and potentially more severe cardiogenic shock. We further believe that the data from our recently completed Phase 2 global clinical study in early cardiogenic shock not only supports that program’s continued development but also supports the continued development of our AHF program as well.

Our heart failure cardiovascular portfolio also includes sarco endoplasmic reticulum Ca2+ -ATPase 2a, or SERCA2a, activators. This research program is evaluating these preclinical product candidates, including oral and intravenous SERCA2a activator heart failure compounds. These candidates would potentially be developed for both acute decompensated and chronic out-patient heart failure. In addition, our cardiovascular drug product candidates include rostafuroxin, a novel product candidate for the treatment of hypertension in patients with a specific genetic profile. We are pursuing potential licensing arrangements and/or other strategic partnerships and do not intend to advance this product candidate without securing such an arrangement or partnership.

Previously, we were developing our KL4 surfactant platform, including AEROSURF (lucinactant for inhalation), to address a range of serious respiratory conditions in children and adults. In order to focus our resources on the development of our istaroxime pipeline, we suspended internal AEROSURF clinical activities in November 2020, and, in January 2022 we began to reduce all other costs related to the KL4 surfactant platform that were not already being performed by our licensee, Lee’s Pharmaceutical (HK) Ltd., or Lee’s (HK), and its affiliate, Zhaoke Pharmaceutical (Hefei) Co. Ltd., or Zhaoke, under the terms of our License, Development and Commercialization Agreement between us and Lee’s (HK) dated as of June 12, 2017, as amended, or the Original License Agreement.

On August 17, 2022, we entered into an Amended and Restated License, Development and Commercialization Agreement, or the A&R License Agreement, with Lee’s (HK) and Zhaoke effective as of August 9, 2022. We refer to Zhaoke and Lee’s (HK) together as the “Licensee.” The A&R License Agreement amends, restates, and supersedes the Original License Agreement.

Under the A&R License Agreement, we granted to Licensee an exclusive license, with a right to sublicense, to develop, register, make, use, sell, offer for sale, import, distribute, and otherwise commercialize our KL4 surfactant products, including SURFAXIN®, the lyophilized dosage form of SURFAXIN, and aerosolized KL4 surfactant, in each case for the prevention, mitigation, and/or treatment of any respiratory disease, disorder, or condition in humans worldwide, except for Andorra, Greece, and Italy (including the Republic of San Marino and Vatican City), Portugal, and Spain, or the Licensed Territory, which countries are currently exclusively licensed to Laboratorios Del Dr. Esteve, S.A.

Further, under the A&R License Agreement, Licensee is solely and exclusively responsible for all costs and activities related to the development, manufacturing, regulatory approval, and commercialization of licensed products in the Licensed Territory, including all royalties payable in respect of third-party intellectual property rights sublicensed by us to Licensee and all intellectual property prosecution, maintenance and defense activities and costs.

We have incurred operating losses since our incorporation on November 6, 1992. For the years ended December 31, 2022 and 2021, we had operating losses of $41.3 million and $77.3 million, respectively. As of December 31, 2022, we had an accumulated deficit of $824.5 million. To date, we have financed our operations primarily through private placements and public offerings of our common and preferred stock and borrowings from investors and financial institutions. As of December 31, 2022, we had cash and cash equivalents of $6.2 million and believe that we have sufficient resources available to support our development activities and fund our business operations into the second quarter of 2023.

We expect to continue to incur significant research and clinical development, regulatory and other expenses as we (i) continue to develop our product candidates; (ii) seek regulatory clearances or approvals for our product candidates; (iii) conduct clinical trials on our product candidates; and (iv) manufacture, market and sell any product candidates for which we may obtain regulatory approval.

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As a result, we will need additional financing to support our continuing operations. Until such time that we can generate substantial product revenues, if ever, we expect to finance our operations through public or private securities offerings; convertible debt financings; and/or potential strategic opportunities, including licensing agreements, drug product development and marketing collaboration arrangements, pharmaceutical research cooperation arrangements and/or other similar transactions in geographic markets, including the U.S.; and/or through potential grants and other funding commitments from U.S. government agencies, in each case, if available. We have engaged with potential counterparties in various markets and will continue to pursue non-dilutive sources of capital as well as potential private and public securities offerings. There can be no assurance, however, that we will be able to identify and enter into public or private securities offerings on acceptable terms and in amounts sufficient to meet our needs, or qualify for non-dilutive funding opportunities under any grant programs sponsored by U.S. government agencies, private foundations and/or leading academic institutions, or identify and enter into any strategic transactions that will provide the additional capital that we will require. If none of these alternatives is available, or if available, and we are unable to raise sufficient capital through such transactions, we potentially could be forced to limit or cease our development activities, which would have a material adverse effect on our business, financial condition and results of operations (See the section titled, “Liquidity and Capital Resources”).

REVERSE STOCK SPLIT

On February 22, 2023, we filed an amendment to our Amended and Restated Certificate of Incorporation to implement a 1-for-50 reverse split stock of our issued and outstanding common stock. The reverse stock split of our outstanding common stock was effected at a ratio of 1 post-split share for every 50 pre-split shares as of 12:01 a.m. Eastern Time on February 24, 2023. The reverse stock split correspondingly adjusted the per share exercise price and the number of shares issuable upon the exercise of all outstanding options and the per share exercise price of all outstanding options and all shares underlying any of our outstanding warrants by reducing the conversion ratio for each outstanding warrant and increasing the applicable exercise price or conversion price in accordance with the terms of each outstanding warrant and based on the reverse stock split ratio. No fractional shares were issued in connection with the reverse stock split. The number of shares of common stock authorized under our Amended and Restated Certificate of Incorporation is unchanged at 120 million shares. The accompanying consolidated financial statements reflect the 1-for-50 reverse split of our common stock. All share and per share information data herein that relates to our common stock prior to the effective date has been retroactively restated to reflect the reverse stock split.

RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2022 and 2021

Year Ended December 31,

Expenses:

Other income (expense):

Net Loss

Our net loss was $39.2 million and $67.6 million, respectively, for the years ended December 31, 2022 and 2021. Included in our net loss for the year ended December 31, 2022 are non-cash items such as a $12.6 million loss on impairment of goodwill and a $6.8 million loss on impairment of intangible assets related to rostafuroxin and a related $1.4 million deferred income tax benefit. Included in our net loss for the year ended December 31, 2021 are non-cash items such as a $45.0 million loss on impairment of intangible assets related to rostafuroxin and a related $10.0 million deferred income tax benefit.

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Research and Development Expenses

Our research and development expenses are charged to operations as incurred and we incur both direct and indirect expenses for each of our programs. We track direct research and development expenses by preclinical and clinical programs, which include third-party costs such as CROs, CMOs, contract laboratories, consulting, and clinical trial costs. We do not allocate indirect research and development expenses, which include product development and manufacturing expenses and clinical, medical, and regulatory operations expenses, to specific programs. We also account for research and development and report annually by major expense category as follows: (i) contracted services; (ii) salaries and benefits; (iii) stock-based compensation; (iv) raw materials and supplies; (v) royalties; (vi) rents and utilities; (vii) depreciation; (viii) travel; and (ix) other. We expect that our research and development expenses will decrease unless and until we secure additional capital. At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates.

Research and development expenses for the years ended December 31, 2022 and 2021 are as follows:

Year Ended December 31,

(in thousands) 2022 2021 Increase (Decrease)

Istaroxime - early cardiogenic shock $ 3,318 $ 3,236 $ 82

Preclinical studies - 6 (6 )

Total direct clinical and preclinical programs 4,382 5,830 (1,448 )

Clinical, medical, and regulatory operations 4,237 7,597 (3,360 )

Research and development expenses include non-cash charges associated with stock-based compensation and depreciation of $1.2 million and $3.1 million, respectively, for 2022 and 2021.

Direct Clinical and Preclinical Programs

Direct clinical and preclinical programs include: (i) activities associated with conducting clinical trials, including patient enrollment costs, clinical site costs, clinical drug supply, and related external costs, such as consultant fees and expenses; and (ii) development activities, toxicology studies, and other preclinical studies.

Istaroxime - early cardiogenic shock costs relate to our Phase 2 global clinical study of istaroxime for the treatment of early cardiogenic shock. In September 2020, we initiated a Phase 2 clinical study of istaroxime for the acute treatment of cardiogenic shock and we completed enrollment in that study in March 2022. Since that time, we have continued our development of istaroxime for the acute treatment of cardiogenic shock in preparation for a planned extension of enrollment in this clinical trial by up to 30 patients.

Istaroxime - AHF costs relate to limited ongoing clinical and preclinical development activities decreased $0.8 million from 2021 to 2022 primarily due to toxicology studies performed in 2021.

KL4 surfactant costs decreased $0.7 million from 2021 to 2022 following the completion of enrollment in January 2022 of our Phase 2b study of lucinactant for patients with severe COVID-19 associated acute respiratory distress syndrome. Costs related to the KL4 surfactant platform are expected to continue to decrease as we complete close-out activities on prior KL4 surfactant platform clinical trials and focus our resources on the development of our istaroxime pipeline.

Product Development and Manufacturing

Product development and manufacturing includes (i) manufacturing operations, with our CMO, validation activities, quality assurance; and (ii) pharmaceutical and manufacturing development activities of our drug product candidates, including development of istaroxime. These costs include employee expenses, facility-related costs, depreciation, costs of drug substances (including raw materials), supplies, quality assurance activities, and expert consultants and outside services to support pharmaceutical development activities.

Product development and manufacturing expenses decreased$1.9 million from 2021 to 2022 due to (i) a decrease of $1.5 million related to our decision in January 2022 to begin to reduce costs related to the development of the KL4 surfactant platform that were not already being performed by our licensee, Lee’s (HK) and Zhaoke; (ii) a decrease of $0.4 million related to reductions in headcount for the KL4 surfactant platform; and (iii) a $0.4 million decrease in non-cash stock-based compensation expense due to granting two option grants to employees during 2021 compared to one option grant in 2022; partially offset by (iv) $0.4 million in accelerated depreciation during the first quarter of 2022 following the abandonment and decommissioning of certain manufacturing and laboratory equipment assets related to the KL4 surfactant platform.

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Clinical, Medical, and Regulatory Operations

Clinical, medical, and regulatory operations include medical, scientific, preclinical and clinical, regulatory, data management, and biostatistics activities in support of our research and development programs. These costs include personnel, expert consultants, outside services to support regulatory and data management, symposiums at key medical meetings, facilities-related costs, and other costs for the management of clinical trials.

Clinical, medical, and regulatory operations expenses decreased$3.4 million from 2021 to 2022 due to (i) a decrease of $1.6 million in non-cash, stock-based compensation expense due to granting two option grants to employees during 2021 compared to one option grant in 2022; (ii) $0.8 million in royalty expense related to the KL4 surfactant platform in 2021 and a reversal of $0.2 million in royalty expense in 2022; and (iii) a decrease of $0.8 million in personnel costs related to reductions in headcount for the KL4 surfactant platform.

Research and Development Expense by Major Expense Category

We also account for our research and development expense by major expense category as shown in the following table:

Year Ended December 31,

(in thousands) 2022 2021 Increase (Decrease)

Raw materials and supplies 34 85 (51 )

Contracted services include third-party costs of preclinical studies, clinical trial activities, quality control and analytical stability and release testing of our drug products, and consulting services. The decrease of $2.9 million from 2021 to 2022 is primarily due to a decrease in costs related to an analytical and technical support laboratories, both in-house and external, that previously supported the KL4 surfactant platform, as well as a decrease in clinical trial expense related to the KL4 surfactant platform.

The $0.9 million decrease in salaries and benefits expense from 2021 to 2022 is primarily due to reductions in headcount that previously supported the KL4 surfactant platform.

The $2.1 million decrease in stock-based compensation expense from 2021 to 2022 is primarily due to granting two option grants to employees during 2021 compared to one option grant in 2022.

The $0.3 million increase in depreciation expense from 2021 to 2022 is primarily due to $0.4 million of accelerated depreciation expense in 2022 related to the abandonment of certain manufacturing and laboratory equipment assets related to the KL4 surfactant platform during the year.

Royalties represent minimum royalties in connection with our licensing agreements with Philip Morris USA Inc. and Philip Morris Products S.A. for our ADS technology. In 2022, we reversed $0.2 million in royalty expense after entering into the A&R License Agreement described above, under which the Licensee has agreed to assume certain of our obligations under the PM License Agreements.

Other consists primarily of ongoing research and development costs such as insurance, taxes, education and training, and software licenses.

Research and Development Projects

A substantial portion of our cumulative losses to date relate to investments in our research and development projects, for which we incurred $28.9 million in expenses for the two-year period ended December 31, 2022. Due to the significant risks and uncertainties inherent in the clinical development and regulatory approval processes, the nature, timing and costs of the efforts necessary to complete individual projects in development are not reasonably estimable. With every phase of a development project, there are unknowns that may significantly affect cost projections and timelines. In view of the number and nature of these factors, many of which are outside our control, the success, timing of completion and ultimate cost of development of any of our product candidates are highly uncertain and cannot be estimated with any degree of certainty. In addition to the risks and uncertainties affecting our research and development projects discussed in this MD&A (See the section titled, “Item 1A – Risk Factors”), other risks could arise that we may not foresee that could affect our ability to estimate projections and timelines.

Ultimately, if we do not successfully develop and gain marketing approval for our drug product candidates, in the U.S. or elsewhere, we will not be able to commercialize, or generate any revenues from the sale of our products and the value of our company and our financial condition and results of operations will be substantially harmed.

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General and Administrative Expenses

General and administrative expenses consist of costs for executive management, business development, intellectual property, finance and accounting, legal, insurance, human resources, information technology, facilities, and other administrative costs.

General and administrative expenses include non-cash charges associated with stock-based compensation of $2.3 million and $4.3 million, respectively, for the years ended December 31, 2022 and 2021. General and administrative expenses decreased$3.7 million from 2021 to 2022 due to (i) a decrease of $2.0 million in non-cash, stock-based compensation expense due to granting two option grants to employees during 2021 compared to one option grant in 2022; (ii) a decrease of $1.6 million in professional fees; and (iii) a decrease of $0.1 million in personnel costs.

Other Income (Expense), Net

Interest income relates to income on our money market funds.

Interest expense consists of interest expense associated with loans payable.

Other income (expense), net in 2022 primarily consists of $0.7 million in gains on foreign currency translation. Other income (expense), net in 2021 primarily consists of $0.3 million in losses on foreign currency translation.

LIQUIDITY AND CAPITAL RESOURCES

We are subject to risks common to companies in the biotechnology industry, including but not limited to, the need for additional capital, risks of failure of preclinical and clinical studies, the need to obtain marketing approval and reimbursement for any drug product candidate that we may identify and develop, the need to successfully commercialize and gain market acceptance of our product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development of technological innovations by competitors, and risks associated with our international operations in Taiwan and activities abroad, including but not limited to having foreign suppliers, manufacturers, and clinical sites in support of our development activities.

We have incurred net losses since inception. Our net loss was $39.2 million and $67.6 million, respectively, for the years ended December 31, 2022 and 2021. Included in our net loss for the year ended December 31, 2022 are non-cash items such as a $12.6 million loss on impairment of goodwill and a $6.8 million loss on impairment of intangible assets related to rostafuroxin and a related $1.4 million deferred income tax benefit. Included in our net loss for the year ended December 31, 2021 are non-cash items such as a $45.0 million loss on impairment of intangible assets related to rostafuroxin and a related $10.0 million deferred income tax benefit (See the section titled, “Note 4 – Accounting Policies and Recent Accounting Pronouncements”). We expect to continue to incur operating losses for at least the next several years. As of December 31, 2022, we had an accumulated deficit of $824.5 million. Our future success is dependent on our ability to fund and develop our product candidates, and ultimately upon our ability to attain profitable operations. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital, and accordingly, our ability to execute our future operating plans.

We are party to an At-The-Market Offering Agreement with Ladenburg Thalmann & Co. Inc., or Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal through an at-the-market program, or the ATM Program. For the year ended December 31, 2022, we sold 206,824 shares of our common stock under the ATM Program resulting in aggregate gross proceeds to us of approximately $4.4 million and net proceeds of approximately $4.3 million (See the section titled, “Note 10 – Mezzanine Equity and Stockholders’ Equity”).

The shares of common stock issued and sold under the ATM Program are registered under our registration statement on Form S-3 (File No. 333-248874), or the 2020 Universal Shelf, which was declared effective by the SEC on September 29, 2020. We are currently subject to the limitations contained in General Instruction I.B.6 of Form S-3. As a result, we are limited to selling no more than one-third of the aggregate market value of the equity held by non-affiliates, or the public float, during any 12-month period, and as of December 31, 2022, we have sold the full amount we are permitted to sell under the Form S-3 pursuant to General Instruction I.B.6. If our public float increases, we will have additional availability under such limitations, and if our public float increases to $75.0 million or more, we will no longer be subject to such limitations. There can be no assurance that our public float will increase or that we will no longer be subject to such limitations.

As of December 31, 2022, we had cash and cash equivalents of $6.2 million and current liabilities of $2.5 million. We believe that we have sufficient resources available to support our development activities and fund our business operations into the second quarter of 2023. However, we do not have sufficient cash and cash equivalents as of the date of this Annual Report on Form 10-K to support our operations for at least the 12 months following the date that the financial statements are issued. These conditions raise substantial doubt about our ability to continue as a going concern for at least 12 months after the date that the financial statements are issued.

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To alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, management plans to secure additional capital, potentially through a combination of public or private securities offerings, convertible debt financings, and/or strategic transactions, including potential licensing arrangements, alliances, and drug product collaborations focused on specified geographic markets; however, none of these alternatives are committed at this time. There can be no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all, or identify and enter into any strategic transactions that will provide the capital that we will require. The failure to obtain sufficient capital on acceptable terms when needed would have a material adverse effect on our business, results of operations, and financial condition. Accordingly, management has concluded that substantial doubt exists with respect to our ability to continue as a going concern for at least 12 months after the issuance of the accompanying financial statements.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business, and do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Cash Flows

Cash flows for the years ended December 31, 2022 and 2021

Net cash outflows for 2022 consist of $19.5 million net cash used in operating activities, $0.2 million of net cash provided by investing activities, and $3.1 million of net cash provided by financing activities. Net cash inflows for 2021 consist of $23.7 million net cash used in operating activities, $0.3 million of net cash used in investing activities, and $29.4 million of net cash provided by financing activities.

Operating Activities

Net cash used in operating activities was $19.5 million for the year ended December 31, 2022 and consisted primarily of (i) a net loss of $39.2 million, (ii) changes in operating assets and liabilities of $1.8 million; (iii) a non-cash deferred income tax benefit of $1.4 million; and (iv) an unrealized gain on foreign exchange rate changes of $0.7 million; partially offset by (v) a non-cash loss on impairment of goodwill of $12.6 million; (vi) a non-cash loss on impairment of intangible assets of $6.8 million; (vii) a non-cash stock-based compensation expense of $3.1 million; (viii) depreciation and amortization of $0.5 million; and (ix) a non-cash lease expense of $0.5 million. Changes in prepaid expenses and other current assets, accounts payable, accrued expenses, and operating lease liabilities result from timing differences between the receipt and payment of cash and when the transactions are recognized in our results of operations.

Net cash used in operating activities was $23.7 million for the year ended December 31, 2021 and consisted primarily of (i) a net loss of $67.6 million; (ii) a non-cash deferred income tax benefit of $10.0 million; partially offset by (iii) a non-cash loss on impairment of intangible assets of $45.0 million; (iv) non-cash stock-based compensation expense of $7.2 million; (v) a non-cash expense related to equity consideration for a financial advisory service agreement of $0.5 million; (vi) a non-cash lease expense of $0.7 million; (vii) an unrealized loss on foreign exchange rate changes of $0.4 million; (viii) changes in operating assets and liabilities of $0.1 million; and (ix) depreciation and amortization of $0.2 million. Changes in prepaid expenses and other current assets, accounts payable, accrued expenses, and operating lease liabilities result from timing differences between the receipt and payment of cash and when the transactions are recognized in our results of operations.

Investing Activities

Net cash provided by investing activities was $0.2 million for the year ended December 31, 2022 and primarily includes proceeds from sale of property and equipment related to the decommissioning and sale of certain manufacturing and laboratory equipment assets previously used for the KL4 surfactant platform. Net cash used in investing activities was $0.3 million for the year ended December 31, 2021 and is due to purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $3.1 million and $29.4 million for the years ended December 31, 2022 and 2021, respectively, summarized as follows:

Year Ended December 31,

Proceeds from ATM Program, net of issuance costs $ 4,253 $ 4,843

Principal payments on loans payable (1,174 ) (3,872 )

Proceeds from research and development funding arrangement - 1,000

Net cash provided by financing activities $ 3,079 $ 29,361

The following sections provide a more detailed discussion of our available financing facilities.

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Financings Pursuant to Common Stock Offerings

Historically, we have funded, and expect that we will continue to fund, our business operations through various sources, including financings in the form of common stock offerings. In September 2020, we filed the 2020 Universal Shelf, which was declared effective on September 29, 2020, for the proposed offering from time to time of up to $75.0 million of our securities, including common stock, preferred stock, debt securities, warrants, units, subscription rights, or any combination of the foregoing, on terms and conditions that will be determined at the time of an offering. As of December 31, 2022, approximately $1.8 million remained available under the 2020 Universal Shelf. The 2020 Universal Shelf will expire upon the earlier to occur of (i) the sale of $75.0 million of our securities or (ii) September 29, 2023.

In December 2021, we filed with the SEC a “shelf” registration statement on Form S-3 (No. 333-261878), or the 2022 Universal Shelf, that was declared effective on January 3, 2022, for the proposed offering from time to time of up to $100.0 million of our securities, including common stock, preferred stock, debt securities, warrants, units, subscription rights, or any combination of the foregoing, on terms and conditions that will be determined at the time of an offering. The 2022 Universal Shelf will expire upon the earlier to occur of (i) the sale of $100.0 million of our securities or (ii) January 3, 2025. We have not yet made any offerings or sales of our securities under the 2022 Universal Shelf.

At-The-Market Program

On September 17, 2020, we entered into an At-The-Market Offering Agreement with Ladenburg Thalmann & Co. Inc., or Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal under the ATM Program. When we issue sales notices to Ladenburg, we designate the maximum amount of shares to be sold by Ladenburg daily and the minimum price per share at which shares may be sold. Ladenburg may sell shares by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) under the Securities Act, or in privately negotiated transactions.

The shares of common stock issued and sold under the ATM Program are registered under the 2020 Universal Shelf. We are currently subject to the limitations contained in General Instruction I.B.6 of Form S-3. As a result, we are limited to selling no more than one-third of the aggregate market value of the equity held by non-affiliates, or the public float, during any 12-month period, and as of December 31, 2022, we have sold the full amount we are permitted to sell under the Form S-3 pursuant to General Instruction I.B.6. If our public float increases, we will have additional availability under such limitations, and if our public float increases to $75.0 million or more, we will no longer be subject to such limitations. There can be no assurance that our public float will increase or that we will no longer be subject to such limitations.

March 2021 Public Offering

On March 23, 2021, we entered into an underwriting agreement with Oppenheimer & Co. Inc. as representative for the several underwriters named therein, relating to a public offering, or the March 2021 Offering, of an aggregate of 184,610 units with each unit consisting of one share of common stock and a warrant, or the March 2021 Warrants. The March 2021 Warrants were immediately exercisable for shares of common stock at a price of $180.00 per share and expire five years from the date of issuance. The shares of common stock and the March 2021 Warrants were immediately separable and were issued separately in the March 2021 Offering.

The closing of the March 2021 Offering occurred on March 25, 2021. The offering price to the public was $162.50 per unit resulting in gross proceeds to us of $30.0 million. After deducting underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the March 2021 Warrants issued pursuant to the March 2021 Offering, the net proceeds to us were approximately $27.4 million.

Loan Payable to Bank Direct Capital Finance

In June 2022, we entered into an insurance premium financing and security agreement with Bank Direct Capital Finance, or Bank Direct. Under the agreement, we financed $1.1 million of certain premiums at a 3.90% fixed annual interest rate. Payments of approximately $126,000 are due monthly from July 2022 through March 2023. As of December 31, 2022, the outstanding principal of the loan was $0.3 million.

In June 2021, we entered into an insurance premium financing and security agreement with Bank Direct. Under the agreement, we financed $1.3 million of certain premiums at a 3.37% fixed annual interest rate. Payments of approximately $147,000 were due monthly from July 2021 through March 2022. As of December 31, 2021, the outstanding principal of the loan was $0.3 million. The balance of the loan was repaid during the first quarter of 2022.

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Restructured Debt Liability

On October 27, 2017, we and Deerfield Management Company, L.P., or Deerfield, entered into the Exchange and Termination Agreement pursuant to which (i) promissory notes evidencing a loan with affiliates of Deerfield Management Company L.P., or the Deerfield Loan, in the aggregate principal amount of $25.0 million and (ii) warrants to purchase up to 167 shares of our common stock at an exercise price of $118,020.00 per share held by Deerfield were cancelled in consideration for (x) a cash payment in the aggregate amount of $2.5 million, (y) 474 shares of common stock, representing 2% of fully-diluted shares outstanding (as defined in the Exchange and Termination Agreement) on the closing date, and (z) the right to receive certain milestone payments based on achievement of specified AEROSURF development and commercial milestones, which, if achieved, could potentially total up to $15.0 million. In addition, a related security agreement, pursuant to which Deerfield held a security interest in substantially all of our assets, was terminated. We established a $15.0 million long-term liability for the contingent milestone payments potentially due to Deerfield under the Exchange and Termination Agreement (See the section titled, “Note 4 – Accounting Policies and Recent Accounting Pronouncements”). The liability has been recorded at the full value of the contingent milestones and will continue to be carried at full value until the milestones are achieved and paid or the milestones are not achieved and the liability is written off as a gain on debt restructuring.

As of December 31, 2022 and 2021, the restructured debt liability balance was $15.0 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preceding discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, and information available from other outside sources, as appropriate. These estimates and assumptions are affected by the application of our accounting policies. Critical accounting policies and practices are both important to the portrayal of a company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Actual results could differ from such estimates due to changes in economic factors or other conditions that are outside the control of management. A summary of our significant accounting policies is described in Note 4 of the Audited Consolidated Financial Statements contained in this Annual Report on Form 10-K. Of those policies, we believe that the following accounting policy is critical to aid our stockholders in fully understanding and evaluating our reported financial results.

Intangible Assets and Goodwill

We record acquired intangible assets and goodwill based on estimated fair value. The identifiable intangible assets resulting from the CVie Therapeutics acquisition in December 2018 relate to in-process research and development, or IPR&D, of istaroxime and rostafuroxin. The IPR&D assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts. IPR&D is not amortized but reviewed for impairment at least annually, or when events or changes in the business environment indicate the carrying value may be impaired.

When testing our indefinite-lived intangible assets and goodwill for impairment, we can elect to perform a qualitative assessment to determine if it is more likely than not that the fair values of our indefinite-lived intangible assets and our reporting unit are less than their respective carrying values. Such qualitative factors can include, among others, industry and market conditions, overall financial performance, and relevant entity-specific events. If we conclude based on our qualitative assessment that it is more likely than not that the fair value of our indefinite-lived intangible assets or reporting unit are less than their respective carrying values, we perform a quantitative assessment. When conducting our annual impairment test of indefinite-lived intangible assets and goodwill as of December 1, 2022, we elected to perform a quantitative assessment.

When performing the quantitative impairment assessment for our indefinite-lived IPR&D intangible assets, we estimate the fair values of the assets using the multi-period excess earnings method, or MPEEM. MPEEM is a variation of the income approach which estimates the fair value of an intangible asset based on the present value of the incremental after-tax cash flows attributable to the intangible asset. Significant factors considered in the calculation of IPR&D intangible assets include the risks inherent in the development process, including the likelihood of achieving commercial success and the cost and related time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration, and growth rates. Other significant estimates and assumptions inherent in this approach include (i) the amount and timing of the projected net cash flows associated with the IPR&D assets, (ii) the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and (iii) the tax rate, which considers geographic diversity of the projected cash flows. While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows could differ significantly based on the commercial success of the related drug candidates and market conditions which could result in future impairment charges related to our indefinite-lived intangible asset balances.

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During 2021, we concluded an initial process to test the industry’s interest in investing in our rostafuroxin drug candidate and were not able to secure a licensing transaction or other strategic opportunity at that time. Based on feedback received from potential licensing partners, we have determined that there is a need for an additional Phase 2 clinical trial. Due to these developments, we recorded a loss on impairment of intangible assets of $37.8 million during the second quarter of 2021. Further, in connection with our annual quantitative impairment assessment of indefinite-lived IPR&D intangible assets as of December 1, 2021, we reassessed certain assumptions related to our rostafuroxin drug candidate due to the current macroeconomic conditions which have made it harder to secure the funding needed to conduct the additional Phase 2 clinical trial and had therefore delayed our intended development of rostafuroxin. As a result, we recorded an additional loss on impairment of intangible assets of $7.2 million in the fourth quarter of 2021. When combined with the loss on impairment of intangible assets recorded during the second quarter, we recorded a loss on impairment of intangible assets totaling $45.0 million within operating expenses in our consolidated statements of operations during the year ended December 31, 2021.

As part of our annual quantitative impairment assessment of indefinite-lived IPR&D intangible assets as of December 1, 2022, we again reassessed certain assumptions related to our rostafuroxin drug candidate due to the continued difficulties in current macroeconomic conditions which have continued to make it more challenging to secure the funding needed to conduct the additional Phase 2 clinical trial and have therefore further delayed our intended development of rostafuroxin. As a result, we concluded that the fair value of the IPR&D related to our rostafuroxin drug candidate was less than its carrying value. We estimated the fair value of the asset using MPEEM and determined that the fair value as of December 1, 2022 was approximately $2.9 million. We then compared this fair value to the carrying value of approximately $9.7 million, and recorded an additional loss on impairment of intangible assets of $6.8million related to the IPR&D of our rostafuroxin drug candidate. We also reassessed the assumptions related to the fair value of the IPR&D related to our istaroxime drug candidate. As a result, the estimated fair value decreased from December 1, 2021 to December 1, 2022, but still exceeded the carrying value of that asset. As a result, no impairment charge was recognized related to the IPR&D of our istaroxime drug candidate.

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination and is not amortized. It is reviewed for impairment at least annually or when events or changes in the business environment indicate that its carrying value may be impaired. Our company consists of one reporting unit. In order to perform the quantitative goodwill impairment test, we compare the estimated fair value of our reporting unit to its carrying value. If the fair value exceeds the carrying value, no further evaluation is required, and no impairment exists. If the carrying value exceeds the fair value, the difference between the carrying value and the fair value is recorded as an impairment loss, the amount of which may not exceed the total amount of goodwill. When performing a goodwill impairment assessment, we estimate the fair value of our reporting unit, including the use of the quoted market price and related market capitalization of our common stock, adjusted for an estimated control premium based on transactions completed by comparable companies.

In accordance with applicable accounting standards, we are required to review intangible assets and goodwill for impairment on an annual basis, or more frequently where there is an indication of impairment. Throughout the year, we consider whether any events or changes in the business environment have occurred which indicate that goodwill may be impaired. For example, a significant decline in the closing share price of our common stock and market capitalization may suggest that the fair value of our reporting unit has fallen below its carrying value, indicating that an interim goodwill impairment test is required. Accordingly, we monitor changes in our share price during interim periods between annual impairment tests and consider overall stock market conditions, the underlying reasons for the decline in our share price, the significance of the decline, and the duration of time that our securities have been trading at a lower value. We have experienced a declining trend in the closing share price of our common stock, on a split-adjusted basis, following the announcement in April 2022 of positive topline results in our Phase 2 global clinical study of istaroxime for the treatment of early cardiogenic shock.

During each of the second and third quarters of 2022, the continued declining trend in the closing share price of our common stock, on a split-adjusted basis, suggested that the fair value of our reporting unit was more likely than not less than its carrying value. As a result, in each quarter we performed the required interim goodwill impairment test consistent with the methodology described above. Based on the quantitative tests performed, we recorded losses on impairment of goodwill of $11.6 million and $0.5 million, respectively, in the second and third quarters of 2022. We performed our annual goodwill quantitative test as of December 1, 2022 and determined that the fair value of our reporting unit was more likely than not less than its carrying value. As a result, we recorded a loss on impairment of goodwill of $0.5 million in the fourth quarter of 2022. When combined with the losses on impairment of goodwill recorded during the second and third quarters of 2022, we recorded a loss on impairment of intangible assets totaling $12.6 million within operating expenses in our consolidated statements of operations during the year ended December 31, 2022.

The closing share price of our common stock, on a split-adjusted basis, has continued to decline subsequent to the end of 2022. If our share price continues to decline, we may be at risk for future impairment to goodwill in the near term.

The following table represents identifiable intangible assets and goodwill as of December 31, 2022 and 2021:

December 31,

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Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses are related to expenses incurred with respect to CROs, CMOs, clinical trial sites, and other vendors supporting our research and development and manufacturing activities.

We base our expenses related to CROs, CMOs, and clinical trial sites on our estimates of services received and efforts expended under quotations and contracts with those vendors that conduct research and development and manufacturing activities on our behalf. The financial terms of these agreements are negotiated, vary from contract to contract and may result in uneven payment flows. At times, payments made to our vendors may exceed the level of services provided and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by this Item is set forth in the financial statements and notes thereto beginning at page F-1 of this Annual Report on Form 10-K.

On May 10, 2022, we dismissed Ernst & Young LLP, or EY, as our independent registered public accounting firm. The dismissal of EY was approved by the audit committee of the Board. The reports of EY on our financial statements as of and for the years ended December 31, 2021 and 2020 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report for the fiscal year ended December 31, 2021 contained an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern as a result of recurring losses.

On May 10, 2022, in connection with our dismissal of EY, we engaged EisnerAmper LLP, or EisnerAmper, as our new independent registered public accounting firm to audit our financial statements for the year ending December 31, 2022. The decision to retain EisnerAmper was approved by the audit committee of the Board, after taking into account the results of a competitive review process and other business factors.

During the years ended December 31, 2021 and 2020 and through the date of this Annual Report on Form 10-K, there were no disagreements between us and EY on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of EY, would have caused EY to make reference to the subject matter of the disagreements in connection with its reports for such fiscal years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

During the years ended December 31, 2021 and 2020 and the subsequent interim period through May 10, 2022, neither we nor anyone on our behalf consulted with EisnerAmper regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on our financial statements and, neither a written report nor oral advice was provided to us that EisnerAmper concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting issues, (iii) any matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions), or (iv) any “reportable event” (as described in Item 304(a)(1)(v) of Regulation S-K).

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ITEM 9A. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures

Our management, including our President and Chief Executive Officer (principal executive officer) and our Interim Chief Financial Officer (principal financial and accounting officer), do not expect that our disclosure controls or our internal control over financial reporting will prevent all error and all fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. In designing and evaluating the disclosure controls and procedures, our management recognized 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 was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our President and Chief Executive Officer and our Interim Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our President and Chief Executive Officer and our Interim Chief Financial Officer concluded that, as of the end of the period covered by this report, 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 accumulated and communicated to our management, including our President and Chief Executive Officer and our Interim Chief Financial Officer, to allow for timely decisions regarding required disclosures, and recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Management’s Report on Internal Control over Financial Reporting

Our management, including our President and Chief Executive Officer and our Interim Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Interim Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated 2013 Framework. Based on our assessment, our management believes that our internal control over financial reporting is effective based on those criteria, as of December 31, 2022.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission, or the SEC, that permit us to provide only management’s report in this Annual Report on Form 10-K.

There were no changes in our internal control over financial reporting identified in connection with the evaluation described above that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item is incorporated herein by reference from our proxy statement on Schedule 14A, or the Proxy Statement, for our 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Financial Statements.

The consolidated financial statements required to be filed in this Annual Report on Form 10-K are listed on the Index to Consolidated Financial Statements on page F-1 hereof.

(b) Exhibits.

The following exhibits are included with this Annual Report on Form 10-K.

Exhibit No. Description

3.1* Amended and Restated Certificate of Incorporation.

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23.1* Consent of EisnerAmper LLP, independent registered public accounting firm.

101.SCH* Inline XBRL Taxonomy Extension Schema Document (1).

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document (1).

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document (1).

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101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document (1).

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document (1).

* Filed herewith.

# Compensation Related Contract.

† Confidential treatment received for certain portions of this exhibit.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WINDTREE THERAPEUTICS, INC.

Date: March 31, 2023 By: /s/ Craig E. Fraser

Craig E. Fraser

Director, President, and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ James Huang James Huang Director (Chairman of the Board) March 31, 2023

/s/ Daniel E. Geffken Daniel E. Geffken Director March 31, 2023

/s/ Robert Scott, M.D. Robert Scott, M.D. Director March 31, 2023

/s/ Leslie J. Williams Leslie J. Williams Director March 31, 2023

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Contents Page

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID: 274) F-2

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) F-4

Consolidated Balance Sheets as of December 31, 2022 and 2021 F-5

Notes to consolidated financial statements F-9

F-1

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Windtree Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Windtree Therapeutics, Inc. and Subsidiaries (the “Company”) as of December 31, 2022, and the related consolidated statements of operations, changes in mezzanine equity and stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and expects to incur losses for the foreseeable future, that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Fair value of indefinite-lived intangible assets

As reflected in the Company’s consolidated financial statements, indefinite-lived intangible assets totaled $25.3 million and consisted of in-process research and development (IPR&D) at December 31, 2022. As discussed in Note 4 to the consolidated financial statements, IPR&D assets are tested by management for impairment at least annually, or when events or changes in the business environment indicate that the fair value of the IPR&D assets are more likely than not less than their carrying value. The Company recorded a loss on impairment of intangible assets of $6.8 million for the year-ended December 31, 2022. The interim and annual quantitative impairment tests require that management estimate the fair value of the IPR&D assets in order to determine if the asset is impaired.

Auditing the estimated fair value of the IPR&D assets was complex and involved a high degree of subjectivity due to the significant estimation uncertainty involved in determining the fair value of the IPR&D assets. In particular, the estimated fair value of the IPR&D assets was sensitive to significant assumptions such as the probability of achieving development and commercial success for the products, the size of the addressable patient population, the anticipated pricing for the products, the probability, timing and amount of any upfront or milestone payments from potential partnering agreements, the timing and amount of additional clinical trial costs to be incurred by the Company, and the discount rate.

F-2

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

To test the estimated fair value of the Company’s IPR&D assets, we performed audit procedures that included, among others, testing the significant assumptions used to develop the estimate and evaluating the completeness and accuracy of the underlying data used by the Company in its analyses. For example, we compared the probability of achieving development and commercial success for the products to studies published in medical journals evaluating clinical advancement and approval rates for similar products. We compared the estimated size of the addressable patient population to an industry database that tracks healthcare information and we compared the anticipated pricing and upfront/milestone payment assumptions to publicly available data supporting transactions and products of a similar nature. We compared the anticipated future clinical trial costs to actual costs incurred by the Company for past comparable trials. We also involved internal valuation specialists to assist in our evaluation of the discount rate used by the Company.

/s/ EisnerAmper LLP

We have served as the Company’s auditor since 2022.

EISNERAMPER LLP

Philadelphia, Pennsylvania

March 31, 2023

F-3

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Windtree Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Windtree Therapeutics, Inc. and subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations, expects to incur losses for the foreseeable future, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor from 2000 to 2022.

Philadelphia, Pennsylvania

March 31, 2022

except for the second paragraph of Note 2, as to which the date is

March 31, 2023

F-4

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and per share data)

ASSETS

Current Assets:

Prepaid expenses and other current assets 1,205 1,143

Property and equipment, net 262 1,011

Operating lease right-of-use assets 1,853 2,381

LIABILITIES, MEZZANINE EQUITY & STOCKHOLDERS’ EQUITY

Current Liabilities:

Operating lease liabilities - current portion 404 528

Loans payable - current portion 252 294

Operating lease liabilities - non-current portion 1,624 2,071

Restructured debt liability - contingent milestone payments 15,000 15,000

Mezzanine Equity:

Stockholders’ Equity:

Treasury stock (at cost); 1 share (3,054 ) (3,054 )

Total liabilities, mezzanine equity & stockholders’ equity $ 37,954 $ 74,789

See notes to consolidated financial statements

F-5

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share data)

Year Ended December 31,

Expenses:

Loss on impairment of goodwill 12,624 -

Loss on impairment of intangible assets 6,820 45,020

Other income (expense):

Interest expense (53 ) (114 )

Other income (expense), net 702 (320 )

Total other income (expense), net 758 (343 )

Net loss per common share

Weighted average number of common shares outstanding

See notes to consolidated financial statements

F-6

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity

(in thousands)

Mezzanine Equity Stockholders’ Equity

Series A Preferred Stock Common Stock Treasury Stock

Stock-based compensation expense - - - - 7,238 - - - 7,238

Issuance of Series A Preferred Stock 39 - - - - - - - -

Stock-based compensation expense - - - - 3,086 - - - 3,086

See notes to consolidated financial statements

F-7

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 533 192

Non-cash expense related to equity consideration for a service agreement - 494

Loss on impairment of goodwill 12,624 -

Loss on impairment of intangible assets 6,820 45,020

Loss on sale and disposal of property and equipment 19 -

Deferred income tax benefit (1,367 ) (9,987 )

Unrealized (gain) loss on foreign exchange rate changes (710 ) 396

Changes in assets and liabilities:

Prepaid expenses and other current assets 1,076 1,365

Operating lease liabilities (571 ) (548 )

Net cash used in operating activities (19,452 ) (23,664 )

Cash flows from investing activities:

Proceeds from sale of property and equipment 210 -

Purchase of property and equipment (13 ) (279 )

Net cash provided by (used in) investing activities 197 (279 )

Cash flows from financing activities:

Proceeds from ATM Program, net of issuance costs 4,253 4,843

Principal payments on loans payable (1,174 ) (3,872 )

Proceeds from research and development funding arrangement - 1,000

Net cash provided by financing activities 3,079 29,361

Cash, cash equivalents, and restricted cash - beginning of year 22,502 17,084

Cash, cash equivalents, and restricted cash - end of year $ 6,326 $ 22,502

Supplementary disclosure of non-cash activity:

Prepayment of insurance through third-party financing 1,132 1,321

See notes to consolidated financial statements

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Note 1 – The Company and Description of Business

Our heart failure cardiovascular portfolio also includes sarco endoplasmic reticulum Ca2+ -ATPase 2a, or SERCA2a, activators which activate SERCA2a. This research program is evaluating these preclinical product candidates, including oral and intravenous SERCA2a activator heart failure compounds. These candidates would potentially be developed for both acute decompensated and chronic out-patient heart failure. In addition, our cardiovascular drug product candidates include rostafuroxin, a novel product candidate for the treatment of hypertension in patients with a specific genetic profile. We are pursuing potential licensing arrangements and/or other strategic partnerships and do not intend to advance this product candidate without securing such an arrangement or partnership.

Under the Original License Agreement, Lee’s (HK) previously made an upfront payment to us of $1.0 million. Pursuant to the terms of the A&R License Agreement, we may also receive up to $78.9 million in potential clinical, regulatory, and commercial milestone payments. We are also entitled to receive a low double-digit percentage of Licensee’s non-royalty sublicense income. Per the A&R License Agreement, we are also eligible to receive tiered royalties based on a percentage of Net Sales (as defined in the A&R License Agreement) that ranges from low single digit to low teen percentages, depending on the product. Royalties are payable on a product-by-product and country-by-country basis until the latest of (i) the expiration of the last valid patent claim covering the product in the country of sale, (ii) the expiration or revocation of any applicable regulatory exclusivity in the country of sale, and (iii) ten years after the first commercial sale of the product in the country of sale. Thereafter, in consideration of licensed rights other than patent rights, royalties shall continue for the commercial life of each product but at substantially reduced rates. In addition, the royalty rates are subject to reduction by as much as 50% in a given country based on generic competition in such country.

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Our ability to advance our development programs is dependent upon our ability to secure additional capital in both the near and long-term, through public or private securities offerings; convertible debt financings; and/or potential strategic opportunities, including licensing agreements, drug product development, and marketing collaboration arrangements, pharmaceutical research cooperation arrangements, and/or other similar transactions in geographic markets, including the U.S., and/or through potential grants and other funding commitments from U.S. government agencies, in each case, if available. We have engaged with potential counterparties in various markets and will continue to pursue non-dilutive sources of capital as well as potential private and public securities offerings. There can be no assurance, however, that we will be able to identify and enter into public or private securities offerings on acceptable terms and in amounts sufficient to meet our needs or qualify for non-dilutive funding opportunities under any grant programs sponsored by U.S. government agencies, private foundations, and/or leading academic institutions, or identify and enter into any strategic transactions that will provide the additional capital that we will require. If none of these alternatives is available, or if available and we are unable to raise sufficient capital through such transactions, we potentially could be forced to limit or cease our development activities, which would have a material adverse effect on our business, financial condition, and results of operations.

Note 2 – Basis of Presentation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., or US GAAP, and include accounts of Windtree Therapeutics, Inc. and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. All adjustments (consisting of normally recurring accruals) considered for fair presentation have been included.

The accompanying consolidated financial statements reflect the 1-for-50 reverse split of our common stock that was approved by our Board of Directors and stockholders and made effective on February 24, 2023. All share and per share information herein that relates to our common stock prior to the effective date has been retroactively restated to reflect the reverse stock split.

Note 3 – Going Concern and Management’s Plans

We are party to an At-The-Market Offering Agreement with Ladenburg Thalmann & Co. Inc., or Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal through an at-the-market program, or the ATM Program. For the year ended December 31, 2022, we sold 206,824 shares of our common stock under the ATM Program resulting in aggregate gross proceeds to us of approximately $4.4 million and net proceeds of approximately $4.3 million (See the section titled,“Note 10 – Mezzanine Equity and Stockholders’ Equity”).

The shares of common stock issued and sold under the ATM Program are registered under our registration statement on Form S-3 (File No. 333-248874), which was declared effective by the SEC on September 29, 2020. We are currently subject to the limitations contained in General Instruction I.B.6 of Form S-3. As a result, we are limited to selling no more than one-third of the aggregate market value of the equity held by non-affiliates, or the public float, during any 12-month period, and as of December 31, 2022, we have sold the full amount we are permitted to sell under the Form S-3 pursuant to General Instruction I.B.6. If our public float increases, we will have additional availability under such limitations, and if our public float increases to $75.0 million or more, we will no longer be subject to such limitations. There can be no assurance that our public float will increase or that we will no longer be subject to such limitations.

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Note 4 – Accounting Policies and Recent Accounting Pronouncements

Principles of Consolidation

The consolidated financial statements are prepared in accordance with US GAAP and include accounts of Windtree Therapeutics, Inc. and our wholly owned subsidiary, CVie Investments Limited and its wholly owned subsidiary, CVie Therapeutics Limited, or CVie Therapeutics, and a presently inactive subsidiary, Discovery Laboratories, Inc. (formerly known as Acute Therapeutics, Inc.).

Intangible Assets and Goodwill

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As part of our annual quantitative impairment assessment of indefinite-lived IPR&D intangible assets as of December 1, 2022, we again reassessed certain assumptions related to our rostafuroxin drug candidate due to the continued difficulties in current macroeconomic conditions which have continued to make it more challenging to secure the funding needed to conduct the additional Phase 2 clinical trial and have therefore further delayed our intended development of rostafuroxin. As a result, we concluded that the fair value of the IPR&D related to our rostafuroxin drug candidate was less than its carrying value. We estimated the fair value of the asset using MPEEM and determined that the fair value as of December 1, 2022 was approximately $2.9 million. We then compared this fair value to the carrying value of approximately $9.7 million, and recorded an additional loss on impairment of intangible assets of $6.8 million related to the IPR&D of our rostafuroxin drug candidate. We also reassessed the assumptions related to the fair value of the IPR&D related to our istaroxime drug candidate. As a result, the estimated fair value decreased from December 1, 2021 to December 1, 2022, but still exceeded the carrying value of that asset. As a result, no impairment charge was recognized related to the IPR&D of our istaroxime drug candidate.

The following table represents identifiable intangible assets and goodwill as of December 31, 2022 and 2021:

December 31,

Foreign Currency Transactions

The functional currency for our foreign subsidiaries is the US Dollar. We remeasure monetary assets and liabilities that are not denominated in the functional currency at exchange rates in effect at the end of each period. Gains and losses from the remeasurement of foreign currency transactions are recognized in income (expense), net. Foreign currency transactions resulted in gains of approximately $0.7 million and losses of $0.3 million, respectively, for the years ended December 31, 2022 and 2021.

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Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are held at domestic and foreign financial institutions and consist of liquid investments and money market funds that are readily convertible into cash.

Concentration of Credit Risk

Financial instruments, which potentially subject us to credit risk, consist principally of cash and cash equivalents. All cash and cash equivalents are held in U.S. financial institutions and money market funds. At times, we may maintain cash balances in excess of the federally insured amount of $250,000 per depositor, per insured bank, for each account ownership category. Although we currently believe that the financial institutions with whom we do business will be able to fulfill their commitments to us, there is no assurance that those institutions will be able to continue to do so. We have not experienced any credit losses associated with our balances in such accounts for the years ended December 31, 2022 and 2021.

Fair Value of Financial Instruments

Our financial instruments consist principally of cash and cash equivalents and restricted cash. The fair values of our cash equivalents are based on quoted market prices. The carrying value of cash equivalents is equal to their respective fair values at December 31, 2022 and 2021, respectively. Accounts payable and accrued expenses are carried at cost, which approximates fair value because of their short maturity. The carrying value of loans payable (including current installments) approximates fair value based on a comparison of interest rates on the loan to current market rates considering our credit risk.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets (generally three to ten years). Leasehold improvements are amortized over the shorter of the estimated useful lives or the remaining term of the lease. Repairs and maintenance costs are charged to expense as incurred.

Restricted Cash

Restricted cash consists principally of a $140,000 certificate of deposit held by our bank as collateral for a letter of credit in the same notional amount held by our landlord to secure our obligations under our lease agreement dated May 26, 2004 for our headquarters location in Warrington, Pennsylvania and $14,000 in deposits held by our landlord for our offices in Taipei, Taiwan.

Leases

Leases are accounted for under Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 842, Leases, or ASC 842. At the inception of an arrangement, we determine whether an arrangement is, or contains, a lease based on the unique facts and circumstances present in the arrangement. An arrangement is, or contains, a lease if the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases with a term greater than one year are generally recognized on the balance sheet as operating lease right-of-use assets and current and non-current operating lease liabilities, as applicable. It is our policy not to recognize on the balance sheet leases with terms of 12 months or less. We typically only include the initial lease term in our assessment of a lease arrangement. Options to extend a lease are not included in our assessment unless there is reasonable certainty that we will renew.

Operating lease liabilities and their corresponding operating lease right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in our leases is typically not readily determinable. As a result, we utilize our incremental borrowing rate, which reflects the fixed rate at which we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

At the inception of a contract, we assess whether the contract is, or contains, a lease. The assessment is based on: (i) whether the contract involves the use of a distinct identified asset, (ii) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether we have the right to direct the use of the asset.

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We evaluate the classification of our leases as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset, the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, or the leased asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease. A lease is classified as an operating lease if it does not meet any of these criteria. Currently, all of our leases are classified as operating leases.

Lease cost for our operating leases is recognized on a straight-line basis over the lease term. Included in lease cost are any variable lease payments incurred in the period that are not included in the initial lease liability and lease payments incurred in the period for any leases with an initial term of 12 months or less.

Long-lived Assets

Our long-lived assets, primarily consisting of property and equipment, are reviewed for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or its estimated useful life has changed significantly. When the undiscounted cash flows of an asset are less than its carrying value, an impairment is recorded and the asset is written down to estimated value. No impairment was recorded during the years ended December 31, 2022 and 2021 as management believes there are no circumstances that indicate that the carrying value of the assets will not be recoverable.

Collaborative Arrangements

We account for collaborative arrangements in accordance with applicable accounting guidance provided in ASC Topic 808, Collaborative Arrangements. See the section titled,“Note 12 – Collaboration, Licensing and Research Funding Agreements”.

Severance

In January 2022, in order to focus our resources on the development of our istaroxime pipeline, we began to reduce costs related to KL4 surfactant that were not already being performed by our licensee, Lee’s (HK) and its affiliate Zhaoke, under the terms of the Original License Agreement.These costs included certain reductions in headcount dedicated to KL4 surfactant and the decommissioning of both our analytical and technical support laboratory, which previously conducted release testing of active pharmaceutical ingredients, or APIs, and supportive research for our lyophilized and aerosolized KL4 surfactant, and our medical device development laboratory, which was previously used to conduct development activities and testing for our aerosol delivery system technologies. In February 2022, management communicated its commitment to provide severance payments to impacted employees, provided that they remained employed with us through their expected termination dates. The total severance cost for impacted employees was approximately $0.4 million, which was accrued over the service periods of the employees and was paid ratably through September 2022. No further amounts are due as of December 31, 2022.

Restructured Debt Liability – Contingent Milestone Payment

In conjunction with the November 2017 restructuring and retirement of long-term debt (See the section titled,“Note 9 – Restructured Debt Liability”), we have established a $15.0 million long-term liability for contingent milestone payments potentially due under the Exchange and Termination Agreement dated as of October 27, 2017, or Exchange and Termination Agreement, between ourselves and affiliates of Deerfield Management Company L.P., or Deerfield. The liability has been recorded at full value of the contingent milestones and will continue to be carried at full value until the milestones are achieved and paid or milestones are not achieved and the liability is written off as a gain on debt restructuring.

Research and Development

We account for research and development expense by the following categories: (a) product development and manufacturing, (b) clinical, medical, and regulatory operations, and (c) direct clinical and preclinical development programs. Research and development expense includes personnel, facilities, manufacturing and quality operations, pharmaceutical development, research, clinical, regulatory, other preclinical and clinical activities and medical affairs. Research and development costs are charged to operations as incurred in accordance with ASC Topic 730, Research and Development.

Stock-based Compensation

Stock-based compensation is accounted for under the fair value recognition provisions of ASC Topic 718, StockCompensation, or ASC Topic 718. See the section titled,“Note 11 – Stock Options and Stock-based Employee Compensation,” for a detailed description of our recognition of stock-based compensation expense. The fair value of stock option grants is recognized evenly over the vesting period of the options or over the period between the grant date and the time the option becomes non-forfeitable by the employee, whichever is shorter.

Warrant Accounting

We account for common stock warrants in accordance with applicable accounting guidance provided in ASC Topic 815, Derivatives and Hedging – Contracts in Entity’s Own Equity, or ASC Topic 815, as either derivative liabilities or equity instruments depending on the specific terms of the warrant agreement.

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Income Taxes

We account for income taxes in accordance with ASC Topic 740, Accounting for Income Taxes, or ASC Topic 740, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities.

We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Because we have never realized a profit, management has fully reserved the net deferred tax asset since realization is not assured.

For the years ended December 31, 2022 and 2021, we recorded a deferred income tax benefit of $1.4 million and $10.0 million, respectively. The deferred income tax benefit recorded for these periods relates solely to the reduction of the deferred tax liabilities as a result of the loss on impairment of intangible assets related to rostafuroxin.

Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per common share is computed by giving effect to all potentially dilutive securities outstanding for the period. The number of shares of common stock potentially issuable upon the exercise of certain stock options and warrants was 0.4 million shares for each of the years ended December 31, 2022 and 2021. As of December 31, 2022 and 2021, all potentially dilutive securities were anti-dilutive and therefore have been excluded from the computation of diluted net loss per common share.

We do not have any components of other comprehensive (loss) income.

Concentration of Suppliers

We currently obtain the APIs of our drug products from a single supplier. In addition, our drug products are produced at one contract manufacturer. These single source providers also perform various studies as well as quality control release and stability testing and other activities related to our development and manufacturing activities. At the present time these providers are located outside of the U.S. The loss of either the supplier of our APIs or our drug product contract manufacturer could have a material adverse effect on our operations.

Segment and Geographic Information

We currently operate in one operating segment, which is the research and development of products focused on cardiovascular disease. We are managed and operated as one business. A single management team that reports to the Chief Executive Officer comprehensively manages the entire business. We do not operate separate lines of business with respect to our product candidates. We operate primarily in the U.S. and Asia. Long-lived assets, consisting of intangible assets of $25.3 million and goodwill of $3.1 million, were located outside the U.S. as of December 31, 2022.

Note 5 – Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

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Fair Value on a Recurring Basis

The tables below categorize assets measured at fair value on a recurring basis as of December 31, 2022 and 2021:

Fair Value Fair value measurement using

December 31,

(in thousands) 2022 Level 1 Level 2 Level 3

Cash equivalents:

Money market funds $ 4,212 $ 4,212 $ - $ -

Fair Value Fair value measurement using

December 31,

(in thousands) 2021 Level 1 Level 2 Level 3

Cash equivalents:

Fair Value on a Non-Recurring Basis

The table below categorizes assets measured at fair value on a non-recurring basis for the periods presented:

Fair Value Fair value measurement using

December 31,

(in thousands) 2022 Level 1 Level 2 Level 3

Intangible assets:

Rostafuroxin drug candidate $ 2,910 $ - $ - $ 2,910

Fair Value Fair value measurement using

December 31,

(in thousands) 2021 Level 1 Level 2 Level 3

Intangible assets:

Rostafuroxin drug candidate $ 9,730 $ - $ - $ 9,730

Certain of our assets were measured at fair value on a non-recurring basis during the years ended December 31, 2022 and 2021. The IPR&D intangible asset related to our rostafuroxin drug candidate was recorded at its estimated fair value as a result of the impairment tests performed during 2022 and 2021. Our goodwill was also recorded at its estimated fair value as a result of the impairment test performed in 2022 (See the section titled, “Note 4 – Accounting Policies and Recent Accounting Pronouncements – Intangible Assets and Goodwill”).

Significant factors considered in estimating the fair value of the IPR&D intangible asset related to our rostafuroxin drug candidate include the risks inherent in the development process, including the likelihood of achieving commercial success and the cost and related time to complete the remaining development. Future cash flows for the IPR&D intangible asset were estimated based on forecasted revenue and costs, taking into account the expected product life cycle, market penetration, and growth rates. Other significant estimates and assumptions inherent in this approach include (i) the amount and timing of the projected net cash flows associated with the IPR&D intangible asset; (ii) the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and (iii) the tax rate, which considers geographic diversity of the projected cash flows. Quantitative information about the significant unobservable inputs used in the fair value measurement of the IPR&D intangible asset included a discount rate of 20.0% and 19.0%, respectively, for 2022 and 2021 and a tax rate of 30.0% for both 2022 and 2021. While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows could differ significantly based on the commercial success of the related drug candidate and market conditions which could result in future impairment charges related to the indefinite-lived intangible asset balance.

In order to perform the goodwill impairment test, we compare the estimated fair value of our reporting unit to its carrying value. Significant factors considered in estimating the fair value of our reporting unit include the use of the quoted market price and related market capitalization of our common stock, adjusted for an estimated control premium based on transactions completed by comparable companies. Quantitative information about the significant unobservable inputs used in the fair value measurement of the reporting unit included an estimated control premium of 50% for 2022.

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Note 6 – Property and Equipment

Property and equipment is comprised of the following:

December 31,

Manufacturing, laboratory & office equipment 881 4,703

Accumulated depreciation and amortization (3,658 ) (6,731 )

Property and equipment, net $ 262 $ 1,011

Depreciation expense on property and equipment for the years ended December 31, 2022 and 2021 was $0.5 million and $0.2 million, respectively. During the first quarter of 2022, we determined that certain manufacturing and laboratory equipment assets related to the KL4 surfactant platform would be abandoned by March 31, 2022. We accelerated depreciation of these assets during the first quarter of 2022, resulting in $0.4 million of additional depreciation expense for the three months ended March 31, 2022. During the second quarter of 2022, the abandoned assets and certain other KL4 surfactant platform assets were disposed.

Note 7 – Accrued Expenses

Accrued expenses are comprised of the following:

December 31,

Research and development $ 786 $ 1,500

Salaries, bonus and benefits 123 1,218

Manufacturing operations 5 46

Note 8 - Loans Payable

Note 9 – Restructured Debt Liability

On October 27, 2017, we and Deerfield entered into the Exchange and Termination Agreement pursuant to which (i) promissory notes evidencing a loan with affiliates of Deerfield Management Company L.P., or the Deerfield Loan, in the aggregate principal amount of $25.0 million and (ii) warrants to purchase up to 167 shares of our common stock at an exercise price of $118,020.00 per share held by Deerfield were cancelled in consideration for (x) a cash payment in the aggregate amount of $2.5 million, (y) 474 shares of common stock, representing 2% of fully-diluted shares outstanding (as defined in the Exchange and Termination Agreement) on the closing date, and (z) the right to receive certain milestone payments based on achievement of specified AEROSURF development and commercial milestones, which, if achieved, could potentially total up to $15.0 million. In addition, a related security agreement, pursuant to which Deerfield held a security interest in substantially all of our assets, was terminated. We established a $15.0 million long-term liability for the contingent milestone payments potentially due to Deerfield under the Exchange and Termination Agreement. The liability has been recorded at the full value of the contingent milestones and will continue to be carried at full value until the milestones are achieved and paid or the milestones are not achieved and the liability is written off as a gain on debt restructuring.

As of December 31, 2022 and 2021, the restructured debt liability balance was $15.0 million.

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Note 10 – Mezzanine Equity and Stockholders’ Equity

Preferred Stock

We are authorized to issue 5,000,000 shares of preferred stock, with a par value of $0.001 per share.

On November 17, 2022, our Board of Directors declared a dividend of one one-thousandth (1/1,000th) of a share of Series A Preferred Stock, par value $0.001 per share, or Series A Preferred Stock, for each outstanding share of our common stock to stockholders of record at 5:00 p.m. Eastern Time on November 28, 2022. The Certificate of Designation of Series A Preferred Stock was filed with the Delaware Secretary of State and became effective on November 18, 2022 and authorized the issuance of 40,000 shares of Series A Preferred Stock. The dividend was based on the number of outstanding shares of common stock as of November 28, 2022 and resulted in 38,610.119 shares of Series A Preferred Stock that were declared as a stock dividend on December 2, 2022. Each share of Series A Preferred Stock entitles the holder thereof to 1,000,000 votes per share. The shares of Series A Preferred Stock vote together with the outstanding shares of common stock as a single class exclusively with respect to (1) any proposal to adopt an amendment to our Amended and Restated Certificate of Incorporation, as amended, to reclassify the outstanding shares of common stock into a smaller number of shares of common stock at a ratio specified in or determined in accordance with the terms of such amendment, or the Reverse Stock Split, and (2) any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Reverse Stock Split. The Series A Preferred Stock was not entitled to vote on any other matter, except to the extent required under the General Corporation Law of the State of Delaware.

All shares of Series A Preferred Stock that are not present in person or by proxy at any meeting of stockholders held to vote on the Reverse Stock Split and the adjournment proposal as of immediately prior to the opening of the polls at such meeting, or the Initial Redemption Time, will automatically be redeemed in whole, but not in part, by the Company at the Initial Redemption Time. All shares that were not redeemed pursuant to the Initial Redemption Time will be redeemed if ordered by the Board of Directors or automatically upon the approval by our stockholders of the Reverse Stock Split at any meeting of the stockholders held for the purpose of voting on such proposal. Each share of Series A Preferred Stock is entitled to receive $0.01 in cash for each 10 whole shares of Series A Preferred Stock immediately prior to the redemption.

Upon issuance of the Series A Preferred Stock, the Company was not solely in control of the redemption of the shares of Series A Preferred Stock since the holders had the option of deciding whether to attend or return a proxy card for the Special Meeting, which determined whether a given holder’s shares of Series A Preferred Stock were redeemed at the Initial Redemption Time. Since the redemption of the Series A Preferred Stock was not solely in the control of the Company, the shares of Series A Preferred Stock are classified within mezzanine equity. The shares of Series A Preferred Stock were recorded at redemption value, which approximates fair value.

On February 7, 2023, we held a Special Meeting of Stockholders, or the Special Meeting, where our stockholders voted on and approved an amendment to our Amended and Restated Certificate of Incorporation, as amended, to effect the Reverse Stock Split and adjourn the Special Meeting, at which point all shares of Series A Preferred Stock were redeemed, and were no longer issued and outstanding as of such date.

At-The-Market Program

On September 17, 2020, we entered into an At-The-Market Offering Agreement with Ladenburg pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal under the ATM Program. When we issue sales notices to Ladenburg, we designate the maximum amount of shares to be sold by Ladenburg daily and the minimum price per share at which shares may be sold. Ladenburg may sell shares by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) under the Securities Act, or in privately negotiated transactions.

We agreed to pay Ladenburg a commission of 3% of the gross sales price of any shares sold pursuant to the ATM Program. The rate of compensation will not apply when Ladenburg acts as principal.

For the year ended December 31, 2022, we sold 206,824 shares of our common stock under the ATM Program resulting in aggregate gross proceeds to us of approximately $4.4 million and net proceeds of approximately $4.3 million. For the year ended December 31, 2021, we sold 42,339 shares of our common stock under the ATM Program resulting in aggregate gross proceeds to us of approximately $5.0 million and net proceeds of approximately $4.8 million.

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March 2021 Public Offering

We have determined that the appropriate accounting treatment under ASC 480, Distinguishing Liabilities from Equity, or ASC 480, is to classify the common stock and the March 2021 Warrants issued in the March 2021 Offering as equity. We have also determined that the March 2021 Warrants are not in their entirety a derivative under the scope of ASC 815, Derivatives and Hedging, or ASC 815, due to the scope exception under ASC 815-10-15-74, nor are there any material embedded derivatives that require separate accounting. We allocated the net proceeds from the March 2021 Offering based on the relative fair value of the common stock and the March 2021 Warrants.

Common Shares Reserved for Future Issuance

Common shares reserved for potential future issuance upon exercise of warrants

The chart below summarizes shares of our common stock reserved for future issuance upon the exercise of warrants:

December 31, Expiration

(in thousands, except price per share data) 2022 2021 Exercise Price Date

Common shares reserved for potential future issuance upon granting of additional equity incentive awards

The 2020 Equity Incentive Plan, or the 2020 Plan, initially provided for up to a maximum of approximately 31,000 shares of common stock to be available for issuance pursuant to stock-based awards granted under the 2020 Plan. The 2020 Plan is subject to automatic annual increases on January 1 of each year of the lesser of (i) 4% of the number of shares of our common stock issued and outstanding on the last day of the immediately preceding fiscal year, and (ii) such smaller number of shares as determined by our Board of Directors. See the section titled,“Note 11 – Stock Options and Stock-based Employee Compensation.”

As of December 31, 2022, we had approximately 12,000 shares available for potential future issuance under the 2020 Plan.

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Note 11 – Stock Options and Stock-based Employee Compensation

Long-term Incentive Plans

On November 23, 2020, our Board of Directors adopted our 2020 Plan, which was subsequently approved on December 24, 2020 by written consent of our majority stockholders and became effective on January 20, 2021, or the Effective Date. On the Effective Date, the 2020 Plan replaced our 2011 long-term incentive plan, or the 2011 Plan, and the 2020 Plan became our primary plan for providing equity-based compensation to our eligible employees, consultants, and non-employee directors. Awards under the 2020 Plan may include stock options, stock appreciation rights, or SARs, restricted stock awards, or RSAs, restricted stock units, or RSUs, other performance and stock-based awards, and dividend equivalents.

As of December 31, 2022, there were approximately 62,000 shares of our common stock authorized under the 2020 Plan, of which approximately 12,000 shares remained available for issuance as of December 31, 2022.

The 2020 Plan is subject to automatic annual increases on January 1 of each year of the lesser of (i) 4% of the number of shares of our common stock issued and outstanding on the last day of the immediately preceding fiscal year, and (ii) such smaller number of shares as determined by our board. The annual increase on January 1, 2023 was approximately 31,000 shares.

An administrative committee, currently the Compensation Committee of the Board of Directors, or Committee delegates, may determine the types, the number of shares covered by, and the terms and conditions of, such awards. Eligible participants may include any of our employees, directors, advisors or consultants.

Stock options and RSUs outstanding and available for future issuance are as follows:

December 31,

Stock Options and RSUs Outstanding

Total Outstanding 89 68

Available for Future Grants under the 2020 Plan 12 13

No SARs, RSAs, other performance and stock-based awards, or dividend equivalents have been granted under the 2020 Plan. Although individual grants may vary, option awards generally have a 10-year term, are exercisable upon vesting, and vest with respect to one-twelfth of the total number of shares subject to the options on a quarterly basis (every three months) or vest with respect to one-third of the total number of shares subject to the options on an annual basis (every twelve months). Non-Plan stock options outstanding are in connection with the hiring of certain executive officers and other employees for whom inducement grants were awarded in accordance with Nasdaq Listing Rule 5635(c)(4). The inducement grants vest in a series of three successive, equal installments beginning with the first anniversary of the grant date and have a 10-year term. Although individual awards may vary, RSUs vest with respect to one-third of the total number of shares subject to the RSUs on an annual basis (every twelve months).

A summary of activity under our long-term incentive plans is presented below:

(in thousands, except for weighted-average data)

Forfeited or expired (8 ) 551.50

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

(in thousands, except for weighted-average data)

Restricted Stock Units Shares Weighted- Average Grant Date Fair Value

Outstanding at January 1, 2022 - $ -

Vested and exercisable at December 31, 2022 - $ -

Based upon application of the Black-Scholes option-pricing formula described below, the weighted-average grant-date fair value of options granted during the years ended December 31, 2022 and 2021 was $42.00 and $201.50, respectively. The weighted-average grant-date fair value of RSUs granted during the year ended December 31, 2022 was $49.50. The total intrinsic value of options outstanding, vested, and exercisable as of December 31, 2022 are each $0.

Stock-Based Compensation

We recognized stock-based compensation expense in accordance with ASC Topic 718 of $3.1 million and $7.2 million, respectively, for each of the years ended December 31, 2022 and 2021.

Stock-based compensation expense was classified as follows:

Year Ended December 31,

Research and development $ 807 $ 2,940

The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing formula that uses assumptions noted in the following table. Expected volatilities are based upon the historical volatility of our common stock and other factors. We also use historical data and other factors to estimate option exercises, employee terminations and forfeiture rates. The risk-free interest rates are based upon the U.S. Treasury yield curve in effect at the time of the grant.

Year Ended December 31,

Weighted average expected volatility 106 % 104 %

Weighted average expected term 6.9 6.7

Weighted average risk-free interest rate 1.70 % 0.49 %

Expected dividends - -

The total fair value of the underlying shares of the options vested during 2022 and 2021 is $3.8 million and $6.7 million, respectively. As of December 31, 2022, there was $2.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2020 Plan and the 2011 Plan. That cost is expected to be recognized over a weighted-average vesting period of 1.3 years.

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WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Note 12 – Collaboration, Licensing and Research Funding Agreements

Collaboration Agreement

WINT US Equity

WINT · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ITEM 9A. CONTROLS AND PROCEDURES.

ITEM 9B. OTHER INFORMATION.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

WINT US Equity☆

WINT · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ITEM 9A. CONTROLS AND PROCEDURES.

ITEM 9B. OTHER INFORMATION.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

WINT US Equity