What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-03-15 · 280 added, 523 removed, 828 unchanged (49% of the section changed)

2 unchanged sentences

INDEX TO THE FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (BDO USA, LLP, San Francisco , California, PCAOB ID# 243 )

Financial Statements

1 unchanged sentence

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (D eficit )

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit )

Consolidated Statements of Cash Flows

5 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Pulmonx Corporation (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases during 2019 due to the adoption of the Accounting Standards Codification Topic 842, “Leases.”

We have audited the accompanying consolidated balance sheets of Pulmonx Corporation (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity, and cash flows for the years 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 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2022 expressed an adverse opinion thereon.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

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.

We are a public accounting firm registered with the 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.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audits 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 audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

2 unchanged sentences

We believe that our audits provide 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 consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Timing of Revenue Recognition

As described in Note 2 to the consolidated financial statements, the Company’s revenue is generated from the sale of its products to distributors and hospitals in the United States and international markets.

Revenue is recognized when there is an enforceable contract and the customer obtains control of promised goods or services, in an amount that reflects consideration which the entity expects to receive in exchange for those goods or services.

generally transferred upon either direct shipment or hand delivery of products.

The Company’s consolidated revenue was $48.4 million for the year ended December 31, 2021.

We identified the evaluation of when performance obligations have been met and the timing of revenue recognition as a critical matter.

The timing of establishing a legally enforceable contract and transferring control varies depending on the fulfillment method and customary business practices.

Auditing these elements involved especially challenging auditor judgment due to the manual nature of tracking these elements.

The primary procedures we performed to address this critical audit matter included:

• Reviewing the entity’s revenue recognition policies and evaluating whether those policies comply with the requirements of ASC 606.

• Evaluating managements period end analysis of the timing and accuracy of transactions recognized as revenue during a short period before and after year end by tracing transactions from the general ledger into the analysis to test completeness and obtaining and inspecting underlying source documents for significant transactions.

• Evaluating on a test basis, but with increased focus on a period deemed susceptible to revenue timing errors, the timing and accuracy of transactions recognized as revenue by obtaining and inspecting underlying source documents.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2011.

San Jose, California

San Francisco, California

March 1, 2022

11 unchanged sentences

Total current assets 208,002 249,989

Long-term marketable securities 10,941 —

Property and equipment, net 4,814 1,474

1 unchanged sentence

Intangible assets, net 277 400

Deferred offering costs — 1,563

Right of use assets 8,075 8,976

1 unchanged sentence

Total assets $ 235,173 $ 263,708

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Liabilities and Stockholders’ Equity

Current liabilities

3 unchanged sentences

Deferred revenue 163 71

Credit Agreement, current 91 —

Current lease liabilities 2,201 2,238

Derivative liability — 1,165

Total current liabilities 17,550 12,526

3 unchanged sentences

Term loan 16,869 16,804

Other long-term liabilities 179 —

Total liabilities 41,934 37,574

Commitments and contingencies (Note 8)

Convertible preferred stock, $ 0.001 par value, no shares authorized as of December 31, 2020 and 177,985,811 shares authorized as of December 31, 2019;

no shares issued and outstanding as of December 31, 2020 and 17,583,150 shares issued and outstanding as of December 31, 2019;

liquidation value of $ 0 and $ 210,610 as of December 31, 2020 and December 31, 2019, respectively (Note 10)

Stockholders’ equity (deficit)

Preferred stock, $ 0.001 par value, 10,000,000 shares authorized as of December 31, 2020 and no shares authorized as of December 31, 2019;

Stockholders’ Equity

Preferred stock, $ 0.001 par value, 10,000,000 shares authorized;

no shares issued and outstanding as of December 31, 2021 and December 31, 2020

Common stock, $ 0.001 par value, 200,000,000 shares and 240,000,000 shares authorized as of December 31, 2020 and December 31, 2019;

35,693,753 and 2,100,203 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively

Common stock, $ 0.001 par value, 200,000,000 shares authorized;

36,931,762 shares and 35,693,753 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 482,885 467,147

1 unchanged sentence

Accumulated deficit ( 291,395 ) ( 242,734 )

Total stockholders’ equity (deficit) 226,134 ( 187,378 )

Total liabilities, convertible preferred stock and stockholders’ equity $ 263,708 $ 53,533

Total stockholders’ equity 193,239 226,134

Total liabilities and stockholders’ equity $ 235,173 $ 263,708

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

3 unchanged sentences

Years Ended December 31,

2020 2019 2018

Revenue $ 48,416 $ 32,733

12 unchanged sentences

Net loss ( 48,661 ) ( 32,231 )

Other comprehensive income (loss)

Other comprehensive income

Currency translation adjustment 51 318

19 unchanged sentences

Issuance of Series C-1 convertible preferred stock upon exercise of warrants 213,876 2,260 — — — — — —

Issuance of common stock upon exercise of stock options — — 18,153 — 31 — — 31

Change in shares subject to repurchase — — — — 24 — — 24

Stock-based compensation expense — — — — 366 — — 366

Currency translation adjustment — — — — — 126 — 126

Net loss — — — — — — ( 18,479 ) ( 18,479 )

Balances at December 31, 2018 12,648,919 140,535 1,719,446 2 21,139 1,333 ( 189,800 ) ( 167,326 )

Issuance of Series G-1 convertible preferred stock, net of issuance costs of $ 329

Conversion of convertible preferred stock into common stock ( 17,797,026 ) ( 207,599 ) 17,797,026 18 207,581 — — 207,599

Conversion of 2020 Notes into common stock — — 2,561,484 3 30,589 — — 30,592

Issuance of common stock upon initial public offering, net of issuance costs and underwriting discount of $ 17,108

— — 11,500,000 11 201,381 — — 201,392

Issuance of common stock upon exercise of stock options — — 1,745,040 2 2,703 — — 2,705

— — 390,318 — 528 — — 528

Change in shares subject to repurchase — — — — ( 281 ) — — ( 281 )

Repurchase of early exercised common stock options — — ( 10,000 ) — — — — —

Common stock retired during the year for no consideration — — ( 414 ) — — — — —

Change in shares subject to repurchase — — — — ( 346 ) — — ( 346 )

Stock-based compensation expense — — — — 3,489 — — 3,489

— — — — 364 — — 364

Currency translation adjustment — — — — — 318 — 318

Change in unrealized gains on marketable securities — — — — — 6 — 6

Change in unrealized losses on marketable securities — — — — — ( 6 ) — ( 6 )

Net loss — — — — — — ( 32,231 ) ( 32,231 )

Balances at December 31, 2020 — — 35,693,753 36 467,147 1,685 ( 242,734 ) 226,134

Issuance of Series C-1 convertible preferred stock upon exercise of warrants 213,876 2,260 — — — — — —

Conversion of convertible preferred stock into common stock ( 17,797,026 ) ( 207,599 ) 17,797,026 18 207,581 — — 207,599

Conversion of 2020 Notes into common stock — — 2,561,484 3 30,589 — — 30,592

Issuance of common stock upon initial public offering, net of issuance costs and underwriting discount of $ 17,108

— — 11,500,000 11 201,381 — — 201,392

Issuance of common stock upon vesting of restricted stock unit — — 40,908 — — — — —

Issuance of common stock upon exercise of stock options — — 1,065,567 1 1,880 — — 1,881

1 unchanged sentence

Change in shares subject to repurchase — — — — 204 — — 204

Issuance of shares pursuant to Employee Stock Purchase Plan — — 144,479 — 2,652 — — 2,652

Stock-based compensation expense — — — — 11,002 — — 11,002

8 unchanged sentences

Years Ended December 31,

2020 2019 2018

Cash flows from operating activities

2 unchanged sentences

Stock-based compensation expense 10,530 3,197

Change in fair value of convertible preferred stock warrant liability — ( 12 ) 12

Change in fair value of derivative liability — ( 3,190 )

Write-off of fixed assets 7 —

Allowance for doubtful accounts 4 ( 7 )

4 unchanged sentences

Amortization of premiums and discounts on short-term marketable securities 59 ( 35 )

Gain on extinguishment of convertible note — ( 32 ) —

Non-cash lease expense 2,360 1,467

7 unchanged sentences

Income taxes payable 21 ( 155 )

Deferred rent — — ( 62 )

Lease liabilities ( 2,517 ) ( 876 )

6 unchanged sentences

Purchases of property and equipment ( 3,671 ) ( 911 )

Proceeds from sale of property and equipment — — 16

Net cash provided by (used in) investing activities ( 46,255 ) 12,694

4 unchanged sentences

Proceeds from the issuance of convertible note, net of payment of lender fees and costs (includes $ 0 and $ 0 from related party for the years ended December 31, 2021 and 2020, respectively)

32,950 6,000 12,000

Proceeds from Paycheck Protection Program loan — 2,666

2 unchanged sentences

Payments of deferred offering costs — ( 2,462 )

Proceeds from issuance of Series G-1 convertible preferred stock, net of issuance costs of $ 329

Proceeds from exercise of warrants for Series C-1 convertible preferred stock — 2,261

Proceeds from exercise of common stock options 1,871 2,705

Proceeds from issuance of common stock under the employee stock purchase plan 2,652 —

Proceeds from initial public offering, net of offering costs — 201,392

12 unchanged sentences

Purchases of property and equipment in accounts payable and accrued liabilities $ 584 $ 65

Accrued interest for convertible note $ — $ 496 $ 738

Issuance of derivative instrument related to convertible notes $ — $ 3,900

Conversion of convertible note into Series G-1 convertible preferred stock $ — $ 25,133 $ —

Deferred offering costs in accrued liabilities and accounts payable $ — $ 995 $ —

Deposit for operating lease in accounts payable $ — $ 231 $ —

Operating lease right of use asset recorded on the adoption of ASC 842 $ — $ 1,181 $ —

Operating lease right of use assets obtained in exchange for new lease liabilities $ 1,460 $ 3,935

Amount receivable from exercise of Options $ 10 $ —

Supplemental disclosure of cash flow information:

8 unchanged sentences

The Company’s solution, which is comprised of the Zephyr Endobronchial Valve (“Zephyr Valve”), the Chartis Pulmonary Assessment System (“Chartis System”) and the StratX Lung Analysis Platform (“StratX Platform”), is designed to treat a broad pool of patients for whom medical management has reached its limits and either do not want or are ineligible for surgical approaches.

The Company has subsidiaries in the Cayman Islands, Germany, Switzerland, Australia, the United Kingdom, the Netherlands, Italy, France and Hong Kong.

The Company has subsidiaries in Germany, Switzerland, Australia, the United Kingdom, the Netherlands, Italy, France and Hong Kong.

Initial Public Offering

8 unchanged sentences

The Company has incurred operating losses and negative cash flows from operations to date and has an accumulated deficit of $ 291.4 million as of December 31, 2021.

During the years ended December 31, 2020, 2019 and 2018, the Company used $ 30.6 million, $ 20.8 million and $ 18.4 million of cash in its operating activities, respectively.

As of December 31, 2020, the Company had cash and cash equivalents of $ 231.6 million.

During the years ended December 31, 2021, and 2020, the Company used $ 41.4 million, and $ 30.6 million of cash in its operating activities, respectively.

As of December 31, 2021, the Company had cash, cash equivalents and marketable securities of $ 191.0 million.

Historically, the Company’s activities have been financed through private placements of equity securities, debt and sale of common stock in the IPO.

The Company’s consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months.

Management believes that the Company’s existing cash and cash equivalents will allow the Company to continue its planned operations for at least the next 12 months from the date of the issuance of these consolidated financial statements.

Management believes that the Company’s existing cash, cash equivalents and marketable securities will allow the Company to continue its planned operations for at least the next 12 months from the date of the issuance of these consolidated financial statements.

Impact of the COVID-19 Pandemic

The Company has been actively monitoring the novel coronavirus, or COVID-19, situation and its impact.

In response to the pandemic, numerous state and local jurisdictions imposed “shelter-in-place” orders, quarantines and other restrictions.

In the markets in which we operate, elective, specialty and other procedures and appointments have been suspended or canceled.

In March 2020, the governor of California, where the Company’s headquarters are located, issued “stay at home” orders limiting non-essential activities, travel and business operations.

Such orders or restrictions have resulted in reduced operations at the Company’s headquarters (including manufacturing facility),

The COVID-19 pandemic has resulted in public health responses including travel bans, social distancing requirements, quarantines, stay-at-home orders and other significant measures, which have delayed clinical trials and FDA operations and adversely impacted the number of procedures performed using our products.

In the markets in which we operate, elective, specialty and other procedures and appointments have been suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19 patients.

As a result, we have

Pulmonx Corporation

Notes to Consolidated Financial Statements

work stoppages, slowdowns and delays, travel restrictions and cancellation of events and have restricted the efforts of the Company’s sales representatives, thereby significantly and adversely impacting the Company’s operations.

These orders and restrictions have significantly delayed and decreased the number of procedures performed using the Company’s products and otherwise adversely impacted sales and operations.

experienced a material adverse impact on our business, financial condition and results of operations from a decrease and delay of procedures involving our products.

The COVID-19-driven impact on procedure volumes, which began in 2020, extended throughout 2021.

At the start of 2021, procedure volumes in our U.S.

and international markets were adversely impacted by a winter COVID surge.

Beginning in March 2021, we observed indicators of recovery in our U.S.

markets which continued through the second quarter.

During the third quarter of 2021, procedure volumes were adversely impacted by the Delta variant of COVID-19 in certain regions of the U.S.

During the fourth quarter of 2021, procedure volumes were again adversely impacted in certain regions of the U.S.

and Europe by the Delta and Omicron variants;

however, we experienced some recovery in certain of our other U.S.

We may continue to see regional variations in procedure volumes in our US and international markets from the COVID-19 pandemic and its variants.

The Company’s consolidated financial statements reflect judgments and estimates that could change in the future as a result of the COVID-19 pandemic.

The COVID-19 pandemic has adversely impacted the Company’s business, financial condition and results of operations by decreasing and delaying substantially all procedures performed using the its products, and the Company expects the pandemic to continue to adversely impact its business, financial condition and results of operations for the foreseeable future.

The COVID-19 pandemic has adversely impacted the Company’s business, financial condition and results of operations by decreasing and delaying procedures performed using its products.

While many regions begin to stabilize with improvements in procedure volumes, there continues to be variability and uncertainty as variants of the virus emerge.

The Company can make no assurance regarding any future level of demand for the Company’s products, and COVID-19 may adversely impact the results of operations and financial condition.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”).

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Reverse Stock Split

8 unchanged sentences

Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Significant estimates and assumptions include reserves and write-downs related to inventories, the recoverability of long term assets, valuation of equity instruments and equity-linked instruments, valuation of common stock, stock-based compensation, valuation of the convertible preferred stock warrant liability and derivative liabilities, intangible assets, goodwill, debt and related features, deferred tax assets and related valuation allowances and impact of contingencies.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments consisting of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.

The convertible preferred stock warrant liability and derivative liabilities were carried at fair value based on unobservable market inputs.

Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the term loan and convertible note

Significant estimates and assumptions include reserves and write-downs related to inventories, the recoverability of long-term assets, valuation of equity instruments and equity-linked instruments, valuation of common stock, stock-

Pulmonx Corporation

Notes to Consolidated Financial Statements

approximates their fair value.

based compensation, derivative liabilities, intangible assets, goodwill, debt and related features, deferred tax assets and related valuation allowances and impact of contingencies.

Fair Value of Financial Instruments

The derivative liabilities were carried at fair value based on unobservable market inputs.

Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the term loan approximates their fair value.

The fair value of marketable debt securities is estimated using Level 2 inputs based on their quoted market values (Note 4).

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents, which include money market funds.

The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents, which include money market funds, commercial paper and corporate bonds.

Restricted Cash

Restricted cash is comprised of cash that is restricted as to withdrawal or use under the terms of certain contractual agreements.

Restricted cash for years ended December 31, 2020 consists of collateral for letters of credit issued in connection with the real estate lease in Redwood City, California.

Short-Term Marketable Securities

Restricted cash for years ended December 31, 2021 and December 31, 2020 consists of collateral for letters of credit issued in connection with the real estate lease in Redwood City, California.

Marketable Securities

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date.

1 unchanged sentence

After consideration of the Company’s risk versus reward objectives and liquidity requirements, the Company may sell these securities prior to their stated maturities.

As the Company views these securities as available to support current operations, the Company classifies highly liquid securities with original maturities greater than three months at the time of purchase as short-term marketable securities and those with original maturities greater than twelve months at the time of purchase as long-term marketable securities on the balance sheet.

These securities are carried at fair value as determined based upon quoted market prices or pricing models for similar securities.

4 unchanged sentences

Interest and dividends on securities classified as available-for-sale are included in interest income.

There were no short-term marketable securities as of December 31, 2020.

The Company did not identify any of its short-term marketable securities as other-than-temporarily impaired as of December 31, 2019.

There were $ 31.6 million and $ 10.9 million short-term and long-term marketable securities as of December 31, 2021, respectively.

The Company did not identify any of its marketable securities as other-than-temporarily impaired as of December 31, 2021.

There were no marketable securities as of December 31, 2020.

Concentration of Credit Risk

3 unchanged sentences

The Company earns revenue from the sale of its products to distributors and other customers such as hospitals.

Sales of Zephyr Valves and delivery catheters accounted for most of our revenue for the years ended December 31, 2020, 2019 and 2018.

Sales of Zephyr Valves and delivery catheters accounted for most of our revenue for the years ended December 31, 2021,

Pulmonx Corporation

Notes to Consolidated Financial Statements

The Company’s accounts receivable are derived from revenue earned from distributors and customers.

2 unchanged sentences

For the years ended December 31, 2021 and 2020, no customer or distributor accounted for more than 10% of revenue.

The Company relies on single source suppliers for the components, sub-assemblies and materials for its products.

The Company relies on single source suppliers for components, sub-assemblies and materials for its products.

These components, sub-assemblies and materials are critical and there are no or relatively few alternative sources of supply.

The Company’s suppliers have generally met the Company’s demand for their products and services on a timely basis in the past.

Pulmonx Corporation

Notes to Consolidated Financial Statements

The Company’s suppliers have generally met the Company’s demand for their products and services on a timely basis.

Deferred Offering Costs

3 unchanged sentences

After the registration statement was withdrawn in May 2020, an additional $ 1.8 million in deferred offering costs were incurred related to the Company’s October 2020 IPO.

In connection with the IPO, all deferred offering costs incurred after May 2020 were recorded as reduction of the gross proceeds from the IPO in the additional paid-in capital on the accompanying balance sheet as of December 31, 2020.

Accounts Receivable and Allowances

2 unchanged sentences

Company considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic related risks and economic conditions that may affect a customer’s ability to pay.

As of December 31, 2020 and December 31, 2019, accounts receivable is presented net of an allowance for doubtful accounts of $ 0 and less than $ 0.1 million, respectively.

As of December 31, 2021 and December 31, 2020, accounts receivable is presented net of an allowance for doubtful accounts of less than $ 0.1 million and $ 0 , respectively.

Inventories are valued at the lower of cost to purchase or manufacture the inventory or net realizable value.

8 unchanged sentences

When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in operations in the period realized.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Impairment of Long-lived Assets

4 unchanged sentences

Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below its carrying value.

Pulmonx Corporation

Notes to Consolidated Financial Statements

The Company tests goodwill for impairment at the reporting unit level (“Reporting Unit”).

The Company has determined that it has only one operating segment and one Reporting Unit.

The Company has determined that it has one operating segment and one Reporting Unit.

The operating results are reviewed only on a consolidated basis to make decisions about resources to be allocated and assess performance.

16 unchanged sentences

ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the estimated rate the Company would be required to pay for a fully collateralized borrowing equal to the total lease payments over the term of the lease, to determine the present value of future minimum lease payments.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the estimated rate the Company would be

Pulmonx Corporation

Notes to Consolidated Financial Statements

required to pay for a fully collateralized borrowing equal to the total lease payments over the term of the lease, to determine the present value of future minimum lease payments.

The ROU asset also includes any lease payments made to the lessor at or before the commencement date, minus lease incentives received, and initial direct costs incurred.

6 unchanged sentences

When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Convertible Preferred Stock

The Company recorded all shares of convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs.

The convertible preferred stock was recorded outside of permanent equity because while it is not mandatorily redeemable, in certain events considered not solely within the Company’s control, such as a merger, acquisition or sale of all or substantially all of the Company’s assets (each, a “deemed liquidation event”), the convertible preferred stock would become redeemable at the option of the holders of at least a majority of the then outstanding such shares.

The Company had not adjusted the carrying values of the convertible preferred stock to its liquidation preference because a deemed liquidation event obligating the Company to pay the liquidation preferences to holders of shares of convertible preferred stock was not probable.

Subsequent adjustments to the carrying values to the liquidation preferences would be made only when it became probable that such a deemed liquidation event would occur.

All outstanding shares of the convertible preferred stock converted into common stock upon effectiveness of the IPO.

Convertible Preferred Stock Warrants

The Company’s convertible preferred stock warrants required liability classification and accounting as the underlying convertible preferred stock was considered contingently redeemable and might obligate the Company to transfer assets to the holders at a future date upon occurrence of a deemed liquidation event.

The convertible preferred stock warrants were recorded at fair value upon issuance and were subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in the consolidated statements of operations and comprehensive loss.

The Company continued to adjust the convertible preferred stock warrant liability for changes in fair value until the earlier of the exercise or expiration of the convertible preferred stock warrants, occurrence of a deemed liquidation event or conversion of convertible preferred stock into common stock.

If all outstanding shares of the series of convertible preferred stock for which the convertible preferred stock warrants were exercisable for were converted to shares of common stock or any other security, then thereafter (a) the convertible preferred stock warrants should become exercisable for such number of shares of common stock or such other security as was equal to the number of shares of common stock or such other security that each share of convertible preferred stock was converted into, multiplied by the number of shares subject to the convertible preferred stock warrants immediately prior to such conversion, and (b) the exercise price of the convertible preferred stock warrants should automatically be adjusted to equal to the number obtained by dividing (1) the aggregate exercise price for which the convertible preferred stock warrants were exercisable immediately prior to such conversion by (2) the number of shares of common stock or such other security for which the convertible preferred stock warrants were exercisable immediately after such conversion.

Revenue Recognition

6 unchanged sentences

(iv) allocate the transaction price to the performance obligations in the contract;

Pulmonx Corporation

Notes to Consolidated Financial Statements

(v) recognize revenue when (or as) the entity satisfies performance obligations.

9 unchanged sentences

For sales where products are shipped, control is transferred either upon shipment or delivery of the products to the customer, depending on the shipping terms and conditions.

For consignment sales, control is transferred when the products are used by the customer in procedures.

For consignment sales, control is transferred when the products are

Pulmonx Corporation

Notes to Consolidated Financial Statements

used by the customer in procedures.

The Company defers revenue relating to any remaining performance obligations by the Company to the customer after delivery, such as free products and free analysis services of patient scans to determine suitability of the patients for the treatment using the Company’s Zephyr Valves.

4 unchanged sentences

In those cases where the Company bills shipping and handling costs to customers, it will classify the amounts billed within revenue.

The Company disaggregates its revenue by major geographic region, which has been disclosed in Note 13, “Segment Information”.

The Company’s contract liabilities consist of deferred revenue for remaining performance obligations by the Company to the customer after delivery, which was $ 0.1 million and $ 0.2 million as of December 31, 2020 and December 31, 2019.

The deferred revenue as of December 31, 2018 was $ 0.1 million, which was recognized as revenue during the year ended December 31, 2019.

The deferred revenue as of December 31, 2019 of $ 0.2 million, which was recognized as revenue during the year ended December 31, 2020.

The Company disaggregates its revenue by major geographic region, which is disclosed in Note 12, “Segment Information”.

Costs associated with product sales include commissions.

3 unchanged sentences

The Company manufactures certain products at its facility and purchases other products from third party manufacturers.

Cost of goods sold consists primarily of costs related to materials, components and subassemblies, third-party costs, manufacturing overhead costs, direct labor, reserves for excess, obsolete and non-sellable inventories as well as distribution-related expenses.

A significant portion of the Company’s cost of goods sold currently consists of manufacturing overhead costs.

These overhead costs include the cost of quality assurance,

Pulmonx Corporation

Notes to Consolidated Financial Statements

material procurement, inventory control, facilities, equipment and operations supervision and management.

These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management.

Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as shipping costs.

9 unchanged sentences

The Company expenses the costs of advertising as incurred.

Advertising expenses were $ 1.5 million, $ 0.6 million and $ 0.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Advertising expenses were $ 5.1 million and $ 1.5 million for the years ended December 31, 2021 and 2020, respectively.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Foreign Currency Translation and Transaction Gains and Losses

The functional currencies of the Company’s wholly owned subsidiaries in the Cayman Islands and the Netherlands are the U.S.

The functional currencies of the Company’s wholly owned subsidiaries in Switzerland, Germany, Australia, the United Kingdom, France and Hong Kong are the Swiss franc.

4 unchanged sentences

The revenues and expenses are translated using the average exchange rates in effect during the period, and gains and losses from foreign currency translation adjustments are included as a component of accumulated other comprehensive income in the consolidated balance sheet.

Foreign currency translation adjustments are recorded in other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss and was $ 0.3 million, less than $ 0.1 million and $ 0.1 million during the years ended December 31, 2020, 2019 and 2018, respectively.

Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss and was $ 0.1 million, $( 0.1 ) million and $( 0.3 ) million during the years ended December 31, 2020, 2019 and 2018, respectively.

Foreign currency translation adjustments are recorded in other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss and was $ 0.1 million and $ 0.3 million during the years ended December 31, 2021 and 2020, respectively.

Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss and was $( 0.6 ) million and $ 0.1 million during the years ended December 31, 2021 and 2020, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and non-employees in accordance with ASC 718, Compensation—Stock Compensation , using a fair-value based method.

The Company determines the fair value of all stock options and ESPP awards on the date of grant using the Black-Scholes option pricing model.

The Company determines the fair value of all stock options and the 2020 Employee Share Purchase Plan (“ESPP”) awards on the date of grant using the Black-Scholes option pricing model.

The Company’s determination of the fair value is impacted by its common stock price as well as assumptions regarding a number of complex and subjective variables.

These variables include, but are not limited to, the expected term that options will remain outstanding, expected common stock price volatility over the term of the

Pulmonx Corporation

Notes to Consolidated Financial Statements

option awards, risk-free interest rates and expected dividends.

These variables include, but are not limited to, the expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends.

Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized.

1 unchanged sentence

The fair value of time-based awards is recognized over the period during which an option holder is required to provide services in exchange for the option award, known as the requisite service period, which is typically the vesting period using the straight-line method.

The fair value of performance-based awards is recognized over the requisite service period using the graded vesting method.

The fair value of performance-based awards, if applicable, is recognized over the requisite service period using the graded vesting method.

The Company accounts for forfeitures as they occur.

1 unchanged sentence

Costs for such equity instruments are measured at the fair value of the equity instruments issued on the measurement date as the Company believes that the fair value of the equity instrument is more reliably measured than the fair value of the services received.

Up to December 31, 2018, the value of equity instruments issued to non-employees was determined on the earlier of the date on which there first existed a firm commitment for performance by the provider of goods and services or on the date performance is complete, using the Black-Scholes option pricing model.

Therefore, the measurement of stock-based compensation issued to non-employees was subject to periodic adjustment as the underlying equity instruments vested.

Stock-based compensation expense related to stock options granted to non-employees was recognized as the stock options are earned.

Upon adoption of ASU 2018-07 for the periods after January 1, 2019, the Company accounts for shared-based awards granted to non-employees based on the fair value on the date of grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award.

Fair Value of Common Stock

3 unchanged sentences

Subsequent to the Company’s IPO, the fair value of the Company’s common stock is determined based on its closing market price.

Pulmonx Corporation

Notes to Consolidated Financial Statements

The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are determined based on the difference between the consolidated financial statements and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to affect taxable income.

7 unchanged sentences

Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period.

For purposes of the diluted net loss per share calculation, convertible preferred stock, stock options,

Pulmonx Corporation

Notes to Consolidated Financial Statements

common stock subject to repurchase related to early exercise of stock options, convertible preferred stock warrants and convertible note are considered to be potentially dilutive securities.

For purposes of the diluted net loss per share calculation, convertible preferred stock, stock options, common stock subject to repurchase related to early exercise of stock options and convertible preferred stock warrants are considered to be potentially dilutive securities.

Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the convertible preferred stock is considered a participating security because it participates in dividends with common stock.

9 unchanged sentences

Recently Adopted Accounting Pronouncements

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement .

This ASU amends the disclosure requirement in ASC 820, Fair Value Measurement , by adding, changing or removing certain disclosures.

This ASU applies to all entities that are required under this guidance to provide disclosure about recurring or nonrecurring fair value measurements.

The amendments require new disclosures related to:

changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period;

range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements.

In addition, there are certain changes in disclosure requirements in the existing guidance.

For all entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

Early adoption is permitted.

The Company adopted ASU 2018-13 as of January 1, 2020 and the adoption had no material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other:

Simplifying the Test for Goodwill Impairment .

The amendments eliminate Step 2 from the goodwill impairment test.

The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.

The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

This ASU is effective for public business entities for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

Early adoption is permitted.

The Company adopted ASU 2017-04 as of January 1, 2020 and the adoption had no material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This ASU is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company adopted ASU 2019-12 as of January 1, 2021 and the adoption did not have a material impact on the Company’s consolidated financial statements.

Pulmonx Corporation

17 unchanged sentences

The Company is currently evaluating the impact of the adoption of this principle on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This ASU is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company is currently evaluating the impact of the adoption of ASU 2019-12 on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses .

2 unchanged sentences

In November 2019, the FASB issued ASU 2019-10, according to which, the new standard is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (“SRC”) as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

For all other entities , the new standard is effective for fiscal years beginning after December 15, 2022, and interim periods within that fiscal year.

For all other entities, including the Company, the new standard is effective for fiscal years beginning after December 15, 2022, and interim periods within that fiscal year.

Early adoption is permitted.

The Company is a SRC for fiscal year 2019 and 2020.

The Company is currently evaluating the impact of the new standard on the Company’s consolidated financial statements.

All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.

Fair Value Measurements

Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

Hierarchical levels which are directly

Hierarchical levels which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that

Pulmonx Corporation

Notes to Consolidated Financial Statements

related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities;

are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3—Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis – Financial assets and liabilities held by the Company measured at fair value on a recurring basis include money market funds, short-term marketable securities, convertible preferred stock warrant liability and derivative liability.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis —Financial assets and liabilities held by the Company measured at fair value on a recurring basis include money market funds, marketable securities and derivative liabilities.

Assets and Liabilities Measured and Recorded at Fair Value on a Nonrecurring Basis —The Company determines the fair value of long-lived assets held and used, such as intangible assets, by reference to independent appraisals, quoted market prices (e.g.

2 unchanged sentences

As noted above, there have been no impairment charges recorded to date.

Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the term loan and convertible note payable to related party approximates their fair value and is classified as a Level 2 liability.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

4 unchanged sentences

Money market funds $ 831 $ — $ — $ 831

$ 10,533 $ — $ — $ 10,533

Commercial paper — 2,000 — 2,000

Corporate bonds — 4,410 — 4,410

Cash equivalents 831 6,410 — 7,241

Government agency bonds 14,977 5,504 — 20,481

Commercial paper — 19,107 — 19,107

Corporate bonds — 2,914 — 2,914

Marketable securities 14,977 27,525 — 42,502

Total financial assets $ 15,808 $ 33,935 $ — $ 49,743

There were no liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2020.

Pulmonx Corporation

Notes to Consolidated Financial Statements

December 31, 2020

2 unchanged sentences

$ 10,533 $ — $ — $ 10,533

Commercial paper

— 1,000 — 1,000

Cash equivalents 10,533 — — 10,533

Corporate bonds

— 7,105 — 7,105

Commercial paper

— 6,475 — 6,475

Short-term marketable securities — 13,580 — 13,580

Total financial assets $ 10,533 $ — $ — $ 10,533

Preferred stock warrant liability

$ — $ — $ — $ —

Derivative liability

— — 1,165 1,165

Total financial liabilities $ — $ — $ 1,165 $ 1,165

There were no liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2021 and December 31, 2020.

Pulmonx Corporation

Notes to Consolidated Financial Statements

The following table summarizes the cost, unrealized gains and losses and fair value of marketable securities (in thousands):

1 unchanged sentence

Amortized Cost Unrealized Losses Unrealized Gains Fair Value

Government agency bonds $ 20,509 $ ( 28 ) $ — $ 20,481

Corporate bonds

4 unchanged sentences

Amounts recognized on the consolidated balance sheet

Cash equivalents

Short-term marketable securities

Long-term marketable securities 10,941

Marketable securities $ 42,502

As of December 31, 2021, all of the marketable securities are classified as available for sale, in which short-term marketable securities mature within one year and long-term marketable securities mature in one to two years .

At December 31, 2021, accrued interest on marketable securities of $ 0.1 million was included in prepaid expenses and other current assets on the consolidated balance sheet.

The Company did no t have marketable securities as of December 31, 2020.

The Company values the convertible preferred stock warrant liability (Note 9) using the Black-Scholes Merton option-pricing model.

The expected term for these warrants is based on the remaining contractual life of these warrants.

The expected volatility assumption was determined by examining the historical volatility for industry peers, as the Company does not have a trading history for its common stock.

The risk-free interest rate assumption is based on U.S.

Treasury investments whose term is consistent with the expected term of the warrants.

The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.

Pulmonx Corporation

Notes to Consolidated Financial Statements

The fair value of the Series C-1 convertible preferred stock warrants was determined using the following assumptions:

Risk-free interest rate 1.6 %

Remaining contractual life (in years) 0.1

Dividend yield 0 %

Volatility 57.5 %

Derivative liabilities include derivatives associated with the Company’s Success Fee Agreement with Oxford Finance LLC (Note 6) and the 2020 Notes derivative liability (Note 6).

17 unchanged sentences

As a result, the Company concluded that the 2020 Notes derivative had no value upon the closing of the IPO, because value of the notes with and without the such derivative was the same.

The change in fair value of the convertible preferred stock warrant liability and derivative liabilities is summarized below (in thousands):

Convertible Preferred Stock Warrant Liability Success Fee Derivative Liability 2020 Notes Derivative Liability

Beginning fair value, January 1, 2018 $ — $ — $ —

Change in fair value 12 642 —

Ending fair value, December 31, 2018 $ 12 $ 642 $ —

Beginning fair value, January 1, 2019

Change in fair value

Ending fair value, December 31, 2019 $ — $ 1,165 $ —

The change in fair value of the derivative liabilities is summarized below (in thousands):

Success Fee Derivative Liability 2020 Notes Derivative Liability

Beginning fair value, January 1, 2020

11 unchanged sentences

Commercial paper 2,000 —

Corporate bonds 4,410 —

Total cash and cash equivalents $ 148,480 $ 231,561

23 unchanged sentences

Property and equipment, net $ 4,814 $ 1,474

Depreciation expense for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 0.3 million, $ 0.2 million and $ 0.1 million, respectively.

Depreciation expense for the years ended December 31, 2021 and December 31, 2020 was $ 0.7 million and $ 0.3 million, respectively.

Goodwill was $ 2.3 million as of December 31, 2021 and December 31, 2020 arising from the Company’s acquisition of Emphasys Medical, Inc, in March 2009.

2 unchanged sentences

The Company performed an annual test for goodwill impairment in the fourth quarter of the fiscal years ended December 31, 2021 and December 31, 2020 and determined that goodwill was no t impaired.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Intangible Assets

5 unchanged sentences

Total intangible assets $ 1,849 $ ( 1,572 ) $ 277

Pulmonx Corporation

Notes to Consolidated Financial Statements

December 31, 2020

13 unchanged sentences

Accrued professional fees

Accrued interest — 1,708

Sales taxes, franchise tax and VAT 730 521

Liability for early exercise of stock options 399 629

Accrued inventory purchases 258 57

Other 823 579

Total accrued liabilities $ 13,366 $ 8,651

Pulmonx Corporation

Notes to Consolidated Financial Statements

Long Term Debt and Convertible Notes

Oxford Finance Loan

In August 2014, the Company entered into a Loan and Security Agreement with Oxford Finance LLC for up to $ 20.0 million in term loans.

In 2014, the Company borrowed $ 15.0 million and had the ability to draw an additional $ 5.0 million conditioned upon the achievement of a revenue milestone.

The period during which the Company could draw an additional $ 5.0 million ended on November 30, 2015 without the Company borrowing the additional $ 5.0 million.

From August 2014 until February 2020, the Company was party to a Loan and Security Agreement with Oxford Finance LLC, which provided the ability to borrow up to $ 20.0 million in term loans (“Oxford Finance Loan”).

In 2014, the Company borrowed $ 15.0 million.

The term loan bore interest at 8.96 % and had a five-year term.

The first 36 months were interest only payments followed by 24 months of equal payments of principal and interest.

A final payment of 8.50 % of the term loan amount is due at maturity and is being accreted using the effective interest rate method.

The term loan is collateralized by assets, including cash and cash equivalents, accounts receivable and property and equipment.

Pulmonx Corporation

Notes to Consolidated Financial Statements

In May 2017, the Company entered into a First Amendment to Loan and Security Agreement that extended the interest only period through June 2018 and included an additional fee of $ 0.1 million due upon maturity.

The amendment was accounted for as a debt modification and no gain or loss is recognized in the Company’s financial statements.

In May 2018, the Company entered into Second and Third Amendments to Loan and Security Agreement that extended the interest only period through May 2019 and the maturity date to July 1, 2020.

The amendment was accounted for as a debt modification and no gain or loss is recognized in the Company’s financial statements.

The Company had the option to further extend the interest only period through March 2020 and the maturity date to May 1, 2021, provided that no event of default had occurred.

The loan bears interest at an annual rate equal to the greater of (i) 8.71 % and (ii) the sum of (a) the greater of the one month U.S.

LIBOR rate on the last business day of the month that immediately precedes the month in which the interest will accrued and 1.85 % plus (b) 6.86 %.

In May 2019, the Company elected to extend the interest only period of the term loan through March 2020 and the maturity date to May 2021.

The incremental amendment fee, due at maturity, increased to $ 0.8 million from $ 0.4 million when the Company extended the interest only period through March 2020.

As of February 20, 2020 (repayment date), December 31, 2019 and December 31, 2018, the term loan had an annual effective interest rate of 11.11 % per year, 11.11 % per year and 11.17 % per year, respectively.

A final payment of 8.5 % of the term loan amount was due at maturity and was being accreted using the effective interest rate method.

The term loan was collateralized by assets, including cash and cash equivalents, accounts receivable and property and equipment.

The Oxford Finance Loan was subsequently amended in 2017 and 2018 to extend the interest only period and to extend the maturity date to July 1, 2020, and at the Company’s option, further extend the maturity date to May 1, 2021.

In 2019, the Company elected to extend the maturity date to May 2021.

In connection with the original agreement in August 2014, the Company also entered into the Success Fee Agreement.

In the event of a sale or other disposition by the Company of all or substantially all of its assets, a merger or consolidation, or an initial public offering (a “Liquidity Event”), before the termination of the agreement on August 28, 2021, the Company is required to pay up to $ 2.5 million (the “Success Fee”) to Oxford Finance LLC.

The Success Fee is equal to 6.25 % of the term loan if the Liquidity Event occurs within 18 months of August 28, 2014, 8.75 % if the Liquidity Event occurs after 18 months and within 3 years of August 28, 2014, and 12.50 % if the Liquidity Event occurs after the third anniversary of August 28, 2014.

As of December 31, 2019, the maximum amount of Success Fee subject to a potential payout was $ 1.9 million.

This agreement has been identified as a freestanding derivative under ASC 815, Derivatives (“Success Fee”) and is remeasured to its fair value at the end of each reporting period and any change in fair value is recognized as change in other income (expense), net in the statements of operations and comprehensive loss (Note 4).

The fair value of the Success Fee derivative liability as of December 31, 2019 was $ 1.2 million.

On October 5, 2020, in connection with the IPO, the Company paid $ 1.9 million pursuant to the Success Fee Agreement to Oxford Finance LLC.

The Loan and Security Agreement contained customary affirmative and negative covenants and events of default.

As of December 31, 2019, the Company was in default with a covenant in the Loan and Security Agreement resulting from its failure to maintain cash balances outside the United States within the levels set forth in the Loan and Security Agreement.

This event of default was waived by Oxford Finance LLC.

In the event of a sale or other disposition by the Company of all or substantially all of its assets, a merger or consolidation, or an initial public offering (a “Liquidity Event”), before the termination of the agreement on August 28, 2021, the Company was required to pay up to $ 2.5 million (the “Success Fee”) to Oxford Finance LLC, the amount of which would be based on actual borrowings, up to $ 20.0 million.

This agreement was identified as a freestanding derivative under ASC 815, Derivatives (“Success Fee”) and was remeasured to its fair value at the end of each reporting period and any change in fair value is recognized as change in other income (expense), net in the statements of operations and comprehensive loss (Note 4).

On October 5, 2020, in connection with the IPO, the Company paid $ 1.9 million pursuant to the Success Fee Agreement to Oxford Finance LLC based on the $ 15.0 million borrowed.

On February 20, 2020, the Company repaid its entire obligation under the term loan agreement with Oxford Finance LLC amounting to $ 17.3 million, including outstanding loan amount of $ 15.0 million, final payment of $ 1.3 million, amendment fees of $ 0.9 million and accrued interest of $ 0.1 million.

The repayment of the obligation under the term loan agreement with Oxford Finance LLC was accounted as extinguishment and the Company recorded a loss on extinguishment of $ 0.4 million included in interest expense in the consolidated statements of operations and comprehensive loss.

The term loan consisted of the following (in thousands):

debt issuance costs

deferred financing costs

Pulmonx Corporation

Notes to Consolidated Financial Statements

The Company incurred fees and legal expenses of $ 0.1 million in connection with the Agreement and Amendments, which are recorded as deferred financing costs and amortized to interest expense.

The Company also paid $ 0.2 million in fees to the lender which is reflected as a discount on the debt and is being accreted over the life of the term loan.

In 2020, 2019 and 2018, the Company recorded interest expense related to deferred financing and debt issuance costs of less than $ 0.1 million.

Interest expense on the term loan amounted to $ 0.4 million, $ 1.7 million and $ 1.7 million during the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

In 2020, the Company recorded interest expense related to deferred financing and debt issuance costs of less than $ 0.1 million, respectively.

Interest expense on the term loan amounted to $ 0.4 million during the years ended December 31, 2020.

On February 20, 2020, the Company executed a Loan and Security Agreement (the “CIBC Agreement”) with Canadian Imperial Bank of Commerce (“CIBC”) to raise up to $ 32.0 million in debt financing (“CIBC Loan”) consisting of $ 17.0 million advanced at the closing of the agreement (Tranche A), with the option to drawing up to an additional $ 8.0 million (“Tranche B”) on or before February 20, 2022.

The term loan also provided for an additional financing tranche (Tranche C) of up to $ 7.0 million on or prior to February 20, 2022, which was conditioned upon achieving a trailing six-month revenue of at least $ 20.0 million as of the date of any Tranche C borrowing.

The term loan also provides for an additional financing tranche (“Tranche C”) of up to $ 7.0 million on or prior to February 20, 2022, which was conditioned upon achieving a trailing six-month revenue of at least $ 20.0 million as of the date of any Tranche C borrowing.

The availability of Tranche B and Tranche C is further conditioned upon the joining of Pulmonx International Sàrl to the CIBC Agreement and the execution by Pulmonx International Sàrl of Swiss-law collateral documentation in favor of CIBC.

2 unchanged sentences

The CIBC Loan bears interest at a floating rate equal to 1.0 % above the Wall Street Journal Prime Rate at any time.

The Tranche C loan will bear interest at a floating rate equal to 1.5 % above the Wall Street Journal Prime Rate at any time.

The Tranche C loan will bear interest at a floating rate

Pulmonx Corporation

Notes to Consolidated Financial Statements

equal to 1.5 % above the Wall Street Journal Prime Rate at any time.

The CIBC Loan is collateralized by substantially all of the Company’s assets, including cash and cash equivalents, accounts receivable, intellectual property and equipment.

1 unchanged sentence

The CIBC Agreement includes customary restrictive covenants, financial covenants, events of default and other customary terms and conditions.

In April 2020, the Company entered into a First Amendment to CIBC Agreement that changed the maturity date to March 15, 2022, which shall be automatically extended to February 20, 2025 if the maturity of all outstanding convertible notes (see below) is extended to a date no earlier than May 21, 2025 or all convertible notes have been converted into convertible preferred stock of the Company.

The Company paid to CIBC an amendment fee of $ 0.2 million.

The Tranche B drawing was amended and is conditioned to achieving a trailing six-month revenue of at least $ 15.0 million as of the date of any Tranche B borrowing.

In April 2020, the Company entered into a First Amendment to CIBC Agreement that changed the maturity date to March 15, 2022, which would be automatically extended to February 20, 2025 if the maturity of all outstanding convertible notes was extended to a date no earlier than May 21, 2025 or all convertible notes converted into convertible preferred stock of the Company.

An amendment fee of $ 0.2 million was paid.

The Tranche B drawing is conditioned to achieving a trailing six-month revenue of at least $ 15.0 million as of the date of any Tranche B borrowing.

On the date of drawing Tranche B Loan or Tranche C Loan, the Company will pay a structuring fee in an amount equal to 1.0 % of the amount of Tranche B Loan or Tranche C Loan.

The amendment was accounted for as a debt modification and no gain or loss was recognized.

As of December 31, 2020, the CIBC Loan had an annual effective interest rate of 5.16 % per year.

In December 2020, to address certain post-close covenants for which the Company was not in compliance, the Company entered into a Second Amendment to the CIBC Agreement that extended the compliance date for certain post-close covenants to June 30, 2021.

The financial covenants in the CIBC Agreement require the Company to have revenue for the trailing three-month period ending on March 31, 2021, and the last day of each June, September, December and March thereafter of not less than the greater of (i) the amount equal to 80 % of the revenue for the trailing three-month period ending on such day, as set forth in the annual projections delivered to the CIBC, and approved by CIBC, and (ii) the revenue for the trailing three-month period ending on the last day of the month for which this covenant had most recently been tested prior to such day.

Further, the Company on and at all times after April 17, 2020, maintain unrestricted cash in an aggregate amount equal to or greater than the Adjusted EBITDA loss as defined in the CIBC Agreement for the four-month period ending on any date of determination.

As of December 31, 2020, the Company was in compliance with all the covenants contained in the CIBC Agreement.

The CIBC Loan as of December 31, 2020, consisted of the following (in thousands):

In March 2021, the Company entered into an Amended and Restated Agreement which extended the maturity date from March 15, 2022 to February 20, 2025, and modified certain financial covenants.

Per the amended terms, 36 equal payments of principal plus accrued interest will be due beginning March 31, 2022.

The beginning of principal repayment can be extended to March 31, 2023 if the Company achieves three-month trailing revenue of at least $ 20.0 million as of February 20, 2022.

In connection with the an amended and restated agreement, the Company paid fees to CIBC of less than $ 0.1 million which were recorded as a discount on the CIBC Loan and are being accreted over the life of the term loan using the effective interest method.

The amendment was accounted for as a debt modification and no gain or loss was recognized.

In June 2021, the Company entered into a First Amendment to the Amended and Restated Loan and Security agreement with CIBC that extended the compliance of certain post-close covenants to March 31, 2022.

In October 2021, the Company entered into a Second Amendment to the Amended and Restated Loan and Security Agreement with CIBC, which extended the interest only period of the loan from 24 months to 36 months.

Under the amended terms, principal repayment will begin in February 2023.

There was no change to the loan interest rate or maturity date.

As of December 31, 2021, the CIBC Loan had an annual effective interest rate of 4.71 % per year.

The financial covenants in the CIBC Agreement require that, when the cash and cash equivalents of the Company is less than $ 100.0 million, the Company have revenue for the trailing three-month period ending on the last day of each fiscal quarter of not less than 80.0 % of the revenue for the trailing three-month period, as set forth in the annual projections delivered to the CIBC.

Further, the Company is required to maintain unrestricted cash in an aggregate amount equal to or greater than the Adjusted EBITDA loss as defined in the CIBC Agreement for the four-month period ending on any date of determination.

As of December 31, 2021, the Company was in compliance with all covenants contained in CIBC Agreement.

Pulmonx Corporation

Notes to Consolidated Financial Statements

The CIBC Loan consists of the following (in thousands):

December 31, December 31,

$ 17,000 $ 17,000

debt issuance costs

The Company paid $ 0.3 million fees to the lender and third parties, including the amendment fee of $ 0.2 million, which is reflected as a discount on the CIBC Loan and is being accreted over the life of the term loan using the effective interest method.

During the year ended December 31, 2020, the Company recorded interest expense related to debt discount and debt issuance costs of CIBC Loan of $ 0.1 million.

Interest expense on the CIBC Loan amounted $ 0.7 million during the year ended December 31, 2020.

( 131 ) ( 196 )

$ 16,869 $ 16,804

The Company paid $ 0.4 million fees to the lender and third parties, which is reflected as a discount on the CIBC Loan and is being accreted over the life of the term loan using the effective interest method.

During the year ended December 31, 2021 and December 31, 2020, the Company recorded interest expense related to debt discount and debt issuance costs of CIBC Loan of $ 0.1 million and $ 0.1 million, respectively.

Interest expense on the CIBC Loan amounted to $ 0.8 million and $ 0.7 million during the year ended December 31, 2021 and December 31, 2020, respectively.

Credit Agreement

3 unchanged sentences

dollar equivalent) under the COVID-19 Credit Agreement.

The COVID-19 Credit Agreement will bear no interest and is payable within 60 months after receipt of funds.

As of December 31, 2020, Pulmonx International Sàrl did no t make any repayment of credit agreement.

Paycheck Protection Program

On April 16, 2020, the Company received $ 2.7 million in support from the Paycheck Protection Program (the “PPP”) established by the U.S.

federal government as part of the CARES Act for the PPP.

Because the U.S.

government subsequently changed its position and guidelines related to the PPP and publicly traded companies, the Company repaid the loan on May 1, 2020.

Convertible Note

In May 2017, the Company entered into a Second Lien Loan and Security Agreement with Boston Scientific Corporation, an investor, for up to $ 30.0 million in term loans.

The loans under this agreement are subordinated to the term loan with Oxford Finance LLC and are also collateralized by assets, including cash and cash equivalents, accounts receivable and property and equipment.

Under the Agreement, Boston Scientific Corporation agreed to make one or more term loans to the Company during the period beginning in May 2017 and ending on May 13, 2022, the maturity date (the “Term Loans”).

The principal amount outstanding under the Term Loans drawn prior to June 30, 2018 accrued no interest from the date of such Term Loan through and including June 30, 2018.

Beginning on July 1, 2018, all Term Loans accrued interest at a fixed rate of 8.96 %.

Interest accrues until such Term Loan is converted to stock or paid in full.

Each Term Loan is evidenced by a separate Secured Convertible Promissory Note and is repayable, convertible and exchangeable.

If the Company completes any Qualified Equity or Debt Financing or any Change of Control, Liquidation or Prepayment Conversion occurs, outstanding principal and accrued interest on the loans are convertible at Boston Scientific Corporation’s option into shares of either (1) the Series F-1 convertible preferred stock or, if the shares of Series F-1 convertible preferred stock are not the most senior series of preferred stock of the Company then issued and outstanding (2) the most senior series of preferred stock of the Company then issued and outstanding (“Conversion Stock”).

The Conversion Stock Per Share Price is defined as (A) with respect to a Qualified Equity Financing, the lowest price per share of Conversion Stock paid by any investor in such Qualified Equity Financing, (B) with respect to a Change of Control or Liquidation, the total amount distributed, paid or to be paid to the stockholders of the Company on account of the stock held by them in connection with such Change of Control or Liquidation, divided by the fully-diluted share count of the Company on the Conversion Date or (C) with respect to

Pulmonx Corporation

Notes to Consolidated Financial Statements

a Prepayment Conversion, $ 230,000,000 divided by the fully-diluted share count of the Company on the Conversion Date.

Subject to Boston Scientific Corporation’s conversion rights, the Company had the option to prepay all of the Term Loans, at any time.

In conjunction with the Second Lien Loan and Security Agreement, the Company and Boston Scientific entered into a No Shop Agreement such that from the date of execution of the agreement through the earlier of the Company’s submission of the final module of its Premarket Approval application to the FDA and March 31, 2018, the Company would not sign a term sheet or engage in discussions to sell the Company.

In addition, Boston Scientific’s Right of First Negotiation, originally received as part of the Preferred Series F-1 financing, was amended to shorten the period it has to exercise its Right of First Negotiation from 10 to 5 business days, and to shorten the Exclusive Negotiation Period from 75 to 45 days with respect to the initial notice from the Company that it intends to pursue a change in control or IPO.

For subsequent notices from the Company, Boston Scientific has 10 days to exercise its right of first negotiation, and 75 days to enter into definitive agreements for a change in control transaction.

The Company borrowed $ 6.0 million in 2017, $ 12.0 million in 2018 and $ 6.0 million in January 2019 under the Second Lien Loan and Security Agreement with Boston Scientific Corporation.

In April 2019, all the Term Loans and accrued interest of $ 25.1 million under the agreement converted into 1,903,935 shares of Series G-1 convertible preferred stock at a price of $ 13.2 per share at the option of Boston Scientific Corporation upon the occurrence of Series G-1 convertible preferred stock financing, which met the definition of Qualified Equity Financing in the Second Lien Loan and Security Agreement (Note 10).

This conversion was accounted as debt extinguishment and the Company recognized less than $ 0.1 million extinguishment gain upon such conversion.

The Company incurred fees and legal expenses of $ 0.1 million in connection with the Agreement, which are reported on the balance sheet as a direct deduction from the face amount of the convertible note.

Amortization of the issuance costs are calculated using the effective interest rate method over the term of the note and recorded as a non-cash interest expense.

In 2018, the Company accrued interest expense of $ 0.8 million, which was included in convertible notes at December 31, 2018.

As of December 31, 2018, the Term Loans had an annual effective interest rate of 7.47 % per year.

The Second Lien Loan and Security Agreement contains customary affirmative and negative covenants and events of default.

As of December 31, 2019 and December 31, 2018, the Company was in compliance with all the covenants contained in the Second Lien Loan and Security Agreement.

In January 2020, the Company terminated the Second Lien Loan and Security Agreement.

The COVID-19 Credit Agreement bears no interest and will be repaid in twelve equal installments, paid semi-annually, beginning in March of 2022.

In April 2020, the Company entered into a Note Purchase Agreement and Convertible Promissory Notes (collectively the “2020 Notes Agreement”) with certain investors (the “Lenders”) to issue convertible promissory notes (the “2020 Notes”) for a maximum aggregate amount of $ 66.0 million.

4 unchanged sentences

The Company may prepay the 2020 Notes prior to April 17, 2022 only with the consent of the Majority Holders.

In the event that the Company issued and sold shares of its convertible preferred stock to investors with total proceeds of not less than $ 30.0 million (excluding the conversion of the 2020 Notes or other convertible securities issued for capital raising purposes) (a “Qualified Financing”), then the outstanding principal amount of the 2020

Pulmonx Corporation

Notes to Consolidated Financial Statements

Notes and any unpaid accrued interest should automatically convert into the same class and series of convertible preferred stock sold in the Qualified Financing at a conversion price equal to the lesser of (i) the price per share paid for preferred stock in the Qualified Financing multiplied by either 85 % if the conversion took place within 18 months of the Initial Closing, or 80 % otherwise, and (ii) $ 13.20 per share.

In the event the Company sold shares of convertible preferred stock in a transaction that did not constitute a Qualified Financing (a “Non-Qualified Financing”), then the Majority Holders would have the option to treat such Non-Qualified Financing as a Qualified Financing;

provided, that, the Majority Holders might not elect to convert the 2020 Notes held by any Significant Holder in the Non-Qualified Financing without such Significant Holder’s consent unless such Non-Qualified Financing (a) was led by an investor who was not currently a stockholder of the Company and (ii) raised at least $ 10.0 million in total proceeds from investors who were not currently stockholders of the Company.

A Significant Holder was a holder of the 2020 Notes equal to or greater than $ 20 million.

If there was an event of default, then the conversion of the 2020 Notes would be at a conversion price equal to the lesser of:

the price per share paid for convertible preferred stock by the Investors in the Non-Qualified Financing multiplied by 75 % , and

the Series G-1 convertible preferred stock conversion price of $ 13.20 per share multiplied by 75 %.

Upon an initial public offering which resulted in net proceeds of not less than $ 30.0 million (a “Qualified IPO”), the outstanding 2020 Notes and any unpaid accrued interest should automatically convert in whole into shares of the Company’s common stock at a conversion price equal to the lesser of (i) price per share paid for common stock in the Qualified IPO multiplied by either 85 % if the conversion took place within 18 months of the Initial Closing, or 80 % otherwise, and (ii) $ 13.20 per share.

Upon an initial public offering that did not constitute a Qualified IPO (a “Non-Qualified IPO”), the Majority Holders should have the option to treat such Non-Qualified IPO as a Qualified IPO;

provided that if there was an event of default, conversion of the 2020 Notes would be at a conversion price equal to the lesser of:

the price per share paid for common stock in the Non-Qualified IPO multiplied by 75 %, and

the Series G- 1 convertible preferred stock conversion price of $ 13.20 per share multiplied by 75 %.

At any other time upon the election of the Majority Holders or a Significant Holder, the outstanding principal amount of the 2020 Notes and any unpaid accrued interest would convert in whole into the Company’s Series G-1 convertible preferred stock at the Series G-1 convertible preferred stock conversion price of $ 13.20 per share.

If there was an event of default prior to selection of such option, the 2020 Notes would be converted at a conversion price equal to the Series G-1 convertible preferred stock conversion price of $ 13.20 per share multiplied by 75 %.

Upon any event of default, the Majority Holders could, at written notice to the Company, declare the principal and unpaid accrued interest under the 2020 Notes immediately due and payable.

The 2020 Notes included embedded derivatives that are required to be bifurcated from the 2020 Notes and accounted for separately as a single, compound embedded derivative instrument under ASC 815, Derivatives (“2020 Notes derivative liability”).

The Company determined that the share settled redemption in the case of a financing or an IPO discussed above represented an embedded derivative that was not clearly and closely related to the debt host and had accounted for these settlement alternatives as separate embedded derivative liability.

The 2020 Notes included embedded derivatives that were required to be bifurcated from the 2020 Notes and accounted for separately as a single, compound embedded derivative instrument under ASC 815, Derivatives (“2020 Notes derivative liability”).

The Company determined that a share settled redemption in the case of a financing or an IPO as described in the 2020 Notes represented an embedded derivative that was not clearly and closely related to the debt host and had accounted for these settlement alternatives as separate embedded derivative liability.

The fair value of the 2020 derivative liability of $ 3.9 million was recorded on the issuance date of the 2020 Notes resulting in a debt discount, which was reported as a direct deduction from the face amount of the 2020 Notes.

The 2020 derivative liability was remeasured to its fair value at the end of each reporting period and any change in fair value was recognized in other income (expense), net in the statements of operations and comprehensive loss (Note 4).

The change in fair value of $ 3.9 million during the year ended December 31, 2020 was recorded as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

Upon the closing of the IPO in October 2020, the 2020 Notes converted pursuant to a qualified initial public offering.

The 2020 derivative liability was remeasured to its fair value at the end of each reporting period and any change in fair value is recognized in other income (expense), net in the statements of operations and comprehensive loss (Note 4).

The change in fair value of $ 3.9 million during the year ended December 31, 2020 was recorded as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss.

Upon the closing of the IPO in October 2020, the $ 33.0 million aggregate outstanding principal amount and $ 0.8 million accrued interest of the 2020 Notes converted into 2,561,484 shares of common stock pursuant to the

Pulmonx Corporation

Notes to Consolidated Financial Statements

result, the Company concluded that the 2020 Notes derivative had no value upon the closing of the IPO, because value of the notes with and without the such derivative was the same.

At December 31, 2020, the Company retained the ability to draw up to an additional $ 33.0 million under the 2020 Notes Agreement until the maturity date in April 2022.

The Company’s obligations with respect to the 2020 Notes are unsecured and subordinated to its obligations with respect to the CIBC Loan.

The 2020 Notes have customary events of default.

Qualified IPO conversion at the $ 13.20 per share fixed price.

The Company determined that the 2020 Notes derivative had no value upon the closing of the IPO, because value of the notes with and without such derivative was the same.

The Company incurred debt issuance costs of $ 0.1 million in connection with the 2020 Notes Agreement, which were reported on the balance sheet as a direct deduction from the face amount of the 2020 Notes.

1 unchanged sentence

Before the conversion upon the IPO, the 2020 Notes had an annual effective interest rate of 12.33 % per year.

In connection with the closing of the IPO, the $ 33.0 million aggregate outstanding principal amount and $ 0.8 million accrued interest of the 2020 Notes converted into 2,561,484 shares of common stock at a conversion price of $ 13.20 per share.

At December 31, 2021, the Company retained the ability to draw up to an additional $ 33.0 million under the 2020 Notes Agreement until the maturity date in April 2022.

The Company’s obligations with respect to the 2020 Notes are unsecured and subordinated to its obligations with respect to the CIBC Loan.

The 2020 Notes have customary events of default.

Contractual Maturities of Financing Obligations

As of December 31, 2021, the aggregate future payments under the CIBC Loan and Credit Agreement (including interest payments) are as follows (in thousands):

Total $ 19,140

unamortized debt discount ( 131 )

interest ( 1,594 )

Term loan, convertible notes, and credit agreement

Leases, Commitments and Contingencies

Term loan and credit agreement

Revenue Recognition

The Company’s contract liabilities consist of deferred revenue for remaining performance obligations by the Company to the customer after delivery, which was $ 0.2 million as of December 31, 2021, which is expected to be recognized as revenue in 2022.

The deferred revenue as of December 31, 2020 was $ 0.1 million, which was recognized as revenue during the year ended December 31, 2021.

The Company disaggregates its revenue by major geographic region, which has been disclosed in Note 12, “Segment Information”.

Leases, Lease Commitments and Contingencies

The Company has a lease for its headquarters location in Redwood City, California.

3 unchanged sentences

The Company is eligible to receive a tenant improvement allowance of $ 0.2 million on commencement of the renewal term in August 2020.

During 2013, the Company entered into a five-year lease for office facilities in Switzerland.

The Company had an option to extend the lease through January 2022, which was not exercised by the Company.

Per the lease terms, in the event the option to extend is not exercised, the lease remains in force and can be terminated with a 12 -month’s notice.

Pulmonx Corporation

Notes to Consolidated Financial Statements

During 2013, the Company entered into a five-year lease for office facilities in Switzerland.

The Company had an option to extend the lease through January 2022, which was not exercised by the Company.

Per the lease terms, in the event the option to extend is not exercised, the lease remains in force and can be terminated with 12-month s’ notice.

In April 2020, the Company executed a sublease for another office facility in Redwood City, California for a three-year term commencing on June 1, 2020.

1 unchanged sentence

The early termination may only occur on or after the expiration of the 18 th full calendar month of the sublease term.

The lease term for this lease is 18 months as the possible exercise of the early termination option by the Sublandlord is not within the Company’s control.

The monthly base rent during the term is less than $ 0.1 million and is subject to an annual increase of 3.5 %.

The Company is responsible for its share of real estate taxes, common area maintenance and management fees.

In September 2020, the Company amended a sublease agreement entered in April 2020, to include additional facility space in Redwood City, California for a four-year term.

In September 2020, the Company amended a sublease agreement entered into in April 2020, to include additional facility space in Redwood City, California for a four-year term.

The amendment was accounted as a separate sublease agreement.

The sublease agreement contains a rent free period through February 14, 2021, after which rent is approximately $ 0.1 million per month and is subject to an annual increase of 3.5 %.

The sublease agreement contained a rent-free period through February 14, 2021, after which rent is approximately $ 0.1 million per month and is subject to an annual increase of 3.5 %.

The Company is responsible for its share of real estate taxes, common area maintenance and management fees.

1 unchanged sentence

The sublease agreement can be extended for an additional twelve-month period, at the Company’s option.

The lease term for this lease is 4 years as it is not reasonably certain that the Company will exercise the renewal option.

The amendment also changed the lease term of sublease agreement entered in April 2020, which was extended until May 31, 2024, but left the early termination clause unchanged.

The Company has leases on two vehicle leases with lease terms ranging from 2 to 4 years.

Rent expense for the year ended December 31, 2018 under ASC 840 was $ 1.0 million.

For accounting purposes, the lease term is 4 years as it is not reasonably certain that the Company will exercise the renewal option.

The amendment also changed the lease term entered into in April 2020, which was extended until May 31, 2024, but left the early termination clause unchanged.

In September 2021, the Company became reasonably certain that the early termination clause would not be exercised as capital expenditures on the facility build-out created sufficient disincentive to terminate the lease early.

The lease term was reevaluated and extended from November 30, 2021 to May 31, 2024.

The Company has leases on four vehicles with an average lease term of 3 years.

Operating lease cost consists of the following (in thousands):

6 unchanged sentences

$ 3,495 $ 2,427

Pulmonx Corporation

Notes to Consolidated Financial Statements

The following table summarizes a maturity analysis of our lease liabilities showing the aggregate lease payments as of December 31, 2020 (in thousands):

The following table summarizes a maturity analysis of the Company’s lease liabilities showing the aggregate lease payments as of December 31, 2021 (in thousands):

Total minimum lease payments

3 unchanged sentences

Long-term lease liabilities

The following table summarizes balance sheet and other information related to our operating leases as (in thousands, except weighted average data):

Pulmonx Corporation

Notes to Consolidated Financial Statements

The following table summarizes additional information related to the Company’s operating leases (in thousands, except weighted average data):

Right of use asset

2 unchanged sentences

Weighted average discount rate (percent) 6.0 6.1

The following table summarizes other supplemental information related to our operating leases (in thousands):

The following table summarizes other supplemental information related to the Company’s operating leases (in thousands):

Years Ended December 31,

8 unchanged sentences

Accrual estimates are recorded when and if it is determinable that such a liability for litigation and contingencies are both probable and reasonably estimable.

In December 2018, a former distributor outside the United States filed suit alleging the Company’s subsidiary, PulmonX International Sàrl, conducted unfair competitive practices and violated the exclusive distribution rights as a result of the subsidiary’s termination of its distribution agreement.

The complaint seeks pecuniary and non-pecuniary damages.

The Company is in the initial stages of evaluating this matter and does not believe the impact of any such matter will be material to the Company’s results of operation or financial position.

Pulmonx Corporation

2 unchanged sentences

Years Ended December 31,

2020 2019 2018

Domestic $ ( 49,176 ) $ ( 28,029 )

3 unchanged sentences

Years Ended December 31,

2020 2019 2018

Federal $ — $ —

2 unchanged sentences

Federal ( 18 ) 6

State ( 1 ) 6

Foreign ( 5 ) 7

3 unchanged sentences

Years Ended December 31,

2020 2019 2018

Federal statutory rate 21.0 % 21.0 %

5 unchanged sentences

Change in valuation allowance ( 26.3 ) % ( 40.5 ) %

Expiration of net operating loss carryforwards and credits 0.0 % 0.0 % ( 22.5 ) %

Entity restructuring 0.0 % 11.9 %

5 unchanged sentences

Significant components of the Company’s deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):

2020 2019 2018

Deferred tax assets:

1 unchanged sentence

Tax credit carryforwards 5,579 5,240

Accruals and Reserves 1,638 939

Intangible Assets 4,952 5,287

Other 1,057 449

11 unchanged sentences

net deferred tax assets have been fully offset by a valuation allowance of $ 56.6 million as of December 31, 2021.

The valuation allowance increased by $ 13.0 million and $ 4.2 million and decreased by $ 2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, the Company had total net operating loss carryforwards for federal income tax purposes of approximately $ 122.5 million.

If not utilized, these net federal operating loss carryforwards will begin to expire at the end of the year.

For tax years in January 1, 2018 onwards, any federal net operating losses generated will be allowable for carry forward indefinitely, as opposed to the original expiration of 20 years.

As of December 31, 2020, the Company had $ 50.5 million of federal net operating losses that can be carryforward indefinitely.

The valuation allowance increased by $ 14.6 million and $ 13.0 million for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the Company had total net operating loss carryforwards for federal income tax purposes of approximately $ 181.5 million, of which $ 71.9 million was generated before 2018.

If not utilized, these pre-2018 net federal operating loss carryforwards will begin to expire at the end of the year.

The Company also had a state net operating loss carryforward of approximately $ 325.5 million which will expire beginning in the year 2022.

For tax years in January 1, 2018 onwards, any federal net operating losses generated will be allowable for carry forward indefinitely, as opposed to the original expiration of 20 years.

As of December 31, 2021, the Company had $ 109.7 million of post-2017 federal net operating losses that can be carryforward indefinitely.

The Company also had federal and state research and development (“R&D”) tax credit carryforwards of approximately $ 3.0 million and $ 4.5 million, respectively.

6 unchanged sentences

No additional NOLs or credits will expire unused due to the 2020 annual limitation.

Annually, the Company determines whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities in considering whether any tax benefit can be recorded in the consolidated financial statements.

As of December 31, 2020, the Company had unrecognized tax benefits of approximately $ 8.2 million, none of which will affect the tax rate if recognized.

It is unlikely that the amount of liability for unrecognized tax benefits will significantly change over the next 12 months.

Management determined that there was no ownership change in 2021.

Pulmonx Corporation

Notes to Consolidated Financial Statements

consolidated financial statements.

As of December 31, 2021, the Company had unrecognized tax benefits of approximately $ 8.5 million, none of which will affect the tax rate if recognized.

It is unlikely that the amount of liability for unrecognized tax benefits will significantly change over the next 12 months.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in thousands):

Balance at December 31, 2017 $ 1,070

Balance at January 1, 2020 $ 989

Additions for tax positions related to current year

Reductions for tax positions related to prior year ( 185 )

Balance at December 31, 2020 $ 8,248

Additions for tax positions related to current year

Additions for tax positions related to prior year 173

Balance at December 31, 2019 $ 989

Additions for tax positions related to current year 68

Additions for tax positions related to prior year —

Balance at December 31, 2021 $ 8,489

It is the Company’s policy to include penalties and interest expense related to income taxes as part of the provision for income taxes.

The Company’s major tax jurisdictions are the United States and California, Switzerland and Neuchâtel, and Grand Cayman.

The Company’s major tax jurisdictions are the United States and California, Switzerland and Neuchâtel.

All of the Company’s tax years will remain open for examination by the federal and state tax authorities for three and four years, respectively, from the date of utilization of the net operating loss or R&D Credits.

The Company does not have any tax audits or other issues pending.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted and signed into law.

The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods and technical corrections to tax depreciation methods for qualified improvement property.

There were no impacts in the current year as a result of the CARES Act.

The Company will continue to examine the elements of the CARES Act for any impact they may have on the Company’s future business

Warrants for Convertible Preferred Stock

A summary of the outstanding convertible preferred stock warrants is as follows (in thousands, except per share and share amounts):

December 31, 2019

Exercise Price

Value of Liability

Expiration Date

Series C-1 convertible preferred stock warrants $ 10.57 215,291 $ — February 9, 2020

Series C-1 Convertible Preferred Stock Warrants

In February 2018, warrants to purchase 7,884 shares of Series C-1 convertible preferred stock were exercised at an exercise price of $ 10.57 per share, yielding $ 0.1 million.

Pursuant to the February 2018 warrant amendment, shares issuable upon exercise of the warrants decreased from 430,588 to 215,291 .

The Company revalued the remaining warrants at December 31, 2019 and December 31, 2018, and recorded income of less than $ 0.1 million and expense of less than $ 0.1 million, respectively, in change in other income (expense), net in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2019 and 2018, respectively.

Pulmonx Corporation

Notes to Consolidated Financial Statements

In January and February 2020, warrants to purchase 213,876 shares of Series C-1 convertible preferred stock were exercised at an exercise price of $ 10.57 per share, yielding $ 2.3 million cash proceeds and warrants to purchase 1,415 shares of Series C-1 convertible preferred stock warrants expired.

Convertible Preferred Stock

Under the Company’s Amended and Restated Certificate of Incorporation, the Company is authorized to issue 0 shares of convertible preferred stock.

In April 2019, the Company issued 3,030,296 shares of Series G-1 convertible preferred stock at a price of $ 13.20 per share for cash proceeds of approximately $ 40.0 million.

Additionally, the Company issued 1,903,935 shares of Series G-1 convertible preferred stock at a price of $ 13.20 per share upon the conversion of $ 25.1 million of convertible promissory notes and accrued interest with Boston Scientific Corporation (Note 6).

Upon the closing of the IPO in October 2020, all outstanding shares of the convertible preferred stock converted into 17,797,026 shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital.

There was no issued and outstanding convertible preferred stock as of December 31, 2020.

As of December 31, 2019, convertible preferred stock consists of the following (in thousands, except per share and share amounts):

Series Number of Shares Authorized Number of Shares Issued and Outstanding Carrying Value(1)

Liquidation Preference per Share

Liquidation Value

Series A-1 8,486,224 848,595 $ 8,135 $ 9.59 $ 8,138

Series B-1 24,224,676 2,422,444 23,130 10.57 25,605

Series C-1 39,422,980 3,726,974 37,306 10.57 39,395

Series D-1 9,400,000 939,979 10,268 11.00 10,340

Series E-1 9,230,768 923,049 11,896 13.00 12,000

Series F-1 37,878,787 3,787,878 49,800 13.20 50,000

Series G-1 49,342,376 4,934,231 64,804 13.20 65,132

Total 177,985,811 17,583,150 $ 205,339 $ 210,610

_______________

(1) Carrying values above are net of issuance costs.

The holders of Series A-1, Series B-1, Series C-1, Series D-1, Series E-1, Series F-1 and Series G-1 convertible preferred stock are entitled to receive dividends, out of any assets legally available, prior and in preference to any declaration or payment of any dividend on the common stock of the Company, at a rate of $ 0.7672 , $ 0.8456 , $ 0.8456 , $ 0.88 , $ 1.04 , $ 1.056 and $ 1.056 respectively, per share per year (as adjusted for stock splits, stock dividends, reclassifications and similar events) payable quarterly when, and as declared by the Board of Directors and are not cumulative.

After payment of such dividends, any additional dividends shall be distributed the holders of Series A-1, Series B-1, Series C-1, Series D-1, Series E-1, Series F-1 and Series G-1 convertible preferred stock and common stock on a pro rata basis.

No dividends have been declared to date.

In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of Series G-1 convertible preferred stock shall be entitled to receive, prior and in preference to any distribution of the assets of the Corporation or any such consideration to the holders of Series A-1, Series B-1, Series C-1, Series D-1, Series E-1 and Series F-1 convertible preferred stock or the holders of common stock, an amount

Pulmonx Corporation

Notes to Consolidated Financial Statements

equal to $ 13.20 per share (as adjusted for stock splits, stock dividends, reclassification and similar events) plus any declared but unpaid dividends.

If upon the occurrence of such event, the assets and funds available are insufficient to permit the payment to the Series G-1 convertible preferred stockholders of the full preferential amounts, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of Series G-1 convertible preferred stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

After the payment in full of the Series G-1 liquidation preference, the holders of Series F-1 convertible preferred stock shall be entitled to receive, prior and in preference to any distribution of the assets of the Corporation or any such consideration to the holders of Series A-1, Series B-1, Series C-1, Series D-1 and Series E-1 convertible preferred stock or the holders of common stock, an amount equal to $ 13.20 per share (as adjusted for stock splits, stock dividends, reclassification and similar events) plus any declared but unpaid dividends.

If upon the occurrence of such event, the assets and funds available are insufficient to permit the payment to the Series F-1 convertible preferred stockholders of the full preferential amounts, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of Series F-1 convertible preferred stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

After the payment in full of the Series F-1 liquidation preference, the holders of the Series E-1 convertible preferred stock shall be entitled to receive, prior and in preference to any distribution of the assets of the Corporation or any such consideration to the holders of Series A-1, Series B-1, Series C-1, and Series D-1 convertible preferred stock or the holders of common stock, an amount equal to $ 13.00 per share (as adjusted for stock splits, stock dividends, reclassification and similar events) plus any declared but unpaid dividends.

If upon the occurrence of such event, after payment in full of the Series F-1 liquidation preference, the assets and funds available are insufficient to permit the payment to the Series E-1 convertible preferred stockholders of the full preferential amounts, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of Series E-1 convertible preferred stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

After the payment in full of the Series F-1 liquidation preference and the Series E-1 liquidation preference, the holders of Series A-1, Series B-1, Series C-1 and Series D-1 convertible preferred stock are entitled to receive, prior and in preference to any distribution of the assets of the Corporation or any such consideration to the holders of common stock, an amount equal to $ 9.59 , $ 10.57 , $ 10.57 and $ 11.00 per share (as adjusted for stock splits, stock dividends, reclassification and similar events) plus any declared but unpaid dividends.

If upon the occurrence of such liquidation, the assets and funds of the Company legally available for distribution are insufficient to permit payment to such holders, then the entire remaining assets and funds shall be distributed ratably among such holders in proportion to the preferential amounts each such holder is otherwise entitled to receive.

In the event of a Liquidation Transaction involving one or more third parties other than the purchaser of Series F-1 convertible preferred stock and after the payment in full of the liquidation preference required to be paid, the holders of the Series F-1 convertible preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company or any such consideration to the holders of common stock an amount equal to the Additional Preference (as defined below) for each share of Series F-1 preferred stock then held by them.

Upon the closing of a Liquidation Transaction, if the amounts earned or payable to the stockholders of the Corporation on or before the one ( 1 ) year anniversary of the closing of such Liquidation Transaction is (i) equal to or greater than $ 250.0 million but less than $ 300.0 million, the Additional Preference is equal to $ 3.30 per share (as adjusted for stock splits, stock dividends, reclassifications and the like) for each share of Series F-1 convertible preferred stock then held by them, (ii) equal to or greater than $ 300.0 million but less than $ 350.0 million, the Additional Preference is equal to $ 5.00 per share (as adjusted for stock splits, stock dividends, reclassifications and the like) for each share of Series F-1 preferred stock then held by them, and (iii) equal to or greater than $ 350.0 million, the Additional Preference is equal to $ 6.60 per share (as adjusted for stock splits, stock dividends, reclassifications and the like) for each share of Series F-1 convertible preferred stock then held by them.

After liquidation preferences to the convertible preferred stockholders have been paid, and after the Additional Preference has been paid, if any, the remaining assets of the Company shall be distributed to the holders of common stock, Series A-1, Series B-1, Series C-1, Series D-1, Series E-1, Series F-1 and Series G-1 convertible preferred stock as if the convertible preferred shares were converted into common stock at then-applicable conversion price until the Series A-1, Series B-1, Series C-1, Series D-1, Series E-1, Series F-1 and Series G-1 convertible preferred stock have received an aggregate amount (including the initial preference amount) equal to $ 28.77 , $ 31.71 , $ 31.71 , $ 33.00 , $ 39.00 , $ 39.60 and $ 39.60 per share (as adjusted for stock splits, stock dividends, reclassifications and

Pulmonx Corporation

Notes to Consolidated Financial Statements

similar events) plus any declared and unpaid dividends.

The holders of common stock are entitled to receive ratably on a per-share basis all remaining assets.

A liquidation, dissolution or winding up of the Company shall be deemed to be occasioned by, or include, (A) the sale, lease, license on an exclusive basis, conveyance or disposition (whether by merger or otherwise) by the Company of all or substantially all of the assets of the Company, or the sale or disposition of one or more subsidiaries of the Company if substantially all of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, or (B) the merger of the Company with or into any other corporation, limited liability company or other entity (other than a wholly-owned subsidiary of the Company);

provided that none of the following shall be considered a Liquidation Transaction:

(i) a merger effected exclusively for the purpose of changing the domicile of the Company, (ii) an equity financing effected for bona fide capital raising purposes in which the Company is the surviving entity or (iii) any transaction in which the stockholders of the Company immediately prior to the transaction own greater than 50 % of the voting power of the Company or such other surviving or resulting entity (or if the Company or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent).

The holders of convertible preferred stock shall have the same voting rights as the holders of common stock.

The holders of common stock and the convertible preferred stock shall vote together as a single class on all matters.

Each holder of common stock shall be entitled to one vote for each share of common stock held, and each holder of convertible preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock could be converted.

As of December 31, 2020, the Board of Directors was comprised of seven members.

For so long as there are outstanding at least 50,000 shares of Series A-1 convertible preferred stock (as adjusted for stock splits, reclassifications or similar events), the holders of Series A-1 convertible preferred stock, voting as a separate class, shall be entitled to elect one member of the Company’s Board of Directors.

For so long as there are outstanding at least 50,000 shares of Series B-1 convertible preferred stock (as adjusted for stock splits, reclassifications or similar events), the holders of Series B-1 convertible preferred stock, voting as a separate class, shall also be entitled to elect two members of the Company’s Board of Directors.

For so long as there are outstanding at least 50,000 shares of Series C-1 convertible preferred stock (as adjusted for stock splits, reclassifications or other similar transactions), the holders of Series C-1 convertible preferred stock, voting as a separate class, shall be entitled to elect two members of the Company’s Board of Directors.

For so long as there are outstanding at least 50,000 shares of Series G-1 convertible preferred stock (as adjusted for stock splits, reclassifications or other similar transactions), the holders of Series G-1 convertible preferred stock, voting as a separate class, shall be entitled to elect one member of the Company’s Board of Directors.

The holders of common stock and convertible preferred stock, voting together as a single class on an as-if-converted basis, shall be entitled to elect all remaining members of the Board of Directors.

Each share of convertible preferred stock shall be convertible, at the option of the holder at any time after the date of issuance into the number of fully paid and non-assessable shares of common stock as determined by dividing the original issue price per share of each series of convertible preferred stock by the conversion price per share in effect for the shares of each series of convertible preferred stock at the time of conversion.

The original conversion price per share of Series A-1, Series B-1, Series C-1, Series D-1, Series E-1, Series F-1 and Series G-1 convertible preferred stock shall be the original issue price, subject to adjustment, as described in the Company’s Amended and Restated Certificate of Incorporation.

Each share of convertible preferred stock shall automatically be converted into shares of common stock at the conversion rate at the time in effect for such share immediately upon the earlier of (i) the Company’s sale of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933 (“IPO”) which results in aggregate cash proceeds to the Company of not less than $ 30.0 million (net of underwriting discounts and commissions) (“Qualified IPO”) or (ii) the date specified by the vote or

Pulmonx Corporation

Notes to Consolidated Financial Statements

written consent of the holders of at least a majority of the then outstanding shares of convertible preferred stock, voting together as a single class.

However, if the offering price to the public in a Qualified IPO (“Public Offering Price”) is less than 1.15 times of the conversion price of the Series G-1 convertible preferred stock in effect immediately prior to the Qualified IPO, then the conversion price for the Series G-1 convertible preferred stock shall be adjusted such that, upon the closing of the Qualified IPO, each share of Series G-1 convertible preferred stock will convert into that number of shares of common stock equal to the sum of (a) the number of shares of common stock issuable upon conversion of such share of Series G-1 convertible preferred stock immediately prior to the Qualified IPO (the “Pre-IPO Shares”) and (b) an additional number of shares of common stock determined by multiplying the Pre-IPO Shares by the quotient of (x) the difference between 1.15 times the conversion price of the Series G-1 convertible preferred stock immediately prior to the Qualified IPO and the Public Offering Price, divided by (y) the Public Offering Price.

Stockholders’ Equity (Deficit)

Stockholders’ Equity

As of December 31, 2021 and December 31, 2020, the Company’s certificate of incorporation authorized the Company to issue up to 200,000,000 and 200,000,000 shares of common stock, respectively.

2 unchanged sentences

The holder of each share of common stock is entitled to one vote.

The Company constructively retired 414 shares of common stock during the year that were abandoned.

Shares Reserved for Future Issuance

The Company has reserved shares of common stock for future issuances as follows:

Series A-1 convertible preferred stock outstanding

Series B-1 convertible preferred stock outstanding

Series C-1 convertible preferred stock outstanding

Series D-1 convertible preferred stock outstanding

Series E-1 convertible preferred stock outstanding

Series F-1 convertible preferred stock outstanding

Series G-1 convertible preferred stock outstanding

Warrants to purchase Series C-1 convertible preferred stock

Common stock options issued and outstanding

2,145,131 2,923,403

Common stock restricted stock units issued and outstanding

Common stock available for future grants

3 unchanged sentences

Stock Option Plan

As of December 31, 2020, the Company reserved 9,842,151 shares of its common stock under its 2000 Stock Plan (the “2000 Stock Plan”), the 2010 Stock Plan (the “2010 Stock Plan”), the 2020 Stock Plan (the “2020 Stock Plan”), and the 2020 Equity Incentive Plan (the “2020 Equity Incentive Plan” and, together with the 2000 Stock Plan, the 2010 Stock Plan and the 2020 Stock Plan, the “Stock Plans”).

Options granted under the Stock Plans may be either incentive stock options or nonqualified stock options.

Incentive stock options (“ISO”) may be granted only to the

As of December 31, 2021, the Company reserved 11,269,901 shares of its common stock under its 2000 Stock Plan (the “2000 Stock Plan”), the 2010 Stock Plan (the “2010 Stock Plan”), the 2020 Stock Plan (the “2020 Stock Plan”), and the 2020 Equity Incentive Plan (the “2020 Equity Incentive Plan” and, together with the 2000 Stock Plan, the

Pulmonx Corporation

Notes to Consolidated Financial Statements

Company employees (including officers and directors).

2010 Stock Plan and the 2020 Stock Plan, the “Stock Plans”).

Options granted under the Stock Plans may be either incentive stock options or nonqualified stock options.

Incentive stock options (“ISO”) may be granted only to the Company employees (including officers and directors).

Nonqualified stock options (“NSO”) may be granted to the Company employees and consultants.

6 unchanged sentences

Outstanding Options

Shares Available for Grant Number of Shares Weighted Average Exercise Price

Balance, January 1, 2018 125,199 2,419,948 $ 1.52

Additional shares reserved 502,179 — $ —

Options granted ( 255,900 ) 255,900 $ 1.37

Options exercised — ( 18,153 ) $ 1.68

Options canceled (1)

11,201 ( 31,201 ) $ 1.53

Number of Shares Weighted Average Exercise Price

Balance, December 31, 2019 3,279,324 $ 1.66

Additional shares reserved

Options granted

5 unchanged sentences

Balance, December 31, 2020 2,923,403 $ 4.72

Additional shares reserved

4,553,378 — —

Options granted

5 unchanged sentences

Balance, December 31, 2021 2,145,131 $ 13.44

______________

(1) Canceled stock options issued under the Company’s 2000 Stock Plan were canceled after the 2010 Stock Plan was approved and are not included in the shares available for grant as they were not returned to the stock option pool.

The aggregate intrinsic value of options exercised during the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 2.0 million, $ 0.2 million and less than $ 0.1 million, respectively.

The aggregate intrinsic value of options exercised during the years ended December 31, 2021, December 31, 2020 was $ 43.8 million, $ 2.0 million, respectively.

The weighted average exercise price and aggregate intrinsic value of options outstanding at December 31, 2021 was $ 13.44 per share and $ 45.3 million, respectively.

The weighted average exercise price and aggregate intrinsic value of options outstanding at December 31, 2020 was $ 4.72 per share and $ 188.0 million, respectively.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair

Pulmonx Corporation

Notes to Consolidated Financial Statements

value of the Company’s common stock for stock options that were in-the-money as of December 31, 2020 and December 31, 2019.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock for stock options that were in-the-money as of December 31, 2021 and December 31, 2020.

December 31, 2021

5 unchanged sentences

Total intrinsic value of options vested as of December 31, 2021 and December 31, 2020 was $ 18.9 million and $ 81.7 million, respectively.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Early Exercise of Stock Options

Under the terms of the individual option grants, all options are fully exercisable on the grant date, subject to the Company’s repurchase right at the original exercise price.

Under the terms of the individual option grants, options granted from the 2000 Stock Plan, the 2010 Stock Plan and the 2020 Stock Plan are fully exercisable on the grant date, subject to the Company’s repurchase right at the original exercise price.

Accordingly, options may be exercised prior to vesting.

3 unchanged sentences

As of December 31, 2021 and December 31, 2020, 223,195 and 355,677 shares were subject to repurchase, with an aggregate exercise price of $ 0.4 million and $ 0.6 million, respectively, and were recorded in other current liabilities.

Restricted Stock Units

Activity with respect to restricted stock units was as follows:

Number of Shares Underlying Outstanding Restricted Stock Weighted Average Grant Date Fair Value

Unvested, January 1, 2021 — $ —

Granted 503,110 42.49

( 40,908 ) 43.40

( 19,774 ) 43.60

Unvested, December 31, 2021 442,428 $ 42.36

The aggregate intrinsic value of restricted stock units outstanding as of December 31, 2021 was $ 14.2 million.

Stock-Based Compensation for Employees and Non-Employees

During the years ended December 31, 2020, December 31, 2019 and December 31, 2018, the Company granted stock options to employees and non-employees to purchase 1,466,071 , 1,078,957 and 255,900 shares of common stock, respectively.

The weighted average grant-date fair value of the stock options granted during the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 3.78 , $ 1.79 and $ 0.70 per share, respectively.

The weighted average grant-date fair value of the stock options granted during the years ended December 31, 2021, December 31, 2020 was $ 18.81 and $ 3.78 per share, respectively.

The Company uses the Black-Scholes Merton option-pricing model to determine the fair value of stock options.

3 unchanged sentences

Years Ended December 31,

2020 2019 2018

Weighted average expected term (in years) 5.0 - 6.3

6 unchanged sentences

The expected term is calculated using the simplified method, which is available where there is insufficient historical data about exercise patterns and post-vesting employment termination behavior.

The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting.

The mid-point between the vesting date and the maximum contractual expiration date is used as the

The simplified method is based on

Pulmonx Corporation

Notes to Consolidated Financial Statements

expected term under this method.

the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting.

The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method.

For awards with multiple vesting-tranches, the periods from grant until the mid-point for each of the tranches are averaged to provide an overall expected term.

The expected stock price volatility assumptions for the Company’s stock options for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was determined by examining the historical volatilities for industry peers, referred to as “guideline” companies, as the Company did not have any trading history for the Company’s common stock.

The expected stock price volatility assumptions for the Company’s stock options for the years ended December 31, 2021 and December 31, 2020 was determined by examining the historical volatilities for industry peers, referred to as “guideline” companies, as the Company did not have any trading history for the Company’s common stock.

In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size.

9 unchanged sentences

2020 Employee Share Purchase Plan

In September 2020, the Company adopted the 2020 Employee Share Purchase Plan (“ESPP”), which became effective on the business day prior to the effectiveness of the registration statement relating to the IPO.

In September 2020, the Company adopted the ESPP, which became effective on the business day prior to the effectiveness of the registration statement relating to the IPO.

A total of 720,000 shares of common stock were initially reserved for issuance under the ESPP.

2 unchanged sentences

In addition, no employee may purchase more than $25,000 worth of stock, determined by the fair market value of the shares at the time such option is granted, in one calendar year.

The ESPP provides for an offering period from September 30, 2020 until May 24, 2021 with the purchase date of last date of offering period.

At the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period.

The Company issued no shares under the ESPP for the year ended December 31, 2020.

Shares authorized for future purchase under the ESPP were 720,000 at December 31, 2020.

The first offering period started on September 30, 2020 and ended on May 24, 2021, and the second offering period started on June 1, 2021 and ended on August 15, 2021.

Beginning August 16, 2021, the ESPP provides for six-month offering periods, with the purchase date being the last date of the offering period.

The Company issued 144,479 shares under the ESPP for the year ended December 31, 2021.

As of December 31, 2021, there are 932,458 shares authorized for future purchase under the ESPP.

In January 2022, the number of shares of common stock available for issuance under the ESPP was increased by 369,317 shares as a result of the automatic increase provision in the ESPP.

Compensation expense is calculated using the fair value of the employees' purchase rights under the Black-Scholes model.

Pulmonx Corporation

Notes to Consolidated Financial Statements

December 31, 2020

Compensation expense is calculated using the fair value of the employees' purchase rights under the Black-Scholes model.

Year Ended Year Ended

December 31, 2021 December 31, 2020

Weighted average expected term (in years) 0.5 0.6

Volatility 36.1 % - 42 %

67.7 % - 68.2 %

Risk-free interest rate 0.1 % 0.1 %

3 unchanged sentences

Years Ended December 31,

2020 2019 2018

Cost of goods sold $ 587

4 unchanged sentences

Years Ended December 31,

2020 2019 2018

Stock options $ 2,055 $ 364 $ 366

Stock options and restricted stock units $ 7,959 $ 2,055

ESPP 2,571 1,142

Total $ 10,530 $ 3,197

Stock-based compensation of $ 0.3 million, $ 0 and $ 0 was capitalized into inventory for the years ended December 31, 2020, 2019, and 2018, respectively.

Stock-based compensation of $ 1.0 million and $ 0.3 million was capitalized into inventory for the years ended December 31, 2021 and 2020, respectively.

Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.

As of December 31, 2020, there was $ 14.8 million of unrecognized compensation costs related to non-vested common stock options, expected to be recognized over a weighted-average period of 2.28 years, respectively.

The total grant date fair value of shares vested during the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was $ 1.9 million, $ 0.3 million and $ 0.4 million, respectively.

As of December 31, 2021, there was $ 33.7 million of unrecognized compensation costs related to non-vested common stock options and restricted stock units, expected to be recognized over a weighted-average period of 3.15 years, respectively.

The total grant date fair value of shares vested during the years ended December 31, 2021 and December 31, 2020 was $ 8.3 million and $ 1.9 million, respectively.

As of December 31, 2021, the Company had unrecognized employee stock-based compensation relating to ESPP awards of approximately $ 0.1 million, which is expected to be recognized over a weighted-average period of 0.1 years.

4 unchanged sentences

Years Ended December 31,

2020 2019 2018

Net loss attributable to common stockholders $ ( 48,661 ) $ ( 32,231 )

6 unchanged sentences

Years Ended December 31,

2020 2019 2018

Convertible preferred stock — 17,583,150 12,648,919

Convertible preferred stock warrants — 215,291 215,291

Options to purchase common stock 2,145,131 2,923,403

Unvested restricted stock units 442,428 —

Unvested early exercised common stock options 223,195 355,677

Shares committed under ESPP 27,327 47,174

Conversion of convertible notes* — — —

______________

* At December 31, 2018, the conversion of the convertible notes into convertible preferred stock was dependent on the outstanding loan balance including accrued interest and the conversion stock per share price at the date of Qualified Equity Financing, Change of Control, Liquidation, or Prepayment Conversion (see Note 6).

These factors were not estimable and the number of convertible preferred stock was not determinable.

These convertible notes converted to Series G-1 convertible preferred in April 2019 (Note 10) .

Segment Information

4 unchanged sentences

The Company’s Chief Executive Officer evaluates performance based primarily on revenue in the geographic locations in which the Company operates.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Revenue by geographic area is based on the billing address of the customer.

1 unchanged sentence

Year Ended December 31,

2020 2019 2018

United States $ 24,991 $ 16,189

Europe, Middle-East and Africa 13,808 18,364 16,175

Europe, Middle-East and Africa (“EMEA”) 19,883 13,808

Asia Pacific 3,414 2,687

1 unchanged sentence

Total $ 48,416 $ 32,733

Pulmonx Corporation

Notes to Consolidated Financial Statements

Revenue from Germany represented 12 %, and 17 % of total revenue for the years ended December 31, 2021 and 2020, respectively.

10 unchanged sentences

Related Parties

Since October 2013, the Company has received services from the chairman of a subsidiary of the Company.

From 2013 to 2020, the Company received services from the chairman of a subsidiary of the Company.

During 2014, this person served as Interim CEO and was appointed to the Board of Directors of the Company.

Amounts paid related to consulting services for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 was less than $ 0.1 million, $ 0.1 million and $ 0.1 million, respectively.

See Note 6 for details regarding the Company’s Second Lien Loan and Security Agreement with Boston Scientific Corporation.

Selected Quarterly Financial Data (unaudited)

The following table provides the selected quarterly financial information for the years 2020 and 2019 (in thousands, except per share data):

Pulmonx Corporation

Notes to Consolidated Financial Statements

Three months ended

March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020

Revenue $ 8,618 $ 3,673 $ 10,612 $ 9,830

Gross profit $ 5,650 $ 1,012 $ 7,462 $ 7,078

Net loss $ ( 7,163 ) $ ( 11,911 ) $ ( 3,860 ) $ ( 9,297 )

Net loss per share attributable to common

stockholders, basic and diluted $ ( 3.76 ) $ ( 6.15 ) $ ( 1.37 ) $ ( 0.27 )

Three months ended

March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019

Revenue $ 5,778 $ 7,366 $ 9,104 $ 10,347

Gross profit $ 3,717 $ 4,953 $ 6,407 $ 7,337

Net loss $ ( 6,128 ) $ ( 5,571 ) $ ( 4,335 ) $ ( 4,669 )

Net loss per share attributable to common

stockholders, basic and diluted $ ( 3.61 ) $ ( 3.24 ) $ ( 2.41 ) $ ( 2.48 )

Amounts paid related to consulting services for the years ended December 31, 2020 was less than $ 0.1 million .

Subsequent Events

Subsequent to December 31, 2021, the Company granted 701,250 restricted stock units and options to purchase 655,200 shares of common stock to employees, subject to service-based vesting conditions.

The options have a weighted-average exercise price of $ 62.34 per share.

The options have an exercise price equal to the closing price of our common stock on March 1, 2022.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data