What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-01 · 254 added, 346 removed, 762 unchanged (44% of the section changed)

6 unchanged sentences

Consolidated Statements of Operations and Comprehensive Loss

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

Consolidated Statements of Stockholders’ Equity

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, 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”).

We have audited the accompanying consolidated balance sheets of Pulmonx Corporation (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, 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, 2022 and 2021, 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

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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 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 Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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.

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(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 communication of the 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory Classification

Inventory totaled approximately $19.8 million at December 31, 2022, including approximately $5.3 million classified as long-term.

As described in Note 2 to the Company’s financial statements, the value of inventories not expected to be realized in cash, sold or consumed during the next 12 months are classified as long-term inventory.

Management considers forecasted demand and other expected usage of inventory on hand when estimating long-term inventory.

We identified management’s estimation of long-term inventory as a critical audit matter.

Management is required to make significant judgments and assumptions with respect to future demand for the Company’s products that affect the estimation of long-term inventory.

Auditing these elements involved especially challenging and subjective auditor judgment due to the significance and subjectivity of management’s judgments.

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.

• Assessing the reasonableness of management’s forecasted demand for products, by (i) comparing forecasts to historical sales of the Company’s products, (ii) performing a lookback analysis to compare the Company’s historical estimates of future demand to actual sales results for the same period, (iii) evaluating whether such assumptions were consistent with evidence obtained in other areas of the audit, and (iv) assessing whether any known or knowable factors occurred subsequent to year end that impact management’s forecast of future inventory usage.

/s/ BDO USA, LLP

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Long-term marketable securities 5,924 10,941

Long-term inventory 5,283 —

Property and equipment, net 4,694 4,814

10 unchanged sentences

Deferred revenue 120 163

Credit Agreement, current 91 —

Short-term debt 90 91

Current lease liabilities 3,229 2,201

2 unchanged sentences

Long-term lease liabilities 3,849 6,844

Credit agreement 455 564

Term loan 16,869 16,804

Long-term debt 17,234 17,324

Other long-term liabilities — 179

30 unchanged sentences

Net loss ( 58,923 ) ( 48,661 )

Other comprehensive income

Other comprehensive income (loss)

Currency translation adjustment 150 51

Change in unrealized (losses) gains on marketable securities ( 24 ) ( 6 )

Total other comprehensive income 27 312

Change in unrealized losses on marketable securities ( 287 ) ( 24 )

Total other comprehensive income (loss) ( 137 ) 27

Comprehensive loss $ ( 59,060 ) $ ( 48,634 )

4 unchanged sentences

Pulmonx Corporation

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

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

Preferred Stock Common Stock Additional

Common Stock Additional

Capital Accumulated

3 unchanged sentences

Stockholders’

Equity (Deficit)

Shares Amount Shares Amount

Shares Amount

Balances at January 1, 2021 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

3 unchanged sentences

Balances at December 31, 2021 36,931,762 37 482,885 1,712 ( 291,395 ) 193,239

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

Issuance of common stock upon vesting of restricted stock units 251,133 — — — — —

Issuance of common stock upon exercise of stock options 297,463 1 634 — — 635

Issuance of shares pursuant to Employee Stock Purchase Plan 89,666 — 1,942 — — 1,942

Repurchase of early exercised common stock options ( 14,459 ) — — — — —

Change in shares subject to repurchase — — 227 — — 227

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

Stock-based compensation expense — — 17,024 — — 17,024

12 unchanged sentences

Stock-based compensation expense 16,445 10,530

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

Write-off of fixed assets 7 7

3 unchanged sentences

Amortization of debt discount and debt issuance costs 56 106

Write-off of deferred offering costs — 3,030

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

Amortization of premiums and discounts on marketable securities ( 204 ) 59

Non-cash lease expense 2,498 2,360

15 unchanged sentences

Purchases of property and equipment ( 1,318 ) ( 3,671 )

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

Net cash used in investing activities ( 4,225 ) ( 46,255 )

Cash flows from financing activities

Proceeds from borrowing under term loans, net of payment of lender fees and costs — 17,291

Repayment of term loans — ( 17,248 )

Payment of Success Fee — ( 1,875 )

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)

Proceeds from Paycheck Protection Program loan — 2,666

Repayment of Paycheck Protection Program loan — ( 2,666 )

Repayment of Credit Agreement ( 87 ) —

Debt issuance cost ( 53 ) ( 41 )

Payments of deferred offering costs — ( 2,462 )

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

Proceeds from exercise of common stock options 644 1,871

Proceeds from issuance of common stock under the employee stock purchase plan 1,942 2,652

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

Payments for the repurchase of early exercised common stock options ( 27 ) ( 26 )

1 unchanged sentence

Effect of exchange rate changes on cash and cash equivalents 145 106

Net (decrease) increase in cash and cash equivalents ( 83,081 ) 217,025

Net decrease in cash and cash equivalents ( 46,744 ) ( 83,081 )

Cash and cash equivalents at beginning of year 148,711 231,792

5 unchanged sentences

Supplemental non-cash items:

Lapse (increase) in repurchase rights of common stock $ 204 $ ( 346 )

Lapse in repurchase rights of common stock $ 227 $ 204

Purchases of property and equipment in accounts payable and accrued liabilities $ 425 $ 584

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

Operating lease right of use assets obtained in exchange for new lease liabilities $ 229 $ 1,460

10 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 Germany, Switzerland, Australia, the United Kingdom, the Netherlands, Italy, France and Hong Kong.

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

Initial Public Offering

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The Company received an aggregate of $ 218.5 million gross proceeds, before underwriting discounts, commissions and offering costs, and approximately $ 201.4 million in net proceeds after deducting underwriting discounts and commissions and offering costs.

In addition, upon closing the IPO, all outstanding shares of the Company’s convertible preferred stock converted into 17,797,026 shares of common stock.

Additionally, 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.

In connection with the completion of its IPO, on October 5, 2020, the Company’s certificate of incorporation was amended and restated to provide for 200,000,000 authorized shares of common stock with a par value of $ 0.001 per share and 10,000,000 authorized shares of preferred stock with a par value of $ 0.001 per share.

3 unchanged sentences

As of December 31, 2022, the Company had cash, cash equivalents and marketable securities of $ 147.1 million.

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

Historically, the Company’s activities have been financed through the sale of equity securities, debt financing arrangements and sales of its products.

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.

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Impact of the COVID-19 Pandemic

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

The COVID-19 pandemic has delayed clinical trials and the U.S.

Food and Drug Administration operations and adversely impacted the number of procedures performed using our products.

As a result, the COVID-19 pandemic and the measures taken by many countries in response have materially adversely affected, and could in the future materially adversely affect, our business, financial condition and results of operations, as well as the price of our common stock, from a decrease and delay of procedures involving our products.

While the Company has seen a recovery in procedure volumes in the U.S.

and some international markets, other international markets continue to be hampered by a slower recovery.

The Company may continue to see regional variations in procedure volumes in the U.S.

and international markets due to the COVID-19 pandemic and its variants.

Pulmonx Corporation

Notes to Consolidated Financial Statements

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 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.

While procedure volumes in many regions have stabilized, 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.

1 unchanged sentence

Basis of Presentation

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

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

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

On September 22, 2020, the Company effected a 1-for-10 reverse stock split of the Company’s common stock and convertible preferred stock.

The par value and authorized shares of common stock were not adjusted as a result of the reverse stock split.

All issued and outstanding common stock, convertible preferred stock, stock options and per share amounts contained in the accompanying financial statements and notes to the financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented.

Principles of Consolidation

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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-

Pulmonx Corporation

Notes to Consolidated Financial Statements

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

Significant estimates and assumptions include reserves and write-downs related to inventories, classification of short-term and long-term inventories, the recoverability of long term assets, stock-based compensation, 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 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).

The fair value of marketable debt securities is estimated using Level 1 and Level 2 inputs (Note 4).

Cash and Cash Equivalents

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Restricted cash for years ended December 31, 2022 and December 31, 2021 consists of collateral for letters of credit issued in connection with the real estate lease in Redwood City, California.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Marketable Securities

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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.

Unrealized gains and losses on available for sale debt securities, if any, are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss).

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the statements of operations and comprehensive loss.

Unrealized gains and losses on available for sale marketable securities, which consist of debt securities, if any, are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss).

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the consolidated statements of operations and comprehensive loss.

Realized gains and losses, if any, on available-for-sale securities are included in other income (expense), net.

1 unchanged sentence

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

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.

The Company did not identify any of its marketable securities as other-than-temporarily impaired as of December 31, 2022 and 2021.

Concentration of Credit Risk

2 unchanged sentences

As of December 31, 2022 and 2021, the Company also had cash on deposit with foreign banks of approximately $ 4.5 million and $ 4.6 million, respectively, that was not federally insured.

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, 2021,

Pulmonx Corporation

Notes to Consolidated Financial Statements

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

The Company performs ongoing credit evaluations of its customers’ and distributors’ financial condition and generally requires no collateral from its customers and distributors.

At December 31, 2021 and 2020, no customer or distributor accounted for more than 10% of accounts receivable.

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 components, sub-assemblies and materials for its products.

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

Sales of Zephyr Valves and delivery catheters accounted for most of the Company’s revenue for the years ended December 31, 2022 and 2021.

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

The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from its customers.

At December 31, 2022 and 2021, no customer accounted for more than 10% of accounts receivable.

For the years ended December 31, 2022 and 2021, no customer accounted for more than 10% of revenue.

The Company relies on single source suppliers for the 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.

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting and other fees and costs relating to the Company’s IPO, are capitalized and recorded on the balance sheet.

As of December 31, 2019, $ 1.6 million of deferred offering costs were recorded on the consolidated balance sheet.

During the year ended December 31, 2020, the Company wrote off deferred offering costs of $ 3.0 million as, in May 2020, the Company withdrew its registration statement that was filed with the SEC in February 2020.

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.There were no deferred offering costs capitalized as of December 31, 2021 and December 31, 2020.

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

Accounts Receivable and Allowances

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The Company continually monitors customer payments and maintains an allowance for estimated losses resulting from a customer’s inability to make required payments.

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, 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.

The 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, 2022 and December 31, 2021, accounts receivable is presented net of an allowance for doubtful accounts of $ 0.1 million and less than $ 0.1 million, respectively.

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

Cost is determined using the first-in, first-out method (“FIFO”) for all inventories.

Net realizable value is determined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

Net realizable value is determined as the

Pulmonx Corporation

Notes to Consolidated Financial Statements

estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

The Company records write-downs of inventories which are obsolete or in excess of anticipated demand or market value based on consideration of product lifecycle stage, technology trends, product development plans and assumptions about future demand and market conditions.

Inventory write-downs reduce the carrying value of inventory to its net realizable value.

The Company reviews its inventories for classification purposes.

The value of inventories not expected to be realized in cash, sold or consumed during the next 12 months are classified as long-term inventory.

Property and Equipment, Net

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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

14 unchanged sentences

Circumstances that could reasonably be expected to negatively affect the key assumptions related to the impairment assessment include but are not limited to, (1) a significant adverse change in legal factors affecting our existing and future products or in business climate, (2) unanticipated competition, (3) an adverse action or assessment by a regulator, or (4) an adverse change in market conditions that are indicative of a decline in the fair value of the assets.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Intangible Assets

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Intangible assets were recorded at their fair values at the date of acquisition and are amortized using the straight-line method over a 15-year useful life (Note 5).

The Company leases its facilities and vehicles and meets the requirements to account for these leases as operating leases.

The Company leases facilities and vehicles and meets the requirements to account for these leases as operating leases.

The Company recognizes rent expense on a straight-line basis over the non-cancelable lease term.

Where leases contain escalation clauses, rent abatements or concessions, such as rent holidays and landlord or tenant incentives or allowances, the Company applies them in the determination of straight-line rent expense over the lease term.

Upon adoption of ASC 842, Leases, on January 1, 2019, the Company determined if an arrangement is a lease, or contains a lease, at inception.

The Company determined if an arrangement is a lease, or contains a lease, at inception.

The asset component of the Company’s operating leases is recorded as right-of-use assets, and the liability component is recorded as current lease liabilities and long-term lease liabilities in the Company’s consolidated balance sheets.

1 unchanged sentence

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

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.

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.

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.

15 unchanged sentences

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

Pulmonx Corporation

Notes to Consolidated Financial Statements

A contract with a customer exists when (i) the Company enters into a legally enforceable contract with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

8 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

Pulmonx Corporation

Notes to Consolidated Financial Statements

used by the customer in procedures.

For consignment sales, control is transferred when the products are 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.

15 unchanged sentences

Research and Development

Research and development expenses consist of compensation costs, stock-based compensation, engineering and research expenses, clinical trials and related expenses, regulatory expenses, manufacturing expenses incurred to build products for testing, allocated facilities costs, consulting fees and other expenses incurred to sustain the Company’s overall research and development programs.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Company’s overall research and development programs.

All research and development costs are expensed as incurred.

7 unchanged sentences

Advertising expenses were $ 6.1 million and $ 5.1 million for the years ended December 31, 2022 and 2021, 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 Switzerland, Germany, Australia, the United Kingdom, France and Hong Kong are the Swiss franc.

The functional currency of the Company’s subsidiary in Italy is the Euro.

Accordingly, asset and liability accounts of Switzerland, Germany, Australia, the United Kingdom, Italy and Hong Kong operations are translated into U.S.

The functional currency of the Company’s subsidiaries in Italy and Japan is the Euro and Yen, respectively.

Accordingly, asset and liability accounts of Switzerland, France, Germany, Australia, the United Kingdom, Italy, Hong Kong and Japan operations are translated into U.S.

dollars using the current exchange rate in effect at the balance sheet date and equity accounts are translated into U.S.

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The Company accounts for forfeitures as they occur.

The Company issued stock options in exchange for the receipt of goods or services from non-employees.

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.

Fair Value of Common Stock

Prior to the Company’s IPO, the fair value of the Company’s common stock was determined by the board of directors with assistance from management and external appraisers.

Management’s approach to estimate the fair value of the Company’s common stock was consistent with the methods outlined in the American Institute of Certified Public Accountants’ Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (“Practice Aid”).

Management considered several factors to estimate enterprise value, including significant milestones that would generally contribute to increases in the value of the common stock.

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 issued stock options in exchange for the receipt of goods or services from non-employees.

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.

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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, 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.

The Company also considers the shares issued upon the early exercise of stock options subject to repurchase to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock.

The holders of all series of convertible preferred stock and the holders of the shares issued upon early exercise of stock options subject to repurchase do not have a contractual obligation to share in the Company’s losses.

For purposes of the diluted net loss per share calculation, stock options and common stock subject to repurchase related to early exercise of stock options 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.

The Company considers the shares issued upon the early exercise of stock options subject to repurchase to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock.

The holders of the shares issued upon early exercise of stock options subject to repurchase do not have a contractual obligation to share in the Company’s losses.

As such, the net loss was attributed entirely to common stockholders.

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The Company is required to report all components of comprehensive loss, including net loss, in the financial statements in the period in which they are recognized.

Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions and other events and circumstances from non-owner sources.

The Company’s currency translation adjustment and unrealized gains and losses from marketable securities are the components of other comprehensive loss that are excluded from the reported net loss for all periods presented.

Comprehensive gain or loss is defined as a change in equity of a business enterprise during a period, resulting from transactions and other events and circumstances from non-owner sources.

The Company’s currency translation adjustment and unrealized gains and losses from marketable securities are the components of other comprehensive income that are excluded from the reported net loss for all periods presented.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

Notes to Consolidated Financial Statements

Recent Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”).

The amendments in ASU 2020-04 provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022.

An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning an interim period that includes or is subsequent to March 12, 2020, or prospectively from the date that the financial statements are available to be issued.

Once elected for a Topic or an Industry Subtopic, the amendments must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

The Company may elect to apply ASU 2020-04 as its contracts referenced in London Interbank Offered Rate (“LIBOR”) are impacted by reference rate reform.

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

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”).

ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current GAAP.

Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features.

ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it.

ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas.

This ASU is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted 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 this principle on the Company’s consolidated financial statements.

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

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The new model requires an entity to estimate credit losses based on historical information, current information and reasonable and supportable forecasts, including estimates of prepayments.

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.

Pulmonx Corporation

Notes to Consolidated Financial Statements

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

The standard will become effective for the Company beginning January 1, 2023.

Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

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

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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.

Pulmonx Corporation

Notes to Consolidated Financial Statements

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

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.

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, 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.

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

The fair value of the term loan is estimated using Level 2 inputs.

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.

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The following tables summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

Pulmonx Corporation

Notes to Consolidated Financial Statements

December 31, 2022

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Money market funds

Commercial paper — 2,000 — 2,000

Corporate bonds — 4,410 — 4,410

$ 4,647 $ — $ — $ 4,647

Cash equivalents 4,647 — — 4,647

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Commercial paper — 14,711 — 14,711

Corporate bonds — 2,914 — 2,914

Marketable securities 14,743 30,583 — 45,326

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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

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Government agency bonds $ 30,897 $ ( 282 ) $ — $ 30,615

Commercial paper

14,740 ( 29 ) — 14,711

Marketable securities $ 45,637 $ ( 311 ) $ — $ 45,326

Amounts recognized on the consolidated balance sheet

Short-term marketable securities

Long-term marketable securities 5,924

Marketable securities $ 45,326

December 31, 2021

Amortized Cost Unrealized Losses Unrealized Gains Fair Value

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

Corporate bonds

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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.

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).

The Company valued Success Fee derivative liability based on the Success Fee amount of $ 1.9 million and the probability and estimated timing of a liquidity event.

The probability of occurrence of a Liquidity Event was estimated to be up to 65 % before the expiration of the agreement as of December 31, 2019.

Changes in the estimated probability may result in an increase or decrease in the fair value of the derivative liability.

On October 5, 2020, the Success Fee derivative liability was settled upon the Company paying $ 1.9 million pursuant to the Success Fee Agreement to Oxford Finance LLC.

The Company valued the 2020 Notes derivative liability using the “with and without” methodology.

The “with and without” methodology involves valuing the convertible note on an as is basis and then valuing the 2020 Notes without each individual embedded derivative.

The difference between the value of the 2020 Notes with the embedded derivatives and the value without each individual embedded derivative equals the fair value of that embedded derivative.

In April 2020, the Company valued the embedded derivatives using a Monte Carlo Simulation (“MCS”).

The first step of each simulation was to forecast the Company’s Series G-1 convertible preferred stock price through the expiration of the 2020 Notes.

In order to estimate the future share price of the Series G-1 convertible preferred stock, the Company applied a “random walk” model based upon a Geometric Brownian Motion process with a constant drift.

The fair value of the 2020 Notes derivative liability was determined using the following assumptions:

Risk-free interest rate 0.2 %

Current Series G-1 convertible preferred stock value per share $ 0.84

Series G-1 convertible preferred stock volatility 34.4 %

Pulmonx Corporation

Notes to Consolidated Financial Statements

Upon the closing of the IPO in October 2020, the 2020 Notes converted pursuant to a qualified initial public offering (Note 6).

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 derivative liabilities is summarized below (in thousands):

Success Fee Derivative Liability 2020 Notes Derivative Liability

Beginning fair value, January 1, 2020

Fair value at inception — 3,900

Change in fair value

710 ( 3,900 )

Payment of Success Fee ( 1,875 ) —

Ending fair value, December 31, 2020 $ — $ —

As of December 31, 2022 and 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, 2022 and 2021, accrued interest on marketable securities of $ 0.1 million and $ 0.1 million was included in prepaid expenses and other current assets on the consolidated balance sheets, respectively.

Balance Sheet Components

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Total cash and cash equivalents $ 101,736 $ 148,480

Pulmonx Corporation

Notes to Consolidated Financial Statements

Inventory consists of the following (in thousands):

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Total inventory $ 19,847 $ 16,285

Pulmonx Corporation

Notes to Consolidated Financial Statements

Inventory $ 14,564 $ 16,285

Long-term inventory 5,283 —

Total inventory $ 19,847 $ 16,285

Prepaid Expenses and Other Current Assets

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Prepaid insurance 1,407 2,305

VAT receivable 362 339

VAT and other receivable 602 362

Other current assets 290 347

Total prepaid expenses and other current assets $ 4,343 $ 4,883

Capitalized Implementation Costs of a Hosting Arrangement

The Company has several software systems that are cloud-based hosting arrangements with service contracts.

The Company accounts for costs incurred in connection with the implementation of these various software systems under ASU 2018-15, Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350–40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.

The Company expenses all costs (internal and external) that are incurred in the planning and post-implementation operation stages.

As of December 31, 2022, the Company has capitalized approximately $ 0.5 million of implementation costs, net of amortization.

As of December 31, 2021, the Company did no t capitalize expenses in implementation costs.

The capitalized costs are amortized on a straight-line basis over the non-cancelable contract terms, which are generally three years .

As of December 31, 2022, approximately $ 0.3 million and $ 0.2 million capitalized costs were included in prepaid expenses and other current assets, and other long-term assets, respectively.

Amortization expense, which was included in selling, general and administrative expenses, was $ 0.2 million and $ 0 for the years ended December 31, 2022 and December 31, 2021, respectively.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Property and Equipment, Net

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The Company performed an annual test for goodwill impairment in the fourth quarter of the fiscal years ended December 31, 2022 and December 31, 2021 and determined that goodwill was no t impaired.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Intangible Assets

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Amortization expense relating to the intangibles totaled $ 0.1 million during each of the years ended on December 31, 2022 and 2021.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Future amortization expense is as follows (in thousands):

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Accrued liabilities consist of the following (in thousands):

Accrued employee bonuses $ 4,741 $ 2,374

Accrued employee bonuses and commissions $ 4,973 $ 4,741

Accrued vacation 2,113 1,850

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Total accrued liabilities $ 13,276 $ 13,366

Pulmonx Corporation

Notes to Consolidated Financial Statements

Long Term Debt and Convertible Notes

Oxford Finance Loan

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 8.5 % 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 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.

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 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.

Long Term Debt

On February 20, 2020, the Company executed a Loan and Security Agreement with Canadian Imperial Bank of Commerce (“CIBC”), which the Company subsequently amended on April 17, 2020 and December 28, 2020 (as amended, the “CIBC Agreement”).

The CIBC Agreement originally provided the Company with the ability to borrow 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 draw up to an additional $ 8.0 million (“Tranche B”) and an additional financing tranche (“Tranche C”) of up to $ 7.0 million on or prior to February 20, 2022.

Neither Tranche B nor Tranche C was drawn before the option expired.

The CIBC Loan originally had a five-year term maturing on February 20, 2025, which included 24 months of interest only payments followed by 36 months of equal payments of principal and interest.

The interest only period can be extended to 36 months if the Company achieves three-month trailing revenue of at least $ 20.0 million as of February 20, 2022.

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

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.

The Company may prepay the loan, subject to certain requirements.

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 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.

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.

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.

In March 2021, the Company entered into an Amended and Restated Loan and Security Agreement with CIBC (as amended, the “Amended and Restated CIBC Agreement”) which, among other things, extended the loan maturity date of the CIBC Loan 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 would be due beginning March 31, 2022.

In connection with the Amended and Restated CIBC Agreement, the Company paid fees to CIBC of less than

Pulmonx Corporation

Notes to Consolidated Financial Statements

$ 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.

In June 2021, the Company entered into a First Amendment to the Amended and Restated CIBC Agreement 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 CIBC Agreement, 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.

In October 2022, the Company entered into a Third Amendment to the Amended and Restated CIBC Agreement (the “Third Amendment”) with CIBC, which amended certain provisions of the CIBC Loan.

The amendment provided the option to draw up to an additional $ 20.0 million (“Amended Tranche B”) on or prior to October 31, 2023, which can be drawn in increments of at least $ 5.0 million.

Upon request by the Company, CIBC may, in its sole discretion, make additional term loans of up to $ 10.0 million (“Amended Tranche C”) at any time.

The Third Amendment extended the maturity date of the CIBC Loan from February 20, 2025 to October 31, 2027 and provided for a new interest only period of 24 months from the signing date of the Third Amendment, with the possibility of an additional extension of such interest only period of up to 12 months, subject to satisfaction of certain conditions set forth in the Third Amendment.

The Company paid a commitment fee of less than $ 0.1 million in connection with the Third Amendment.

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

The financial covenants in the Amended and Restated CIBC Agreement require that, when the cash and cash equivalents of the Company is less than $ 50.0 million if no Amended Tranche B loans have been made and less than $ 100.0 million if Amended Tranche B loans have been made, 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 Amended and Restated CIBC Agreement for the four-month period ending on any date of determination if no Amended Tranche B loans have been made and an amount equal to the greater of $ 20.0 million and the Adjusted EBITDA loss as defined in the Amended and Restated CIBC Agreement for the six-month period ending on any date of determination if Amended Tranche B loans have been made.

As of December 31, 2022, the Company was in compliance with all covenants contained in Amended and Restated CIBC Agreement.

The CIBC Loan bears interest at a floating rate equal to 1.0 % 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.

The Company may prepay the CIBC Loans without penalty.

If the Company borrows any of the $ 20.0 million Amended Tranche B made available under the Third Amendment, the Company may prepay the loans, subject to certain conditions, including a prepayment fee equal to 2.0 % of the principal amount repaid during the first year after the effective date of the Third Amendment or 1.0 % of the principal amount prepaid during the second year after the effective date of the Third Amendment.

As of December 31, 2022, the CIBC Loan had an annual effective interest rate of 9.1 % 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

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$ 16,873 $ 16,869

Short-term debt $ — $ —

Long-term debt 16,873 16,869

Total term loan $ 16,873 $ 16,869

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.

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dollar equivalent) under the COVID-19 Credit 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.

In April 2020, the Company received $ 33.0 million in gross proceeds from issuance of the 2020 Notes.

Upon meeting customary closing conditions, the Company can draw up to an additional $ 33.0 million, provided that any such draw be for no less than $ 5.0 million on or prior to April 17, 2022.

All unpaid interest and principal will be due and payable upon request of the majority of Lenders (“Majority Holders”) on or after the earlier of April 17, 2022 or an event of default.

The 2020 Notes accrue interest at a rate equal to 2.0 % above the Wall Street Journal Prime Rate.

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

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 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

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.

During the year ended December 31, 2020, the Company recorded interest expense of $ 1.6 million on the 2020 Notes, consisting of $ 0.8 million of contractual interest expense and $ 0.8 million amortization of debt discount and debt issuance costs.

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

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.

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

As of December 31, 2022, Pulmonx International Sàrl repaid $ 0.1 million to the lender.

Contractual Maturities of Financing Obligations

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Term loan and credit agreement

Pulmonx Corporation

Notes to Consolidated Financial Statements

Revenue Recognition

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

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

Pulmonx Corporation

Notes to Consolidated Financial Statements

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

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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 into in April 2020, to include additional facility space in Redwood City, California for a four-year term.

In September 2020, the Company amended the 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.

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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.

The Company has leases on ten vehicles with an average lease term of 2.9 years.

Pulmonx Corporation

Notes to Consolidated Financial Statements

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

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Long-term lease liabilities

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):

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$ 229 $ 1,460

Service Agreement

In April 2022, the Company entered into an agreement with a service provider which requires total minimum purchases of $ 0.6 million, $ 0.4 million, and $ 0.4 million over the next three years.

From inception of the agreement through December 31, 2022, the Company recorded $ 0.5 million of expense for services related to this agreement in cost of goods sold.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Contingencies

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

Pulmonx Corporation

Notes to Consolidated Financial Statements

In December 2022, the Company received a civil investigative demand (“CID”) from the U.S.

Department of Justice, Civil Division in connection with an investigation under the Anti-Kickback Statute and False Claims Act (the “Investigation”).

The CID requests information and documents regarding the Company’s relationships with certain health care providers, medical practices, and hospitals in connection with the sales and marketing of the Zephyr Valves and related products and services.

The Company is fully cooperating with the Investigation.

The Company is unable to express a view at this time regarding the ultimate outcome of the Investigation or estimate an amount or range of reasonably possible loss.

Depending on the outcome of the Investigation, there could be a material impact on the Company’s business, results of operations and financial condition.

Income before the provision for income taxes consists of the following (in thousands):

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Total income tax expense $ 353 $ 343

Pulmonx Corporation

Notes to Consolidated Financial Statements

The reconciliation between the federal statutory rate and the Company’s effective tax rate is summarized below:

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Change in valuation allowance ( 17.8 ) % ( 26.3 ) %

Entity restructuring 0.0 % 11.9 %

Effective tax rate ( 0.6 ) % ( 0.7 ) %

Deferred income taxes arise from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes, as well as operating losses and

Pulmonx Corporation

Notes to Consolidated Financial Statements

tax credit carryforwards.

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

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Accruals and reserves 1,900 1,638

Depreciation 183 —

Intangible assets 4,394 4,952

Capitalized research costs 2,838 —

Other 2,035 1,057

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The valuation allowance increased by $ 11.9 million and $ 14.6 million for the years ended December 31, 2022 and 2021, 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.

As of December 31, 2022, the Company had a total net operating loss carryforwards for federal income tax purposes of approximately $ 212.2 million.

If not utilized, these 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 $ 406.4 million which will expire beginning in the year 2023.

Pulmonx Corporation

Notes to Consolidated Financial Statements

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.

As of December 31, 2022, the Company had $ 140.3 million of 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 $ 4.3 million and $ 5.3 million, respectively.

The federal tax R&D credit carryforwards will expire beginning in 2030 while the state tax R&D credit carryforwards have no expiration date.

The federal tax R&D credit carryforwards will expire beginning in 2030 while the state tax credit carryforwards have no expiration date.

Utilization of the net operating loss carryforwards and R&D tax credit carryforwards may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code, as defined in Section 382, and other similar state provisions.

The annual limitation may result in the expiration of net operating losses and credits before utilization.

During the year ended December 31, 2018, the Company completed a formal 382 study for which the Company wrote off deferred tax assets for NOLs and credits of $ 3.1 million and $ 1.2 million, respectively.

During the year ended December 31, 2018, the Company completed a section 382 study for which the Company wrote off deferred tax assets for NOLs and credits of $ 3.1 million and $ 1.2 million, respectively.

Since the Company had a full valuation allowance on these assets, there was no material impact to the tax provision.

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

Management determined that there was no ownership change in 2021.

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

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.

Based on management’s analysis for the year ended December 31, 2022 no further material NOLs or credits will expire unused due to Section 382 limitations.

As of December 31, 2022, the Company had unrecognized tax benefits of approximately $ 8.6 million, none of which will affect the effective tax rate if recognized.

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

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Balance at January 1, 2021 $ 8,248

Additions for tax positions related to prior year 173

Additions for tax positions related to current year 68

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Additions for tax positions related to prior year 106

Decreases for tax positions related to prior year ( 153 )

Additions for tax positions related to current year 200

Balance at December 31, 2022 $ 8,642

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.

It is the Company's policy to include penalties and interest expense related to income taxes as a component of other income (expense), net and interest expense, respectively, as necessary.

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

As currently enacted, beginning in 2022, the Tax Cuts and Jobs Act (the "Tax Act") requires taxpayers to capitalize research and development expenses with amortization periods over five and fifteen years, which is expected to decrease the amount of the Company's generated NOL during the year.

Pulmonx Corporation

Notes to Consolidated Financial Statements

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.

As of December 31, 2022 and December 31, 2021, the Company’s certificate of incorporation authorized the Company to issue up to 200,000,000 shares of common stock.

Common stockholders are entitled to dividends as and when declared by the Board of Directors, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends.

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Common stock restricted stock units issued and outstanding

998,473 442,428

Common stock available for future grants

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Stock Option Plan

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

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

As of December 31, 2022, the Company reserved 12,747,171 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.

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As of December 31, 2022 and December 31, 2021, no shares of common stock remain available for issuance to officers, directors, employees and consultants pursuant to the 2000 Stock Plan.

In January 2023, the number of shares of common stock available for issuance under the 2020 Equity Incentive Plan was increased by 1,502,223 shares as a result of the automatic increase provision in the 2020 Equity Incentive Plan.

Options to purchase the Company’s common stock may be granted at a price not less than 100 % of the fair market value in the case of ISO or NSO, except for an employee or non-employee with options who owns more than 10% of the voting power of all classes of stock of the Company in which case the exercise price shall be no less than 110 % of the fair market value per share on the grant date.

Fair market value is determined by the Board of Directors.

Options are immediately exercisable and vest as determined by the Board of Directors ranging from immediately upon grant to a rate of 25 % per annum over four years from the grant date.

Options vest as determined by the Board of Directors ranging from immediately upon grant to a rate of 25 % per annum over four years from the grant date.

Options expire as determined by the Board of Directors but not more than ten years after the date of grant.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Activity under the Stock Plans is set forth below:

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Balance, December 31, 2022 2,495,528 $ 17.35

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 of options exercised during the years ended December 31, 2022 and December 31, 2021 was $ 4.6 million and $ 43.8 million, respectively.

The aggregate intrinsic value of options outstanding as of December 31, 2022 and December 31, 2021 was $ 6.9 million and $ 45.3 million, respectively.

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, 2022 and December 31, 2021.

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Total intrinsic value of options vested as of December 31, 2022 and December 31, 2021 was $ 4.1 million and $ 18.9 million, respectively.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Early Exercise of Stock Options

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.

Accordingly, options granted under these plans may be exercised prior to vesting.

The shares are subject to the Company’s lapsing repurchase right upon termination of employment or over the options’ vesting period of generally four years at the original purchase price.

The proceeds initially are recorded in other liabilities from the early exercise of stock options and are reclassified to additional paid-in capital as the Company’s repurchase right lapses.

During the year ended December 31, 2021 and 2020, the Company repurchased 12,945 and 10,000 shares of common stock for less than $ 0.1 million and less than $ 0.1 million, respectively.

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.

During the years ended December 31, 2022 and 2021, the Company repurchased 14,459 and 12,945 shares of common stock for less than $ 0.1 million and less than $ 0.1 million, respectively.

As of December 31, 2022 and December 31, 2021, 77,782 and 223,195 shares were subject to repurchase, with an aggregate exercise price of $ 0.1 million and $ 0.4 million, respectively, and were recorded in accrued liabilities on the consolidated balance sheets.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Restricted Stock Units

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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.

Granted 937,400 23.63

( 251,133 ) 35.09

( 130,222 ) 33.85

Unvested, December 31, 2022 998,473 $ 27.72

The aggregate intrinsic value of restricted stock units outstanding as of December 31, 2022 and December 31, 2021 was $ 8.4 million and $ 14.2 million, respectively.

Stock-Based Compensation for Employees and Non-Employees

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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

Pulmonx Corporation

Notes to Consolidated Financial Statements

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

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 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, 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.

Pulmonx Corporation

Notes to Consolidated Financial Statements

The expected stock price volatility assumptions for the Company’s stock options for the years ended December 31, 2022 and December 31, 2021 was determined by examining the historical volatilities for industry peers, referred to as “guideline” companies, as the Company had limited trading history for the Company’s common stock.

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

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Fair Value of Common Stock

Prior to the IPO the fair value of the Company’s common stock is determined by the board of directors with assistance from management and, in part, on input from an independent third-party valuation firm.

The board of directors determines the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook.

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

The fair value of the Company’s common stock is determined based on its closing market price on the date of grant.

2020 Employee Share Purchase Plan

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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 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.

The Company entered into a new offering period beginning August 16, 2022 and ending February 15, 2023.

The Company issued 89,666 and 144,479 shares under the ESPP for the years ended December 31, 2022 and December 31, 2021, respectively.

As of December 31, 2022, there were 1,212,109 shares authorized for future purchase under the ESPP.

In January 2023, the number of shares of common stock available for issuance under the ESPP was increased by 375,556 shares as a result of the automatic increase provision in the ESPP.

Pulmonx Corporation

Notes to Consolidated Financial Statements

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

Years Ended December 31,

Weighted average expected term (in years) 0.5 0.5

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Total Stock-Based Compensation

Pulmonx Corporation

Notes to Consolidated Financial Statements

Stock-based compensation expense is reflected in the statements of operations and comprehensive loss as follows (in thousands):

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Stock-based compensation of $ 1.2 million and $ 1.0 million was capitalized into inventory for the years ended December 31, 2022 and 2021, respectively.

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

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.

Stock-based compensation capitalized in prior periods of $ 0.7 million and $ 0.6 million was recognized as cost of sales in the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, there was $ 41.6 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 2.73 years.

The total grant date fair value of shares and restricted stock units vested during the years ended December 31, 2022 and December 31, 2021 was $ 15.5 million and $ 8.3 million, respectively.

As of December 31, 2022, 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.

Pulmonx Corporation

Notes to Consolidated Financial Statements

Net Loss per Share Attributable to Common Stockholders

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Weighted-average common shares used to compute basic and diluted net loss per share 37,096,541 36,129,409

36,129,409 10,184,841

Net loss per share attributable to common stockholders, basic and diluted $ ( 1.59 ) $ ( 1.35 )

Pulmonx Corporation

Notes to Consolidated Financial Statements

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding because such securities have an antidilutive impact due to the Company’s net loss, in common stock equivalent shares:

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Shares committed under ESPP 28,141 27,327

Total Shares 3,599,924 2,838,081

Segment Information

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Total $ 53,662 $ 48,416

Pulmonx Corporation

Notes to Consolidated Financial Statements

Revenue from Germany represented 11 % and 12 % of total revenue for the years ended December 31, 2022 and 2021, respectively.

Revenue from France represented 7 % and 9 % of total revenue for the years ended December 31, 2022 and 2021, respectively.

Long-lived assets by geographic area are based on physical location of those assets.

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Total $ 4,694 $ 4,814

Pulmonx Corporation

Notes to Consolidated Financial Statements

Employee Benefit Plan

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There have been no contributions made to the Savings Plan by the Company since inception.

Related Parties

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

In February 2023, the Company drew $ 20.0 million of the Amended Tranche B of the CIBC Loan.

The Amended Tranche B bears interest at a floating rate equal to 1.0 % above the Wall Street Journal Prime Rate and has the same repayment terms as Tranche A.

Upon draw of the Amended Tranche B 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 CIBC.

Further, the Company is required to maintain unrestricted cash in an aggregate amount equal to the greater of $ 20.0 million and the Adjusted EBITDA loss as defined in the CIBC Agreement for the six-month period ending on any date of determination.

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