LUNG filing — read by section

Item 8. Financial Statements and Supplementary Data

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
 
 
 
 Pulmonx Corporation 
 INDEX TO THE FINANCIAL STATEMENTS 
 
 

 
 Report of Independent Registered Public Accounting Firm (BDO USA, LLP, San Francisco, California, PCAOB ID# 243 ) 
 F- 1 
 
 
 Financial Statements 
 
 Consolidated Balance Sheets 
 F- 3 
 
 
 Consolidated Statements of Operations and Comprehensive Loss 
 F- 4 
 
 
 Consolidated Statements of Stockholders’ Equity 
 F- 5 
 
 
 Consolidated Statements of Cash Flows 
 F- 6 
 
 
 Notes to Consolidated Financial Statements 
 F- 9 
 

 106 

 
 Table of Contents 

 Report of Independent Registered Public Accounting Firm 
 Shareholders and Board of Directors 
 Pulmonx Corporation 
 Redwood City, California 
 Opinion on 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. 
 Basis for Opinion 
 These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 
 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 
 Critical Audit Matter 
 The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of 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. 
 
 
 F-1 

 Table of Contents 

 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: 
 • 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 
 We have served as the Company's auditor since 2011. 
 San Francisco, California 
 March 1, 2023 
 F-2 

 
 Table of Contents 

 Pulmonx Corporation 
 Consolidated Balance Sheets 
 (in thousands, except share and per share amounts) 
 
 December 31, 2022 December 31, 2021 
 Assets 
 Current assets 
 Cash and cash equivalents $ 101,736 $ 148,480 
 Restricted cash 231 231 
 Short-term marketable securities 39,402 31,561 
 Accounts receivable, net 8,677 6,562 
 Inventory 14,564 16,285 
 Prepaid expenses and other current assets 4,343 4,883 
 Total current assets 168,953 208,002 
 Long-term marketable securities 5,924 10,941 
 Long-term inventory 5,283 — 
 Property and equipment, net 4,694 4,814 
 Goodwill 2,333 2,333 
 Intangible assets, net 154 277 
 Right of use assets 5,806 8,075 
 Other long-term assets 529 731 
 Total assets $ 193,676 $ 235,173 
 
 Liabilities and Stockholders’ Equity 
 Current liabilities 
 Accounts payable $ 1,758 $ 1,582 
 Accrued liabilities 13,276 13,366 
 Income taxes payable 19 147 
 Deferred revenue 120 163 
 Short-term debt 90 91 
 Current lease liabilities 3,229 2,201 
 Total current liabilities 18,492 17,550 
 Deferred tax liability 94 37 
 Long-term lease liabilities 3,849 6,844 
 Long-term debt 17,234 17,324 
 Other long-term liabilities — 179 
 Total liabilities 39,669 41,934 
 Commitments and contingencies (Note 8) 
 Stockholders’ Equity 
 Preferred stock, $ 0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding as of December 31, 2022 and December 31, 2021 
 — — 
 Common stock, $ 0.001 par value, 200,000,000 shares authorized; 37,555,565 shares and 36,931,762 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 
 38 37 
 Additional paid-in capital 502,712 482,885 
 Accumulated other comprehensive income 1,575 1,712 
 Accumulated deficit ( 350,318 ) ( 291,395 ) 
 Total stockholders’ equity 154,007 193,239 
 Total liabilities and stockholders’ equity $ 193,676 $ 235,173 

 The accompanying notes are an integral part of these consolidated financial statements. 
 F-3 

 
 Table of Contents 

 Pulmonx Corporation 
 Consolidated Statements of Operations and Comprehensive Loss 
 (in thousands, except share and per share amounts) 
 
 Years Ended December 31, 
 2022 2021 
 Revenue $ 53,662 $ 48,416 
 Cost of goods sold 13,797 12,786 
 Gross profit 39,865 35,630 
 Operating expenses 
 Research and development 15,397 13,063 
 Selling, general and administrative 83,105 69,871 
 Total operating expenses 98,502 82,934 
 Loss from operations ( 58,637 ) ( 47,304 ) 
 Interest income 1,529 400 
 Interest expense ( 1,066 ) ( 829 ) 
 Other income (expense), net ( 396 ) ( 585 ) 
 Net loss before tax ( 58,570 ) ( 48,318 ) 
 Income tax expense 353 343 
 Net loss ( 58,923 ) ( 48,661 ) 
 Other comprehensive income (loss) 
 Currency translation adjustment 150 51 
 Change in unrealized losses on marketable securities ( 287 ) ( 24 ) 
 Total other comprehensive income (loss) ( 137 ) 27 
 Comprehensive loss $ ( 59,060 ) $ ( 48,634 ) 
 Net loss per share attributable to common stockholders, basic and diluted $ ( 1.59 ) $ ( 1.35 ) 
 Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 
 37,096,541 36,129,409 

 The accompanying notes are an integral part of these consolidated financial statements. 
 F-4 

 
 Table of Contents 

 Pulmonx Corporation 
 Consolidated Statements of Stockholders’ Equity 
 (in thousands, except share amounts) 
 
 Common Stock Additional 
Paid-In 
Capital Accumulated 
Other 
Comprehensive 
Income Accumulated 
Deficit Total 
Stockholders’ 
Equity 
 Shares Amount 
 Balances at January 1, 2021 35,693,753 $ 36 $ 467,147 $ 1,685 $ ( 242,734 ) $ 226,134 
 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 
 Repurchase of early exercised common stock options ( 12,945 ) — — — — — 
 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 
 Currency translation adjustment — — — 51 — 51 
 Change in unrealized losses on marketable securities — — — ( 24 ) — ( 24 ) 
 Net loss — — — — ( 48,661 ) ( 48,661 ) 
 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 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 
 Stock-based compensation expense — — 17,024 — — 17,024 
 Currency translation adjustment — — — 150 — 150 
 Change in unrealized losses on marketable securities — — — ( 287 ) — ( 287 ) 
 Net loss — — — — ( 58,923 ) ( 58,923 ) 
 Balances at December 31, 2022 37,555,565 $ 38 $ 502,712 $ 1,575 $ ( 350,318 ) $ 154,007 

 The accompanying notes are an integral part of these consolidated financial statements. 
 F-5 

 
 Table of Contents 

 Pulmonx Corporation 
 Consolidated Statements of Cash Flows 
 (in thousands) 
 F-6 

 Table of Contents 

 
 Years Ended December 31, 
 2022 2021 
 Cash flows from operating activities 
 Net loss $ ( 58,923 ) $ ( 48,661 ) 
 Adjustments to reconcile net loss to net cash used in operating activities 
 Stock-based compensation expense 16,445 10,530 
 Write-off of fixed assets 7 7 
 Allowance for doubtful accounts 54 4 
 Inventory write-downs 485 1,186 
 Depreciation and amortization expense 1,513 867 
 Amortization of debt discount and debt issuance costs 56 106 
 Amortization of premiums and discounts on marketable securities ( 204 ) 59 
 Non-cash lease expense 2,498 2,360 
 Net changes in operating assets and liabilities: 
 Accounts receivable ( 2,190 ) ( 2,432 ) 
 Inventory ( 3,638 ) ( 6,458 ) 
 Prepaid expenses and other current assets 780 ( 1,214 ) 
 Other assets ( 49 ) ( 221 ) 
 Accounts payable 247 87 
 Accrued liabilities 149 4,800 
 Income taxes payable ( 124 ) 21 
 Lease liabilities ( 2,197 ) ( 2,517 ) 
 Deferred tax liability 49 ( 6 ) 
 Deferred revenue ( 41 ) 94 
 Net cash used in operating activities ( 45,083 ) ( 41,388 ) 
 Cash flows from investing activities 
 Purchases of investments ( 47,187 ) ( 52,584 ) 
 Maturities of investments 44,280 10,000 
 Purchases of property and equipment ( 1,318 ) ( 3,671 ) 
 Net cash used in investing activities ( 4,225 ) ( 46,255 ) 
 Cash flows from financing activities 
 Repayment of Credit Agreement ( 87 ) — 
 Debt issuance cost ( 53 ) ( 41 ) 
 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 
 Payments for the repurchase of early exercised common stock options ( 27 ) ( 26 ) 
 Net cash provided by financing activities 2,419 4,456 
 Effect of exchange rate changes on cash and cash equivalents 145 106 
 Net decrease in cash and cash equivalents ( 46,744 ) ( 83,081 ) 
 Cash and cash equivalents at beginning of year 148,711 231,792 
 Cash, cash equivalents and restricted cash at end of year $ 101,967 $ 148,711 
 Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets: 
 Cash and cash equivalents $ 101,736 $ 148,480 
 Restricted cash 231 231 
 Cash, cash equivalents and restricted cash in consolidated balance sheets $ 101,967 $ 148,711 
 
 Supplemental non-cash items: 
 Lapse in repurchase rights of common stock $ 227 $ 204 
 Purchases of property and equipment in accounts payable and accrued liabilities $ 425 $ 584 
 Operating lease right of use assets obtained in exchange for new lease liabilities $ 229 $ 1,460 
 Amount receivable from exercise of Options $ — $ 10 
 Supplemental disclosure of cash flow information: 
 Cash paid for income taxes $ 398 $ 322 
 Cash paid for interest $ 847 $ 722 

 F-7 

 Table of Contents 

 The accompanying notes are an integral part of these consolidated financial statements. 
 
 
 F-8 

 
 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 
 
 
 1. Formation and Business of the Company 
 The Company 
 Pulmonx Corporation (the “Company”) was incorporated in the state of California in December 1995 as Pulmonx and reincorporated in the state of Delaware in December 2013. The Company is a commercial-stage medical technology company that provides a minimally invasive treatment for patients with severe emphysema, a form of chronic obstructive pulmonary disease (“COPD”). 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, Italy, France, Hong Kong and Japan. 
 Initial Public Offering 
 On September 30, 2020, the Company’s registration statement on Form S-1 (File No. 333-248635) relating to its initial public offering (“IPO”) of common stock became effective. The IPO closed on October 5, 2020 at which time the Company issued 11,500,000 shares of its common stock at a price of $ 19.00 per share, which included the issuance of shares in connection with the exercise by the underwriters of their option to purchase up to 1,500,000 additional shares. 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 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. 
 Liquidity and Going Concern 
 The Company has incurred operating losses and negative cash flows from operations to date and has an accumulated deficit of $ 350.3 million as of December 31, 2022. During the years ended December 31, 2022, and 2021, the Company used $ 45.1 million, and $ 41.4 million of cash in its operating activities, respectively. 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 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. Management believes that the Company’s existing cash, cash equivalents and marketable securities will allow the Company to continue its planned operations for at least the next 12 months from the date of the issuance of these consolidated financial statements. 
 Impact of the COVID-19 Pandemic 
 The 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. 
 F-9 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 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 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. 
 
 2. Summary of Significant Accounting Policies 
 Basis of Presentation 
 The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). 
 Principles of Consolidation 
 The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. 
 Use of Estimates 
 The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. 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, 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. 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 1 and Level 2 inputs (Note 4). 
 Cash and Cash Equivalents 
 The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents, which include money market funds, commercial paper and corporate bonds. 
 Restricted Cash 
 Restricted cash is comprised of cash that is restricted as to withdrawal or use under the terms of certain contractual agreements. Restricted cash for years ended December 31, 2022 and December 31, 2021 consists of collateral for letters of credit issued in connection with the real estate lease in Redwood City, California. 
 F-10 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Marketable Securities 
 The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable securities as available-for-sale. 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 consolidated balance sheets. 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 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. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. 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 
 Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents balances with established financial institutions and, at times, such balances with any one financial institution may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limits. 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 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 in the past. 
 Accounts Receivable and Allowances 
 Accounts receivable are recorded at the amounts billed less estimated allowances for doubtful accounts. The Company continually monitors customer payments and maintains an allowance for estimated losses resulting from a customer’s inability to make required payments. 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 
 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 
 F-11 

 
 
 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 
 Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, generally between three to five years . Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or useful economic life of the asset. 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. 
 Impairment of Long-lived Assets 
 The Company evaluates its long-lived assets for indicators of possible impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value or discounted estimates of future cash flows. The Company has not identified any such impairment losses to date. 
 Goodwill 
 Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in a business combination. Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below its carrying value. 
 The Company tests goodwill for impairment at the reporting unit level (“Reporting Unit”). The Company has determined that it has one operating segment and one Reporting Unit. The operating results are reviewed only on a consolidated basis to make decisions about resources to be allocated and assess performance. Prior to performing the impairment test, the Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the Reporting Unit was less than the carrying amount. If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the Reporting Unit is less than the carrying amount, then the Company would perform a quantitative impairment test. The quantitative impairment test involves comparing the fair value of the Reporting Unit to the carrying value. If the fair value of the Reporting Unit exceeds the carrying value of the net assets, goodwill is not impaired, and no further testing is required. If the fair value of the Reporting Unit is less than the carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the Reporting Unit. Estimations and assumptions regarding the future performance and results of the Company’s operations, including estimates related to future sales growth, gross margin and operating expenses, and the fair value of the Company’s common stock are used in the impairment assessment. 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. 
 F-12 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Intangible Assets 
 Intangible assets consist of developed technology and trademarks. 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). 
 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. 
 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. As of December 31, 2022 and 2021, the Company did not record any finance leases. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the estimated rate the Company would be required to pay for a fully collateralized borrowing equal to the total lease payments over the term of the lease, to determine the present value of future minimum lease payments. 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. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASC 842, the Company combines lease and non-lease components. Variable lease payments are expenses as incurred. 
 Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease. 
 Revenue Recognition 
 The Company’s revenue is generated from the sale of its products to distributors and hospitals in the United States and international markets. 
 Under ASC 606, revenue is recognized when the customer obtains controls of promised goods or services, in an amount that reflects consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps as prescribed by ASC 606: 
 (i) identify the contract(s) with a customer; 
 (ii) identify the performance obligations in the contract; 
 (iii) determine the transaction price; 
 (iv) allocate the transaction price to the performance obligations in the contract; and 
 (v) recognize revenue when (or as) the entity satisfies performance obligations. 
 F-13 

 
 
 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. The Company identifies performance obligations in contracts with customers, which may include its products and implied promises to provide free products and analysis services for patient scans. The transaction price is determined based on the amount expected to be entitled to in exchange for transferring the promised services or product to the customer. The Company is entitled to the total consideration for the products ordered by customers, net of early pay discounts, volume rebate adjustments and other transaction price adjustments. The Company’s payment terms to customers generally range from 30 to 60 days. Payment terms fall within the one-year guidance for the practical expedient which allows the Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component. The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price. 
 Assuming all other revenue recognition criteria are met, revenue is recognized when control of the Company’s products transfers to the customer. For sales where the Company’s sales representative hand delivers product directly to the hospital or medical center, control transfers to the customer upon this delivery. For sales where products are shipped, control is transferred either upon shipment or delivery of the products to the customer, depending on the shipping terms and conditions. For consignment sales, control is transferred when the products are used by the customer in procedures. 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. As permitted under the practical expedient, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. 
 The Company accepts product returns at its discretion or if the product is defective as manufactured. Historically, the actual product returns have been immaterial to the Company’s financial statements. The Company elected to treat shipping and handling costs as a fulfillment cost and include them in the cost of goods sold as incurred. In those cases where the Company bills shipping and handling costs to customers, it will classify the amounts billed within revenue. 
 The Company disaggregates its revenue by major geographic region, which is disclosed in Note 12, “Segment Information”. 
 Costs associated with product sales include commissions. The Company applies the practical expedient and recognizes commissions as expense when incurred because the expense is incurred at a point in time and the amortization period is less than one year. Commissions are recorded as selling expense. 
 Cost of Goods Sold 
 The Company manufactures certain products at its facility and purchases other products from third party manufacturers. Cost of goods sold consists primarily of costs related to materials, components and subassemblies, third-party costs, manufacturing overhead costs, direct labor, reserves for excess, obsolete and non-sellable inventories and distribution-related expenses. A significant portion of the Company’s cost of goods sold currently consists of manufacturing overhead costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as shipping costs. 
 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 
 F-14 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Company’s overall research and development programs. All research and development costs are expensed as incurred. 
 Clinical trial costs are a significant component of the Company’s research and development expenses. The Company has a history of contracting with third parties that perform various clinical trial activities on the Company’s behalf in the ongoing development of its product candidates. The financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow. The Company accrues and expenses costs for its clinical trial activities performed by third parties, including clinical research organizations and other service providers, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company determines these estimates through discussion with internal personnel and outside service providers as to progress or stage of completion of trials or services pursuant to contracts with clinical research organizations and other service providers and the agreed-upon fee to be paid for such services. 
 Advertising Costs 
 The Company expenses the costs of advertising as incurred. Advertising expenses were $ 6.1 million and $ 5.1 million for the years ended December 31, 2022 and 2021, respectively. 
 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 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. dollars using historical rates. The revenues and expenses are translated using the average exchange rates in effect during the period, and gains and losses from foreign currency translation adjustments are included as a component of accumulated other comprehensive income in the consolidated balance sheet. Foreign currency translation adjustments are recorded in other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss and was $ 0.2 million and $ 0.1 million during the years ended December 31, 2022 and 2021, respectively. 
 Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss and was $( 0.4 ) million and $( 0.6 ) million during the years ended December 31, 2022 and 2021, respectively. 
 Stock-Based Compensation 
 The Company accounts for stock-based compensation arrangements with employees and non-employees in accordance with ASC 718, Compensation—Stock Compensation , using a fair-value based method. The Company determines the fair value of all stock options and the 2020 Employee Share Purchase Plan (“ESPP”) awards on the date of grant using the Black-Scholes option pricing model. The Company’s determination of the fair value is impacted by its common stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. 
 The fair value of time-based awards is recognized over the period during which an option holder is required to provide services in exchange for the option award, known as the requisite service period, which is typically the vesting period using the straight-line method. The fair value of performance-based awards, if applicable, is recognized over the requisite service period using the graded vesting method. The Company accounts for forfeitures as they occur. 
 F-15 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 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. 
 Income Taxes 
 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. A valuation allowance is established when necessary to reduce deferred tax assets when management estimates, based on available objective evidence, that it is more likely than not that the benefit will not be realized for the deferred tax assets. 
 The Company also follows the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes . ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded on the consolidated financial statements. It is the Company’s policy to include penalties and interest expense related to income taxes as part of the provision for income taxes. 
 Net Loss per Share Attributable to Common Stockholders 
 Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding during the period, without consideration of potentially dilutive securities. 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, 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. Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods. 
 Comprehensive Loss 
 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 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. 
 
 3. Recent Accounting Pronouncements 
 Recent Accounting Pronouncements Not Yet Adopted 
 In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses . This new guidance will require financial instruments to be measured at amortized cost, and trade accounts receivable to be presented at the net amount expected to be collected. 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 
 F-16 

 
 
 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. 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. 
 
 4. Fair Value Measurements 
 Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows: 
 Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. 
 Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. 
 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 and marketable securities. 
 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. an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. As noted above, there have been no impairment charges recorded to date. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the term loan approximates the fair value. 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. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. 
 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): 
 F-17 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 
 December 31, 2022 
 Level 1 Level 2 Level 3 Total 
 Assets: 
 Money market funds 
 $ 4,647 $ — $ — $ 4,647 
 Cash equivalents 4,647 — — 4,647 
 U.S. Government agency bonds 14,743 15,872 — 30,615 
 Commercial paper — 14,711 — 14,711 
 Marketable securities 14,743 30,583 — 45,326 
 Total financial assets $ 19,390 $ 30,583 $ — $ 49,973 

 
 December 31, 2021 
 Level 1 Level 2 Level 3 Total 
 Assets: 
 Money market funds $ 831 $ — $ — $ 831 
 Commercial paper — 2,000 — 2,000 
 Corporate bonds — 4,410 — 4,410 
 Cash equivalents 831 6,410 — 7,241 
 U.S. Government agency bonds 14,977 5,504 — 20,481 
 Commercial paper — 19,107 — 19,107 
 Corporate bonds — 2,914 — 2,914 
 Marketable securities 14,977 27,525 — 42,502 
 Total financial assets $ 15,808 $ 33,935 $ — $ 49,743 

 There were no liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2022 and December 31, 2021. 
 F-18 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 The following table summarizes the cost, unrealized gains and losses and fair value of marketable securities (in thousands): 
 
 December 31, 2022 
 Amortized Cost Unrealized Losses Unrealized Gains Fair Value 
 U.S. 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 
 39,402 
 Long-term marketable securities 5,924 
 Marketable securities $ 45,326 

 
 December 31, 2021 
 Amortized Cost Unrealized Losses Unrealized Gains Fair Value 
 U.S. Government agency bonds $ 20,509 $ ( 28 ) $ — $ 20,481 
 Corporate bonds 
 2,915 ( 1 ) — 2,914 
 Commercial paper 
 19,102 — 5 19,107 
 Marketable securities $ 42,526 $ ( 29 ) $ 5 $ 42,502 
 Amounts recognized on the consolidated balance sheet 
 
 Short-term marketable securities 
 31,561 
 Long-term marketable securities 10,941 
 Marketable securities $ 42,502 

 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. 
 
 5. Balance Sheet Components 
 Cash and Cash Equivalents 
 The Company’s cash and cash equivalents consist of the following (in thousands): 
 
 December 31, 
 2022 2021 
 Cash $ 97,089 $ 141,239 
 Cash equivalents: 
 Money market funds 
 4,647 831 
 Commercial paper — 2,000 
 Corporate bonds — 4,410 
 Total cash and cash equivalents $ 101,736 $ 148,480 

 F-19 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Inventory 
 Inventory consists of the following (in thousands): 
 
 December 31, 
 2022 2021 
 Raw materials $ 3,820 $ 3,738 
 Work in process 386 518 
 Finished goods 15,641 12,029 
 Total inventory $ 19,847 $ 16,285 
 Reported as: 
 Inventory $ 14,564 $ 16,285 
 Long-term inventory 5,283 — 
 Total inventory $ 19,847 $ 16,285 

 Prepaid Expenses and Other Current Assets 
 Prepaid expenses and other current assets consist of the following (in thousands): 
 
 December 31, 
 2022 2021 
 Prepaid expenses $ 2,044 $ 1,869 
 Prepaid insurance 1,407 2,305 
 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. 
 F-20 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Property and Equipment, Net 
 Property and equipment, net consist of the following (in thousands): 
 
 December 31, 
 2022 2021 
 Machinery and equipment $ 2,112 $ 1,635 
 Computer equipment and software 1,773 1,561 
 Furniture and fixtures 263 252 
 Leasehold improvements 2,277 2,277 
 Construction in progress 1,825 1,332 
 Total 8,250 7,057 
 Less: accumulated depreciation ( 3,556 ) ( 2,243 ) 
 Property and equipment, net $ 4,694 $ 4,814 

 Depreciation expense for the years ended December 31, 2022 and December 31, 2021 was $ 1.4 million and $ 0.7 million, respectively. 
 Goodwill 
 Goodwill was $ 2.3 million as of December 31, 2022 and December 31, 2021 arising from the Company’s acquisition of Emphasys Medical, Inc, in March 2009. No goodwill impairment losses have been recognized since the acquisition. There were no acquisitions or dispositions of goodwill in 2022 and 2021. 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. 
 Intangible Assets 
 Intangible assets consist of the following (in thousands): 
 
 December 31, 2022 
 Gross Carrying Value Accumulated Amortization Net Carrying Value 
 Developed technology $ 1,658 $ ( 1,520 ) $ 138 
 Trademarks 191 ( 175 ) 16 
 Total intangible assets $ 1,849 $ ( 1,695 ) $ 154 

 
 December 31, 2021 
 Gross Carrying Value Accumulated Amortization Net Carrying Value 
 Developed technology $ 1,658 $ ( 1,410 ) $ 248 
 Trademarks 191 ( 162 ) 29 
 Total intangible assets $ 1,849 $ ( 1,572 ) $ 277 

 Amortization expense relating to the intangibles totaled $ 0.1 million during each of the years ended on December 31, 2022 and 2021. 
 F-21 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Future amortization expense is as follows (in thousands): 
 
 Year Ending December 31, 
 2023 $ 123 
 2024 31 
 Total amortization expense 
 $ 154 

 Accrued Liabilities 
 Accrued liabilities consist of the following (in thousands): 
 
 December 31, 
 2022 2021 
 Accrued employee bonuses and commissions $ 4,973 $ 4,741 
 Accrued vacation 2,113 1,850 
 Other accrued personnel related expenses 2,513 2,145 
 Accrued professional fees 2,366 2,420 
 Sales taxes, franchise tax and VAT 627 730 
 Liability for early exercise of stock options 145 399 
 Accrued inventory purchases 167 258 
 Other 372 823 
 Total accrued liabilities $ 13,276 $ 13,366 

 
 6. Long Term Debt 
 CIBC Loan 
 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. 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 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 of such covenants to June 30, 2021. 
 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 
 F-22 

 
 
 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 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. 
 F-23 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 The CIBC Loan consists of the following (in thousands): 
 
 December 31, December 31, 
 2022 2021 
 Term loan 
 $ 17,000 $ 17,000 
 Less: debt issuance costs 
 ( 127 ) ( 131 ) 
 Term loan 
 $ 16,873 $ 16,869 
 Reported as: 
 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. 
 During the year ended December 31, 2022 and December 31, 2021, the Company recorded interest expense related to debt discount and debt issuance costs of CIBC Loan of $ 0.1 million and $ 0.1 million, respectively. 
 Interest expense on the CIBC Loan amounted to $ 1.1 million and $ 0.8 million during the year ended December 31, 2022 and December 31, 2021, respectively. 
 Credit Agreement 
 In April 2020, Pulmonx International Sàrl, a wholly owned subsidiary of the Company, entered into a COVID-19 Credit Agreement with UBS Switzerland AG to receive up to 0.5 million Swiss Francs ($ 0.5 million U.S. dollar equivalent) under Swiss Federal Government program to mitigate the economic impact of the spread of the coronavirus. In May 2020, Pulmonx International Sàrl received 0.5 million Swiss Francs ($ 0.5 million U.S. 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, 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 
 As of December 31, 2022, the aggregate future payments under the CIBC Loan and Credit Agreement (including interest payments) are as follows (in thousands): 
 
 2023 $ 1,535 
 2024 2,476 
 2025 6,900 
 2026 6,418 
 2027 4,996 
 Total $ 22,325 
 Less: unamortized debt discount ( 127 ) 
 Less: interest ( 4,874 ) 
 Term loan and credit agreement 
 $ 17,324 

 F-24 

 
 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 7. Revenue Recognition 
 The Company’s contract liabilities consist of deferred revenue for remaining performance obligations by the Company to the customer after delivery, which was $ 0.1 million as of December 31, 2022, which is expected to be recognized as revenue in 2023. The deferred revenue as of December 31, 2021 was $ 0.2 million, which was recognized as revenue during the year ended December 31, 2022. 
 The Company disaggregates its revenue by major geographic region, which has been disclosed in Note 12, “Segment Information”. 
 
 8. Leases, Lease Commitments and Contingencies 
 The Company has a lease for its headquarters location in Redwood City, California. In October 2019, the Company renewed its lease for the headquarters location in Redwood City, California for an additional five years commencing in August 2020 and expiring in July 2025. The monthly base rent during the renewed term is $ 0.1 million and is subject to an annual increase of 3.5 %. The Company is responsible for its share of real estate taxes, common area maintenance and management fees. 
 During 2013, the Company entered into a five-year lease for office facilities in Switzerland. The Company had an option to extend the lease through January 2022, which was not exercised by the Company. Per the lease terms, in the event the option to extend is not exercised, the lease remains in force and can be terminated with 12-month s’ notice. 
 In April 2020, the Company executed a sublease for another office facility in Redwood City, California for a three-year term commencing on June 1, 2020. The lease agreement provides for early termination if the Company or Sublandlord elects to terminate the lease by providing the other party at least 180 days prior written notice. The early termination may only occur on or after the expiration of the 18 th full calendar month of the sublease term. The monthly base rent during the term is less than $ 0.1 million and is subject to an annual increase of 3.5 %. The Company is responsible for its share of real estate taxes, common area maintenance and management fees. 
 In September 2020, the Company amended 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. The sublease agreement contained a rent-free period through February 14, 2021, after which rent is approximately $ 0.1 million per month and is subject to an annual increase of 3.5 %. The Company is responsible for its share of real estate taxes, common area maintenance and management fees. The Company is eligible to receive a tenant improvement allowance of $ 0.7 million to fund facility enhancements. The sublease agreement can be extended for an additional twelve-month period, at the Company’s option. For accounting purposes, the lease term is 4 years as it is not reasonably certain that the Company will exercise the renewal option. The amendment also changed the lease term entered into in April 2020, which was extended until May 31, 2024, but left the early termination clause unchanged. In September 2021, the Company became reasonably certain that the early termination clause would not be exercised as capital expenditures on the facility build-out created sufficient disincentive to terminate the lease early. The lease term was reevaluated and extended from November 30, 2021 to May 31, 2024. 
 The Company has leases on ten vehicles with an average lease term of 2.9 years. 
 F-25 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Operating lease cost consists of the following (in thousands): 
 
 Years Ended December 31, 
 2022 2021 
 Operating lease cost 
 $ 2,893 $ 2,878 
 Short-term lease cost 
 35 19 
 Variable lease cost 
 599 598 
 Total lease cost 
 $ 3,527 $ 3,495 

 The following table summarizes a maturity analysis of the Company’s lease liabilities showing the aggregate lease payments as of December 31, 2022 (in thousands): 
 
 2023 $ 3,544 
 2024 2,953 
 2025 
 1,043 
 Total minimum lease payments 
 7,540 
 Less: Amount of lease payments representing interest 
 462 
 Present value of future minimum lease payments 
 $ 7,078 
 Less: Current lease liabilities 
 3,229 
 Long-term lease liabilities 
 $ 3,849 

 The following table summarizes additional information related to the Company’s operating leases (in thousands, except weighted average data): 
 
 December 31, 
 2022 2021 
 Right of use asset 
 $ 5,806 $ 8,075 
 Weighted average remaining lease term (years) 2.08 3.17 
 Weighted average discount rate (percent) 6.0 % 6.0 % 

 The following table summarizes other supplemental information related to the Company’s operating leases (in thousands): 
 
 Years Ended December 31, 
 2022 2021 
 Cash paid for amounts included in the measurement of lease liabilities included in cash flows used in operating activities 
 $ 2,701 $ 2,805 
 Right-of-use assets obtained in exchange for lease liabilities 
 $ 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. 
 F-26 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Contingencies 
 From time to time, the Company may be a party to various litigation claims in the normal course of business. Legal fees and other costs associated with such actions are expensed as incurred. The Company assesses, in conjunction with legal counsel, the need to record a liability for litigation and contingencies. Accrual estimates are recorded when and if it is determinable that such a liability for litigation and contingencies are both probable and reasonably estimable. 
 In December 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. 
 
 9. Income Taxes 
 Income before the provision for income taxes consists of the following (in thousands): 
 
 Years Ended December 31, 
 2022 2021 
 Domestic $ ( 59,361 ) $ ( 49,176 ) 
 Foreign 791 858 
 Total loss before provision for taxes $ ( 58,570 ) $ ( 48,318 ) 

 The components of income tax expense are as follows (in thousands): 
 
 Years Ended December 31, 
 2022 2021 
 Current: 
 Federal $ — $ — 
 State 66 46 
 Foreign 232 321 
 Total current expense 298 367 
 
 Deferred: 
 Federal 32 ( 18 ) 
 State 14 ( 1 ) 
 Foreign 9 ( 5 ) 
 Total deferred expense 55 ( 24 ) 
 Total income tax expense $ 353 $ 343 

 F-27 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 The reconciliation between the federal statutory rate and the Company’s effective tax rate is summarized below: 
 
 Years Ended December 31, 
 2022 2021 
 Federal statutory rate 21.0 % 21.0 % 
 State taxes, net of federal benefit ( 0.1 ) % ( 0.1 ) % 
 Foreign earnings at different rates ( 0.1 ) % ( 0.1 ) % 
 Tax credits 1.8 % 0.4 % 
 Permanent differences ( 4.6 ) % 4.4 % 
 Prior year true-up ( 0.8 ) % 0.0 % 
 Change in valuation allowance ( 17.8 ) % ( 26.3 ) % 
 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 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): 
 
 December 31, 
 2022 2021 
 Deferred tax assets: 
 Net operating loss carryforwards $ 50,316 $ 43,804 
 Tax credit carryforwards 7,169 5,579 
 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 
 Gross deferred tax assets 68,835 57,030 
 Less: valuation allowance ( 68,427 ) ( 56,551 ) 
 Deferred tax assets 408 479 
 Deferred tax liabilities: 
 Depreciation — ( 43 ) 
 Goodwill ( 502 ) ( 473 ) 
 Net deferred tax liabilities $ ( 94 ) $ ( 37 ) 

 
 The Company has established a full valuation allowance against its U.S. net deferred tax assets due to the uncertainty surrounding the realization of such assets. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the U.S. net deferred tax assets have been fully offset by a valuation allowance of $ 68.4 million as of December 31, 2022. 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, 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. 
 F-28 

 
 
 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, 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 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 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. The Company completed another section 382 study for the year ended December 31, 2020 for which the Company had a change in ownership. No additional NOLs or credits will expire unused due to the 2020 annual limitation. 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. 
 Annually, the Company determines whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities in considering whether any tax benefit can be recorded in the consolidated financial statements. As of December 31, 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. 
 The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in thousands): 
 
 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 
 Balance at December 31, 2021 $ 8,489 
 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 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. 
 F-29 

 
 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 10. Stockholders’ Equity 
 Common Stock 
 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. There have been no dividends declared to date. The holder of each share of common stock is entitled to one vote. 
 Shares Reserved for Future Issuance 
 The Company has reserved shares of common stock for future issuances as follows: 
 
 December 31, 
 2022 2021 
 Common stock options issued and outstanding 
 2,495,528 2,145,131 
 Common stock restricted stock units issued and outstanding 
 998,473 442,428 
 Common stock available for future grants 
 3,765,706 3,751,115 
 Common stock available for ESPP 1,212,109 932,458 
 Total 8,471,816 7,271,132 

 
 
 Stock Option Plan 
 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. Incentive stock options (“ISO”) may be granted only to the Company employees (including officers and directors). Nonqualified stock options (“NSO”) may be granted to the Company employees and consultants. 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 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. 
 F-30 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Activity under the Stock Plans is set forth below: 
 
 Outstanding Options 
 
 Number of Shares Weighted Average Exercise Price 
 Balance, December 31, 2020 2,923,403 $ 4.72 
 Options granted 
 421,200 43.79 
 Options exercised 
 ( 1,065,567 ) 1.77 
 Options canceled 
 ( 133,905 ) 11.44 
 Balance, December 31, 2021 2,145,131 $ 13.44 
 Options granted 
 765,900 24.09 
 Options exercised 
 ( 297,463 ) 2.13 
 Options canceled 
 ( 118,040 ) 28.30 
 Balance, December 31, 2022 2,495,528 $ 17.35 

 
 
 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. 
 
 December 31, 2022 
 Number of Shares 
 Weighted Average Exercise Price 
 Weighted Average Contractual Life (in Years) 
 Options vested 1,107,541 $ 13.67 7.12 
 Options vested and expected to vest 2,495,528 $ 17.35 7.86 

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

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Restricted Stock Units 
 Activity with respect to restricted stock units was as follows: 
 
 Number of Shares Underlying Outstanding Restricted Stock Weighted Average Grant Date Fair Value 
 Unvested, January 1, 2021 — $ — 
 Granted 503,110 42.49 
 Vested 
 ( 40,908 ) 43.40 
 Canceled 
 ( 19,774 ) 43.60 
 Unvested, December 31, 2021 442,428 42.36 
 Granted 937,400 23.63 
 Vested 
 ( 251,133 ) 35.09 
 Canceled 
 ( 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 
 The weighted average grant-date fair value of the stock options granted during the years ended December 31, 2022, December 31, 2021 was $ 10.74 and $ 18.81 per share, respectively. 
 The Company uses the Black-Scholes Merton option-pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant is affected by the stock price as well as assumptions regarding a number of complex and subjective variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates and expected dividends. The estimated grant date fair values of employee stock options were calculated using the following assumptions: 
 
 Years Ended December 31, 
 2022 2021 
 Weighted average expected term (in years) 6.0 - 6.1 
 5.0 - 6.3 
 
 Volatility 44.5 % - 44.8 % 
 44.0 % - 44.5 % 
 
 Risk-free interest rate 1.6 % - 3.6 % 
 0.6 % - 1.0 % 
 
 Dividend yield — — 

 
 Expected Term 
 The expected term is calculated using the simplified method, which is available where there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the 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. 
 F-32 

 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 Volatility 
 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. 
 Risk-Free Rate 
 The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. 
 Dividend Yield 
 The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. 
 Fair Value of Common Stock 
 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 
 In September 2020, the Company adopted the ESPP, which became effective on the business day prior to the effectiveness of the registration statement relating to the IPO. A total of 720,000 shares of common stock were initially reserved for issuance under the ESPP. The ESPP permits eligible employees to acquire shares of the Company’s common stock through periodic payroll deductions of up to 15 % of base compensation. No employee may purchase more than 2,500 shares during an offering period. In addition, no employee may purchase more than $ 25,000 worth of stock, determined by the fair market value of the shares at the time such option is granted, in one calendar year. At the end of each purchase period, employees are able to purchase shares at 85 % of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period. The Company 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. 
 Compensation expense is calculated using the fair value of the employees' purchase rights under the Black-Scholes model. 
 
 Years Ended December 31, 
 2022 2021 
 Weighted average expected term (in years) 0.5 0.5 
 Volatility 37.8 % - 42.8 % 
 36.1 % - 42 % 
 
 Risk-free interest rate 0.7 % - 3.1 % 
 0.1 % 
 Dividend yield — — 

 Total Stock-Based Compensation 
 F-33 

 
 
 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): 
 
 Years Ended December 31, 
 2022 2021 
 Cost of goods sold $ 686 
 
 $ 587 
 Research and development 2,190 
 
 1,278 
 Selling, general and administrative 13,569 8,665 
 Total $ 16,445 $ 10,530 

 The above stock-based compensation expense related to the following equity-based awards: 
 
 Years Ended December 31, 
 2022 2021 
 Stock options and restricted stock units $ 15,807 $ 7,959 
 ESPP 638 2,571 
 Total $ 16,445 $ 10,530 

 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. 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. 
 
 11. Net Loss per Share Attributable to Common Stockholders 
 The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders which excludes shares which are legally outstanding, but subject to repurchase by the Company (in thousands, except share and per share amounts): 
 
 Years Ended December 31, 
 2022 2021 
 Numerator 
 Net loss attributable to common stockholders $ ( 58,923 ) $ ( 48,661 ) 
 Denominator 
 Weighted-average common stock outstanding 37,248,292 36,406,507 
 Less: weighted-average common shares subject to repurchase ( 151,751 ) ( 277,098 ) 
 Weighted-average common shares used to compute basic and diluted net loss per share 37,096,541 36,129,409 
 Net loss per share attributable to common stockholders, basic and diluted $ ( 1.59 ) $ ( 1.35 ) 

 F-34 

 
 
 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: 
 
 Years Ended December 31, 
 2022 2021 
 Options to purchase common stock 2,495,528 2,145,131 
 Unvested restricted stock units 998,473 442,428 
 Unvested early exercised common stock options 77,782 223,195 
 Shares committed under ESPP 28,141 27,327 
 Total Shares 3,599,924 2,838,081 

 
 
 
 12. Segment Information 
 The chief operating decision maker for the Company is the Chief Executive Officer. The Company’s Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region, for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable and operating segment structure. The Company’s Chief Executive Officer evaluates performance based primarily on revenue in the geographic locations in which the Company operates. 
 Revenue by geographic area is based on the billing address of the customer. The following table sets forth our revenue by geographic area (in thousands): 
 
 Year Ended December 31, 
 2022 2021 
 United States $ 32,487 $ 24,991 
 Europe, Middle-East and Africa (“EMEA”) 18,154 19,883 
 Asia Pacific 2,866 3,414 
 Other International 155 128 
 Total $ 53,662 $ 48,416 

 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. The following table sets forth our long-lived assets by geographic area (in thousands): 
 
 December 31, 
 2022 2021 
 United States $ 4,634 $ 4,767 
 Europe, Middle-East and Africa 58 42 
 Asia Pacific 2 5 
 Total $ 4,694 $ 4,814 

 F-35 

 
 
 
 Pulmonx Corporation 
 Notes to Consolidated Financial Statements 
 
 

 13. Employee Benefit Plan 
 Effective October 1997, the Company implemented a retirement savings plan (the “Savings Plan”) which is intended to qualify as a deferred savings plan under Section 401(k) of the Internal Revenue Code. Participants are allowed to contribute up to 100 % of the total compensation, not to exceed the amount allowed by the applicable statutory prescribed limit. There have been no contributions made to the Savings Plan by the Company since inception. 
 
 14. Subsequent Events 
 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. 
 F-36 

 
 
 

 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
 None.
Pulmonx Corp 10-K

Item 8. Financial Statements and Supplementary Data
