Avalyn Pharma Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE THREE MONTHS ENDED March 31, 2026 AND 2025 (UNAUDITED)

Description of Business

Avalyn Pharma Inc., or the Company or Avalyn, is a clinical-stage biopharmaceutical company developing inhaled medicines to treat rare respiratory diseases, including progressive pulmonary fibrosis, idiopathic pulmonary fibrosis, and other interstitial lung diseases. The Company was incorporated in the state of Delaware on May 27, 2011, and has its headquarters in Boston, Massachusetts.

As used in these consolidated financial statements, unless the context otherwise requires, references to the “Company” or “Avalyn,” refer to Avalyn Pharma Inc. and its wholly owned subsidiary, Avalyn Pharma Pty. Ltd.

Risks and Uncertainties

The Company is subject to the risks and challenges associated with other biopharmaceutical companies at a similar stage of development, including dependence on key individuals, successful development of its products and services, dependence on key vendors, compliance with government regulations, protection of proprietary technology, competition from substitute products and services and larger companies which have greater financial resources, technical management, and the ability to secure adequate financing to support future growth. There can be no assurance that any future products or services can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products or services will be successfully marketed, if at all. These factors could have a material adverse effect on the Company’s future operating results, financial position and cash flow.

Existing or future products developed by the Company will require approvals or clearances from the U.S. Food and Drug Administration or the FDA, or other similar international regulatory agencies prior to commercial sales. If the Company were denied or delayed in receiving such approvals or clearances, it would have a material adverse effect on the Company.

Reverse Stock Split

The Company’s Board approved a 1-for-19.2417 reverse stock split of its issued and outstanding common stock, which also resulted in a proportional adjustment to the conversion price for each series of its preferred stock, and to the exercise prices and number of outstanding stock options, and warrants, which became effective on April 22, 2026. Accordingly, all shares of common stock, stock options, warrants, and per share information presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split. The per share par value and authorized number of both common and preferred shares were not adjusted as a result of the split.

Initial Public Offering

On May 1, 2026, the Company completed its initial public offering, or IPO, in which the Company sold an aggregate of 19,166,667 shares of its common stock at a public offering price of $18.00 per share, which included 2,500,000 shares of its common stock sold to the underwriters pursuant to the full exercise of their option to purchase additional shares, resulting in aggregate net proceeds of approximately $316.1 million, after deducting underwriter discounts, commissions and other offering expenses. Immediately prior to the closing of the IPO, the Company's outstanding redeemable convertible preferred stock automatically converted into 23,918,194 shares of common stock. Following the closing of the IPO, no shares of redeemable convertible preferred stock were outstanding. In connection with the closing of the IPO, the Company's certificate of incorporation was amended and restated to authorize 700,000,000 shares of common stock, par value $0.001 per share, including 500,000,000 shares of voting common stock and 200,000,000 shares of non-voting common stock; to eliminate all references to the previously-existing series of preferred stock, and authorize 10,000,000 shares of preferred stock, par value $0.001 per share.

Going Concern

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

Since its inception, the Company has funded its operations with proceeds from convertible notes, its IPO, and with proceeds from the issuance of Series A, Series B, Series C-1, Series C-2 and Series D preferred stock. The Company has incurred net losses, and utilized cash, cash equivalents, and marketable securities in operations since inception, has an accumulated deficit as of March 31, 2026 of $292.2 million, and expects to incur future additional losses. As of March 31, 2026, the Company had cash, cash equivalents, and marketable securities of$123.1 million. The Company has determined that its existing cash, cash equivalents, and marketable securities, together with the additional proceeds received from the IPO, will be sufficient to fund the Company’s operating expenses and capital expenditures requirements for at least 12 months from the issuance date of these consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2026, and the condensed consolidated statements of comprehensive loss, consolidated statements of changes in redeemable convertible preferred stock and stockholders' deficit, and consolidated statements of cash flows for the three months ended March 31, 2026 and 2025, are unaudited. The condensed consolidated interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of March 31, 2026, and the results of its operations and its cash flows for the three months ended March 31, 2026 and 2025. The financial data and other information disclosed in these notes related to the three months ended March 31, 2026 and 2025, are also unaudited. The results for the three months ended March 31, 2026 are not necessarily indicative of results to be expected for the year ending December 31, 2026, or for any other subsequent period.

Summary Of Significant Accounting Policies

There have been no significant changes from the significant accounting policies and estimates disclosed in Note 2 of the “Notes to Consolidated Financial Statements” in the audited consolidated financial statements for the year ended December 31, 2025 and notes thereto, included in the Company’s registration statement on Form S-1.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, and applicable rules and regulations of the U.S. Securities and Exchange Commission, or the SEC, regarding interim financial reporting. Accordingly, they do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification, or ASC, and ASUs of the Financial Accounting Standards Board, or FASB.

Principles of Consolidation

The consolidated financial statements include the accounts of Avalyn Pharma Inc. and its wholly owned subsidiary, Avalyn Pharma Pty. Ltd. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with U.S. GAAP.

Use of Estimates

The preparation of consolidated financial statements in accordance with U.S. 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 financial statements and the reported amounts of income and expense during the reporting period. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Management evaluates its estimates and assumptions on an ongoing basis. Changes in estimates are recorded in the period in which they become known. Significant estimates and assumptions relied upon in preparing these financial statements include, but are not limited to, research and development expenses and related prepaid or accrued costs, and the valuation of common stock and related stock-based compensation expense. The Company’s actual results may differ from these estimates under different assumptions or conditions.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting, and other third-party fees that are incremental costs and directly associated with in-process equity and debt financings as deferred offering costs within non-current assets on the consolidated balance sheets until such time the equity and debt financings are consummated. After consummation of an equity financing, these costs are recorded as a reduction of the proceeds from the offering, either as a reduction to the carrying value of the preferred stock or, for the issuances of common stock, in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of comprehensive loss. As of March 31, 2026 and December 31, 2025, there were deferred offering costs of $2.7 million and$0.3 million, respectively.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, or ASU 2024-03, which requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The requirements of ASU 2024-03 are effective for annual periods beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The requirements will be applied prospectively with the option for retrospective application. The Company is currently in the process of evaluating the effects of this pronouncement on its related disclosures.

Marketable Securities

The following tables summarize the amortized cost and estimated fair value of the Company’s marketable securities, which are considered to be available-for-sale investments (in thousands):

As of March 31, 2026 and December 31, 2025, all marketable securities held by the Company had remaining contractual maturities of one year or less.

The Company has determined that there were no material changes in the credit risk, therefore, no impairmentwas recognized on its debt securities.

Fair Value Measurements

The following tables present information about the Company’s financial instruments that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the inputs the Company utilized to determine such fair value (in thousands):

As of March 31, 2026 and December 31, 2025, the Company had cash equivalents consisting of money market accounts classified as Level 1 financial assets, as these assets are valued using quoted market prices in active markets without any valuation adjustments. The Company classifies its investments in U.S. Treasury securities (Treasury bills, Treasury notes, and Treasury bonds), commercial paper, and corporate debt securities as Level 2 instruments. The Company estimates the fair value of these marketable securities by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize standard industry valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly to estimate fair value. These inputs include market pricing based on real time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs.

During the periods ended March 31, 2026 and December 31, 2025, there wereno transfers or reclassifications between fair value measurement levels of financial assets or liabilities.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

Property and Equipment

Property and equipment consist of the following (inthousands):

Total depreciation expense for the three months ended March 31, 2026 and 2025 was$63 thousand and$10 thousand, respectively.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

Commitments And Contingencies

Leases

In September 2025, the Company entered into a non-cancelable operating sublease in Boston, Massachusetts, or the Boston Sublease, to rent out 8,774 square feet of office space and relocated its headquarters to Boston in September 2025. The lease commenced on September 2, 2025, at which time the Company recognized a right-of-use, or ROU, asset and corresponding lease liability of $1.7 million. The lease term is 41 months with rental payments beginning four months after the lease commencement. In addition to base rent, the Company will reimburse the landlord for certain operating expenses under the terms of the lease. The Company has the option to extend the lease one time for an additional 3-year period, subject to the terms therein; however, the exercise of the option to extend the lease term was not determined to be reasonably certain, and the Company will therefore recognize lease expense through the expiration of the initial lease term ending in January 2029.

Lease liabilities are measured by calculating the present value of remaining lease payments under the lease arrangement. Since the rates implicit in our leases are not readily determinable, the Company uses estimated incremental borrowing rates in determining the discount rate used to calculate the present value of remaining lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term equal to the lease term in a similar economic environment. The incremental borrowing rate is based on the information available at commencement date. As the Company has no recent external borrowings, the incremental borrowing is a hypothetical rate based on our understanding of what our credit rating would be and adjusted to reflect a collateralized borrowing.

The following table summarizes the presentation in the Company’s consolidated balance sheets of its operating leases (in thousands):

During the three months ended March 31, 2026 and 2025, the Company incurred total operating lease expenses of$146 thousand andzero, respectively. The Company incurred an immaterial amount of expense related to variable lease costs during the three months ended March 31, 2026 andno expense related to variable lease costs during three months ended March 31, 2025.

Future minimum lease payments under non-cancelable leases were as detailed below (in thousands):

Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2026 and 2025 were$102 thousand andzero, respectively.

During the periods presented, the Company didnot recognize any impairment losses on its ROU assets.

Legal Proceedings

From time to time, the Company is subject to various claims that arise in the ordinary course of business. Management believes that any liability of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results of operations, or cash flows of the Company.

Redeemable Convertible Preferred Stock

The Company amended and restated its Certificate of Incorporation in April 2025, in order to, among other things, (i) increase the total authorized shares of common stock to 575,000,000, (ii) increase the total authorized shares of preferred stock to 462,178,988 shares, (iii) designate 51,213,004 shares of the authorized preferred stock as “Series A Preferred Stock,” designate 25,210,789 shares of the authorized preferred stock as “Series B Preferred Stock,” designate 239,092,424 shares of the authorized preferred stock as “Series C-1 Preferred Stock,” designate 20,316,359 shares of the authorized preferred stock as “Series C-2 Preferred Stock,” and designate 126,346,412 shares of the authorized preferred stock as “Series D Preferred Stock,”and (iv) the addition of a special mandatory conversion provision as described below.

In April 2025, certain investors voluntarily converted shares of Series A and Series C-2 preferred stock into common stock. Pursuant to the voluntary conversion terms of the associated preferred stock agreements, the investors received one (1) share of common stock for every one (1) share of preferred stock converted. As a result of the voluntary conversion,17,891,429 shares of preferred stock were converted into 17,891,429 shares of common stock. As these investors converted on a one-to-one basis, pursuant to the original terms of the associated preferred stock agreements, the common stock issued is recognized at an amount equal to the net carrying amount of the preferred stock, as such, no gain or loss was recognized upon conversion.

Also, in April 2025, the Company entered into the Series D Preferred Stock Purchase Agreement with multiple investors, pursuant to which it agreed to issue up to 126,346,412 shares of Series D Preferred Stock at a price of $0.7963 per share, for aggregate gross proceeds of $100.4 million, or the Series D Financing. The Company incurred $0.6 million of issuance costs in connection with the Series D Financing.

In the event that any existing holder of shares of preferred stock did not participate in the Series D Financing by purchasing such holder’s pro rata share, the portion of the shares of preferred stock held by such holder were mandatorily converted into shares of common stock. Upon such conversion, five (5) shares of preferred stock were converted into one (1) share of common stock. Upon the closing of the Series D Financing,1,564,162 shares of Series A and Series B preferred stock were mandatorily converted into 312,824 shares of common stock.

The Company determined that the mandatory preferred stock conversion was an extinguishment of the preferred stock through issuance of common stock. As such, the Company has recorded the difference of $1.6 million between the fair value of the common stock issued and the carrying value of the extinguished preferred stock to additional paid-in capital, or APIC. Theamount recognized in APIC was not included as a deemed contribution within basic loss per share given the transaction resulted in a transfer of value between preferred shareholder groups.

In connection with the issuance of the Series D Preferred Stock, the requisite holders of the Series A Preferred Stock and Series B Preferred Stock waived the application of their anti-dilution provisions with respect to such issuance and any common stock issued upon conversion. Accordingly, the issuance of the Series D Preferred Stock did not result in any adjustment to the conversion prices of the Series A and Series B Preferred Stock.

As of March 31, 2026 and December 31, 2025, the Company’s preferred stock, consisted of the following (in thousands, except share amounts):

The following is a summary of terms for the preferred stock:

Voting

Each share of preferred stock has voting rights equal to an equivalent number of shares of common stock into which it is convertible and votes together as one class with the common stock, except as below:

The holders of record of the shares of Series A preferred stock and Series B preferred stock, voting together as a single separate class, are entitled to elect three directors of the Company.

The holders of record of the shares of Series C preferred stock, exclusively and as a single separate class, are entitled to elect two directors of the Company.

The holders of record of the shares of Series D preferred stock, exclusively and as a single separate class, are entitled to elect one director of the Company.

Dividends

The holders of preferred stock are entitled to receive, when, as and if declared by the Board, out of funds legally available, noncumulative dividends prior and in preference to any dividends paid on the common stock, at the rate of 8% per annum for each share of preferred stock at the original issue price, as adjusted for stock splits, stock dividends, combinations, or other similar recapitalizations. To date, no dividends have been declared or paid on the Company’s preferred stock.

Liquidation Preference

In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the corporation, or upon the occurrence of a Deemed Liquidation Event (defined below), the holders of preferred stock are entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment is made to holders of common stock, an amount per share equal to the issuance price of $1.00 with respect to the Series A, $1.4159 for Series B, $0.7323 for Series C-1, and $0.5859 for Series C-2, and $0.7963 per share for Series D, plus any dividends declared but unpaid. If upon any such liquidation, dissolution, or winding-up of the Company, the assets of the Company available for distribution to its stockholders is insufficient to pay the preferred stockholders the full amount they are entitled, the holders of preferred stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be entitled to receive. After the payment of all preferential amounts required to be paid to holders of shares of preferred stock, the remaining assets available for distribution shall be distributed among the holders of shares of preferred stock and common stock, pro rata based on the number of common stock (on an as converted basis) held by each such holder.

Unless the holders of a majority in voting power of the then outstanding shares of preferred stock elect otherwise, a Deemed Liquidation Event shall include a merger or consolidation (other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) or sale, lease, transfer, exclusive license or other disposition of all or substantially all of the Company’s assets.

Redemption

The preferred stock does not contain any mandatory redemption features and the preferred stock is not currently redeemable. In accordance with ASC Topic 480, Distinguishing Liabilities from Equity, or ASC 480, preferred stock issued with redemption provisions that are outside of the control of the Company, including a deemed liquidation event, is required to be presented outside of stockholders’ deficit on the face of the consolidated balance sheet. The Company’s preferred stock contains redemption provisions that require it to be presented outside of stockholders’ deficit in temporary equity. The Company did not accrete the carrying values of the preferred stock to the redemption values since a Deemed Liquidation Event was not considered probable during the three months ended March 31, 2026 and 2025. Subsequent adjustments of the carrying values to the ultimate redemption values will be made only when it becomes probable that such a Deemed Liquidation Event will occur.

Conversion

Each share of preferred stock is convertible at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder, into shares of common stock as is determined by dividing the original purchase issue price of preferred stock by the conversion price in effect at the time of conversion. The conversion price per share shall be $19.24 with respect to the Series A, $27.24 for Series B, $14.09 for Series C-1, and $11.27 for Series C-2, and $15.32 for Series D, as defined by the Company’s certificate of incorporation, as amended. As of March 31, 2026, the conversion ratio for preferred stock wasone-to-one basis.

All outstanding shares of preferred stock shall automatically be converted into shares of common stock on aone-to-one basis, at the then-effective conversion rate upon either (a) the closing of the sale of shares of common stock to the public at a price at least equal to $45.99 per share in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $50 million of net proceeds to the Company or (b) the date and time, or the occurrence of an event specified by vote or written consent of (i) the holders of a majority of the outstanding shares of preferred stock voting together as a single separate class and on as-converted to common stock basis and (ii) the holders of a majority of the outstanding shares of Series C and Series D preferred stock voting together as a single separate class and on as-converted to common stock basis.

All shares of Preferred Stock automatically converted into shares of common stock on a 1-to-19.2417 basis in connection with the Company's IPO completed in May 2026 (see Note 1).

Common Stock

The Company’s certificate of incorporation, as amended and restated, authorizes the Company to issue 585,000,000 shares of common stock, par value $0.001, as of March 31, 2026. The holders of common stock are entitled to one vote for each share of common stock held.

The number of shares of common stock that have been reserved for the potential conversion of preferred stock, exercise of outstanding stock options granted, warrants, and stock options available for grant under the Company’s 2022 Equity Incentive Plan, or the Plan, as of March 31, 2026 and December 31, 2025, are as follows:

Stock Option Plan

Stock Option Plans

On February 10, 2022, the Company adopted the 2022 Plan, which has been subsequently amended (the “Plan”). The Plan provides for the issuance of incentive and nonqualified common stock options to employees, directors, and certain consultants. The Plan is administered by the Board which determines the awards to be granted, including the number of common shares subject to the awards, the exercise price and the vesting schedule. The total number of common shares reserved and available for grant and issuance under the Plan is 3,418,162 shares plus (a) shares that are subject to issuance under the Company’s 2012 Equity Incentive Plan (the “Prior Plan”) but cease to be subject to an award for any reason other than exercise of stock option or settlement of such award and (b) shares that were issued under the Prior Plan which are repurchased or which are forfeited, used to pay withholding obligations with respect to any award granted under the Prior Plan or pay the exercise price of a stock option granted under the Prior Plan.

Stock options must be granted with an exercise price equal to the common stock’s fair market value at the date of grant. Stock options generally have 10-year terms and vest over afour-year period starting from the date specified in each agreement. Certain stock options are subject to accelerated vesting upon a change in control, as defined in the respective grant agreements. As of March 31, 2026, there were 257,247 common stock options available for the Company to grant under the Plan.

2026 Equity Plans

In April 2026, the Board and the Company's stockholders adopted and approved the 2026 Stock Option and Incentive Plan, or the 2026 Plan, which became effective on April 28, 2026, the date immediately preceding the date that the registration statement on Form S-1 for the Company's IPO was declared effective by the SEC. The 2026 Plan initially reserved 4,160,000 shares of common stock for future issuances and is subject to automatic increases in the number of shares of common stock reserved for future issuances in accordance with the evergreen provisions in the 2026 Plan. The shares reserved for future issuance under the 2022 Plan ceased to be available for issuance at the time the 2026 Plan became effective. Any shares underlying outstanding stock awards granted under the 2022 Plan that subsequently expire or are repurchased, forfeited, cancelled, or withheld will return to the 2026 Plan and be reserved and available for issuance. The Company granted 2,387,705 of common stock options subject to service-based vesting to certain executive officers, directors, and employees at the time of effectiveness of the 2026 Plan with an exercise price equal to $18.00 per share.

In April 2026, the Board and the Company's stockholders adopted and approved the 2026 Employee Stock Purchase Plan, or the 2026 ESPP, which became effective on April 28, 2026, the date immediately preceding the date that the registration statement on Form S-1 for the Company's IPO was declared effective by the SEC. The 2026 ESPP initially reserved 370,000 shares of common stock for future issuance and is subject to automatic increases in the number of shares of common stock reserved for future issuances in accordance with the evergreen provisions in the 2026 ESPP.

Employee Stock Options Valuation

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option. The assumptions used to determine the fair values of stock options granted to employees, directors, and certain consultants are as follows:

There wereno options granted during thethree months ended March 31, 2025.

The following table summarizes the stock option activity:

The weighted-average grant date fair value of stock options granted in the three months ended March 31, 2026 and 2025 was$5.00 andzero, respectively. The total intrinsic value of stock options exercised during thethree months ended March 31, 2026 and 2025 was$22.0 thousand andzero, respectively. As of March 31, 2026, total stock-based compensation cost not yet recognized related to unvested stock options was$7.4 million, which is expected to be recognized over a weighted-average period of 2.73 years. Stock-based compensation expense recognized in the accompanying consolidated statements of comprehensive loss for thethree months ended March 31, 2026 and 2025, included the following (in thousands):

Segment Information

The Company operates and manages its business asone operating segment andone reportable segment, which is focused on developing targeted therapies to treat rare lung diseases. The CODM manages the Company’s operations on a consolidated basis, assesses performance for the operating segment and decides how to allocate resources based on consolidated operating results, which is reported on the consolidated statements of comprehensive loss.

The monitoring of budgeted versus actual results is used in assessing the performance of the operating segment and in establishing resource allocation across the organization. Depreciation expense, amortization expense, stock-based compensation expense, and non-cash lease expense are significant noncash items included in net loss and reported on the consolidated statements of cash flows. The measure of segment assets is reported on the consolidated balance sheets as total assets. Expenditures for additions to long-lived assets, which include purchases of property and equipment, are included in total assets, reviewed by the CODM, and are reported on the consolidated statements of cash flows.

The following table represents information about segment loss and significant segment expenses (in thousands):

(1)

For the three months ended March 31, 2026, other segment items consist of $0.9 million of interest income, $0.2 million accretion of marketable securities,$1.2 million of stock-based compensation expense, $0.1 million of interest expense and less than$0.1 million of depreciation expense and other expenses. For the three months ended March 31, 2025, other segment items consist of $0.7 million of interest income, $0.6 million accretion of marketable securities, $0.5 million of stock-based compensation expense, and less than $0.1 million of depreciation expense and other expenses.

Direct research and development expenses by program consist primarily of costs paid to third-parties including CROs, CMOs, consultants, advisors, and other clinical study-related vendors.

Unallocated research and development expenses consist primarily of personnel-rated expenses and allocated information technology and facility expenses and other research and development related costs, excluding non-cash items, such as stock-based compensation and depreciation.

General and administrative expenses consist primarily of personnel-rated expenses, including salaries, payroll tax, bonuses, and benefits, and professional services fees for legal, finance, human resources, in addition to information technology expenses, rent expense, and other administrative functions, excluding non-cash expenses such as stock-based compensation and depreciation.

Other segment items consist primarily of interest income on cash and cash equivalents, partially offset by non-cash expenses, such as stock-based compensation and depreciation, and amortization of discounts and premiums on marketable securities.

Net Loss Per Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):

The Company’s potentially dilutive securities, which include preferred stock, stock options, and warrants, have been excluded from the computation of diluted net loss per share as the effect is anti-dilutive since they would reduce basic net loss per share. Therefore, the weighted-average number of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The following table summarizes thepotentially dilutive common shares excluded from the computation of diluted net loss per share attributable to common stockholders:

Term Loan

In February 2026, the Company entered into a Loan and Security Agreement (the “LSA) with Banc of California (the Lender) for the issuance of a term loan facility with an aggregate principal amount of up to $30.0 million (the "Term Loan"). The Term Loan bears interest at an annual rate equal to the greater of the prime rate then in effect or 5%, payable monthly. The prime rate in effect as of March 31, 2026 was 6.75%. The maturity date of the Term Loan is June 30, 2030. In February 2026, the Company borrowed $15.0 million under the facility and the additional $15.0 million is available for draw down through December 31, 2027.

In connection with the LSA, the Company granted the Lender a senior security interest in the Company’s property and other assets, which has priority over any existing or future indebtedness and related security interests, subject to limited exceptions, including the Company’s intellectual property. The LSA contains negative covenants that, among other things and subject to certain exceptions, could restrict the Company's ability to incur additional liens, incur additional indebtedness, sell or dispose of assets that constitute collateral, including certain intellectual property, and make payments of certain subordinated indebtedness. The LSA also contains certain events of default, including in the event of a material adverse change, and representations and warranties from the Company. Upon the occurrence of an event of default, Banc of California may declare all outstanding obligations immediately due and payable, take such other actions as set forth in the LSA, and increase the interest rate otherwise applicable to the amount outstanding under the LSA by an additional 3.00%. The Company is in compliance with the such covenants at March 31, 2026.

The Company paid debt issuance costs of approximately $0.2 million in connection with the term loan facility. In addition, the Company issued a warrant to the Lender to purchase 22,500 shares of the Company’s common stock with the exercise price of $9.81 per share. The Company estimated the fair value of the warrant to be approximately $8.08 per share using a Black-Scholes option pricing model. The warrant will expireten years from the date of issuance. The fair value of the warrant at issuance was $0.2 million and was recorded in Stockholders' Deficit.

The issuance costs, which includes the amounts paid and the fair value of the warrant, that are directly attributable to the funded portion of the loan have been presented as a direct deduction from the carrying value of the debt and are being amortized to interest expense over the term of the facility using the effective interest method. Issuance costs attributable to the undrawn portion of the facility of $0.2 million have been capitalized within other assets.

As of March 31, 2026, the carrying value of the term loans consisted of the following (in thousands):

As of March 31, 2026, the $15.0 million borrowed under the facility is recorded in non-current liabilities as no principal payments were due in the next 12 months. During the three months ended March 31, 2026, the Company recorded$98 thousand of interest expense related to the term loan, of which $5 thousand were related to the amortization of the debt discounts.

Estimated future principal payments due under the Term Loan are as follows as of March 31, 2026 (in thousands):

Income Taxes

The Company didnot record a provision or benefit for income taxes during thethree months ended March 31, 2026 and 2025. The Company continues to maintain a full valuation allowance against its U.S. federal and state deferred tax assets as it is more likely than not that such assets will not be realized in the future.

As of March 31, 2026 and December 31, 2025, the Company hadno uncertain tax positions relevant to the jurisdictions where it is required to file income tax returns requiring recognition in the consolidated financial statements. As of March 31, 2026 and December 31, 2025, the Company hadno accrued interest or penalties related to uncertain tax positions.

License Agreement

In April 2017, the Company entered into a license agreement, or the PARI License Agreement, with PARI Pharma GmbH, or PARI. Pursuant to the PARI License Agreement, PARI granted the Company an exclusive, sublicensable license to use its nebulizer devices for the development and commercialization of certain inhalant drug products as outlined in the PARI License Agreement. PARI additionally granted the Company a non-exclusive, sublicensable license to use certain proprietary accessories owned or controlled by PARI with the nebulizer devices for development of the drug products, as well as a non-sublicensable, exclusive sublicense to use certain Novartis patent rights which PARI licensed from Novartis for use with the nebulizer devices. PARI also granted the Company certain options to expand the licenses granted which would separately require amendments to the PARI License Agreement.

As consideration for the PARI License Agreement, the Company paid a non-refundable up-front initial payment of 400 thousand EUR ($0.4 million). In addition, the Company agreed to make payments upon the achievement of certain developmental and regulatory milestones as it relates to its Drug Product, including initiation of Phase 2 and Phase 3 clinical trials, acceptance for filing by either the FDA or the European Medicines Agency, or the EMA, and approval by either the FDA or the EMA. Upon the achievement of these development and regulatory milestones, the Company is required to make payments up to, in aggregate, a low-mid single‑digit million‑euro amount for products using the device. The Company is additionally required to pay a mid six‑figure‑euro amount in the event that the Company consolidates or merges in a transaction in which 50% of the voting power of the Company is sold. After approval occurs, the Company is also required to pay PARI royalties equal to mid-single-digit percentage of net sales over a certain period. Further, following the first year of commercial sales in a major market, the Company shall pay a minimum annual royalty equal to a mid-single-digit percentage through the end of the relevant royalty term. Through March 31, 2026, the Company has met one developmental milestone, for which the payment was expensed to research and development when incurred. There were no regulatory milestones achieved during the three months ended March 31, 2026 and 2025.