Pulmatrix, Inc.PULM

Pulmatrix, Inc. Fair Value Disclosure

10-KFiled Feb 19, 20191 min read
11. Fair Value Measurements
Embedded Compound Derivatives — LSA with Hercules
As described in Note 6. The LSA contained an interest rate reset upon an event of default and a put option upon an event of default or qualified change of control. Final payments were made in June 2018 and as of June 30, 2018, the Term Loan was paid in full and the embedded compound derivative liability became $0.
A roll-forward of the derivative liability categorized with Level 3 inputs is as follows:
 
 
 
Derivative Instruments
 
Balance — January 1, 2017
 
$
35
 
Change in fair value
 
 
(34
)
Balance — December 31, 2017
 
 
1
 
Change in fair value
 
 
(1
)
Balance — December 31, 2018
 
$
—
 
Gains and/or losses arising from changes in the estimated fair value of the warrants and embedded compound derivatives were recorded within other income, net, on the consolidated statement of operations.

Historical Timeline

Fiscal YearFiled
2018Feb 19, 2019Showing above
2017Mar 13, 2018
2016Mar 10, 2017
2015Mar 10, 2016

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

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