Note

- Summary of Significant Accounting Policies

Principles of Consolidation

The interim unaudited condensed consolidated financial statements are prepared in accordance with US GAAP and include accounts of Windtree Therapeutics, Inc. and its wholly owned subsidiaries, CVie Investments Limited and its wholly owned subsidiary, CVie Therapeutics Limited; and a presently inactive subsidiary, Discovery Laboratories, Inc. (formerly known as Acute Therapeutics, Inc.).

Goodwill and Intangible Assets

We record acquired identified intangibles, which includes intangible assets (such as goodwill and other intangibles), based on estimated fair value. The acquired in-process research and development, or IPR&D, assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts. IPR&D is

not

amortized but reviewed for impairment at least annually, or when events or changes in the business environment indicate the carrying value

may

be impaired.

When performing the quantitative impairment assessment for our indefinite-lived IPR&D intangible assets, we estimate the fair values of the assets using the multi-period excess earnings method, or MPEEM. MPEEM is a variation of the income approach which estimates the fair value of an intangible asset based on the present value of the incremental after-tax cash flows attributable to the intangible asset. Significant factors considered in the calculation of IPR&D intangible assets include the risks inherent in the development process, including the likelihood of achieving commercial success and the cost and related time to complete the remaining development. Future cash flows for each project were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration, and growth rates. Other significant estimates and assumptions inherent in this approach include (i) the amount and timing of the projected net cash flows associated with the IPR&D assets, (ii) the long-term growth rate, (iii) the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and (iv) the tax rate, which considers geographic diversity of the projected cash flows. While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows could differ significantly based on the commercial success of the related drug candidates and market conditions which could result in future impairment charges related to our indefinite-lived intangible asset balances.

Based on our annual quantitative impairment assessment of our indefinite-lived IPR&D intangible assets as of

December 1, 2020,

we concluded that the assets were

not

impaired, and

subsequent events or changes in circumstances have occurred indicating the intangible assets are more likely than

not

impaired. With respect to IPR&D related to our rostafuroxin drug candidate, we are evaluating possible out-licensing arrangements and anticipate securing an agreement in

2021.

However, if we are unable to secure an out-licensing agreement during

2021,

or if we secure an agreement for an amount less than anticipated, there is a risk for impairment of this intangible asset in the near term.

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination and is

not

amortized. When conducting our annual impairment test of goodwill as of

December 1, 2020,

we elected to perform a quantitative assessment. Our company consists of

one

reporting unit. In order to perform the quantitative goodwill impairment test, we compare the estimated fair value of our reporting unit to its carrying value. If the fair value exceeds the carrying value,

further evaluation is required, and

impairment exists. If the carrying amount exceeds the fair value, the difference between the carrying value and the fair value is recorded as an impairment loss, the amount of which

may

not

exceed the total amount of goodwill. When performing our annual goodwill impairment assessment as of

December 1, 2020,

we determined the fair value of our reporting unit based upon the quoted market price and related market capitalization of our common stock, adjusted for an estimated control premium. Based on the quantitative test performed, the fair value of our reporting unit exceeded its carrying value and

impairment loss was recognized as of

December 31, 2020

Goodwill is reviewed for impairment at least annually or when events or changes in the business environment indicate that its carrying value

may

be impaired. For example, a significant decline in our share price and market capitalization

may

suggest that the fair value of our reporting unit has fallen below its carrying amount, indicating that an interim goodwill impairment test is required. Accordingly, we monitor changes in our share price during interim periods between annual impairment tests and consider overall stock market conditions, the underlying reasons for the decline in our share price, the significance of the decline, and the duration of time that our securities have been trading at a lower value. We have experienced a declining trend in our closing share price following the

March 2021

Offering, which was completed on

March 25, 2021,

due to both market conditions and the dilution of our common stock as a result of the

March 2021

Offering. While this trend began prior to the filing of our Annual Report on Form

-K for the year ended

December 31, 2020

that we filed with the SEC on

March 29, 2021

, we believe that the

March 2021

Offering priced at

$3.25

per unit corroborated the results of our quantitative analysis of goodwill as of

December 1, 2020.

However, if our share price does

not

improve during the remainder of the

second

quarter, our reporting unit is at risk for future impairment in the near term.

The following table represents identifiable intangible assets as of

March 31, 2021

and

December 31, 2020

		March 31,		December 31,
(in thousands)	2021		2020

Rostafuroxin drug candidate	$	54,750	$	54,750
Istaroxime drug candidate		22,340		22,340
Intangible assets		77,090		77,090

Goodwill	$	15,682	$	15,682

Foreign Currency Transactions

The functional currency for our foreign subsidiaries is US Dollars. We remeasure monetary assets and liabilities that are

not

denominated in the functional currency at exchange rates in effect at the end of each period. Gains and losses from the remeasurement of foreign currency transactions are recognized in

other (expense) income, net

. Foreign currency transactions resulted in

gains

of approximately

$0.1

million and

$0.2

million, respectively, for the

three

-month periods ended

March 31, 2021

and

2020

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets and goodwill, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are held at domestic and foreign financial institutions and consist of liquid investments, money market funds, and U.S. Treasury notes with a maturity from date of purchase of

days or less that are readily convertible into cash.

Severance

July 2020,

we entered into separation agreements with

two

executives, which provide that the former employees are entitled to receive: (i) a severance amount equal to the sum of their respective base salaries then in effect and their respective annual target bonus amounts, payable in equal installments through

August 2021

and (ii) subject to certain exceptions, a pro rata bonus commensurate with the bonus of other contract executives for the year

2020,

prorated for the number of days of their respective employment during

2020,

and payable at the time that other contract executives are paid bonuses with respect to

2020.

The severance amount related to the departure of these executives is approximately

$0.9

million, was accrued at the date of the separations, and will be paid ratably through

August 2021.

During the

three

months ended

March 31, 2021

$0.2

million was paid and

$0.3

million remains accrued.

Restructured Debt Liability – Contingent Milestone Payment

In conjunction with the

November 2017

restructuring and retirement of long-term debt (

see

Note

- Restructured Debt Liability

), we have established a

$15.0

million long-term liability for contingent milestone payments potentially due under the Exchange and Termination Agreement dated as of

October 27, 2017,

or the Exchange and Termination Agreement, between ourselves and affiliates of Deerfield Management Company L.P., or Deerfield. The liability has been recorded at full value of the contingent milestones and will continue to be carried at full value until the milestones are achieved and paid or milestones are

not

achieved and the liability is written off as a gain on debt restructuring.

Research and Development

We track direct research and development expenses by preclinical and clinical programs, which include

third

-party costs such as contract research organization, consulting and clinical trial costs. We do

not

allocate indirect research and development expenses, which include product development and manufacturing expenses and clinical, medical and regulatory operations expenses, to specific programs. Indirect research and development expenses include personnel, facilities, manufacturing and quality operations, pharmaceutical and device development, research, regulatory, and medical affairs. Research and development costs are charged to operations as incurred in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic

730,

Research and Development

Income Taxes

We account for income taxes in accordance with ASC Topic

740,

Accounting for Income Taxes

, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities.

We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Because we have never realized a profit, management has fully reserved the net deferred tax asset since realization is

not

assured.

Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per common share is computed by giving effect to all potentially dilutive securities outstanding for the period. As of

March 31, 2021

and

2020

, the number of shares of common stock potentially issuable upon the exercise of certain stock options and warrants was

19.9

million and

6.5

million shares, respectively. For the

three

months ended

March 31, 2021

and

2020

, all potentially dilutive securities were anti-dilutive and therefore have been excluded from the computation of diluted net loss per share.

We do

not

have any components of other comprehensive (loss) income.

COVID-

The COVID-

pandemic continues to evolve, and we continue to closely monitor its impact on our business, operations, including its potential impact on our clinical development plans and timelines, and financial condition. As of the date of the issuance of this Quarterly Report on Form

-Q, our operations, capital and financial resources and overall liquidity position and outlook have been impacted by COVID-

19,

primarily due to delays experienced in our operations, including in clinical study initiation and enrollment. The potentially extended timelines

may

force us to expend more of our capital resources than planned to achieve our projected milestones. For example, certain of our ongoing clinical trials, including our phase

study of istaroxime for early cardiogenic shock in heart failure patients, have experienced delays. The full extent, duration, or impact that the COVID-

pandemic will have, directly or indirectly, on our financial condition and operations, including ongoing and planned clinical trials, will depend on future developments that are highly uncertain and cannot be accurately predicted. These potential future developments include new information that

may

emerge concerning the severity of the COVID-

outbreak, the severity and transmissibility of new variants of the virus, information about any regional resurgences in

one

or more markets where our current or intended clinical trial sites, our principal executive offices, research and development laboratories or other facilities are located, and the actions taken to contain it or treat its impact, which

may

include, among others, the timing and extent of governments reopening activities and the economic impact on local, regional, national, and international markets. The maintenance, or strategic re-implementation, of mitigating COVID-

measures in

one

or more markets where our clinical trial sites, principal executive offices, research and development laboratories or other facilities are located remains possible and we believe there could be further impact on the clinical development of our product candidates, which

may

include potential delays, halts or modifications to our ongoing and planned trials in

2021.

We are

not

aware of any specific event or circumstance that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities as of the date of issuance of these interim unaudited condensed consolidated financial statements. These estimates

may

change, as new events occur and additional information is obtained.