Note 4 - Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2025

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note 4 – Summary of Significant Accounting Policies

Principles of Consolidation

The interim unaudited condensed consolidated financial statements are prepared in accordance with U.S. 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.).

Intangible Assets

We record acquired intangible assets based on estimated fair value. The identifiable intangible assets resulting from the CVie Therapeutics acquisition in December 2018 relate to in-process research and development, or IPR&D, of istaroxime and rostafuroxin. The 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. During the three months ended March 31, 2025, no events or changes in circumstances occurred indicating that our IPR&D intangible assets were more likely than not impaired.

The following table represents identifiable intangible assets as of March 31, 2025 and December 31, 2024:

	March 31,		December 31,
(in thousands)	2025		2024
Istaroxime drug candidate	$	22,340	$	22,340
Rostafuroxin drug candidate		1,790		1,790
Intangible assets	$	24,130	$	24,130

Convertible Debt and Equity Instruments

We review the terms of convertible debt and equity instruments to determine whether there are conversion features or embedded derivative instruments including embedded conversion options that are required to be bifurcated and accounted for separately as derivative financial instruments under ASC Topic 815, Derivatives and Hedging.

In circumstances where the convertible instrument contains more than one embedded derivative instrument, including conversion options that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single compound instrument. Also, in connection with the sale of convertible debt and equity instruments, we may issue free standing warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. When convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for separately, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of the bifurcated derivative instrument. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face amount. When we issue debt securities, which bear interest at rates that are lower than market rates, we recognize a discount, which is offset against the carrying value of the debt. Such discount from the face value of the debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income.

Derivative Financial Instruments

Derivatives are recorded on the consolidated balance sheet at fair value. The conversion features of the convertible notes are embedded derivatives and are separately valued and accounted for on the consolidated balance sheet with changes in fair value recognized during the period of change as a separate component of other income (expense). Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model we use for determining the fair value of non-exchange traded derivatives is the Monte Carlo Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities.

Foreign Currency Transactions

The functional currency for our foreign subsidiaries is the U.S. Dollar. 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 a net loss of approximately $0.1 million and a net gain of  $0.2 million for the three-month periods ended March 31, 2025 and 2024, respectively.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets, at the date of the financial statements and the reported amounts of 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 and money market funds that are readily convertible into cash.

Concentration of Credit Risk

Financial instruments, which potentially subject us to credit risk, consist principally of cash and cash equivalents. All cash and cash equivalents are held in U.S. financial institutions and money market funds. At times, we may maintain cash balances in excess of the federally insured amount of $250,000 per depositor, per insured bank, for each account ownership category. Although we currently believe that the financial institutions with whom we do business will be able to fulfill their commitments to us, there is no assurance that those institutions will be able to continue to do so. We have not experienced any credit losses associated with our balances in such accounts.

Restructured Debt Liability – Contingent Milestone Payment

In conjunction with the November 2017 restructuring and retirement of long-term debt, we 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 Milestone Agreement, between ourselves and affiliates of Deerfield Management Company L.P., or Deerfield. The liability was recorded at the full value of the contingent milestones and was to be carried at full value until the milestones were achieved and paid or the milestones were not achieved and the liability was written off as a gain on debt extinguishment.

On January 24, 2024, we and Deerfield entered into an Exchange and Termination Agreement, or the Exchange and Termination Agreement, wherein Deerfield agreed to terminate its rights to receive certain milestone payments in exchange for (i) cash in the aggregate amount of $0.2 million and (ii) an aggregate of 676 shares of our common stock, par value $0.001 per share (See the section titled, “Note 12 - Restructured Debt Liability”).

Research and Development

We account for research and development expense by the following categories: (a) direct clinical and preclinical development programs, (b) product development and manufacturing, and (c) clinical, medical, and regulatory operations. Research and development expense includes personnel, facilities, manufacturing and quality, pharmaceutical development, research, clinical, regulatory, and other preclinical and clinical activities. Research and development costs are charged to operations as incurred in accordance with Accounting Standards Codification, or ASC, Topic 730, Research and Development.

Warrant Accounting

We account for common stock warrants in accordance with applicable accounting guidance provided in ASC Topic 815, Derivatives and Hedging – Contracts in Entity’s Own Equity, or ASC Topic 815, as either derivative liabilities or equity instruments depending on the specific terms of the warrant agreement.

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 Share Attributable to Common Stockholders

Net loss is adjusted for any deemed dividends to preferred stockholders to compute net loss attributable to common stockholders. Net loss is also adjusted for any impact to retained earnings related to the extinguishment of equity securities. The Series C preferred stock is a participating security. Accordingly, in any period in which we report net income attributable to common stockholders, basic earnings per share is computed using the “two-class” method. Under this method, net income is reduced by any dividends earned and the remaining earnings (undistributed earnings) are allocated to common stock and each series of participating securities to the extent that each participating security may share in earnings as if all of the earnings for the period had been distributed. The total earnings allocated to common stock is then divided by the number of outstanding shares to which the earnings are allocated to determine the earnings per share. The two-class method is not applicable during periods with a net loss, as the holders of the participating securities have no obligation to fund losses. Diluted net income per common share is computed under the two-class method by using the weighted-average number of shares of common stock outstanding, plus the effect of any other potentially dilutive securities outstanding for the period. In addition, the Company analyzes the potential dilutive effect of the outstanding participating securities under the “if-converted” method when calculating diluted earnings per share, in which it assumes that the outstanding participating securities convert into common stock at the beginning of the period, or when issued if later. The Company reports the more dilutive of the approaches (two class or “if-converted”) as their diluted net income per share during the period.

For periods in which a net loss exists, basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive securities outstanding for the period.

As of March 31, 2025 and 2024, the number of shares of common stock potentially issuable upon the exercise of certain stock options and warrants, the vesting of restricted stock units, and the conversion of Series C preferred stock was 1.6 million and 5,600 shares, respectively. For the three months ended March 31, 2025, all potentially dilutive securities were anti-dilutive and therefore have been excluded from the computation of diluted weighted-average shares of common stock outstanding.

We do not have any components of other comprehensive (loss) income.

Segment and Geographic Information

Operating segments are defined as components of an enterprise for which separate and discrete financial information is available for evaluation by the chief operating decision-maker (the “CODM”) in deciding how to allocate resources and assess performance. The Company has one reportable segment primarily focused on the research and development of cardiovascular diseases. The Company’s CODM is the Chief Executive Officer who manages the Company’s operations on a consolidated basis for the purpose of making operating decisions, assessing financial performance, and allocating resources. When evaluating the Company’s financial performance, the CODM regularly reviews the details of research and development expenses, including program-related and unallocated costs, and general and administrative costs, as part of the overall review of the Company’s consolidated net loss and cash flows as compared to prior quarters and the Company’s operating budget. This financial information assists the CODM in his decision-making process to allocate resources based on the Company’s available cash resources, as well its forecasted expenditures. This information in conjunction with his assessment of the probability of the success of the Company’s research and development activities is used to plan the timing and size of future capital raises. The measure of segment assets is reported on the balance sheet as total consolidated assets. Other segment items included in consolidated net loss consist of gain on debt extinguishment, change in fair value of common stock warrant liability, loss on impairment of goodwill, interest income, interest expense, other income, net and income tax benefit (expense) which are reflected in the consolidated statements of operations.

Recently Adopted Accounting Pronouncements

In December 2023, the FASB issued Acccounting Standards Update, or ASU, 2023-09, Income Taxes (ASC 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The Company adopted this standard on January 1, 2025, which will expand our disclosures beginning with our annual consolidated financial statements for the year ended December 31, 2025.  ASU 2023-09 is not expected to have an impact on the consolidated financial results of the Company.